1. The Health Care Landscape Bill Evans University of Notre Dame 1

2. Two Goals What are the issues? How the reform proposal deals with these issues? 2

3. What issues must health care reform address? Access Cost (both the level and rate of change) Medicare Tax equity 3

4. The Uninsured Percent uninsured – 1987:12.9% – 2008:15.4% Number uninsured – 1987:31 million – 200846 million 4

5. Uninsurance Rates: 2008 By age: – 28.6% aged 18-24 – 26.5% aged 25-34 By ethnicity – 30% for Hispanics – 19.1% for Blacks Income – 24.5% for those < $25K family income 5

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7. Uninsured Non-Elderly Population by Work Status of Family Head, 2007 7

8. What issues must health care reform address? Access Cost (both the level and rate of inflation) Medicare Tax equity 8

9. Expenditures on Medical Care Data for 2007 $2.2 trillion on HC $7,290 per capita 16.2% of GDP Projected, 2018 $4.4 trillion $13,100 per capita 20.3% of GDP 9

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11. 11 87% more than Canada 143% more than UK

12. Average Annual Premiums Covered Workers, 2008 (KFF) Individual plan – $4,704 total Family plan – $12,690 12

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14. Bang per buck?? US ranks 25 of 29 countries in life expectancy – 4.3 years shorter than Japan (highest) – 2.4 years shorter than Canada 24 th worst of 28 countries in infant mortality – More than twice the rate of Japan (lowest) – 31% higher than Canada – 28% higher than UK 14

15. Are high expenditures a bad thing? A key driver of health care costs is technology Expensive items tend to be new technologies Think of the technologies not available 30 years ago but are commonplace today MRIs/CT scans, angioplasty, anti-psychotropic drugs, hip/knee replacements, neo-natal intensive care, treatments for AIDS, statin drugs 15

16. What is accurate picture of US? Innovator to the world – tremendous gains to new advances Wasteful spender of tremendous resources with little return Maybe a little of both 16

17. Problem? Life expectancy is a coarse outcome Some important causes of death are NOT impacted by health care US has very high rates of those deaths – Murders – Motor vehicle fatalities 17

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24. Where would you rather be treated for a disease: US or elsewhere? 24

25. 5-year Cancer Survival Rates CountryBreast (Female) Cervical (Female) Colon (Male) Lung (Male) Prostate (Male) Thyroid (Female) US82.869.061.712.081.295.9 UK66.762.651.07.044.374.4 Dnmk.70.664.239.25.641.071.7 France80.364.149.68.767.677.0 Swed.80.668.051.88.864.783.7 Switz.79.667.252.310.371.478.0 25

26. Heart Attack Treatment Canada vs. US (2004) CategoryCanadaUS Angioplasty 11.4%30.5% Bypass 4.0%11.4% 5-year mortality21.4%19.6% 26

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28. If you want to cut costs, where do you look? Administrative/overhead – 3% in Canada (single payer) – 1.5% in Medicare – 8-30% in US system Chronic conditions – 5 conditions are responsible for 1/3 of costs – 15 conditions are responsible for 50% of growth in past 15 yrs Unnecessary care 28

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30. 30 Per Capita Medicare Spending by Hospital Referral Region, 2006 $9,000 to16,352 (57) 8,000 to <9,000 (79) 7,500 to <8,000 (53) 7,000 to <7,500 (42) 5,310 to <7,000 (75) Not Populated

31. What issues must health care reform address? Access Cost (both the level and rate of inflation) Medicare Tax equity 31

32. Medicare 2007 44.1 million recipients $432 bill. exp. 3.2% of GDP 16% of fed. budget 2040 87 million recipients 7.6% of GDP 30% of fed. budget 32

33. Future problems Rising number eligibles People are living longer – Older people spend a lot more on health care Rising costs Falling fraction of people to tax 33

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38. Medicare Sources as % of GDP 38

39. What issues must health care reform address? Access Cost (both the level and rate of inflation) Medicare Tax equity 39

