Mili slides schoenman

A Detailed Look at
U.S. Health Care Spending

Julie A. Schoenman, Ph.D.
National Institute for Health Care Management Foundation

Medical Industry Leadership Institute
Actuarial Seminar Series
October 25, 2012

What We Will Cover Today

1.  Big Picture Orientation

2.  Distribution of Personal Health Care Spending

3.  Spending through Government Entitlement
Programs

4.  Spending through Private Health Insurance

5.  What’s Behind the High and Rising Spending?


1. Big Picture Orientation

Programs



Total National Health Spending
Continues to Increase
3 $8,402 $9,000
$8,149
National Health Expenditures (trillions) $7,911
$7,628 $8,000
2.5
Per Capita Health Spending $7,251
$6,868 2.6
$6,488 2.5 $7,000
$6,114 2.4
$5,687
2.3
2 2.2 $6,000
$5,241 2.0
$4,878
$4,601 1.9
$4,367 1.8 $5,000
$4,169
1.5 1.6
1.5 $4,000
1.4
1.3
1 1.1 1.2 $3,000

$2,000
0.5
$1,000

0 $0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
% GDP 13.7% 13.7% 13.8% 13.8% 14.5% 15.4% 15.9% 16.0% 16.1% 16.2% 16.4% 16.8% 17.9% 17.9%

NIHCM Foundation analysis of data from the National Health Expenditure Accounts.

U.S. Health Spending is a Dramatic
Outlier Internationally
United States
Netherlands
17.4
France
Germany
Denmark
Switzerland
Canada
Austria
Belgium
New Zealand
Sweden
United Kingdom
Iceland
Norway
Spain Most developed
Italy
Ireland
countries spent
Slovenia
Finland
~9.5 to 12% of
Slovak Republic GDP on health
Chile
Czech Republic care in 2009
Israel
Luxembourg
Poland
Hungary
Estonia
Korea
% GDP, 2009
Mexico

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0
NIHCM Foundation analysis of data from the Organisation for Economic Cooperation and Development.

U.S. Spends More than Expected
Based on Our Wealth
$9,000
United States
Per Capita Health Spending, 2009

$8,000

$7,000
Chile, Mexico, Poland,
$6,000 Estonia, Hungary, Switzerland Norway
Slovak Republic, Czech Luxembourg
$5,000
Republic, Korea, Israel,
$4,000 Slovenia, New Zealand

$3,000

$2,000 Spain, Italy, France, Finland, United Kingdom,
Belgium, Germany, Iceland, Sweden, Denmark,
$1,000 Canada, Austria, Ireland, Netherlands
$0
$10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000
Per Capita GDP, 2009

NIHCM Foundation analysis of data from the Organisation for Economic Cooperation and Development.

What Does $8,400 Per Person Buy?
Public Health, Investment, $483 16% of spending
Administration, $267 ($1,320) is not
$570 related to personal
health care services

Rx, DME & Hospital Care,
Other Medical $2,637
Products, $1,106

84% of spending
Home Health & ($7,080) is for
LTC, $1,107 MD & Clinical personal health
Services, $1,670
Dentists & care services
Other Health
Professionals,
$560
NIHCM Foundation analysis of data from the 2010 National Health Expenditure Accounts.

Health Spending Growth has Slowed,
But Usually Outpaces GDP Growth
16
Health Spending
14 GDP
12
Percent Change from Previous Year

Lowest growth rates in history of
10 National Health Expenditure Accounts

8

6

4

2

0
1961 1966 1971 1976 1981 1986 1991 1996 2001 2006
-2

-4


Historically, Health Spending Has Grown
1.0 - 2.5 Percentage Points Faster than GDP
Pct. Points
3.0
1975-2008 1980-2008 1985-2008 1990-2008
2.5
Average Annual Rate of

2.5
“Excess” Cost Growth

2.0 2.2
2.0
1.9 1.9 1.9
1.8 1.8 1.8
1.5 1.7 1.7
1.5
1.4 1.4
1.0 1.2
1.0
0.5

0.0
Medicare Medicaid All Other All Health Spending
HealthSpending

NIHCM Foundation analysis of information presented in CBO’s “The Long-Term Budget Outlook.” Revised August 2011.

