TECHNICAL DOCUMENTATION to the VERMONT THREE YEAR HEALTH CARE

TECHNICAL DOCUMENTATION to the VERMONT THREE-YEAR HEALTH CARE FORECAST: 2006 – 2009 January 2007 Department of Banking, Insurance, Securities and Health Care Administration 89 Main Street, Drawer 20 Montpelier, VT 05620-3601 Telephone (802) 828-2900 Fax (802) 828-2949 www.bishca.state.vt.us TECHNICAL DOCUMENTATION TO THE VERMONT THREE-YEAR HEALTH CARE FORECAST: 2006-2009 Table of Contents A. B. C. Background Methodology Use of the Three-Year Forecast 1. 2. 3. 4. Expenditure Analysis Unified Health Care Budget Uses with Insurance Rate Filings Act 53 3 3 5 5 5 6 7 D. E. F. G. Forecast Increases Versus Rate/Price Increases Limitations Next Steps Appendices Appendix Appendix Appendix Appendix Appendix A: B: C: D: E: Vermont Statute 18 V.S.A. § 9406 Definitions and Data Sources Data Tables Three Year Forecast Model National Model, Methods, and Projections 7 8 9 11 13 15 17 21 23 This technical document was prepared as an addendum to the 2005 Vermont Health Care Expenditure Analysis & Three-Year Forecast, which meets the requirement under 18 V.S.A. § 9406(b)(1)-(4) that directs the Division of Health Care Administration (HCA) of the Department of Banking, Insurance, Securities and Health Care Administration (BISHCA) to annually report the forecast of health care expenditures in Vermont for the next three years. This report would not have been possible without the support of many individuals in government, private insurance, and the health care provider industry. BISHCA would like to thank all participants for their assistance in its preparation. Page 1 TECHNICAL DOCUMENTATION TO THE VERMONT THREE-YEAR HEALTH CARE FORECAST: 2006-2009 This page intentionally left blank. Page 2 TECHNICAL DOCUMENTATION TO THE VERMONT THREE-YEAR HEALTH CARE FORECAST: 2006-2009 Technical Documentation to the Vermont Three-Year Health Care Forecast: 2006 - 2009 A. Background The Division of Health Care Administration (HCA) of the Department of Banking, Insurance, Securities and Health Care Administration (BISHCA) has been forecasting health care expenditures since the mid-1990s. In 1997, the Vermont General Assembly passed Act 54 (18 V.S.A. § 9406), which included a provision that required BISHCA to annually prepare a ten-year forecast of health care expenditures made on behalf of Vermont residents. In 2002, the General Assembly passed Act 121, which changed the forecast requirement from ten years to three years and required that the forecast be used in the evaluation of health insurance rate and trend filings made to BISHCA and be made available in connection with the hospital budget review process. Act 53, passed by the General Assembly in 2003, included the requirement that the forecast be made available in connection with the Certificate of Need process and the development of the Health Resource Allocation Plan. (See Appendix A for a copy of 18 V.S.A. § 9406.) Prior to 2001, the forecasts were prepared with the support of actuaries, although BISHCA has not included any actuarial review or data in the past few years. Comparisons of actual data to previous forecasts are available from the Division. Comments from providers and payers have been helpful and are encouraged to help improve the model in the future. B. Methodology The forecast model uses actual data from the annual Vermont Health Care Expenditure Analysis report produced by BISHCA every year. The current forecast is based on data through 2005. The methodology also relies heavily on the provider growth trends1 from the Centers for Medicare and Medicaid Services (CMS) National Health Expenditure (NHE) model (see Appendix E). Future expenditure increases are then projected for each health care provider using the BISHCA-defined provider categories in the expenditure analysis. Adjustments are made when BISHCA is able to obtain data specific to Vermont. For example, because BISHCA has more current Vermont community hospital data, those data are included in the model, whereas other provider data are estimated using the NHE information. Once the provider expenditures have been projected, the source of funds by payer is allocated for each provider. The distribution of the source of funds is allocated based upon the distribution from the last year of available actual Vermont data, currently 2005 data. BISHCA does not attempt to anticipate Medicare payment policy, Medicaid payment and program policies, or changes in the uninsured rate. Rather, the model assumes that the payers will have roughly the same share of health care costs over the next few years. The aging of the population and other factors do have an effect on who 1 http://www.cms.hhs.gov/NationalHealthExpendData/03_NationalHealthAccountsProjected.asp Page 3 TECHNICAL DOCUMENTATION TO THE VERMONT THREE-YEAR HEALTH CARE FORECAST: 2006-2009 will pay the bill, but much of that is captured in the NHE growth assumptions applied to the providers. The expenditure impacts of the Medicare Prescription Drug, Improvement and Modernization Act (passed in December 2003) on provider services are included in the model. Any impact of the legislation on payer enrollment, however, is not included in the model due to the difficulty in estimating enrollment shifts among payers. At this time, there are no considerations of any projected effects to Medicaid related to the Global Commitment, as those numbers are not yet finalized. The preparation of a forecasting model requires a number of decisions as to how to measure and present the data as well as the need for subjective judgment about external policies that might be occurring in health care. The following lists the significant assumptions used in building the model. 