The Health Care Landscape Before and After the ACA Bill Evans University of Notre Dame 1

Two Goals What are the issues that any health reform proposal must address? How did the ACA deal with these issues? 2

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

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Uninsured Non-Elderly by Work Status of Family Head,

Problems for small firms Large firms typically self insure – act as their own insurance company Small firms must purchase insurance in the market Much higher cost – Do not benefit from large insurance pools – Higher administrative costs – Pay profits – Adverse selection 7

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

Expenditures on Health Care Actual, 2010 $2.6 trillion on HC $8,402 per capita 17.9% of GDP Projected, 2021 $4.7 trillion $14,102 per capita 29.6% of GDP 9

10 87% more than Canada 143% more than UK

Average Annual Premiums Covered Workers, 2011 Individual plan – $5,429 total Family plan – $15,073 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) – About 30% higher than both Canada and UK 13

Are high expenditures a bad thing?? A key driver of health care costs is technology New technologies are effective but expensive Many technologies NOT available 30 years ago are commonplace today – MRIs/CT scans, angioplasty, anti-psychotropic drugs, hip/knee replacements, neo-natal intensive care, treatments for AIDS, statin drugs Health care is the ONLY industry where a growing fraction of GDP is considered BAD 14

Medical Successes ARVs reduced AIDS mortality by 70% NICU’s reduce neonatal mortality among very low birth weights infants by 42% Lipitor reduces LDL by 39-60%, reduces all cause mortality by 12% 30-day survival rates for heart attack patients admitted to the hospital fell 17%

Where would you rather be treated for a disease: US or elsewhere? 16

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

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If you want to cut costs, where? Administrative/overhead – 3% in Canada (single payer) – 1.5% in Medicare – 8-30% in US system overall Chronic conditions – Spending is heavily concentrated in a small % of population 19

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If you want to cut costs, where? Administrative/overhead – 3% in Canada (single payer) – 1.5% in Medicare – 8-30% in US system overall Chronic conditions – Spending is heavily concentrated in a small % of population Unnecessary/end of life care – ¼ of Medicare $ are in last year of life 21

22 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 must health care reform address? Access Cost (both the level and rate of inflation) Medicare Tax equity 23

Medicare million recipients $524 bill. exp. 3.2% of GDP 16% of fed. budget million recipients 6% of GDP 24

Medicare Sources as % of GDP 25 Unfunded portion Of Medicare Will equal 2% of GDP

Future problems Rising costs Rising number eligibles People are living longer – Older people spend a lot more on health care Falling fraction of people to tax 26

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

Tax Preferred Status of Health Care EPHI a tax-free fringe benefit WW II era program Greatly reduces costs of HI to consumers – But encourages more generous coverage Has encouraged the growth of EPHI – Few had insurance before the benefit – Now 170 million have EPHI Helps solve the problem of adverse selection 32

Tax Benefit of EPHI A family w/ $70,000 in income 37% marginal tax rate – 25% federal – 4% state – ~8% Social Security and Medicare Want to purchase $12,000 policy in AFTER TAX DOLLARS 33

Without tax advantage: Receive $19,047 in income Pay 37% or $7,047 in taxes $12,000 left over for health insurance Net benefit of tax deduction is $7,047 34

Inequalities Costs Fed. Govt. $250 billion/year Tax break only available to those w/ ins. – More likely high wage workers Tax benefit greatest for high income as well – Paying higher marginal rates Regressive tax – Benefits are much higher in upper income groups 35

Patient Protection and Affordable Care Act An outline and some likely outcomes 36

Overview Mainly a coverage bill Builds out from existing system – Tries to fill in the gaps in coverage Large scale insurance industry reform – Community rating – Eliminate pre-existing conditions 37

Coverage expansions achieved through Individual mandate (tax of 2.5% of AGI) Pay or play -- employer mandates Expand Medicaid to include higher income groups 38

Coverage expansion (continued) Provide tax credits for the low income in individual market Tax credits for small firms to provide insurance Establish health insurance exchange where people can purchase group insurance 39

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 – they would exit Mandatory coverage forces low cost users into the system, helps subsidize high cost users 40

Impact on Uninsured Reduce uninsured by 32 mil. in 2019 (60%↓) Leaves another 23 mil. uninsured Hispanics will be over-represented in the uninsured 41

Balance Sheet – CBO What the program buys Expand private$ 464 Expand public$ 434 Small firm credit$ 37 Total$ 935 How it is paid for ↑ taxes$ 454 ↓Mcare/caid $ 368 Other $ 255 Total$1077 $142 billion ↓ deficit 42 In Billions of $

Does it reduce the deficit? $40 billion in savings was due to CLASS act – Long term care programs – Takes in revenues for 6 years before any benefits paid out – Financially not viable and has since been dropped Rosie scenario about future Medicare cuts – 27% fee cut set to go into effect in Jan of 2013 – Automatic reductions in fees if growth is too high 43

Medicare Board of Trustees “It is important to note that the actual future costs of Medicare are likely to exceed those shown by the current law projections…We recommend that the projections be interpreted as an illustration of the very favorable financial outcomes that would be experienced if the productivity adjustments can be sustained in the long run.” 44

More general point It was necessary to do something about the future costs of Medicare ACA did attack these costs – but – the savings were then paid out in benefits If the concern is the overall fiscal health – we have not improved 45

What is missing? Cost controls 46

Add 32 million people to the market with excellent insurance coverage Modest attempt at cost controls – Accountable Care Organizations No effort to change supply – Should increase price – Could be a lot worse With Medicare/Caid cuts, may discourage some providers from participating in program 47

Winners Uninsured – affordable high-quality insurance now available Workers at small companies – Now have access to group market – Heavy subsidies for low income 48

Hospitals/Rx/Medical Technology – Insure 32 million more people – Sicker than average group (holding age constant) – With insurance, they will start to use services – Evidence: Stock prices of these firms increased every time bill moved closer to passage Market is evaluating the bill as helping suppliers 49

Losers Medicare advantage – Frozen reimbursements levels Small group market – this portion of market will not exist in a few years Workers with high cost plans Tanning salons Generic drug manufacturers State budgets in some states 50

Where is the uncertainty? How will Medicare cuts impact providers? Can ACO’s reduce growth of costs? What is a qualified plan? Can exchanges constrain costs? How many people will get subsidized coverage? – Will not necessarily change who has coverage – but will change who pays for it 51

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Pay or play Firms w/ >50 employees must offer qualified health insurance or 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? 53

Small Firms 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 low-income uninsured As a result…. 54

May make sense for small firms with low wage workers to – drop coverage – have workers pick up subsidized insurance via exchange Workers would get – Wage hile – Reduced health insurance costs Increase federal costs of program 55

56 Age $ Not Obese Obese A B C Age 1 Age 2