Health Spending and the Federal Budget Facts Context and Challenges

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					   Health Spending and the
        Federal Budget:
Facts, Context, and Challenges

         Len M. Nichols, Ph.D.
    Director, Health Policy Program
       New America Foundation

     National Health Policy Forum
           Washington, DC
          February 22, 2007
                 Growth in Real Health Care Cost
                           per Person
               10%
                             9%
               9%
                                                           8%
               8%
                                            7%   7%
               7%                                               60s

               6%                                               70s
     Percent




               5%                                     5%        80s

               4%                                               90s

               3%                                               00s

               2%
               1%
               0%



Source: CMS, National Health Expenditures
           National Health Care Spending as a
                     Share of GDP
                       18%
                                                                      16%
                       16%                                                   Total health spending in
                                                                                     2005 =
                       14%                                    13.2%
                                                                            $1.9 trillion/$12.5 trillion
                                                        12%
                       12%
                                                                               1960
             Percent




                       10%                       8.8%                          1970
                       8%                                                      1980
                                            7%
                                                                               1990
                       6%      5.1%                                            2000
                                                                               2005
                       4%

                       2%

                       0%



Source: CMS, National Health Expenditures
                                 International Comparisons
                                       Annual growth rate in spending per capita (PPP)


                           4.5   4.2                                          4.2
                                                                  4.1
                            4
                                                                        3.5
                           3.5                                                      Australia
                                        3.2       3.1   3                           France
      Annual growth rate




                            3                                                       Germany
                           2.5                              2.3                     Japan
                                              2                                     Sweden
                            2                                                       Switzerland
                                                                                    UK
                           1.5
                                                                                    U.S.
                            1                                                       OECD Average

                           0.5

                            0
                                                  1992-2004

Source: The Commonwealth Fund; OECD
                        International Comparisons
                                     Health spending as % share of GDP



        18

        16

        14                                                               Australia
        12                                                               France
                                                                         Germany
        10                                                               Japan
          8                                                              Sweden
                                                                         Switzerland
          6                                                              UK
          4                                                              U.S.

          2

          0
                      1980                   1990            2004

Source: The Commonwealth Fund;OECD
                             International Comparison
                        Total overall health system performance rankings -- 2000




• #1…
          – FRANCE

• #10
          – JAPAN

• #37
          – US (between Costa Rica and Slovenia)
*

    Source: World Health Organization, “The World Health Report 2000 – Health Systems: Improving Performance”
       Percent of median family income
    required to buy family health insurance

        20
        18                                                             19
        16
        14
        12
        10
         8
         6                      7.7
         4
         2
         0
                               1987                                   2005




Source: Len Nichols’ calculations, using KFF and AHRQ premium data,
CPS income data. nichols@newamerica.net. MEPS
         Sources of Cost Growth
•   Aging of population
•   Moral Hazard
•   Profits
•   Malpractice
•   Uninsured
•   Technology
•   Chronic diseases
•   Obesity
          Who Paid for Health Care in 2005?
                                                              SCHIP
                                    Medicaid
                                                               3%
                                     17%                                  Other Public1
                                                                              5%
                                                                                  Other Private
                                                                                        4%




                       Medicare
                        20%                                                         Private
                                                                                  Insurance
                                                                                     36%


                                   Out-of-Pocket
                                       15%



1. Includes programs run by the Departments of Defense and Veterans’ Affairs providing coverage for military personnel,
their families, and veterans; targeted programs for workers injured on-the-job, mothers and children, native Americans and
school children; and programs to address disease-specific or public goods, such as public health ,State and local hospital
subsidies, substance abuse and mental health.
Source: CMS, National Health Statistics Group; Kaiser Family Foundation
         Sources of Health Insurance Coverage

    •     Private Group1                                                              164 million
    •     Private non-group1                                                          17.4 million
    •     Medicare                                                                    42.5 million
    •     Medicaid2                                                                   42.5 million3
    •     Military1                                                                   11 million

    • Uninsured1                                                                      46.6 million

1. Non-elderly
2. 14% of Medicaid enrollees are duals with Medicare (aged or disabled) -- approx. 4.5 million enrollees
3. This is the total number of enrollees as of June 2005 – Includes “ever ons”

 Source: Current Population Survey, 2005; CMS; Kaiser Family Foundation
                                     Breakdown of Personal Health
                                     Expenditures – 1980 and 2005
                            45%
                                  39.5%
                            40%           37.8%
Percent of total spending




                            35%
                            30%                                                                 Total personal health
                                                                                                spending:
                            25%
                                                          21.2%
                            20%                   18.6%                                         1980 = $23.3 billion