1. The forecast is primarily based upon provider projections prepared by the National Health Expenditure model at the Centers for Medicare and Medicaid Services. 2. No significant enrollment change across payers is estimated. 3. The aging of the population is built into the NHE provider expenditure projections. 4. Utilization and intensity changes vary by provider type and such changes in the model are a function of the techniques used by the NHE as it models growth by various providers. (See Appendix E) 5. No significant program policy changes or effects of the Global Commitment have been included in the Medicaid projections. 6. No significant program policy changes have been included in the Medicare projections. Any enrollment impact of the Medicare Prescription Drug, Improvement and Modernization Act passed in December 2003 on payers has not been included in the model. Expenditure impacts on provider services, however, are captured. The model forecasts health costs from two perspectives. It measures expenditure increases from the provider perspective (services to Vermonters and out-of-state residents in Vermont) and also measures increases from the payer perspective (resident model). In effect, these two perspectives represent two unique populations. In each model, BISHCA has projected the provider growth rates to be the same. However, since the models are based on different populations, the allocations of who will pay the bill and the total spending projections are different. In each model, BISHCA based the payer allocations on the most recent distributions that have been reported through 2005. Therefore, while the Page 4 TECHNICAL DOCUMENTATION TO THE VERMONT THREE-YEAR HEALTH CARE FORECAST: 2006-2009 provider growth rates are the same, the distribution of who will be paying and the total expenditures differ for each model. There are a few reasons for the difference in the total rate of growth between BISHCA’s forecast and the NHE projections. First, the relative share of each of Vermont’s providers and services is different than the national distribution. Second, as noted previously, BISHCA has access to more current Vermont community hospital data. Third, the NHE projections include some provider categories that BISHCA does not include. A graphical depiction of the method used to build the forecast is included in Appendix D. C. Use of the Three-Year Forecast The Expenditure Analysis, the Unified Health Care Budget and the Three-Year Forecast are three distinct products used by BISHCA in administering its statutory obligations. The following outlines the purposes currently planned for the Three Year Forecast and how it interrelates with different BISHCA tasks. 1. Expenditure Analysis The Vermont Health Care Expenditure Analysis is an annual publication that provides a description of the dollars that were spent on health care on behalf of Vermonters. The analysis is broken out to show how dollars were spent from both a payer and provider perspective. The Expenditure Analysis enables BISHCA to examine the system on a number of levels. Some examples of its use as an analytical tool include identifying the fastest growing sectors and shifts in Vermont’s health system, and demonstrating the relative contributions of private health insurance and government programs such as Medicaid and Medicare. The Expenditure Analysis helps in understanding cause and effect within the system and facilitates more effective and meaningful debate for public policy development. The Expenditure Analysis also serves as the base from which projections of future health care expenditures are developed. It provides the definitional guideline for recording health care expenditures and provides trend data, which, along with the forecast, supports ongoing analysis of health care expenditures. 2. Unified Health Care Budget2 BISHCA is required by law to establish a Unified Health Care Budget (UHCB) each year. The budget is intended to serve as the basic guideline within which Vermont can control health care costs, direct resources, and ensure that Vermonters have access to high-quality services. Development of the Unified Health Care Budget must be based on a secure knowledge of current expenditures. The annual Expenditure Analysis provides this base. The process of 2 See 18 V.S.A. § 9406(a) in Appendix A Page 5 TECHNICAL DOCUMENTATION TO THE VERMONT THREE-YEAR HEALTH CARE FORECAST: 2006-2009 establishing the annual UHCB begins with actual data from the Expenditure Analysis on which the three-year forecast is based. A draft forecast is then presented through a public comment process, which takes place concurrently with the hospital budget review process. The final UHCB is established after the forecast has been reviewed by health care provider bargaining groups and other interested parties once the hospital budgets are established by the Commissioner of BISHCA. The final UHCB for each year is comprised of the total amount of money approved for hospital budgets through the hospital budget review process, together with the expenditure forecasts for other sectors of the health