Health care spending slides mili - schoenman

A Detailed Look atU.S. Health Care

Spending

Julie A. Schoenman, Ph.D.National Institute for Health Care Management Foundation

Medical Industry Leadership InstituteActuarial Seminar Series

October 25, 2012

What We Will Cover Today

1. Big Picture Orientation

2. Distribution of Personal Health Care Spending

3. Spending through Government Entitlement Programs

4. Spending through Private Health Insurance

5. What’s Behind the High and Rising Spending?


1.Big Picture Orientation2. Distribution of Personal Health Care

Spending




Total National Health Spending Continues to Increase

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

0.5

1

1.5

2

2.5

3

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

1.1 1.2 1.31.4

1.51.6

1.81.9

2.02.2

2.32.4

2.52.6

$4,169 $4,367 $4,601

$4,878 $5,241

$5,687 $6,114

$6,488 $6,868

$7,251 $7,628

$7,911 $8,149

$8,402 National Health Expenditures (tril-lions)

% GDP 13.7% 13.7% 13.8% 13.8% 14.5% 15.4% 15.9% 16.0% 16.1% 16.2% 16.4% 16.8% 17.9% 17.9%

NIHCM Foundation analysis of data from the National Health Expenditure Accounts.

U.S. Health Spending is a Dramatic Outlier Internationally

MexicoKorea

EstoniaHungary

PolandLuxembourg

IsraelCzech Republic

ChileSlovak Republic

FinlandSlovenia

IrelandItaly

SpainNorwayIceland

United KingdomSweden

New ZealandBelgiumAustriaCanada

SwitzerlandDenmarkGermany

FranceNetherlands

United States

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0

17.4

Most developed countries spent ~9.5 to 12% of GDP on health care in 2009

% GDP, 2009

NIHCM Foundation analysis of data from the Organisation for Economic Cooperation and Development.

U.S. Spends More than Expected Based on Our Wealth

$10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

Spain, Italy, France, Finland, United Kingdom, Belgium, Germany, Iceland, Sweden, Denmark, Canada, Austria, Ireland, Netherlands

Per Capita GDP, 2009

Per

Capit

a H

ealt

h S

pen

din

g,

200

9

NIHCM Foundation analysis of data from the Organisation for Economic Cooperation and Development.

United States

Switzerland

NorwayLuxembourg

Chile, Mexico, Poland, Estonia, Hungary, Slovak Republic, Czech Republic, Korea, Israel, Slovenia, New Zealand

Hospital Care; $2,637

MD & Clinical Services; $1,670

Dentists & Other Health Professionals; $560

Home Health & LTC; $1,107

Rx, DME & Other Medical Products;

$1,106

Administration; $570

Public Health; $267

Investment; $483

84% of spending ($7,080) is for personal health care services

What Does $8,400 Per Person Buy?

16% of spending ($1,320) is not related to personal health care services

NIHCM Foundation analysis of data from the 2010 National Health Expenditure Accounts.

Health Spending Growth has Slowed, But Usually Outpaces

GDP Growth

19611963

19651967

19691971

19731975

19771979

19811983

19851987

19891991

19931995

19971999

20012003

20052007

2009

-4

-2

0

2

4

6

8

10

12

14

16Health SpendingGDP

Per

cent

Cha

nge

from

Pre

viou

s Y

ear

Lowest growth rates in history of National Health Expenditure Accounts


Historically, Health Spending Has Grown 1.0 - 2.5 Percentage Points

Faster than GDP

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2.5

2.01.8 1.9

2.2

1.71.9 1.9

1.5

1.2

1.8 1.71.8

1.0

1.4 1.4

1975-2008 1980-2008 1985-2008 1990-2008

Avera

ge A

nnual R

ate

of

“Exc

ess

” C

ost

Gro

wth

Pct. Points

NIHCM Foundation analysis of information presented in CBO’s “The Long-Term Budget Outlook.” Revised August 2011.

The Recent Slowdown in SpendingTemporary Blip or Systemic Change?

