A Presentation of the Colorado Health Institute303 E. 17th Avenue, Suite 930Denver, Colorado 80203www.coloradohealthinstitute.org@CoHealthInst (Twitter)
Health Care Cost Drivers
How the Affordable Care Act Re-Aligns Incentives
Hot Issues in Health Care Legislative ConferenceNovember 11-12, 2010Garden of the Gods ClubColorado Springs, CO
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Outline of presentation
• Current health care expenditures and trends
• Drivers of health care expenditures• Revenues and expenditures of the
Affordable Care Act• Delivery and payment reforms to re-
align provider incentives
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Current spending on health care in the United States - 2009• $2.5 trillion– Private funds: $1.3 trillion– Federal funds: $918 billion – State and local funds: $285 billion
• 17.3% of gross domestic product (GDP)
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Health care expenditures relative to GDP
SOURCE: Centers for Medicare and Medicaid Services
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Trends in Colorado’s employer-based market: Employee coverage premium increases over time
SOURCE: Medical Expenditure Panel Survey, 2010
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Why have health care costs in the U.S. increased over the past 40 years?
• Wealthy countries can afford expensive health technologies
• The population is aging and disease prevalence has increased
• Increases in level of insurance (1960 – 1990)
• Inefficiencies in medical care delivery• Financial incentives to provide more
servicesSOURCE: Health Care Costs: Key Information on Health Care Costs and their Impact, Kaiser Family Foundation, 2009
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Health behaviors are drivers of annual health care costs
• Tobacco - $168 billion• Obesity - $144 billion• Alcohol - $96 billion
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Concentration of expenditures within the population
SOURCE Kaiser Family Foundation, 2010NOTE: Based on 2007 data. Estimates include civilian, non-institutionalized population
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Average per-capita spending by age group
SOURCE: Kaiser Family Foundation, 2010NOTE: Estimates include civilian, non-institutionalized population Based on 2007 data
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The Affordable Care Act: How do the numbers stack up?
According to the Congressional Budget Office’s analysis of federal health reform, between 2010 and 2019:
– Federal gross costs will increase by $938 billion
– Federal revenues and savings will be $1.06 trillion
– The federal deficit will be reduced by $122 billion
SOURCE: Congressional Budget Office and Commonwealth Fund
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How will the federal government reduce expenditures over the next 10 years?
• Reductions to Medicare Advantage plans• Reductions to Medicare providers– Productivity improvement/provider payment
updates (such as skilled nursing facilities and hospitals)
– Home health payment adjustments– Reducing hospital re-admissions
• Reduction to Disproportionate Share Hospitals• Payment innovations in Medicare and
Medicaid
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The Independent Payment Advisory Board
• 15-member Board, appointed by President and confirmed by Senate
• Will recommend ways to reduce Medicare spending if growth of per capita expenditures exceed targets
• Executive branch must enact recommendations unless Congress enacts alternatives to achieve same level of savings
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How will the federal government increase revenue?
• Establishing 40% tax on “Cadillac” plans (plans that cost $10,200 or more for individuals and $27,500 for families)
• Increasing Medicare payroll taxes on higher-income taxpayers
• Additional tax on investment income for high-income earners
• Individual and large employer penalties for not providing coverage
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Why the controversy about the CBO’s analysis?
• CBO estimates expenditures and revenues based on “the letter of the law” –Will Congress have political will to
implement cuts to Medicare? – No fix to Medicare payments to
physicians (SGR)• Does not include estimates for
“discretionary” spending
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Delivery and payment reforms
Programs and pilots within the Medicare and Medicaid programs to incent providers to reduce cost while maintaining or improving quality: • Medical homes• Accountable care organizations• Bundled payments
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Initiative #1: Medical homes• Team that provides and coordinates health
care services for individuals• Primary care clinician serves as team
manager • Services are coordinated among all
providers• Team utilizes health IT and analytical tools• After hours telephone access to team staff• Financial incentives reward providers that
support medical home
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Initiative #2: Accountable care organizations
• A network of providers responsible for managing and providing health care to individuals enrolled
• ACO will receive a fixed payment providing care to enrollees
• Performance monitoring will take place to ensure quality of care does not decline
• ACO that achieves savings while maintaining quality is eligible to share in the savings with the federal government
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Initiative #3: Bundled payments
• A single payment for all health care services related to a specific course of treatment or condition over a period of time (i.e. heart bypass surgery)
• Providers are not reimbursed for each discrete service
• Mitigates financial incentive to duplicate or provide unnecessary services
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Changes in health expenditures: can we bend the cost curve?
Prior law without
Affordable Care Act
(Office of the Actuary)
Affordable Care Act
(Office of the Actuary)
Affordable Care Act
(Commonwealth Fund)
Annual growth rate in national health care expenditures (2009 – 2019)
6.1% 6.3% 5.7%
SOURCES: Centers for Medicare and Medicaid Services, Office of the Actuary, Commonwealth Fund
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Growth of annual health care expenditures: before and after the Affordable Care Act
SOURCE: Centers for Medicare and Medicaid Services, Office of the Actuary
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 20190%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
7%
7%
9%
6%
Prior Law Affordable Care Act
Annu
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