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Paying for the Boomer’s Healthcare: SHOW ME THE MONEY! 4 th Annual Health Policy Forum St. Louis, Missouri October 19, 2006 Signature Healthcare Foundation

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$ $ $ $ $ $ $ $ $ $ Boomer John Rother Director Policy & Strategy

Boomer John Rother Director Policy & Strategy

Changing Demographics 1906 Age 65+ population 4% of nation

Changing Demographics TODAY Age 65+ population has tripled (12%)

Changing Demographics 2030 Age 65+ population will double again

Boomer People over in in in We are here

As a result of size and longevity, MORE boomers will draw entitlements LONGER

Will these changes have a profound, “unsustainable” impact on the federal budget by pushing a rapid growth in federal spending for health and retirement benefits for older Americans?

Standard measure to gauge size and growth of entitlement spending is its ratio in any year to the Gross Domestic Product (GDP) How do we measure entitlement spending?

For any path of spending and revenues to be sustainable, the resulting debt must eventually grow no faster than the economy. How do we define “unsustainable”? Congressional Budget Office, The Long-Term Budgetary pressures and Policy Options, March 1997

What are the categories of entitlements? The top 10...

Projected The Categories of Entitlements Veterans Family Support Earned Income Tax Credit

2005 Entitlement Spending Social Security Medicare Medicaid Federal Retirement – civilian and military Earned Income Tax Credit SSI Veterans Benefits Unemployment Compensation Food Stamps Family Support

2005 Tax Expenditures Employer-providedHealth Insurance The hidden health entitlement 15%

Demography misses much of the story. What are the drivers of entitlement spending?

Projected No entitlement growth in 25 yrs

... With one exception, Medicare Projected

Interestingly, it does not... Does aging explain the rapid growth in federal health spending?

Per person Medicare expenditures do not rise with age Mean Expenditures Per Person for Acute and Long-Term Care From Age 65 Until Death by Age at Death Medicare

Costs for total Medicare program Billions Overall Medicare Costs Projections Source: CMS, National Health Accounts

Costs for National Health Expenditures Billions Overall Medicare Costs compared to Overall Health Costs Source: CMS, National Health Accounts Projections Costs for total Medicare program

Is the rise in national health spending due to health entitlements? No...

Medicare spending increased less than private sector ✔ ✔ ✔ ✔ ✔

What’s driving up health costs?? Healthcare by service sectors...

If costs rose equally in every sector, the distribution of increases by sector of total National Health Expenditures 1995 to 2004 would look like this:

Health cost increases in 10 years ( ) due to 4 major sectors: Source: Calculations by PPI AARP using Centers for Medicare & Medicaid Services, Office of the Actuary, CY National Health Expenditure Data Hospital Care Rx Drugs Physician & ClinicalServices Administration & Net Cost of Private Ins 27% 21% 15% 9%

What’s driving up health costs?? Economic, demographic, and technological factors...

Analysis of Cost Growth Source: National Health Expenditures Accounts: Definitions, Sources, and Methods used in the NHEA 2004, CMS General Inflation Medical Inflation above general inflation Population Growth Intensity, Volume, Technological Change & other residual factors

Intensity and volume... What’s driving up health costs??

End-of-Life Variation in Care Ratio to Minneapolis Geography & the Debate Over Medicare Reform, Health Affairs 13 Feb 2003 Wennberg, Fisher, Skinner.....

Crucial to get control of the management of chronic care... What’s driving up health costs??

Percent of Population 100% %40%60%80%100% 0% 10% of costs for 70% of people 30% of costs for 1% of people % Health Care Dollars Spent Chronic Care Management Key to a Large Segment of Cost A back-of-the-envelope representation...

Highest healthcare costs come with multiple conditions, not age Source: Partnership for Solutions, Johns Hopkins University analysis of Medical Expenditure Panel Survey 1996, unpublished data, August Average healthcare expenditures for non- institutionalized population, by age and severity of chronic conditions, disability, and functional limitations with functional limits

First, that does nothing to contain costs. Second, in terms of Medicare, the patients are already bearing about as large a burden as possible. What about more beneficiary cost-sharing??

Average Medicare out-of-pocket costs take 23% of income Figures for non-institutionalized Medicare beneficiaries only. “Out-of-Pocket” includes payments for Medicare cost-sharing, Part B & private insurance premiums, physician balance billing, and goods & services not covered by Medicare. It excludes cost of home care and long-term nursing home care. Source: AARP Public Policy Institute projections using Medicare Benefits Model, v Under 135% Poverty People in “Fair” or “Poor” health Women 85+ only ALL 65+ Average Out-of-Pocket Health Care Spending 2004

Looking at one of the four big cost growth areas – prescription drugs... Pharmaceutical prices are rising at more than double the rate of inflation Are we sure expenditures are used wisely?

Average Manufacturers’ Price Increases far outpacing Inflation Years refer to change from previous year. Source: AARP Public Policy Institute Average Percent Change Inflation 17% 40%

Distribution of Gross Revenues for U.S. Drug Companies by Expense Type Net Profit Taxes & Other Costs Cost of Production Research & Development Marketing, Advertising, & Administrative Costs Source: Compiled by the PRIME Institute, University of Minnesota from data found in DHHS, CMS, Jan 2003, and from Bloomberg, analysts models, & corporate annual reports. Presented by AARP Rx Watchdog Forum February 2005 $6

Looking at the Medicare spending for physician payments What about physician services?

Costs for physician FFS up an average of almost 10% per year Medicare Spending (dollars in billions) Source 2006 Annual Report of the Board of Trustees of the Medicare Trust Funds NOTE: Dollars do not include beneficiary co-pays

With healthcare growth unchecked (and small Social Security fixes ignored), here is the picture: And what happens if we continue, business as usual?

Tomorrow? Today Predicting Entitlement Spending

Looking at the Hospital Trust Fund alone, here is the projected cash flow...

Cash Flow of the HI Trust Fund Projected Source: Office of the Chief Actuary -SUMMARY OF THE 2005 ANNUAL REPORTS From the Social Security and Medicare Boards of Trustees Actual Will exceed income in 2012

And here is the projected Hospital Trust Fund balance...

HI Trust Fund ASSETS As a percentage of annual expenditures SOURCE: 2005 Annual Report of the Board of Trustees of the Federal Hospital Insurance Trust Fund Projected Actual

What are needed steps to reform both public and private health care?

Leadership Solutions Foster widespread, inter-operable H.I.T. Fund prevention Manage, coordinate (and pay for) quality chronic care Pursue comparative-effectiveness research for pharmaceuticals and for technology, other evidence-based medicine Target escalating Rx drug pricing Reduce costs, improve quality:

Leadership Solutions Reform payment to reward excellence –e.g. Pay for Performance Target waste and unnecessary care (misuse, overuse) Reduce toll of errors Work toward universal coverage Provide patients with decision tools Promote lifelong healthy behavior Reduce costs, improve quality:

Pay me now, or pay me later! n Either we take steps now to aggressively reform healthcare, even if there are short-term investment costs n Or, we will pay more in the long-run, as taxpayers, as patients, or– suffering reduced resources and income– as providers $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

Pay me now, or pay me later! n Either we take steps now to aggressively reform healthcare, even if there are short-term investment costs n Or, we will pay more in the long-run, as taxpayers, as patients, and as providers n Either we take steps now to aggressively reform healthcare, even if there are short-term investment costs n Or, we will pay more in the long-run, as taxpayers, as patients, or as providers suffering reduced resources and income Pay me now, or pay me later!

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