• Continuation of slowdown underway since 2002

• Factors related to recent slowing in spending:o Recession

Massive loss of jobs and employer-sponsored insurance Declining real income, substantial loss of wealth, people more cautious about spending Reduced demand for health care services, even among those with insurance

o Drugs – ongoing shift to generics, expiring drug patents, fewer new drugs coming on lineo Medicare – provider payment cuts, stabilization in Part D enrollmento Medicaid – provider payment cuts, higher drug rebates, benefit restrictionso Ongoing shift to policies with more cost-sharing, employees paying higher share of rising

premiums

• Factors likely to affect future spending:o Economic recovery, pent-up demand for health care, higher need due to delayed careo ACA - 2014 coverage expansions and other industry changeso Aging populationo Delivery/payment system changes emphasizing paying for value, informed consumerso Ongoing consolidation among providers

Sources: Martin et al. “Growth in US Health Spending Remained Slow in 2010; Health Share of GDP Was Unchanged from 2009.” Health Affairs, 31(1):208-19, Jan. 2012 & McKinsey Center for U.S. Health System Reform. “Accounting for the Cost of U.S. Health Care.” Dec. 2011.

2011 UptickReturn to Higher Spending Growth, or Not?

Altarum analysis of monthly health spending data from the Bureau of Economic Analysis.

A Growing Share of National Health Spending is From Public Sources

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Public Sources = 32% State and Local Government

Federal Government

Private Business

Households

Other Private Revenues

Private Sources = 55%

Public Sources = 45%


Private Sources = 68%

A Closer Look at Public & Private Health Care Spending, 2010

Private Sources (55%)Total Spending by Private Sources

$1,430 B

Private Business (20.6%)

Private Health Insurance Premiums $414.1

Medicare Payroll Taxes $79.7

Workers Compensation, Disability Insurance & Worksite Health $40.7

Households (28.0%)


Medicare Payroll Taxes and Premiums

$162.8

Out of Pocket Spending $299.7

Other Private Sources (6.6%)

Philanthropy, Investment, Etc. $169.9

Public Sources (45%)Total Spending by Public Sources

$1,164 B

Federal Government (28.6%)


Medicare Payroll Tax $4.0

Direct Medicare Program Spending $254.0

Direct Medicaid Program Spending $278.1

All Other Health Spending $178.0

State/Local Government (16.2%)


Medicare Payroll Tax $11.4

Direct Medicaid Program Spending $135.9

All Other Health Spending $139.6

Source: NIHCM Foundation analysis of data from the National Health Expenditure Accounts.



2.Distribution of Personal Health Care Spending




A Word about Data Sources

National Health Expenditure Accounts (NHEA)

Medical Expenditure Panel Survey (MEPS)

Synthetic database derived from myriad secondary sources

Annual survey of households about their health spending

Covers total US population, including military, nursing home residents, etc.

Covers civilian, non-institutionalized population

Includes expenditures beyond personal health care services (e.g., public health, research, investments in infrastructure, administration)

Designed to capture payments from all sources (public, private, self-pay) for personal health care services

Latest available year is 2010 Latest available year is 2009

Total spending reported = $2.594T Total spending reported = $1.259T

Relatively Few People Account for Most Personal Health

Spending

10 20 30 40 50 60 70 80 90 1000

10

20

30

40

50

60

70

80

90

100

0.0 0.1 0.4 1.3 2.95.6

10.4

18.8

34.8

50.5

78.2

100.0

Total Personal Health Care Spending= $1.259 Trillion

Cum

ulat

ive

Per

cent

of

Tot

al S

pend

ing

Percent of Civilian Non-Institutionalized Population Ordered by Health Care Spending

$1,223 Bil-lion

Top 5% of spenders account for almost half of spending ($623 billion)

15.4

95

99

$36 Billion

Top 1% of spenders account for >20% of spending ($275 billion)

NIHCM Foundation analysis of data from the 2009 Medical Expenditure Panel Survey.

Greatest Potential for Savings Focus on High Spenders

Lowest 50% Top 50% Top 30% Top 10% Top 5% Top 1%$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

$236 $7,980

$12,265

$26,767

$40,682

$90,061

Mean A

nnual E

xpendi-

ture

Percent of Civilian Non-Institutionalized Population Ordered by Health Care Spending

3.06M pop.15.3M pop.

30.7M pop.

