The Health Care Landscape Bill Evans University of Notre Dame 1

Two Goals Four issues every health care reform proposal should confront Outline what the recently passed legislation does for each of these issues 2

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

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Uninsurance rates, 2007 Overall15.3% By race – White, NH10.4% – Black, NH19.5% – Asian, NH16.8% – Hispanic32.1% Nativity – Native12.7% – Naturalized 17.6% – Not citizen43.8% Age – <1811.0% – % – % – % – % – % HH income – <$25K24.5% – $25-$50K21.1% – $50-$75K14.5% – >$75K 7.8% 5

% Firms offering health insurance Firm Size %52%46% % 72% %87% %92%95% % 98% 6

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

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

Expenditures on Medical Care Data for 2007 $2.2 trillion on HC $7,400 per capita 16.2% of GDP Projected, 2018 $4.4 billion $13,100 per capita 20.3% of GDP 9

10 90% more than Canada 145% more than the UK

Average Annual Premiums Covered Workers, 2008 (KFF) Individual plan – $4,704 total Family plan – $12,690 11

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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

Are high expenditures a bad thing? A key driver of health care costs is technology MRIs/CT scans, angioplasty, anti-psychotropic drugs, hip/knee replacements, neo-natal intensive care, treatments for AIDS, statin drugs All not available years ago. Now, commonplace 15

16 HIV/AIDS Drugs Early 1990s, 32% annual mortality rates for patients w/ AIDS 1995:4, 1996:1, three new ARVs Usage rates increase immediately Mortality falls 70% in 18 months

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18 ARVs are expensive, $12K/year in some cases AIDS patients are expensive, $20K/year ARVs ↑ lifespan after diagnosis by 8 years Lifetime cost of treating an AIDS patient increases by about $256K

What is accurate picture of US? Innovator to the world – tremendous gains to new advances Wasteful spender of tremendous resources with little return 19

Fatality Rates 2000 * HomicideTraffic United States Whites3.2 Blacks26.1 Canada Germany Japan Sweden United Kingdom * Deaths per 100,000 people

Life Expectancy ActualStandardized United States Switzerland Norway Canada Germany75.4 Japan Sweden United Kingdom

5-year Cancer Survival Rates CountryBreast (Female) Cervical (Female) Colon (Male) Lung (Male) Prostate (Male) Thyroid (Female) US UK Dnmk France Swed Switz

Heart Attack Treatment Canada vs. US (2004) CategoryCanadaUS Angioplasty 11.4%30.5% Bypass 4.0%11.4% 5-year mortality21.4%19.6% 23

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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 Unnecessary care 25

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27 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

What issues must health care reform address? Access Cost (both the level and rate of inflation) Medicare Tax equity 28

Medicare million recipients $432 bill. exp. 3.2% of GDP 16% of fed. budget million recipients 7.6% of GDP 30% of fed. budget 29

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 30

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Per Capita Health Care Spending by Age (2004) Age Group Spending Per capita O-18$2, $3, $5, $7, $10, $16, $25,691 33

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Medicare Sources as % of GDP 35

What issues must health care reform address? Access Cost (both the level and rate of inflation) Medicare Tax equity 36

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 37

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 38

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 39

Inequalities Costs Fed. Govt. over $243 billion/year Tax break only available to people who receive insurance from their firm – High income more likely to have insurance Higher income families have higher tax rates Regressive tax – Benefits much higher in upper income groups 40

41 Overview of Senate Bill Plan builds out from existing system Tries to fill in the gaps in coverage Large scale insurance industry reform – Community rating – Eliminate pre-existing conditions Aggressive effort to reduce growth of Medicare fees Biggest unknown: controlling costs

Coverage Expansions Individual mandate (tax of 2.5% of AGI) Pay or play: employer mandates Expand Medicaid to 133% of FPL Provide tax credits for the low income in individual market Establish health insurance exchange where people can purchase insurance 42

Why is coverage mandatory? Insurance industry reform – Community rating – eliminate pre-existing condition clauses If adopted under current system – Costs for young would rise – exit system – Would not buy insurance until they needed it Forces low cost users into the system, drives down average cost 43

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 Where coverage will come from 44

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? 45

CBO Estimates Fines will generate $20 bill per $2000/head, 10 million not receiving health care from their firm There are roughly 16 million uninsured workers 46

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 Tax on people without insurance 40% tax on high-cost insurance Reductions in Medicare reimbursements 47

CLASS Act –long term care insurance program – Automatic enrollment – Starts in No benefits paid for 5 years 48

Balance Sheet – CBO (Billions of dollars) Expenditures Expand private$ 466 Expand public$ 434 Small firm TC$ 40 Total$ 940 Revenues Higher taxes$ 551 Reduced Spending $ 507 Total$1058 Diff is $118 billion reduction in deficit 49

Revenues, (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 50

What is missing? Cost controls 51

No supply response at all – Catholic hospitals have become attractive Lots of studies – little guess of future 52

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