Health Reform and Cost Control

To:National Academy for State Health Policy

By:John Sheils

October 16, 2008

© Ingenix, Inc. 2

Limits on Family Premium Payments as a Percentage of Income – Massachusetts Model

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

$0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 $110

2.3%

3.7%

4.5%

5.5%

6.5%

7.5%

2.8%

4.3%

5.3%

6.3%

7.5%

8.6%

Annual Income in Thousands

Individuals

Families 3+

No Limit

No Limit

0%0%

© Ingenix, Inc. 3

Cost of Capping Premium Payments as a Percentage of Income Under a Mandate for All to Have Coverage

Premiums at 50th Percentile

Health Plan

Single $4,397

Married Couple $8,794

Married with Children

$10,824

One Parent $8,165

Impact of Limiting Premiums as a Percent of Income in

2008

Program Costs 2008

$109.1 billion

Families Receiving Subsidies in 2008

20.8 million

© Ingenix, Inc. 4

Projected Rates of Growth in Health Spending and Wages Based Upon OACT Projections

7.9% 7.8%

6.7% 6.7%6.5%

3.7%3.4%

3.8% 3.8% 3.8%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2004 2006 2008 2010 2012 2004 2006 2008 2010 2012

Health Spending Growth Wage Growth

a/ Wage growth assumed to be equal to CPI + 1.0 percent.See: National Health Expenditures Accounts; Office of the Actuary of the Centers for Medicare and Medicaid Services (CMS).

© Ingenix, Inc. 5

Federal Cost of Limiting Family Premium Payments to a Percentage of Family Income Using Massachusetts Limits

$0

$50

$100

$150

$200

$250

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

$109.1$119.0

$129.8$141.5

$154.2$167.9

$182.9

$199.2

$216.9

$236.1Ten Year Cost:

$1.66 Trillion

© Ingenix, Inc. 6

Cost of Limiting Family Health Insurance Premiums to a Percentage of Income Under Alternative Cost Growth Assumptions

Ten Year at 8.3% Growth:

$1.78 Trillion

Ten Year at 7.3% Growth:

$1.66 Trillion

Ten Year at 6.3% Growth:

$1.54 Trillion

$109.1$119.0

$129.8

$141.5

$154.2

$167.9

$182.9

$199.2

$216.9

$236.1

$107.8$116.2

$125.2$134.9

$145.4

$156.6

$168.6

$181.6

$195.5

$210.4

$110.5

$121.2

$134.5

$148.2

$163.4

$180.0

$198.2

$218.1

$240.0

$263.9

$100

$140

$180

$220

$260

$300

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

© Ingenix, Inc. 7

Estimated Factors Driving Health Spending Growth: 2001-2005

Percent of Total Growth

Volume and Intensity

Excess MedicalInflation

(provider prices) a/

Utilization/Intensity a/

Demographics

GeneralInflation

PopulationGrowth

39.0%

61.0%49.7%

32.7%

12.8%

4.8%

Average Annual Rate of Growth = 7.8%

a/ Estimated split by excess medical inflation and utilization/intensity is based upon data published by OACT of CMS.Source: The Lewin Group analysis of data from the Centers for Medicare and Medicaid Services, Office of the Actuary.

Volume and Intensity

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The Health Savings Account (HSA) Model for Wisconsin

All Residents Enrolled in HSA Except Medicare and

Medicaid

High Deductible Plan $1,200

HSA Contribution $500

Percentage of Total Health Spending in Excess of Selected Deductible Amounts for Non-

Aged

Deductible Amount

Percentage Over Deductible Amount

$1,000 83.8%

$1,200 WHP 81.7%

$2,000 73.3%

$3,000 65.5%

$4,000 59.4%

$5,000 54.3%

$6,000 49.9%

$7,000 46.2%

$8,000 42.9%

$9,000 40.1%

$10,000 37.5%

Impact on Spending

Spending for Covered Group

$19.5 billion

Estimated Heath Expenditure Savings of 2.1 percent

$403 million

© Ingenix, Inc. 9

Quality of Care: Over Use and Under Use of Health Services

Uti

liza

tion

Cost

Under Users of Care Over Users of Care

Mode of Medical Practice

© Ingenix, Inc. 10

Health Expenditures for 11 Conditions Suitable for Patient Decision AIDS (PtDA) for Medicare Beneficiaries

Condition

Total in Spending

2008 (billions)

Share of Care Subject to

PtDA

Estimated Percent

Savings from PtDA

Atrial Fibrillation $21.7 4.4% -29.4%

Hypertension $30.4 38.2% 5.4%

Tube Feeding in Dementia $10.7 4.1% 39.0%

Chronic Obstructed Pulmonary Disease

$6.6 0.2% 19.2%

Colon/Rectal Cancer $8.2 23.4% 41.0%

Prostate Cancer $11.9 14.7% 8.9%

Hysterectomy $3.1 18.7% 16.1%

Benign Prostate Hyperplasia $1.0 3.1% 0.7%

Lower Back $53.0 18.4% 20.3%

Angina $12.2 1.2% 11.9%

Breast Cancer $11.1 0.2% 2.1%

Potential Savings: $3.8 billion Per Year

© Ingenix, Inc. 11

Impact of Clinical Guidelines Research with Financial Incentives to use Evidence-Based

YearSpending on

Chronic Conditions

Percent of Care With Evidence Based Research Savings from

Chronic Disease

ManagementCurrent LawWith Increased

Research

2008 $1,004.1 27.4% 28.2% 1.1%

2012 $1,316.2 37.0% 41.4% 1.6%

2017 $1,834.0 49.0% 58.8% 2.3%

Annual Funding for Research: $450 millionPatient Incentive: Lower Co-pays for Evidence Based CareProvider Incentive: Lower Payment where Care is not IndicatedChronic Care Management Savings: $10 - $20 billion Per Year

© Ingenix, Inc. 12

Health Information Technology

Electronic Medical Records (EMR) – Access to all patient care

Computer Assisted Clinical Decision Support – Evidence Based Medicine

Computerized Practitioner Order Entry (CPOE) Systems – Reduced errors

Interoperable EMR – access to EMR across patient caregivers

Savings Under Current Trends (i.e., in baseline)

-10%

10%

30%

50%

70%

90%

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

Perc

en

t P

en

etr

ati

on

$77 billion in annual savings

Adoption rate base on Bower (2005), “Diffusion and Value of Healthcare Information Technology”, Rand corporation 2005, MG-272.

© Ingenix, Inc. 13

Medical Home with Primary Care Case Management

Medical Home Model Savings

Required to declare Medical Home: no gate keeping incentives

None

Higher copay for specialty services without referral a/ 4%

Primary Care Case Management b/ 4%

a/ Based on IPA HMO utilization savings.b/ E.T. Moriany et al., “A Cost Analysis of the Iowa Medicaid

Primary Care Case Management Program”, HSR, August 2006.

0.0% 0.0% 0.2% 0.6% 1.0% 1.8% 3.3%6.9%

17.4%

68.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

1 2 3 4 5 6 7 8 9 10

Decile Ranking of Beneficiaries from Least Costly to Most Costly

Source: The Lewin Group estimates using the Health Benefits Simulation Model (HBSM).

© Ingenix, Inc. 14

International Comparison of Spending on Health, 1980 - 2004