Total spending by top 10% = $821 billion

Total spending by top 1% = $275 bil-lion

Total spending by top 5% = $623 billion

Total spend-ing by bot-tom 50% = $36 billion


High Spenders are Older

Lowest 50% Top 5% Top 1%0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

34.5

6.3 7.6

27.8

8.5 5.9

14.0

8.7 7.3

12.5

16.213.2

7.0

22.126.1

2.7

17.1 15.1

1.4

21.1 24.8

75+

65-74

55-64

45-54

35-44

19-34

0-18


High SpendersReport Worse Health

Lowest 50% Top 5% Top 1%0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

40.4

7.5 5.8

32.3

19.913.4

22.1

28.9

23.4

4.3

25.2

31.4

0.8

18.526.0

PoorFairGoodVery GoodExcellent


High Spenders Have More Chronic Conditions & Functional Limits

Other 95% Top 5% Spenders0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

50

7.4

36.5

30.9

8.2

28.9

3.4

31.5

1.9 1.3

Functional limitation only

Chronic condition, help with ADLs

Chronic condition, functional limitation

Chronic condition only

No chronic condition, no func-tional limitation

NIHCM Foundation analysis of data contained in The Lewin Group, "Individuals Living in the Community with Chronic Conditions and Functional Limitations: A Closer Look," January 2010.

Considerable Persistence in Spending Patterns Over Two Years

Bottom 50% Top 50% Top 30% Top 20% Top 10% Top 5% Top 1%0%

10%

20%

30%

40%

50%

60%

70%

80%73.9% 75.0%

63.1%

54.4%

44.8%38.0%

20.0%

Percentile Rank by Health Care Spending, 2008

Pe

rce

nt

wit

h S

am

e R

an

kin

g

in 2

00

9

Source: Cohen SB and Yu W. "The Concentration and Persistence in the Level of Health Expenditures over Time: Estimates for the U.S. Population, 2008-2009." Agency for Healthcare Research and Quality, Statistical Brief #354. January 2012.

Persistent High Spenders:Older People & Those Whose Health Remains a

Problem

Top 10% in both years

Top 10% in 2008, Bottom 75% in

2009

0

10

20

30

40

50

60

70

80

90

100

3.4 10.93.1

16.610.6

2740.1

26.4

42.9

19.2

65+

45-64

30-44

18-29

0-17

Top 10% in both years

Top 10% in 2008, Bottom 75% in

2009

0

10

20

30

40

50

60

70

80

90

100

23.93.3

29.6

14.1

27.3

26.9

13.2

30.9

6.1

24.8

Excellent

Very Good

Good

Fair

Poor

Source: Cohen SB and Yu W. "The Concentration and Persistence in the Level of Health Expenditures over Time: Estimates for the U.S. Population, 2008-2009." Agency for Healthcare Research and Quality, Statistical Brief #354. January 2012.

Of top 10% of spenders in 2008: 44.8% remained in top 10% and 25.4% moved to the bottom 75% in

2009

Age (end of 2009) Health Status (end of 2008)

Long-Term Persistence of High Spending Among Medicare Beneficiaries

1993 1994 1995 1996 1997 1998 1999 2000 20010

10

20

30

40

50

60

70

80

90

100

Bottom 75% Top 25%Died by Jan. 1 Not in FFS

Source: Congressional Budget Office. “High-Cost Medicare Beneficiaries.” May 2005.

Challenges of Controlling Costs Among High Spenders

• Chronic health problems and persistence in high spending imply a role for disease management. But…• many of the same chronic problems are also highly prevalent in lower-

spending groups, especially among the elderly

• accurate prospective targeting of those who can most benefit from disease management can be tricky

• Managing high spending at the end of life can be problematic• not all with high spending will die soon

• predicting timing of death and distinguishing between care that could extend life in a meaningful way and care that does little good is often very difficult

• societal reluctance to discuss end of life care, fears of rationing

• Not all high spending is predictable or persistent. • hard to control the random events

• may be able to manage some episodes more efficiently (e.g., clinical pathways for cancer)




3.Spending through Government Entitlement Programs



Government Health Entitlement Programs36 Percent of National Health Spending in 2010

Out of Pocket; 12%

Private Health Insurance; 33%

Medicare = $524.6B; 20%

Medicaid & CHIP = $413.1B; 16%

DOD & VA; 3%

Other Third Party Payers & Programs;

7%

Public Health; 3%Investment; 6%

2010 Total Spending = $2.594 T


Government Health Entitlement Programs 21 Percent of U.S. Federal Spending in 2011

Federal Revenues ($2.302T, excluding

borrowing)

Federal Spending ($3.598T)

13%

8%

20%

15%

19%

18%

6%

Net Interest Non-Defense Discretionary

Defense Dis-cretionary

Other Manda-tory Spending

Social Security Medicaid & Other Health Entitlements

Medicare

NIHCM Foundation analysis of data from CBO’s “The Budget and Economic Outlook: Fiscal Years 2012 to 2022,” Jan. 2012.