The Recent Slowdown in Spending
Temporary Blip or Systemic Change?
•  Continuation of slowdown underway since 2002
•  Factors related to recent slowing in spending:
o  Recession
ü  Massive loss of jobs and employer-sponsored insurance
ü  Declining real income, substantial loss of wealth, people more cautious about spending
ü  Reduced demand for health care services, even among those with insurance
o  Drugs – ongoing shift to generics, expiring drug patents, fewer new drugs coming on line
o  Medicare – provider payment cuts, stabilization in Part D enrollment
o  Medicaid – provider payment cuts, higher drug rebates, benefit restrictions
o  Ongoing shift to policies with more cost-sharing, employees paying higher share of rising
premiums

•  Factors likely to affect future spending:
o  Economic recovery, pent-up demand for health care, higher need due to delayed care
o  ACA - 2014 coverage expansions and other industry changes
o  Aging population
o  Delivery/payment system changes emphasizing paying for value, informed consumers
o  Ongoing consolidation among providers
Sources: Martin et al. “Growth in US Health Spending Remained Slow in 2010; Health Share of GDP Was Unchanged from 2009.” Health
Affairs, 31(1):208-19, Jan. 2012 & McKinsey Center for U.S. Health System Reform. “Accounting for the Cost of U.S. Health Care.” Dec. 2011.

2011 Uptick
Return to Higher Spending Growth, or Not?

Altarum analysis of monthly health spending data from the Bureau of Economic Analysis.

A Growing Share of National Health
Spending is From Public Sources
100%
Other Private Revenues
90%

80% Private
Households
70%
Private Sources
Sources = 55%
60% = 68%
50% Private Business
40%

30%
Public Federal Government Public
20% Sources Sources
= 32% = 45%
10%
State and Local Government
0%
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009


A Closer Look at Public & Private
Health Care Spending, 2010
Private Sources (55%) Public Sources (45%)
Total Spending by Private Sources $1,430 B Total Spending by Public Sources $1,164 B

Private Business (20.6%) Federal Government (28.6%)
Private Health Insurance Premiums $414.1 Private Health Insurance Premiums $28.5
Medicare Payroll Taxes $79.7 Medicare Payroll Tax $4.0
Workers Compensation, Disability Direct Medicare Program Spending $254.0
Insurance & Worksite Health $40.7
Direct Medicaid Program Spending $278.1
Households (28.0%) All Other Health Spending $178.0
Private Health Insurance Premiums $263.1
State/Local Government (16.2%)
Medicare Payroll Taxes and Premiums $162.8
Private Health Insurance Premiums $134.1
Out of Pocket Spending $299.7
Medicare Payroll Tax $11.4
Other Private Sources (6.6%) Direct Medicaid Program Spending $135.9
Philanthropy, Investment, Etc. $169.9 All Other Health Spending $139.6

Source: NIHCM Foundation analysis of data from the National Health Expenditure Accounts.



2. Distribution of Personal Health
Care Spending
Programs

A Word about Data Sources

National Health Expenditure Accounts Medical Expenditure Panel Survey
(NHEA) (MEPS)
Synthetic database derived from myriad Annual survey of households about
secondary sources their health spending
Covers total US population, including Covers civilian, non-institutionalized
military, nursing home residents, etc. population
Includes expenditures beyond personal Designed to capture payments from all
health care services (e.g., public health, sources (public, private, self-pay) for
research, investments in infrastructure, personal health care services
administration)
Latest available year is 2010 Latest available year is 2009
Total spending reported = $2.594T Total spending reported = $1.259T

Relatively Few People Account
for Most Personal Health Spending
100 100.0

90 Top 1% of spenders account for >20% of spending ($275 billion)
Cumulative Percent of Total Spending

80 78.2

70 Top 5% of spenders account for almost half of spending ($623 billion)
60

50 Total Personal Health Care Spending
50.5

= $1.259 Trillion
40
34.8
$36 Billion $1,223 Billion
30
18.8
20
10.4
10 5.6
1.3 2.9
0.0 0.1 0.4 95 99
0 15.4
0 10 20 30 40 50 60 70 80 90 100
Percent of Civilian Non-Institutionalized Population Ordered by Health Care Spending

NIHCM Foundation analysis of data from the 2009 Medical Expenditure Panel Survey.

Greatest Potential for Savings
Focus on High Spenders
$100,000
Total spending by top 1% $90,061
$90,000 = $275 billion
$80,000
Mean Annual Expenditure

$70,000 Total spending by top 5%
= $623 billion
$60,000
Total spending by top 10%
$50,000 = $821 billion
Total spending $40,682
$40,000 by bottom 50%
$30,000 = $36 billion $26,767

$20,000
$12,265
$10,000
$7,980
$236
$0
Lowest 50% Top 50% Top 30% Top 10% Top 5% Top 1%
30.7M pop. 15.3M pop. 3.06M pop.

