Living in a Time of Uncertainty Jerome H. Grossman, MD Director, Health Care Delivery Policy Program Harvard University JFK School of Government Presented to the 6 th Annual Mayo Foundation Managed Care Leadership Conference August 17, 2004

Politics The Incumbent The Challenger The Public “Common Good”

Sectors Financing Insurance Providers % of the GNP

Financing COMMERCIAL Increasing copay/deductible Decreasing benefits Increased pay for premium RESULT Decreasing total compensation

Coverage Trends for Nonelderly Americans Source of Coverage Employer65.1 % 66.0 % 67.0 % 63.4* # Other Private *5.5# Public Insurance * * # Other Coverage *3.94.2# Uninsured *15.0 Notes: Other private includes private nongroup insurance and private insurance obtained through someone outside the family. Public includes Medicaid, SCHIP and other state programs but not Medicare. Other coverage includes Medicare, military insurance, Indian Health Service and miscellaneous other coverage. * Change from previous round is statistically significant at p <.05. # Change from is statistically significant at p <.05. Source: HSC Community Tracking Study Household Survey

Financing RETIREES Will corporations slow the move to fixed contributions or total elimination of health benefits in spite of incentive to continue? MEDICARE MODERNIZATION ACT Will Prescription Benefit Bill succeed? Will Medicare Advantage (HMO) increased payment cause insurers to offer plans and will there be subscribers? (once burned, twice shy)

New Entry HSA High deductible/catastrophic $1000-$2000 per individual $2000-$5000 per family Person/corporation can make triply tax-free deposit into health savings account Are health care premiums moving from defined benefit to defined contribution?

Insurance CONSOLIDATION 5 public/private companies control market Will insurance companies succeed with disease management? Will consumer defined plans shift risk? ASSET MANAGER/401K COMPANIES Becoming outsourcers of human resources departments Is health insurance moving to 401K-like programs (HSA)?

Providers: Brief History of the Recent Period DRGS result in first round of consolidation Anticipation of “Clinton Plan” causes frenzy of “vertical integration” Corporations force employees into HMOs and premiums decline Balanced Budget Act Bottom drops out of medical subsidization of below cost HMO prices

2000’s ADMISSION GROWTH Initial belief that baby boomers would cause 5.6% not born out – really 1-2% Further decrease comes from growth of specialty hospitals in cardiology and orthopedics 5.6% 1-2% Expectation Reality

Providers The transfer of high profit services (such as cardiology and orthopedics) to private for-profit hospitals leave traditional community hospital with money-losing services (especially emergency room), decreasing net income Simultaneously, the growth in the uninsured and the size of copay and deductible are causing a significant rise in bad debt, further weakening income INCOME Now Future

Impact on GDP Distorting mix of government and private spending No realization that one can “engineer” the fragmented and dysfunctional health care delivery system Focus on safety, quality and covering the uninsured, seem important, but not critical strategies to control costs Engineering the system will require wrenching organizational change – and will take decades, but if we don’t recognize that reality and begin vigorously organizing projects and programs, the problems will never be solved