36%

30%

5%

23%

6%

Other Revenue

Payroll Taxes

Corporate Income Taxes

Individual Income Taxes

Borrowing (Deficit)

21%

Structure of the Medicare Program

PART AInpatient & Post-Acute Care

• Hospital Insurance (HI) Trust Fund• Mandatory program• Eligible if > 40 quarters of covered employment

(self/spouse)• Payroll tax, SS income tax if high income, premiums

if buying into program, interest on Trust Fund reserves

PART BPhysician & Outpatient Care

• Supplemental Medical Insurance (SMI) Trust Fund• Voluntary programs• Premiums from enrollees (~25% of program costs)• Fees on manufacturers/importers of brand name

drugs (B)• Transfers from state Medicaid programs (D)• General revenues (balance SMI Trust Fund each

year)

PART DOutpatient Rx

PART CManaged Care

• Capitated arrangements with private health plans• Financed from both trust funds

197019761982198819942000200620122018202420302036204220482054206020662072207820840%

1%

2%

3%

4%

5%

6%

7%% of Taxable Payroll

Part A Income

Part A Expenditures

2024: Part A Trust Fund Exhausted

Part A Operating Deficit: Covered by Redemption of Trust Fund Assets, Requiring General Revenues

Periods of Operating Surplus: Trust Fund Assets Accumulate and are Lent to the Federal Government, Earning Interest

Source: A Summary of the 2012 Annual Reports, Social Security and Medicare Boards of Trustees, www.ssa.gov/OACT/TRSUM

Current Claims on the Part A Trust Fund Require General Revenues

A Pay-As-We-Go System

Baby boomers retiring ~10,000/day

http://www.ssa.gov/OACT/TRSUM


The Big Picture for Medicare:Dedicated Revenue < Expenditures

19701976198219881994200020062012201820242030203620422048205420602066207220782084

-1%

0%

1%

2%

3%

4%

5%

6%

7% Total Medicare Expendi-tures

%GDP

Payroll TaxTax on SS Benefits

Premiums, State Transfers, & Drug Fees

General Revenue Transfers to Parts B & D

Part A Trust Fund Deficit

Source: A Summary of the 2012 Annual Reports, Social Security and Medicare Boards of Trustees, www.ssa.gov/OACT/TRSUM

historical

projected

Part A Trust Fund exhausted

Non

-inte

rest

pro

gra

m

inco

me



Single, Average Wage

One-Earner Couple, Average

Wage

Two-Earner Couple, Average

Wages

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$60,000

$170,000

$60,000

$357,000

$119,000

$357,000 Medicare Expected Benefits (Net of Premiums), Lifetime

Medicare Payroll Taxes, Life-time

$188,000Female

Male

Source: Steuerle CE and Rennane S. "Social Security and Medicare Taxes and Benefits Over a Lifetime.” Washington, DC: The Urban Institute. June 2011.

Single, Average Wage One-Earner Couple, Average Wage Two-Earner Couple, Average Wage

A Beneficiary Lifetime Perspective: Payroll Contributions < Expected Benefits

But the Public Perception is Very Different from Reality

All Ages (18+)

18-35

36-55

56+

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

21%

13%

21%

32%

31%

29%

30%

34%

49%

58%

49%

34%

Not enough, others will support me Enough to support myselfMore than I'll receive

Thinking about Medicare, do you believe that over the course of your ca-reer you [will] have paid…

Source: Stony Brook Poll, December 2010. http://tinyurl.com/9qteyxm

http://tinyurl.com/9qteyxm

Structure of the Medicaid Program

• Covers ~60 million low-income individuals

• Jointly financed by states and federal government

• Voluntary program for states, all now participate

• Categorical eligibility: children, pregnant women, parents with dependent children, people with disabilities, seniors (income thresholds vary by category)

• States run their programs; must meet federal standards but can deviate with a waiver or exceed standards using own funds