Percent of Civilian Non-Institutionalized Population Ordered by Health Care Spending


High Spenders are Older
100% 1.4
2.7
90% 7.0
21.1 24.8
12.5
80% 75+
70% 14.0 17.1 65-74
15.1
55-64
60%
45-54
50% 27.8 22.1
26.1 35-44
40% 19-34
30% 16.2 0-18
13.2
20% 8.7
34.5 7.3
10% 8.5 5.9
6.3 7.6
0%
Lowest 50% Top 5% Top 1%

High Spenders
Report Worse Health
100% 0.8
4.3
90% 18.5
26.0
22.1
80%
70% 25.2
Poor
60% 31.4
32.3 Fair
50%
Good
40% 28.9
Very Good
30% 23.4
Excellent
20% 40.4
19.9
10% 13.4
7.5 5.8
0%
Lowest 50% Top 5% Top 1%


High Spenders Have More Chronic
Conditions & Functional Limits
100% 1.9 1.3
3.4
90% 8.2
31.5
80%
Functional limitation only
70% 36.5
Chronic condition, help with
60%
ADLs
50% 28.9
Chronic condition, functional
limitation
40%
Chronic condition only
30%
50.0 30.9
20% No chronic condition, no
functional limitation
10%
7.4
0%
Other 95% Top 5% Spenders

NIHCM Foundation analysis of data contained in The Lewin Group, "Individuals Living in the Community with Chronic
Conditions and Functional Limitations: A Closer Look," January 2010.

Considerable Persistence in
Spending Patterns Over Two Years
80%
73.9% 75.0%
Percent with Same Ranking in 2009

70%
63.1%
60% 54.4%
50% 44.8%
40%
38.0%

30%
20.0%
20%

10%

0%
Bottom 50% Top 50% Top 30% Top 20% Top 10% Top 5% Top 1%
Percentile Rank by Health Care Spending, 2008
Source: Cohen SB and Yu W. "The Concentration and Persistence in the Level of Health Expenditures over Time: Estimates for the U.S.
Population, 2008-2009." Agency for Healthcare Research and Quality, Statistical Brief #354. January 2012.

Persistent High Spenders:
Older People & Those Whose Health Remains a Problem

Age (end of 2009) Health Status (end of 2008)
100 100 6.1
90 19.2 90
13.2 24.8
80 42.9 80

70 70
26.4 65+ 27.3 Excellent
60 45-64 60 30.9 Very Good
50 30-44 50 Good
27 18-29 40 Fair
40
40.1 29.6
0-17 Poor
30 30 26.9
20 16.6 20

10 10.6 3.1 10 23.9 14.1
3.4 10.9 3.3
0 0
Top 10% in both years Top 10% in 2008, Top 10% in both years Top 10% in 2008,
Bottom 75% in 2009 Bottom 75% in 2009

Of top 10% of spenders in 2008:
44.8% remained in top 10% and 25.4% moved to the bottom 75% in 2009
Source: Cohen SB and Yu W. "The Concentration and Persistence in the Level of Health Expenditures over Time: Estimates for the U.S.
Population, 2008-2009." Agency for Healthcare Research and Quality, Statistical Brief #354. January 2012.

Long-Term Persistence of High Spending
Among Medicare Beneficiaries
100

90
Bottom 75% Top 25%
80
Died by Jan. 1 Not in FFS
70

60

50

40

30

20

10

0
1993 1994 1995 1996 1997 1998 1999 2000 2001
Source: Congressional Budget Office. “High-Cost Medicare Beneficiaries.” May 2005.

Challenges of Controlling
Costs Among High Spenders
•  Chronic health problems and persistence in high spending imply a role for disease
management. But…
•  many of the same chronic problems are also highly prevalent in lower-spending groups,
especially among the elderly
•  accurate prospective targeting of those who can most benefit from disease management can
be tricky

•  Managing high spending at the end of life can be problematic
•  not all with high spending will die soon
•  predicting timing of death and distinguishing between care that could extend life in a
meaningful way and care that does little good is often very difficult
•  societal reluctance to discuss end of life care, fears of rationing

•  Not all high spending is predictable or persistent.
•  hard to control the random events
•  may be able to manage some episodes more efficiently (e.g., clinical pathways for cancer)




3. Spending through Government
Entitlement Programs


Government Health Entitlement Programs
36 Percent of National Health Spending in 2010
Investment, 6%
Public Health, 3%
Other Third Party
Payers & Programs, Out of Pocket,
7% 12%
DOD & VA, 3%

Medicaid & CHIP = Private Health
$413.1B, 16% Insurance, 33%

Medicare = $524.6B,
20% 2010 Total Spending = $2.594 T


Government Health Entitlement Programs
21 Percent of U.S. Federal Spending in 2011
Federal Revenues Federal Spending ($3.598T)
($2.302T, excluding borrowing) 6% Net Interest
18%
Non-Defense
Discretionary
19% Defense
6% Discretionary
Other Revenue
15% Other Mandatory
23% Spending
Payroll Taxes
Social Security
5% 20%
Corporate Income
Taxes Medicaid & Other
30% 8% Health Entitlements
Individual Income 21% 13% Medicare
Taxes
Borrowing (Deficit)

36%

NIHCM Foundation analysis of data from CBO’s “The Budget and Economic Outlook: Fiscal Years 2012 to 2022,” Jan. 2012.

