1. System Wide Strategies: Controlling Costs Health Care Coverage in Hawaii Turning Point or Tipping Point October 17, 2005 Enrique Martinez-Vidal Deputy Director RWJF’s State Coverage Initiatives program

2. National Health Spending in Billions Note: Selected rather than continuous years of data are shown prior to 2000. Years 2004 forward are CMS projections. Source: Centers for Medicaid and Medicare Services (CMS), Office of the Actuary.

3. Note: Selected rather than continuous years of data are shown. Years 2004 forward are CMS projections. Source: Centers for Medicaid and Medicare Services (CMS), Office of the Actuary. National Health Spending as a Share of Gross Domestic Product

4. Average Annual Growth Rate in National Health Expenditures Note: Selected rather than continuous years. Source: Centers for Medicare and Medicaid (CMS), Office of the Actuary.

5. Source: Centers for Medicare & Medicaid Services, Office of the Actuary. Note: Other = Durable Medical Equipment, Other Non-durable Medical Products, Public Health Activity, Research, Construction. Spending Distribution by Category, 2003 (Total Spending = $1.7 Trillion)

6. Share of Health Care Spending vs. Share of the Increase, 2003 Note: Health spending categories total to National Health Expenditures. Source: Centers for Medicare and Medicaid Services (CMS).

7. Annual Growth in Private Health Insurance Premiums as Reported by Employers KFF/HRET Survey of Employer-Sponsored Health Benefits: 2004. Data on premium increases reflect the cost of employer-based health insurance coverage for a family of four. Percent increase represents the growth over the immediate prior year.

8. Total Health Care Spending as a Share of GDP YearPercent of GDP if health care spending grows 2.5 percentage points faster than GDP Percent of GDP if health care spending grows 1.0 percentage points faster than GDP 200515.6 202021.619.8 203027.621.9 204035.224.1 Source: Henry J. Aaron, Brookings Institution, “It’s Health Care, Stupid! Why Control of Health Care Spending is Vital for Long-Term Fiscal Stability,” Paper presented to the Conference of the Federal Reserve Bank of Boston, June 15, 2005.

9. Medicare and Medicaid Spending as a Share of GDP (includes State share of Medicaid spending) YearPercent of GDP if health care spending grows 2.5 percentage points faster than GDP Percent of GDP if health care spending grows 1.0 percentage points faster than GDP 2005 4.2 2020 7.8 6.5 2030 11.5 8.4 2040 16.1 10.1 Source: Henry J. Aaron, Brookings Institution, “It’s Health Care, Stupid! Why Control of Health Care Spending is Vital for Long-Term Fiscal Stability,” Paper presented to the Conference of the Federal Reserve Bank of Boston, June 15, 2005.

10. Percent of Median Family Income Required to Buy Family Health Insurance Source: Calculations by Len Nichols, using KFF and AHRQ premium data, CPS income data.

11. Labor Market Realities OccupationFamily premium/Median wage Physician 7.3% History professor15.8% Secretary 29.1% Carpenter24.2% Cook49.8% Source: KFF premium and BLS wage data.

12. Distribution of Health Spending, Adults Ages 18-64, 2001 Source: Employee Benefit Research Institute estimates from the 2001 Medical Expenditure Panel Survey.

13. Long-term Drivers (1) Transition to Looser Managed Care Provider Consolidation and Pushback Provider Capacity Constraints  Patient Reporting More delays, unmet need  Physicians working longer hours  ER Overflow, patient diversion  Shortages of nurses and staffed hospital beds

14. Long-term Drivers (2) Financing System  Third-party payers with no predetermined/defined limits  Relatively low patient out-of-pocket costs  Payment system pays more to providers to deliver more services  Limited information about the effectiveness of tests/procedures/drugs/etc. Advances in medical technology  Provide better outcomes  Same outcomes but less pain or shorter recovery  Lower unit costs (but higher utilization ) Increased resources in medical care  More physician specialists  More facilities

15. Long-term Drivers (3) Rising Prevalence of Treated Disease Lifestyle changes  Obesity (linked to rising rates of diabetes, hyperlipidemia [i.e., high cholesterol], hypertension, heart disease) Direct-to-Consumer Marketing  Associated with Strong Sales of Key Drugs (Lipitor, Nexium, Zocor, Norvasc, Prevacid) “Oversold” drivers  Population aging (debatable)  Professional liability/medical malpractice  Mandated benefits

16. Types of Possible Remedies (1) Purchasing to Improve Quality/Patient Safety  Pay for performance  Tiered networks  The Leapfrog Group Purchasing Strategies to Reduce Costs  Pooled purchasing, rebates, etc Wellness Programs Disease Management Information Technology Evidence-Based Medicine Improve Efficiency (i.e., appropriate care settings)

17. Types of Possible Remedies (2) Consumer-Related Strategies  Changes to Consumer Cost Sharing  Consumer Education (Performance Guides, Cost Transparency)  Consumer-Directed Health Care Supply Controls  Ration Services, CON, professional supply, technology diffusion Price Controls  Hospital Rate Regulation  Public Program Payment Formulae  Use Monopsony Power of State

18. Current Employer Strategies for Offering Insurance Compete for labor, most of whom expect ESI Impose more employee cost-sharing  Higher percentage of premium  Less generous coverage More cost-sharing at point of service (higher co-insurance or copays) Reduced benefits Limit choice of providers  Consumer-Directed Health Care Demand more quality/accountability initiatives  Information (quality/cost)  Disease / care management

19. Long-Term Options for Coverage Promote evidence-based medicine Promote private coverage expansions Be prepared to increase public financing for those unable to pay

20. Long-Term Options to Control Costs Develop Approaches to Drive Administrative & Clinical Waste from System—new roles for patients, providers and health plans Create Incentives for Physicians, Bio-Tech/Pharma/Device Industry to Develop High Benefit-Lower Cost Approaches Focus on Care Management for Chronically Ill Patients Will Require Substantial New Investment in:  Evidence-Based Data, Incentives to Use It  Restructuring How We Deliver Care (IOM Style Models)  New payment incentives that pay for quality and performance. Medicare could pay a key role here.

21. Conclusion Recent decline in cost trends appears to be leveling Today’s cost trends continue to make insurance less affordable and strain public finances Current efforts to contain costs emphasize additional patient cost sharing and hopes for increased efficiency