• Very few states have expanded to cover “childless adults”

• ACA removed categorical eligibility and expanded eligibility to all non-elderly persons under 138% FPL

• Supreme Court decision makes this expansion optional for states

MedicaidEnrollment vs. Spending, FY 2009

Enrollees Spending0%

10%20%30%40%50%60%70%80%90%

100%

49%

21%

26%

14%

10%

23%

15%

43%

Disabled

Elderly

Adults (<65)

Children

2/3

$2,926

$13,186

$2,313

~15% of en-rollees are dual eligibles

1/4

$15,453 per enrollee

~40% of spending is for dual eligibles

Source: Kaiser Family Foundation, “The Medicaid Program at a Glance.” September 2012.

Medicaid Spending is a Large and Growing State & Federal Burden

20002001

20022003

20042005

20062007

20082009

2010

0

50

100

150

200

250

300

350

400

450

89 98112 122 133 137 142 150 158 147 156

118130

148162

176 182 181191

201

251

273Federal Spending

State Spending

Medicaid 24%

K-12 Education 20%

Higher Education 10%

Transport 8%

Cor-rec-tions 3%

Public Assis-tance 2%

All Other Spend-ing 34%

Total State Expenditures, FY2011 (estimated)

Total Medicaid Spending ($billions)

NIHCM Foundation depiction of data from National Association of State Budget Officers. “State Expenditure Report.” Dec. 2011.

56-57%

63-64%ARRA

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

480 466 494 514 539 589 608 632 696 750 806 899

275 253 267 305341

382 416 446479

514549

592

124

4675

91101 107

111118

123

45

5.1%4.7% 4.9%

5.3%5.5%

5.8%

5.8% 5.8% 6.1% 6.2% 6.4%6.7%

Exchanges

Medicaid

Medicare (net offsetting receipts)

$ billions

NIHCM analysis of data from CBO’s “An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022,” Aug. 2012.

Mandatory Federal Health Spending Projected to More Than Double in 10 Years

actual

And That’s the Good News

• CBO’s baseline projections assume current laws remain in place and will be implemented as written, most notably:• Deep cuts in Medicare physician payment rates under the SGR

formula• 2% reductions in Medicare payment rates under Budget Control Act

sequestration• Cuts in Medicare provider payment updates under the ACA

• Overriding any of these cuts will increase Medicare spending

• Other big unknowns:• extent to which states will expand Medicaid (implications for

Federal match)• extent to which people will seek subsidized coverage in the

exchanges

-25

-20

-15

-10

-5

0

5

10 histori-cal

Growth at GDP

GDP + 1%

GDP + 2% (~Historical Average)

projected

Pri

mary

Su

rplu

s (+

) or

Defi

cit

(-)

as

%

of

GD

P

Source: “2011 Fiscal Report of the U.S. Government.” Supplemental Information, Chart 5, http://www.fms.treas.gov/finrep11/supp_info/fr_supplement_info_alternative.html#chart5

Faster Growth in Health Entitlement Spending Will Dramatically Worsen

Projected Deficit

http://www.fms.treas.gov/finrep11/supp_info/fr_supplement_info_alternative.html%23chart5



18% 19% 20% 21% 22% 23% 24% 25%2%

3%

4%

5%

6%

7%

8%

9%

10%

Defe

nse

& O

ther

Non-H

ealt

h

Spendin

g a

s %

of

GD

P

0%

-2%

-3% -4%

C

D

B

Tax Revenue as % of GDP

Health Spending Growth Relative to Potential GDP

Source: Roehrig, C. Altarum Center for Sustainable Health Spending. As presented in The Incidental Economist Blog, Aug. 15, 2012.

+1%-1%

Triangle of Painful ChoicesTradeoffs Needed to Balance Budget by 2035

A





4.Spending through Private Health Insurance


Private Health Insurance Premiums

One-Third of National Health Spending, 2010

Out of Pocket; 12%

Private Health Insurance =

$848.7B; 33%

Medicare; 20%

Medicaid & CHIP; 16%

DOD & VA; 3%

Other Third Party Payers & Programs;

7%

Public Health; 3%

Investment; 6%

2010 Total Spending = $2.594 T


Private Health Insurance Markets

Employer-Based or Group Market

• Coverage purchased by employer for workers, dependents and, perhaps, retirees.

• Risks pooled by employer group.