Structure of the Medicare Program
PART A •  Hospital Insurance (HI) Trust Fund
Inpatient & •  Mandatory program
Post-Acute Care •  Eligible if > 40 quarters of covered employment (self/spouse)
•  Payroll tax, SS income tax if high income, premiums if
buying into program, interest on Trust Fund reserves

PART B •  Supplemental Medical Insurance (SMI) Trust Fund
Physician & •  Voluntary programs
Outpatient Care •  Premiums from enrollees (~25% of program costs)
•  Fees on manufacturers/importers of brand name drugs (B)
PART D •  Transfers from state Medicaid programs (D)
Outpatient Rx •  General revenues (balance SMI Trust Fund each year)

PART C •  Capitated arrangements with private health plans
Managed Care •  Financed from both trust funds

Current Claims on the Part A Trust
Fund Require General Revenues
% of Taxable Payroll
7%
A Pay-As-We-Go System
Part A Expenditures
Part A Operating Deficit: Baby boomers retiring
6% ~10,000/day
Covered by Redemption of
Trust Fund Assets, Requiring
5% General Revenues
Part A Income
4%

2024: Part A Trust Fund Exhausted
3%

2%
Periods of Operating Surplus:
Trust Fund Assets Accumulate
1%
and are Lent to the Federal
Government, Earning Interest
0%
1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080

Source: A Summary of the 2012 Annual Reports, Social Security and Medicare Boards of Trustees, www.ssa.gov/OACT/TRSUM

The Big Picture for Medicare:
Dedicated Revenue < Expenditures
%GDP
historical projected
7% Total Medicare Expenditures
Part A Trust
Fund Deficit
6% Part A
Trust
Fund

Non-interest program income
5% exhausted

4% General Revenue Transfers to Parts B & D

3%

Premiums, State Transfers, & Drug Fees
2%

1% Tax on SS
Payroll Tax Benefits

0%
1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080

Source: A Summary of the 2012 Annual Reports, Social Security and Medicare Boards of Trustees, www.ssa.gov/OACT/TRSUM

A Beneficiary Lifetime Perspective:
Payroll Contributions < Expected Benefits
$400,000

Medicare Expected Benefits (Net of $357,000 $357,000
$350,000 Premiums), Lifetime

$300,000 Medicare Payroll Taxes, Lifetime

$250,000

$200,000 Female $188,000

Male $170,000
$150,000
$119,000
$100,000
$60,000 $60,000
$50,000

$0
Single, Average Wage
Single, Average Wage One-Earner Couple, Average Wage
One-Earner Couple, Two-Earner Couple, Average Wage
Two-Earner Couple,
Average Wage Average Wages
Source: Steuerle CE and Rennane S. "Social Security and Medicare Taxes and Benefits Over a Lifetime.” Washington, DC: The
Urban Institute. June 2011.

But the Public Perception is Very
Different from Reality
Thinking about Medicare, do you believe that over the course of your
career you [will] have paid…
Not enough, others will support me Enough to support myself More than I'll receive

56+ 32% 34% 34%

36-55 21% 30% 49%

18-35 13% 29% 58%

All Ages (18+) 21% 31% 49%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Source: Stony Brook Poll, December 2010. http://tinyurl.com/9qteyxm

Structure of the Medicaid Program
•  Covers ~60 million low-income individuals

•  Jointly financed by states and federal government

•  Voluntary program for states, all now participate

•  Categorical eligibility: children, pregnant women, parents with dependent
children, people with disabilities, seniors (income thresholds vary by category)

•  States run their programs; must meet federal standards but can deviate with a
waiver or exceed standards using own funds

•  Very few states have expanded to cover “childless adults”

•  ACA removed categorical eligibility and expanded eligibility to all non-elderly
persons under 138% FPL

•  Supreme Court decision makes this expansion optional for states

Medicaid
Enrollment vs. Spending, FY 2009
100%
90% 15%
1/4
80% 10% 43% $15,453 per enrollee
70% 2/3
60% 26%
50% $13,186 Disabled
23%
40%
Elderly
30% 14% $2,926
49%
20% Adults (<65)
10% 21% $2,313
Children
0%
Enrollees Spending
~15% of enrollees ~40% of spending
are dual eligibles is for dual eligibles
Source: Kaiser Family Foundation, “The Medicaid Program at a Glance.” September 2012.

