1 Donna Lynne, DrPH, President Kaiser Permanente Colorado Health Care Cost A Perspective December 9,

Health Care: Why is it so expensive? What we will cover: How much we spend in the U.S. What is unique in Colorado Where the money goes Where the money is misspent Opportunities for improvement Introduction 2

How much we spend Health Care Costs Rise Internationally (1970 – 2007) 3 Source: OECD Health Data Health care cost rise based on total expenditure on health as % of GDP. Countries are USA, Germany, Austria, Switzerland, United Kingdom and Canada.

4 Physician Fees C-Section (US$)

5 Hospital Charges Average Cost Per Hospital Day (US$)

Total Hospital and Physician Costs 6 Hip Replacement (US$)

US ranks poorly in results... Relative Ranking AustraliaCanadaGermanyNew Zealand United Kingdom United States Life Expectancy Infant Mortality Tobacco Use Obesity Avoidable Death Health Exp Per Capita $3,128$3,326$3,287$2,330$2,724$6,401 Source: Organization for Economic Cooperation and Development, 2005 And what we get 7

U.S. health care spending (in billions of dollars) ,353 2,113 2,241 2,379 2, Trillion How much we spend in U.S. 8 Source: Centers for Medicare and Medicaid Services

Colorado Sources of coverage 9 Source: Kaiser Family Foundation Employer: 55% Individual: 6% Medicaid: 10% Medicare: 10% Other Public: 3% Uninsured: 16% Individual: 5% Medicaid: 16% Medicare: 12% Other Public: 1% Uninsured: 17% Employer: 49% United States

Employer-sponsored insurance 10 Source: Kaiser Family Foundation ColoradoU.S. Firms offering health insurance 55% Firms offering insurance < 50 employees 43%41% Firms offering insurance > 50 employees 97%96% Employer contribution for single coverage 79%80% Employer contribution for family coverage 75%73%

But Colorado is a bit healthier than U.S. 11 Source: Kaiser Family Foundation ColoradoU.S. Infant mortality per 1,000 live births Life expectancy at birth Overweight/obese children 27.2%31.6% Overweight/obese adults 53.3%60.8% Adults with diabetes 5.7%8.3% Heart disease death rates per 100,000 pop Participate in moderate or vigorous exercise 57.0%50.9%

Health Care Cost Continuum 12 Source: Milliman USA Healthcare Cost Guidelines, 2001 Claims Probability Distribution, non-KP. 0% 20% 40% 60% 80% 100% 0%20%40%60%80%100% % of Membership % of Costs 0 % total cost 10% total cost 30% total cost % of People  1% of people 70% of people 20% of people % of Healthcare Expenditures

Buckets of wasteful spending: Behavioral = $303 billion to $403 billion wasted Clinical = $312 billion wasted Operational = $126 billion to 315 billion wasted Where we misspend $1.2 trillion in waste = 13 Source: PriceWaterhouseCoopers’ Health Research Institute

Where we misspend Behavioral ($303 billion to $403 billion wasted) Obesity ($200 billion) Smoking ($567 million to $191 billion) Non-adherence ($100 billion) Alcohol abuse ($2 billion) 14 Source: PriceWaterhouseCoopers’ Health Research Institute

Where we misspend Behavioral Obesity Smoking Non-adherence Alcohol abuse 15 The opportunities Make change easier or financially advantageous −Incentives −Easy access to coaching/advice Provide options −Healthy catering/cafeteria −Healthy communities Source: PriceWaterhouseCoopers’ Health Research Institute

Where we misspend 16 Source: PriceWaterhouseCoopers’ Health Research Institute

Where we misspend 17 Clinical Defensive medicine Preventable hospital readmissions Poorly managed diabetes Medical errors Unnecessary ER visits Treatment variations Hospital acquired infections Over-prescribing of antibiotics The opportunities Electronic Medical Records Disease registries Medical home Patient empowerment −Online access to own medical record −Access to clear information Source: PriceWaterhouseCoopers’ Health Research Institute

Where we misspend Operational ($126 billion to $315 billion wasted) Claims processing ($21 billion to 210 billion) Ineffective use of IT ($81 billion to $88 billion) Staffing turnover ($21 billion) Paper prescriptions ($4 billion) 18 Source: PriceWaterhouseCoopers’ Health Research Institute

Where we misspend Operational Claims processing Ineffective use of IT Staffing turnover Paper prescriptions 19 The opportunities Greater investment in IT Streamline regulation Investment in training and development of health care professionals Source: PriceWaterhouseCoopers’ Health Research Institute

America’s Big Cost Drivers in Health Care: ABCD’s of chronic disease... Asthma Blood pressure control (hypertension) Coronary artery (heart) disease / Congestive heart failure Diabetes Depression Modifiable risk factors: All heavily impacted by weight, diet, smoking, adherence to treatment plans, and physical activity. The opportunities 20

Prevention is part of the cure ConditionPreventive strategy Cost per individual for prevention Cost per individual for treatment Colon CancerEarly detection (colonoscopy) $1,300/procedure$14,451/year Lung CancerSmoking cessation (nicotine patch) $300/program$20,833/year Heart DiseaseExercise (gym membership) $402/year$4,215/year DiabetesNutritional counseling$50 to $200/session$2,414/year Skin CancerWearing sunscreen $11/bottle$665/visit The opportunities 21

The US (and Colorado) is predominately an employer-based system –Employers cover approximately 60% of all people in the health care system –Employers have engaged is extensive cost shifting of health care costs to employees –Employers have largely been unsuccessful in slowing the cost of health care; current focus wellness Employer-Based System 22

Health Insurance Premiums 23 Source: Centers for Medicare and Medicaid Services 23 Cumulative Changes in Health Insurance Premiums, Inflation, and Workers’ Earnings,

$1,543 $3,515 $4,247 $9,860 $5,790 $13,375 Total per family per year Worker contribution Employer contribution Employers and employees pay more: Average health insurance premiums for family plans The workplace perspective 24

State Paid $178 million in FY for Health Insurance – 71% Employees paid $71 million in FY for Health Insurance – 29% Offers a choice of two health plans to its employees –Kaiser Permanente –United Healthcare Retiree medical provided through PERA –Unfunded liability Colorado State of Colorado 25

Among All Large Firms (200 or More Workers) Offering Health Benefits to Active Workers, Percentage of Firms Offering Retiree Health Benefits, * * *Tests found no statistical difference from estimate for the previous year shown (p<.05).No statistical tests are conducted for years prior to Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, ; KPMG Survey of Employer-Sponsored Health Benefits, 1991, 1993, 1995, 1998; The Health Insurance Association of America (HIAA), Retiree Health Benefits

27 Donna Lynne, DrPH, President Kaiser Permanente Colorado Health Care Cost A Perspective December 9,