                            15%                                                                 2005 = $1.6 trillion
                                                                                        10.1%
                            10%                                    7.5%
                                                                          6.1%
                                                                                 4.7%
                            5%
                            0%
                                  Hospital care   Physician       Nursing Home   Prescription
                                                  Serivices                         Drugs




         Source: CMS, National Health Expenditures
 Personal Health Care Expenditures by Type of
           Service and Payer, 2005
                                                                                                                                 3.3%
               Hospital Care               29.5%                        17.3%                               49.9%                          $611.6 mil

                   Physician                                                                                                            3.2%
                                     21%                                  61.6%                       10%    $421.2 mil

         Prescription Drugs                     54%         25%         $200.7 mil

              Nursing Home                             $121.9 mil

            Dental Services                     $86.6 mil
                                                                                                                      Medicare
       Other Personal Care                   $57.2 mil
                                                                                                                      Medicaid
       Other Professionals                  $56.7 mil
                                                                                                                      Other Payers
                Home Health                $47.5 mil                                                                  Out of Pocket
  Other Med. Nondurables                $34.1 mil                                                                     VA

          Medical Durables             $24 mil

                               0                100               200              300                400           500           600
                                                                                Billions of Dollars




Source: CMS, National Health Statistics Group
                                      Health Care Spending per Person,
                                           by Source of Coverage

                                $12,000


                                $10,000
   Median spending in Dollars




                                           $7,587
                                 $8,000

                                                                                                   Mean
                                 $6,000
                                                                                                   Median

                                                      $3,261
                                 $4,000
                                                                        $3,165
                                                                                        $1,557
                                 $2,000
                                           $2,965
                                                      $628               $915
                                    $0
                                                                                         $293
                                          Medicare   Medicaid          Private         Uninsured

Source: MEPS, National Health Care Expenses (2003), annual per person expenditure --
2003
                          Medicare and Medicaid Spending and
                                  the Federal Budget
                          40
                                                                                               36.9
                          35

                          30
     Percent of Outlays




                                                                                                  23.4
                          25                                                                                 1970
                                                                                          21
                                                                                     20               18.2
                          20                                                                                 1990
                               Total spending = $342 bil
                                                                             15.2
                          15                 14                                                              2007
                                                      Total spending = $177 bil

                          10           8.7
                                                                       7.4

                          5        3                             3.3
                                                           1.4
                          0
                                  Medicare                 Medicaid1              Soc. Sec.     Defense
 1
       Medicaid includes SCHIP spending from the Federal Budget
Source: OMB, FY2007 estimates; OMB Historical Tables
     Average Annual Spending Growth Per Enrollee for
          Medicare and Private Health Insurance
Over the long-run, spending for Medicare benefits per enrollee have grown slightly slower than
                  spending for private health insurance benefits per enrollee.


                           Medicare               Private Health Insurance
16
14
12               10.7
               9.2                                                  9.6
10
                                                                                8.1
 8                                    7.3                                 7.2
                                                              6.5
                                                        5.9
 6
                                            4.4
 4
 2
 0
                                                     -0.3
-2
               1969-2005              1993-1997 1997-1999 1999-2002       2002-2005
Source: CMS
       Facts About Medicare
• HI (Part A and Part of C) = Hospital, 55%
  of spending, 85% financed with payroll tax

• SMI (Parts B and D and Part of C) =
  physician and drug coverage, 25% financed
  with premiums, 75% with general revenues

• Part C = Medicare Advantage
Medicare Beneficiaries as a Share of the U.S.
          Population, 1970-2030
U.S. population will age rapidly through 2030. The number of people Medicare serves will nearly double from 40
        million to 77 million between 2000 and 2030, when they will account for 22% of the population.

                                    30    Number of workers per Beneficiares (in millions)    65 & Over         Disabled


                                    25
            Percent of Population




                                    20


                                    15


                                    10


                                    5

                                                                          4         3.7      2.9          2.4
                                    0
                                         1970     1980       1990       2000       2010      2020     2030


Source: Social Security Administration, Office of Actuary
                                Projected Medicare & Medicaid
                                        spending – 2017
                                              Percent of Federal Budget

                               35%

                               30%
        Percent total budget




                               25%

                               20%
                                                                          Medicare & Medicaid
                               15%

                               10%

                               5%

                               0% 2007 2009 2011 2013 2015 2017



Source: CBO, The Budget and Economic Outlook 2007-2017
Medicare Spending “Trigger” Provisions
• Medicare Modernization Act (MMA): “soft”
  trigger
   – 2 consecutive years of Trustee projections that general
     revenues will finance 45% of Medicare, President must
     propose action to avoid, Congress may act or not.