Medicaid Spending is a Large and
Growing State & Federal Burden
Total State Expenditures, FY2011 (estimated) Total Medicaid Spending ($billions)
450

400 Federal Spending 273
State Spending 251
350
201
Medicaid 191
All Other 300 181
Spending
24% 176 182 63-64%
34% 162 ARRA
250
148
200 130
118 56-57%
K-12 150
Education 150 158 147 156
133 137 142
20% 100
112 122
Public 89 98
Assistance Higher 50
2% Education
10% 0
Corrections Transport
3% 2000 2002 2004 2006 2008 2010
7%

NIHCM Foundation depiction of data from National Association of State Budget Officers. “State Expenditure Report.” Dec. 2011.

Mandatory Federal Health Spending
Projected to More Than Double in 10 Years
$ billions Exchanges
Medicaid
$1,800 Medicare (net offsetting receipts) 6.7% 7.0%
6.2% 6.4%
Other Mandatory Health Spending (net) 6.1%
$1,600 Percent of GDP 5.8% 5.8% 123
6.0%
118
$1,400 5.8%
5.5% 111
5.1% 5.3% 101 107 592
5.0%
$1,200 4.9% 91
4.7% 75 549
$1,000 46 514 4.0%
479
24 446
1 382 416
$800 3.0%
341
305
$600 275 253 267
899 2.0%
$400 750 806
632 696
539 589 608
480 466 494 514 1.0%
$200
45
$0 0.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
actual
NIHCM analysis of data from CBO’s “An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022,” Aug. 2012.

And That’s the Good News
•  CBO’s baseline projections assume current laws remain in place
and will be implemented as written, most notably:
•  Deep cuts in Medicare physician payment rates under the SGR
formula
•  2% reductions in Medicare payment rates under Budget Control Act
sequestration
•  Cuts in Medicare provider payment updates under the ACA

•  Overriding any of these cuts will increase Medicare spending
•  Other big unknowns:
•  extent to which states will expand Medicaid (implications for Federal
match)
•  extent to which people will seek subsidized coverage in the exchanges

Faster Growth in Health Entitlement Spending
Will Dramatically Worsen Projected Deficit
10 historical projected
Primary Surplus (+) or Deficit (-) as % of GDP

5

0
Growth at GDP
-5

-10 GDP + 1%

-15
GDP + 2%
-20 (~Historical Average)

-25
2000 2010 2020 2030 2040 2050 2060 2070 2080
Source: “2011 Fiscal Report of the U.S. Government.” Supplemental Information, Chart 5,
http://www.fms.treas.gov/finrep11/supp_info/fr_supplement_info_alternative.html#chart5

Triangle of Painful Choices
Tradeoffs Needed to Balance Budget by 2035
Health Spending Growth Relative to Potential GDP
10%
-4% -3% -2% -1% 0% +1%
A
9% B
Defense & Other Non-Health

8%
Spending as % of GDP

D
7%

6%

5%

4%

3%
C
2%
18% 19% 20% 21% 22% 23% 24% 25%
Tax Revenue as % of GDP
Source: Roehrig, C. Altarum Center for Sustainable Health Spending. As presented in The Incidental Economist Blog, Aug. 15, 2012.


Programs

4. Spending through Private Health
Insurance

Private Health Insurance Premiums
One-Third of National Health Spending, 2010
Investment, 6%
Public Health, 3%
Other Third Party
Payers & Programs,
7% Out of Pocket,
12%
DOD & VA, 3%

Private Health
Medicaid & CHIP, Insurance = $848.7B,
16% 33%

Medicare, 20% 2010 Total Spending = $2.594 T


Private Health Insurance Markets
Employer-Based or Group Market Individual or Non-Group Market

•  Coverage purchased by employer for •  Coverage purchased directly from insurer
workers, dependents and, perhaps, retirees.
•  Individual/family is own risk pool. Health
•  Risks pooled by employer group. underwriting and pre-existing conditions
can make coverage expensive or unavailable.
•  Employers and employees generally
contribute to premium •  Purchaser pays full premium.