40. Tax System Equity EPHI a tax-free fringe benefit WW II era program Greatly reduces costs of HI to consumer – Encourages more generous insurance Helps solve problem of adverse selection Has encouraged the growth of EPHI – 170 million have insurance through employers 40

41. Tax Benefit of EPHI A family w/ $70,000 in income 36.4% marginal tax rate – 25% federal – 3.4% state (Indiana) – ~8% Social Security and Medicare Want to purchase $12,000 policy in AFTER TAX DOLLARS 41

42. Without tax advantage: Receive $18,897 in income Pay 36.4% or $6,897 in taxes $12,000 left over for health insurance Net benefit of tax deduction is $6,897 42

43. Inequalities Costs Fed. Govt. $250 billion/year Tax break only available to people who receive insurance from their firm – More likely high wage workers Regressive tax – Benefits are much higher in upper income groups 43

44. Patient Protection and Affordable Care Act An outline and some likely outcomes 44

45. Overview Primary goal was coverage expansion Of the four areas outlined above, major changes in one, modest changes in the other – Increased coverage – Some efforts to ↓ growth of Medicare fees – Modest effort to reduce tax benefits of EPHI – No efforts to constrain costs 45

46. Overview Builds out from existing system – Tries to fill in the gaps in coverage Large scale insurance industry reform – Community rating – Eliminate pre-existing conditions 46

47. Coverage expansions Individual mandate (tax of 2.5% of AGI) Pay or play: employer mandates Expand Medicaid to include higher income groups 47

48. Coverage expansions Provide tax credits for the low income in individual market Tax credits for small firms to provide HI Establish health insurance exchange where people can purchase insurance 48

49. Why is coverage mandatory? Insurance industry reform – Community rating – eliminate pre-existing condition clauses If adopted under current system – Costs for low risk would rise – exit system – Would not buy insurance until they needed it Force low cost users into the system, drives down average cost 49

50. Impact on Uninsured Reduce uninsured by 32 mil. in 2019 60% reduction in the uninsured Leaves another 22 mil. uninsured Uninsured will overwhelmingly be Hispanics 50

51. Pay or play Firms w/ >50 employees must offer qualified health insurance and pay $2000 tax/employee Tax incentives/credits for small firms to provide insurance Language is that firms must pay “fair share” Economists believe workers pay for insurance in the form of lower wages Will firms pay or play? 51

52. Problem? Small firms not subject to pay/play mandate Face extremely high cost of providing HI Workers face much lower wages if they receive HI from firm Gov’t now provides high subsidy rate for uninsured 52

53. Problem? Makes sense for small firms with low wage to drop coverage Who benefits: – Workers: after-tax wages would increase and cost of HI declines – Firms: Don’t have to worry about HI anymore – Costs to the government will increase 53

54. Financing New taxes: on insurance companies, drug makers, medical devices Increase Medicare tax on high income, tax unearned income for this group Revenues from firms paying and not playing 54

55. Financing Tax on people without insurance 40% tax on high-cost insurance Reductions in Medicare reimbursements CLASS Act –long term care insurance program – Automatic enrollment – Starts in 2011. No benefits paid for 5 years 55

56. Balance Sheet – CBO 2010-2019 (Billions of dollars) Expenditures Expand private$ 466 Expand public$ 434 Small firm credit$ 40 Total$ 940 Revenues Higher taxes$ 551 Reduced Spending $ 507 Total$1058 $118 billion ↓ deficit CBO adjustment of + $115 billion 56

57. Revenues, 2010-2019 (billions of $) Tax on high cost health care plans$ 32 Firm/individual taxes, no ins. $ 69 Expand taxes on Medicare$ 210 Reduce Medicare reimbursements$ 437 CLASS premiums$ 70 Tax on Rx/Med device/Ins.$ 107 Other taxes$ 133 Total$1,058 57

58. What is missing? Cost controls 58

59. Add 32 million people to the market No effort to change supply (hospitals, physicians, etc.) Should increase price But with Medicare cuts, may discourage some providers from participating in program 59

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