1 Rising Health Care Costs: Can we Move Towards Higher-Value Care? Katherine Baicker Professor of Health Economics Harvard School of Public Health

2 Lower Costs vs. Higher Value Rising costs and uninsurance have made reform a priority, but should be focused on value, not just costs –Higher spending driven not by changes in number of physician visits or hospitalizations, but by intensity of treatment –Many payment schemes encourage quantity, not quality –Dulled incentive to develop cost-saving technologies Appeal of cost-saving quality improvements –Self-financing plans to cover the uninsured –Health-improving reductions in spending –Elimination of waste, fraud, and abuse But is this the right metric? –Worthwhile reforms that improve value may or may not save money

3 Ample Evidence of Inefficient Spending International evidence: –Spend much more than OECD trading partners without commensurately better outcomes Domestic evidence: –Areas where we spend more are not areas with best outcomes

4 Quality Variation Even within Medicare Source: Dartmouth Atlas of Health Care

5 Variation in Medicare Spending Source: Dartmouth Atlas of Health Care

6 Higher Spending Does Not Necessarily Lead to Higher Quality Source: Baicker and Chandra (Health Affairs 2004)

7 Some Causes of Inefficiency Public side: –Medicare reimbursement primarily based on quantity, not quality –Resources for the uninsured spent on inefficient modes of care Private side: –Biases in tax subsidy of employment-based insurance –Barriers to well-functioning insurance markets –Information on prices and quality often not available

8 Consequences of Inefficient Spending Health care dollars not allocated to highest value uses –Reimbursement rates drive health consumption decisions –Rising ranks of uninsured break down risk-pooling and lead to inefficient care for uninsured Slower wage growth –Rising health insurance premiums have reduced wage growth by as much as 25% in the past five years –May exacerbate job-lock Increasing pressure on taxpayers to finance government- provided insurance –Rapidly rising deadweight loss –Current path of spending growth is unsustainable

9 The President’s Proposal Standard Deduction for Health Insurance –Anyone covered by a private policy would get standard deduction (regardless of source or premium) –Replaces current exclusion of employment-based insurance –Goal of eliminating biases in the tax code and improving efficiency Affordable Choices Initiative –Goal of giving states extra flexibility and resources to cover hard-to-insure poor and chronically ill Ongoing efforts to expand access to information and affordable insurance

10 Evaluating Effects Uninsured How many fewer uninsured people? Individual purchasers Effect on non-group market? People insured through jobs Effects on number covered, generosity of plans? Budget Overall effect on budget? Distribution of benefits? Effect on growth of health spending? Quality Effect on value of care and insurance?

11 Other Proposals Reforming tax-treatment of health insurance plays major role in many (Republican) candidates’ proposals –Variants include refundable tax credit Clearly only one piece of puzzle –Many cost-containment proposals focus on low-hanging fruit, but can’t count on covering uninsured, saving lives, and saving money –Focusing on combination of value-improving strategies that have system-wide effects likely to generate most bang for the buck

12 Focus on Changes with System-wide Effects Interventions that affect the care received by some groups likely to have “spillover” effects –Insurance coverage – extent and type –Use of high-intensity interventions –Information –Use of “best practices” Few individual interventions likely to produce better health at lower cost –Doesn’t mean there aren’t many worthwhile interventions –Probably willing to pay more if getting a lot more health for it