•  Premiums excluded from taxes in most •  Preferential tax treatment of premiums only
cases. Value of tax exclusions = $145 billion for self-employed
in 2011.
•  Most people purchasing coverage in this
•  Small, medium, large group based on market do not have access to employer-
number of employees based coverage
•  self-employed
•  60 percent of workers with employer-based •  employed but not offered coverage
coverage were in “self-insured” plans (2012) •  non-dependent students
•  Larger employers most likely to self insure, •  early retirees
but growing trend among smaller employers •  between jobs

Private Coverage is Dominated by
Employment-Based Insurance
100% Govt. employer
90% contributions
(20.4%)
80%
70% Private
60% employer
89.2% 94.9% contributions
50% (52.0%)
40%
Employer-
30% Based
Employee
20% contributions Coverage
(27.6%) Individual
10%
10.8% Market
5.1%
0%
Enrollees Premiums
174.4M (2011) $839.8B (2010)
Sources: Fronstin P. “Sources of Heath Insurance…” EBRI Issue Brief 376, Sept. 2012; NIHCM analysis of data from the 2010
National Health Expenditure Accounts, Sponsor Highlights.

Private-Sector Workers Paying an
Increasing Share of Increasing Premiums
Employment-Based Coverage

Individual Policy Family Policy
16000 150% 16000 146% 150%
142%
14000
$15022
14000
122%
12000 12000 114%
97%
100% 100%
10000 10000

8000 87%
8000 $6772

6000 $5222 6000
50% 50%
4000 4000
$2655
2000 2000

0 0% 0 0%
2000 2002 2004 2006 2008 2010 2000 2002 2004 2006 2008 2010

Employee (EE) Contribution to Premium Employer (ER) Contribution to Premium
Cumulative Pct. Change, EE Contribution Cumulative Pct. Change, ER Contribution
Cumulative Pct. Change, Total Premium

Source: NIHCM analysis of data from the Medical Expenditure Panel Survey, Insurance Component. Data not available for 2007.

And Facing Higher Out-of-Pocket Costs
via Deductibles
Average Deductible for those with a Deductible - Individual Policy
78% 78%
$2,500 Average Deductible for those with a Deductible - Family Policy 74%
80%
Percent of Enrollees with a Deductible 71% $2,220
70%
$1,975
$2,000 59% 66%
64% $1,761 60%
52% $1,658
48%
50%
$1,500 $1,351
$1,232
$1,143 $1,123 40%
$1,079 $1,025
$958 $917
$1,000 $869 30%
$714
$652
$573
$518 20%
$446
$500
10%

$0 0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: NIHCM analysis of data from the Medical Expenditure Panel Survey, Insurance Component. Data not available for 2007.

Health Spending by American Families
More Than Doubled in Past Decade
Family of Four, Employer-Based PPO Coverage
$21,000 $20,728
Employee Out-of-Pocket Costs $19,393
$18,074 3470
Employee Contribution to Premium
$16,771 3280
Employer Contribution to Premium $15,609 3005
$14,500 2820
2675 5114
$14,000 $13,382 4728
$12,214 2420 4325
$11,192 2210 4004
$10,168 2035 3492
1920 3171
$9,235 2810
1760
1580 2666
2522
$7,000 2354
2055
11385 12144
9947 10744
8909 9442
7513 8362
6054 6750
5600

$0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: NIHCM Foundation analysis of data presented in the annual Milliman Medical Index reports, 2005-2012. Values for
component parts for 2002-2005 were estimated using component growth rates reported by Milliman.

Premiums and Deductibles Also Continue
to Rise in the Non-Group Market
Individual Policy Family Policy
4968
$5,000 80% $5,000 80%
4596 4704
71% 4392 4428 69%
$4,500 $4,500
70% 70%
4128
$4,000 $4,000 3888
60% 3879 60%
$3,500 $3,500

2935 50% 50%
$3,000 $3,000 3128
2632 3531
2760
$2,500 40% $2,500 2610 40%
2084 2486
1972 2326 2294
$2,000 1864 2196 $2,000 28%
1721 2004 30% 30%
1896 1908
1728 1776 1932 $1,500
$1,500 27%
20% 20%
$1,000 $1,000

10% 10%
$500 $500

$0 0% $0 0%
2005 2006 2007 2008 2009 2010 2011 2005 2006 2007 2008 2009 2010 2011

Mean Annual Premium Mean Deductible
Cumulative Pct. Change - Premium Cumulative Pct. Change - Deductible

NIHCM Foundation analysis of data contained in eHealthInsurance reports “The Costs and Benefits of Individual and Family
Health Insurance Plans” (Nov. 2008 and Nov. 2011) and “2009 Summer Cost Report for Individual and Family Policy Holders.”