• President’s 2008 Budget Proposal: “hard” trigger
   – Same projections trigger automatic payment reductions
     unless Congress acts.
           Medicaid Beneficiaries and Payments
              by Eligibility Group, FY2005
   Payments for the elderly, blind and disabled account for 60 percent of total payments,
                          but only 24 percent of persons served.

   100%
                                                                                    16%
                                         24%
    80%
                                                                                    24%         Adults

    60%                                                                                         Children*
                                         52%
                                                                                                Aged, Blind
    40%
                                                                                                & Disabled
                                                                                    60%
    20%
                                         24%

      0%
                                 Total Persons                                    Payments
                               Served 48.2 million                               $305 billion

*Note: Children covered by both Medicaid and SCHIP

Source: CMS, Medicaid Statistical Information System; Kaiser Family Foundation
                         Medicaid Spending Facts
   Average Annual Growth in Medicaid                         Mandatory vs. Optional Beneficiaries
              Spending
                                                                Mandatory Population (Federal
 12%
                                                                Law):
 10%                                                            •Children, at or below poverty line
                                                                •Pregnant women at 133% of
                                                    1991-
  8%
                                                    2001
                                                                poverty line

  6%
                                                    2001-       29% of Medicaid beneficiaries
                                                    2004
                                                                have optional eligibility
                                                    2004-
  4%
                                                    2005                 Spending (by individual)
                                                                        Mandatory       Optional
  2%
                                                                    M   39.4%            18.1%
                                                            Services
  0%
                          %Increase
                                                                    O   30.1%            12.3%


Source: Urban Institute; Kaiser Family Foundation
Medicaid Disproportionate Share Spending
                      Hospital DSH Spending = 5.6% nationwide
       Disproportionate Share Hospital Payments by State (% of Medicaid Spending FY2005)
       High States =
                      Louisiana 18.8%
                      New Hampshire 21.6%
                      New Jersey 13.5%

       Low States =
                      Arkansas 1.3%
                      Utah 1.2%

       Moderate=
                      Kansas 3.2%

       States with/or considering mandates =
                      California 7.4%
                      Massachusetts 7.2%

Source: Kaiser Family Foundation; CMS
                                                       SCHIP
  •     Total SCHIP spending FY2006:
          – State = $2 billion
          – Federal = $5 billion

  •       SCHIP Enrollment FY2006 = 4 million
          – California 816, 406
          – Minnesota 2,1221
          – As of 2004 a total of 9 states (AZ, AR, DC, IL, MI, MN, NH, NJ, RI, WI)
            covered 335,000 adults under SCHIP

  •     Children enrolled in Medicaid FY2006 = 27 million




 1. Tennessee phased out its Medicaid expansion program in September 2002. Thus, Minnesota is the state with the fewest SCHIP enrollees.


Source: Kaiser Family Foundation
                 State Children’s Health Insurance Program
                    Spending and Enrollment, 1998-2006
                     The SCHIP covers a growing number of uninsured low-income children.


                          Federal Spending*                                                    Enrollment
             6
                                                     $5.50

                                                                            5
             5
                                            $4.60

                                                                                                        3.90   4
             4
                                                                            4                    3.70
                                   $3.70
  Billions




                                                                            3




                                                                 Millions
             3                                                                          2.60

                          $2.00
             2                                                              2

                                                                                0.898
             1                                                              1
                 $0.12
             0                                                              0
                 FY1998   FY2000   FY2002   FY2004   FY2006                     FY1998 FY2000 FY2002 FY2004 FY2006

*Note: Total SCHIP spending for FY2006 was approx. $7 billion. See previous slide.

Source: CMS; Kaiser Family Foundation
      Budget Process Milestones
• Mid-Late January
   – CBO Budget and Economic Outlook (baseline)
• 1st Monday in February
   – President’s Budget Proposals
• March - April
   – Budget committees mark-up BR, each chamber passes,
     then go to conference, sets targets and instructions for
     Authorizing Committees
• April – July
   – Authorizing Committees mark-up, pursuant to BR*
• April – July
   – Appropriations Committees mark-up, pursuant to BR*
• August – September
   – Budget Committees then “reconcile”, each chamber
     passes final Reconciliation, President signs into law
 Health Spending Issues in 2007
• SCHIP re-authorization

• SGR fix

• President’s proposed spending reductions

• Financing coverage expansion

• Long-term Medicare and Medicaid reforms
   – HIT
   – Pay for performance
   – Comparative effectiveness research
             For more info
• nichols@newamerica.net,
  www.newamerica.net
• CMS: http://www.cms.hhs.gov/
• AHRQ: http://www.ahrq.gov/
• KFF: http://www.kff.org/
• HA: http://www.healthaffairs.org/
• CBO: http://www.cbo.gov/