• Employers and employees generally contribute to premium

• Premiums excluded from taxes in most cases. Value of tax exclusions = $145 billion in 2011.

• Small, medium, large group based on number of employees

• 60 percent of workers with employer-based coverage were in “self-insured” plans (2012)

• Larger employers most likely to self insure, but growing trend among smaller employers

Individual or Non-Group Market

• Coverage purchased directly from insurer

• Individual/family is own risk pool. Health underwriting and pre-existing conditions can make coverage expensive or unavailable.

• Purchaser pays full premium.

• Preferential tax treatment of premiums only for self-employed

• Most people purchasing coverage in this market do not have access to employer-based coverage• self-employed• employed but not offered coverage • non-dependent students• early retirees• between jobs

Private Coverage is Dominated by Employment-Based Insurance

Enrollees Premiums0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

10.8% 5.1%

89.2% 94.9%

Employer-Based Coverage

Individual Market

Employee contribu-tions (27.6%)

Private employer contribu-tions (52.0%)

174.4M (2011)

Govt. employer contributions (20.4%)

$839.8B (2010)Sources: Fronstin P. “Sources of Heath Insurance…” EBRI Issue Brief 376, Sept. 2012; NIHCM analysis of data

from the 2010 National Health Expenditure Accounts, Sponsor Highlights.

Private-Sector Workers Paying anIncreasing Share of Increasing Premiums

Employment-Based Coverage

Individual Policy

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

0

2000

4000

6000

8000

10000

12000

14000

16000

0%

50%

100%

150%142%

87%

97%

Employee (EE) Contribution to Premium Employer (ER) Contribution to Premium

Cumulative Pct. Change, EE Contribution Cumulative Pct. Change, ER Contribution

Cumulative Pct. Change, Total Premium

$2655

Family Policy

0

2000

4000

6000

8000

10000

12000

14000

16000

0%

50%

100%

150%146%

114%122%

$6772

$15022

Source: NIHCM analysis of data from the Medical Expenditure Panel Survey, Insurance Component. Data not available for 2007.

$5222

And Facing Higher Out-of-Pocket Costs

via Deductibles

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011$0

$500

$1,000

$1,500

$2,000

$2,500

0%

10%

20%

30%

40%

50%

60%

70%

80%

$446$518 $573

$652$714

$869 $917$1,025

$1,123

$958$1,079

$1,143$1,232

$1,351

$1,658$1,761

$1,975

$2,220

48%

52%

59%64%

66%

71%74%

78% 78%Average Deductible for those with a Deductible - Individual Pol-icyAverage Deductible for those with a Deductible - Family Policy

Source: NIHCM analysis of data from the Medical Expenditure Panel Survey, Insurance Component. Data not available for 2007.

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012$0

$7,000

$14,000

$21,000

5600 6054 6750 7513 8362 8909 9442 9947 10744 11385 121442055

23542522

26662810

31713492

40044325

47285114

15801760

19202035

22102420

26752820

30053280

3470Employee Out-of-Pocket Costs

Employee Contribution to Premium

$9,235$10,168

$11,192

$12,214

$13,382

$14,500

$15,609

$16,771

$18,074

$19,393

$20,728

Health Spending by American Families More Than Doubled in Past Decade

Family of Four, Employer-Based PPO Coverage

Source: NIHCM Foundation analysis of data presented in the annual Milliman Medical Index reports, 2005-2012. Values for component parts for 2002-2005 were estimated using component growth rates reported by Milliman.

Premiums and Deductibles Also Continue to Rise in the Non-Group Market

Individual Policy Family Policy

2005 2006 2007 2008 2009 2010 2011$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

0%

10%

20%

30%

40%

50%

60%

70%

80%

1728 1776 1896 19081932

20042196

17211864 1972 2084 2326

26322935

27%

71%

Mean Annual Premium

Mean Deductible

NIHCM Foundation analysis of data contained in eHealthInsurance reports “The Costs and Benefits of Individual and Family Health Insurance Plans” (Nov. 2008 and Nov. 2011) and “2009 Summer Cost Report for Individual and Family Policy Holders.”