High-Deductible Health Plans
are Becoming Much More Prevalent
Health Plan Enrollment by Plan Type for Covered Workers
2005
2006
Conventional
2007
2008 HMO
2009 PPO
2010 POS
2011
HDHP/SO
2012
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Health Plan Enrollment by Plan Type for Privately Insured Individuals
2005
2006
2007 Traditional
2008 HDHP
2009
CDHP
2010
2011
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Sources: Kaiser Family Foundation/Health Research & Educational Trust. “Employer Health Benefits, 2012 Annual Survey.” Sept.
2012 (top graph); Employee Benefit Research Institute. “Findings from the 2011 EBRI/MGA Consumer Engagement in Health Care
Survey.” EBRI Brief No. 365, Dec. 2011 (bottom graph).

HSA-Qualified HDHP Enrollment Rising
Especially in the Large Group Market
2005 1.0
Individual
2006 Small Group
2007 Large Group
2008 Group, Size Not Known
2009 Market Not Known
2010
2011
2012 13.5

0 2 4 6 8 10 12 14 million

2005 64% 17% 19%
2006 42% 25% 33%
2007 26% 25% 49%
Individual
2008 25% 30% 46%
Small Group
2009 23% 30% 47%
Large Group
2010 21% 30% 50%
2011 21% 24% 55%
2012 18% 22% 59%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Source: America’s Health Insurance Plans. “January 2012 Census Shows 13.5 Million People Covered by HSA/HDHPs.” May 2012.

Health Care Premiums Growing
Quickly as a Share of Personal Income

•  Employee share of premium up 63%.
•  Per-person deductibles doubled.

Source: Schoen C, Fryer AK, Collins SR and Radley DC. “State Trends in Premiums and Deductibles, 2003-2010: The Need
for Action to Address Rising Costs.” The Commonwealth Fund, November 2011.

Insurance Premiums Pay for
Health Care Services for Enrollees
Net Cost
of
Personal Health Care Services (88%) Insurance

34 28 14 9 3 12

Physician & Clinical Rx &
Hospital Care Services DME

Dental & Other
Professional
Total Private Insurance Premium Revenue = $848.7B Services
Home Health & Other
LTC Facilities & Services

Net Cost of Health Insurance
•  Defined by NHEA framework as the difference between premiums collected
and benefits paid out
•  All administrative costs
•  Claims processing
•  Sales and marketing
•  Member enrollment and customer service
•  Actuarial analysis and underwriting
•  Product development and provider contracting
•  Medical management
•  Quality improvement
•  Wellness programs

•  Rate credits to policyholders and dividends to stockholders
•  Taxes to government
•  Additions to reserves
•  Profits (or losses)

Private Health Insurance Spending Rose
Almost 15 Percent in Five Years
$900
14.7% increase
$848.7 billion
$800
$740.2 billion 102.7 Net Cost of Insurance

[-------- Personal Health Care Spending ---------]
23.5
$700 99.6 75.8 Home Health & Other LTC
$ Billions

19.5 Facilities & Services
$600 66.3 121.4 Dental & Other Professional
Services

88% of Premiums
$500 106.0
Prescription Drugs & DME
$400 239.4
Physician & Clinical Services
211.4
$300
Hospital Care
$200
285.8
$100 237.5

$0
2006 2010

Higher Spending for Hospital & Physician Services
Drove More than 70 Percent of the Premium Growth
$120 3% of net
4% of net
9% of net change
change
14% of net change
$3.1
2006 to 2010 Change ($ Billions)

$100 change $9.5 $4.0
26% of net
$80 change $15.4

$60 45% of net $28.0
change $108.5
$40
97 percent of change in premiums
$20
$48.3 was due to growth in insurers’
spending for health care services
$0
Hospital Care Physician & Prescription Dental & Other Home Health & Net Cost of Total Change in
Clinical Services Drugs & DME Professional Other LTC Health Insurance Premiums
Services Facilities &
2006-2010 Services
% Change 20.3% 13.2% 14.5% 14.3% 20.5% 3.1% 14.7%



Programs

5. What’s Behind the High and
Rising Spending?

Deconstructing the
Rising Health Spending
Spending increases may be driven by:
•  unit price effect - rising prices per unit of service
•  volume or utilization effect - higher volume of
services, due to
•  more users of services and/or
•  more services used per capita
•  intensity or service mix effect - shift to more
expensive mix of services or to more expensive
providers

It Really is the Prices (Stupid)
Evidence from Massachusetts, 2007-2009
Decomposition of Spending Growth for Privately Insured Patients

Change in Total Number of Stays/ Shift to More
Spending Pure Price Effect Services Expensive Providers Service Mix

7.3%
6.5% 6.4%
Inpatient 5.7%
Stays 1.0% 1.1%
0.2% 0.3%

9.4% -0.5%
-2.1%
Hospital 4.6% 5.1% 5.5%
3.9%
Outpatient
Care 0.1% 0.1% 0.3% 0.2%

-1.3%
2007-2008 2008-2009
Source: Massachusetts Division of Health Care Finance and Policy. “Massachusetts Health Care Cost Trends: Trends in Health
Expenditures.” June 2011.

It Really is the Prices (Stupid)
Evidence from Several National Payers, 2010-2011

Per Capita Spending Unit Price Utilization Intensity
9.6
10.0
Percent change, 2010-2011

5.9 7.2
5.0 6.2
3.5 3.7
4.9 4.5
2.1 1.6
1.0 1.2

0.0
-0.6 -0.3 -0.4

-5.0 -4.2

Inpatient Care Outpatient Visits Other Outpatient Professional Procedures

Source: Health Care Cost Institute, “Health Care Cost and Utilization Report: 2011,” September 2012.

U.S. Pays More for Hospital Services
Select Countries & Services
(US$, 2007)
$34,358
$35,000
Australia
$30,000
Canada
$25,000 France
Sweden
$20,000 United States $21,218
$17,406

$15,000
$11,162

$10,000 $7,962 $8,917

$4,451 $4,558
$5,000 $3,093
$2,591

$0
Normal Delivery Appendectomy CABG Hip Replacement Hernia Repair

Source: Koechlin F, Lorenzoni L and Schreyer P. “Comparing Price Levels of Hospital Services Across Countries.” OECD
Health Working Papers No. 53, July 2010.

U.S. Pays More for Hospital Services
Composite Index, 29 Inpatient Services

Comparative Price Levels, Hospital Services, 2007
United States 164
Italy 140
Australia 123
France 121 U.S. hospital
Sweden 114 prices 64%
Canada 113 higher than
Finland 98 OECD average
Portugal 85
Israel 62
Slovenia 59
Korea 57 OECD Average

0 20 40 60 80 100 120 140 160 180
Source: Koechlin F, Lorenzoni L and Schreyer P. “Comparing Price Levels of Hospital Services Across Countries.” OECD
Health Working Papers No. 53, July 2010.

U.S. Pays Physicians More for the Same Services
Especially Private Payers and Specialty Care

Primary Care - Office Visit Fees Specialty Care – Hip Replacement
$140 133 $4,500
129
3,996
$4,000
$120
104 $3,500
$100
$3,000

$80 $2,500
66 2,160
59 60 1,943
$60 $2,000
1,634
46 45
$1,500 1,251 1,340
$40 34 32 34 1,046
$1,000 674 1,181

$20
$500 652

$0 $0
Public Payers Private Payers Public Payers Private Payers

Australia Canada France Germany UK US Australia Canada France Germany UK US

Source: Laugesen MJ and Glied SA. “Higher Fees Paid to US Physicians Drive Higher Spending for Physician Services Compared
to Other Countries.” Health Affairs, 30(9):1647-56. September 2011.

U.S. Physicians Earn More
Particularly Specialists
$500,000
Australia Canada France Germany UK US
442,450
$450,000

$400,000

$350,000 324,138

$300,000

$250,000
208,634
186,582 187,609 202,771
$200,000
159,532 154,380
$150,000 125,104 131,809

92,844 95,585
$100,000

$50,000

$0
Primary Care Physicians Orthopedic Surgeons

Source: Laugesen MJ and Glied SA. “Higher Fees Paid to US Physicians Drive Higher Spending for Physician Services Compared
to Other Countries.” Health Affairs, 30(9):1647-56. September 2011.

Summary and Implications
•  Health care spending is a heavy and increasingly
unmanageable burden to federal and state governments,
employers and individuals.

•  Recent slowing in health spending growth offers a ray of
hope. But is the slowdown sustainable?
•  Real and sustained gains in efficiency and value will be needed to offset
the demographic and other pressures driving health spending upward.

•  The highly concentrated nature of personal health care
expenditures suggests a strategy for controlling spending.
But there are real challenges in managing the care of high
spending patients.

Summary and Implications
(continued)
•  Private premium increases are driven by underlying increases
in spending for medical care for enrollees. Controlling
spending for hospital and physician/clinical services will be
essential to moderating growth in private premiums.

•  We pay more than other countries for the same services, and
rising prices have been the dominant factor behind our
growing spending. Attention to these high prices is
warranted.

•  Sizing the challenge is the easy part. Finding real solutions
is much harder.

For more information or
additional hard copies of our publications,
please contact me or visit our website:

jschoenman@nihcm.org
202-296-4192

www.nihcm.org

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