2005 2006 2007 2008 2009 2010 2011$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

0%

10%

20%

30%

40%

50%

60%

70%

80%

38884128

4392 44284596 4704

4968

22942486

26102760

31283531

3879

28%

69%

High-Deductible Health Plans are Becoming Much More Prevalent

20122011201020092008200720062005

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

ConventionalHMOPPOPOSHDHP/SO

Health Plan Enrollment by Plan Type for Covered Workers

2011201020092008200720062005

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

TraditionalHDHPCDHP

Health Plan Enrollment by Plan Type for Privately Insured Individuals

Sources: Kaiser Family Foundation/Health Research & Educational Trust. “Employer Health Benefits, 2012 Annual Survey.” Sept. 2012 (top graph); Employee Benefit Research Institute. “Findings from the 2011 EBRI/MGA Consumer Engagement in Health Care Survey.” EBRI Brief No. 365, Dec. 2011 (bottom graph).

HSA-Qualified HDHP Enrollment RisingEspecially in the Large Group Market

2012

2011

2010

2009

2008

2007

2006

2005

0 2 4 6 8 10 12 14

IndividualSmall GroupLarge GroupGroup, Size Not KnownMarket Not Known

13.5

2012

2011

2010

2009

2008

2007

2006

2005

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

18%

21%

21%

23%

25%

26%

42%

64%

22%

24%

30%

30%

30%

25%

25%

17%

59%

55%

50%

47%

46%

49%

33%

19%

Individual

Small Group

Large Group

million

1.0

Source: America’s Health Insurance Plans. “January 2012 Census Shows 13.5 Million People Covered by HSA/HDHPs.” May 2012.

Health Care Premiums Growing Quickly as a Share of Personal Income

Source: Schoen C, Fryer AK, Collins SR and Radley DC. “State Trends in Premiums and Deductibles, 2003-2010: The Need for Action to Address Rising Costs.” The Commonwealth Fund, November 2011.

• Employee share of premium up 63%.

• Per-person deductibles doubled.

Insurance Premiums Pay for Health Care Services for Enrollees

34 28 14 9 3 12

Physician & Clinical Services

Dental & Other Professional

ServicesHome Health & Other

LTC Facilities & Services

Personal Health Care Services (88%)

Net Costof In-

surance

Hospital CareRx & DME


Total Private Insurance Premium Revenue = $848.7B

Net Cost of Health Insurance

• Defined by NHEA framework as the difference between premiums collected and benefits paid out

• All administrative costs• Claims processing• Sales and marketing• Member enrollment and customer service• Actuarial analysis and underwriting• Product development and provider contracting• Medical management• Quality improvement• Wellness programs

• Rate credits to policyholders and dividends to stockholders

• Taxes to government

• Additions to reserves

• Profits (or losses)

Private Health Insurance Spending Rose Almost 15 Percent in Five Years

2006 2010$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

237.5 285.8

211.4 239.4

106.0

121.4 66.3

75.8 19.5

23.5 99.6

102.7 Net Cost of Insurance

Home Health & Other LTC Facilities & Services

Dental & Other Professional Services

Prescription Drugs & DME

Physician & Clinical Services

Hospital Care

$848.7 bil-lion

$740.2 billion

14.7% increase

[---

----

- Pe

rsonal H

ealt

h C

are

Sp

end

ing

--

----

---]

8

8%

of

Pre

miu

ms

$ B

illio

ns


Higher Spending for Hospital & Physician Services Drove More than 70 Percent of the

Premium Growth

$0

$20

$40

$60

$80

$100

$120

$48.3

$28.0

$15.4

$9.5 $4.0 $3.1

$108.5 45% of net

change

26% of net

change

14% of net

change

9% of net change

4% of net

change

2006-2010 % Change 20.3% 13.2% 14.5% 14.3% 20.5% 3.1% 14.7%

3% of net change


20

06

to 2

01

0 C

hange (

$ B

illio

ns)

97 percent of change in premiums was due to growth in insurers’ spending for health care services






5.What’s Behind the High and Rising Spending?

Deconstructing the Rising Health Spending

Spending increases may be driven by:

• unit price effect - rising prices per unit of service

• volume or utilization effect - higher volume of services, due to• more users of services and/or• more services used per capita

• intensity or service mix effect - shift to more expensive mix of services or to more expensive providers

It Really is the Prices (Stupid)Evidence from Massachusetts, 2007-2009

5.7%6.5%

-2.1%

0.2% 1.0%

7.3%6.4%

-0.5%

0.3% 1.1%

9.4%

5.1%3.9%

0.1% 0.2%

4.6%5.5%

0.1% 0.3%

-1.3%2007-2008 2008-2009

Inpatient Stays

Hospital Outpatient Care

Source: Massachusetts Division of Health Care Finance and Policy. “Massachusetts Health Care Cost Trends: Trends in Health Expenditures.” June 2011.

Decomposition of Spending Growth for Privately Insured Patients

Inpatient Care Outpatient Visits Other OutpatientProfessional Procedures-5.0

0.0

5.0

10.0

4.9

7.26.2

4.5

5.9

9.6

3.5 3.7

-0.6

2.1 1.6 1.2

-0.3

-4.2

1.0

-0.4

Per Capita Spending Unit Price Utilization Intensity

Per

cent

cha

nge,

201

0-20

11

It Really is the Prices (Stupid)Evidence from Several National Payers, 2010-2011

Source: Health Care Cost Institute, “Health Care Cost and Utilization Report: 2011,” September 2012.

U.S. Pays More for Hospital Services Select Countries & Services

Normal Delivery Appendectomy CABG Hip Replacement Hernia Repair$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$2,591

$21,218

$4,451

$7,962

$34,358

$17,406

$8,917

$4,558

$11,162

$3,093

AustraliaCanadaFranceSwedenUnited States

Source: Koechlin F, Lorenzoni L and Schreyer P. “Comparing Price Levels of Hospital Services Across Countries.” OECD Health Working Papers No. 53, July 2010.

(US$, 2007)

U.S. Pays More for Hospital ServicesComposite Index, 29 Inpatient Services

KoreaSlovenia

IsraelPortugalFinlandCanadaSwedenFrance

AustraliaItaly

United States

0 20 40 60 80 100 120 140 160 180

575962

8598

113114

121123

140164

Comparative Price Levels, Hospital Services, 2007

OECD Average

U.S. hospital prices 64% higher than OECD average

Source: Koechlin F, Lorenzoni L and Schreyer P. “Comparing Price Levels of Hospital Services Across Countries.” OECD Health Working Papers No. 53, July 2010.

U.S. Pays Physicians More for the Same Services

Especially Private Payers and Specialty Care

Primary Care - Office Visit Fees

Public Payers Private Payers$0

$20

$40

$60

$80

$100

$120

$140

34

45

59

32 34

46

104

66

129

60

133

Australia Canada France

Germany UK US

Specialty Care – Hip Replacement

Public Payers Private Payers$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

1,046

1,943

652

674

1,3401251

1,181

2,160

1,634

3,996

Australia Canada France

Germany UK US

Source: Laugesen MJ and Glied SA. “Higher Fees Paid to US Physicians Drive Higher Spending for Physician Services Compared to Other Countries.” Health Affairs, 30(9):1647-56. September 2011.

U.S. Physicians Earn More

Particularly Specialists

Primary Care Physicians Orthopedic Surgeons$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000

92,844

187,609

125,104

208,634

95,585

154,380 131,809

202,771

159,532

324,138

186,582

442,450 Australia Canada France Germany UK US

Source: Laugesen MJ and Glied SA. “Higher Fees Paid to US Physicians Drive Higher Spending for Physician Services Compared to Other Countries.” Health Affairs, 30(9):1647-56. September 2011.

Summary and Implications

• Health care spending is a heavy and increasingly unmanageable burden to federal and state governments, employers and individuals.

• Recent slowing in health spending growth offers a ray of hope. But is the slowdown sustainable? • Real and sustained gains in efficiency and value will be

needed to offset the demographic and other pressures driving health spending upward.

• The highly concentrated nature of personal health care expenditures suggests a strategy for controlling spending. But there are real challenges in managing the care of high spending patients.

Summary and Implications(continued)

• Private premium increases are driven by underlying increases in spending for medical care for enrollees. Controlling spending for hospital and physician/clinical services will be essential to moderating growth in private premiums.

• We pay more than other countries for the same services, and rising prices have been the dominant factor behind our growing spending. Attention to these high prices is warranted.

• Sizing the challenge is the easy part. Finding real solutions is much harder.

For more information or additional hard copies of our

publications, please contact me or visit our

website:

[email protected]

www.nihcm.org

mailto:[email protected]

http://www.nihcm.org/

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