care system. The development of the UHCB, including discussions with health care plans regarding forecasted costs, should help improve the process and projections of future health care expenditures. Understanding trends and changes in costs from the perspective of the payers should improve forecast accuracy. This year’s three-year forecast includes a certain dependence on growth trends experienced at the national level that may not play out in the same way in Vermont. BISHCA recognizes that the forecast needs more current Vermont-specific data to replace the dependence on national data to reflect recent trends that are unique to the state. Our strong reporting system for the Vermont community hospitals allows BISHCA to modify the report to be more Vermont specific, but other Vermont-specific data would improve the model. 3. Uses with Insurance Rate Filings Insurance premiums (rates) are analyzed with consideration to trends in health care utilization and costs, combined with the historical financial performance of the insurance product. Vermont law provides that rates may be neither unjust, unfair, inequitable, excessive, inadequate, unfairly discriminatory, or otherwise contrary to the law.3 One of the keys to establishing new rates is a prediction of costs in the coming year. Traditionally, this prediction relies heavily on historical patterns. Currently, for insurers whose business is not focused in Vermont, national factors play a larger role in this prediction. The forecast is used to assist and improve the analysis of our health insurance rate filings by providing forecast data to compare to the data submitted in the filings. This forecast serves as a “test” against the data submitted by an insurer. In previous years, discussions were initiated with the insurance actuaries with whom BISHCA had contracted to review rate filings. These discussions focused on the relationship of hospital cost increases with the increases in insurance premiums. It was acknowledged that to improve this analysis, better utilization information should be captured and a better understanding of the statistics used to evaluate each industry needs to be developed by both insurance and hospital regulators. These complications were also discussed in the Cost Shift task Force Report that was filed in December 2006 with The Commission on Health Care Reform. The Task Force acknowledged that the reporting taxonomies used to support insurance and budget regulatory systems are not currently compatible. It was expressed that additional work 3 See e.g., 8 V.S.A.§§ 4062, 4513, 4584 and 5104. Page 6 TECHNICAL DOCUMENTATION TO THE VERMONT THREE-YEAR HEALTH CARE FORECAST: 2006-2009 will need to be completed to meet improved reporting needs while still maintaining the need to meet regulatory obligations.4 4. Act 53 The passage of Act 53 in 2003 required BISHCA to prepare a four-year capital budget and a health resource allocation plan. The Three-Year Forecast served as a contextual framework in developing the Health Resource Allocation Plan, which was adopted by the Governor in August 2005. The forecast will help inform the development of subsequent plans. It is also being made available to the Certificate of Need process that BISHCA administers. BISHCA is reviewing how these projects should be coordinated as part of the overall health care planning envisioned in Act 53. BISHCA has identified key next steps for the HRAP and has a number of activities that are expected to address updating the HRAP. These include but are not limited to: a) Developing CON benchmarks, b) Using employer survey data to update the count of uninsured and to provide demographic information for both the insured and uninsured, c) Analyzing provider service areas and developing means to compare and present utilization data for an array of services, d) Improving transparency for quality and price information to enhance consumerism in health care, e) Developing organizational structure and regulations around the multi-payer data set, f) Enhancing analyses in the expenditure analysis that examines border crossing trends and expenditures by various age cohorts, g) Improving reporting for uncompensated care to enhance the analysis of the cost shift to better understand the demographic characteristics of those receiving uncompensated care. D. Forecast Increases Versus Rate/Price Increases The increase in the forecast is a measure of change in total spending from one year to the next. It is NOT an increase in prices or rates a company or individual will experience from insurance companies or health care providers. Total spending is comprised of prices for services, number of events, and the product mix. This understanding is critical when examining health care spending. This can be illustrated by an analysis of insurance premiums. Total spending for health insurance premiums (commercial and self-insured) by Vermonters has averaged an annual increase of 8.6 percent for the period 2001 through 2005. This, however, was not the annual increase in premiums of 15 percent to 20 percent the consumer may have experienced during this time period. The increase seen in insurance rates goes beyond the underlying economic costs. See “Act 191 Cost Shift Task Force Report” under “Legislative Initiatives/Reports” on the Health Care Administration page of BISHCA’s web site, http://www.bishca.state.vt.us/HcaDiv/hcadefault.htm Page 7 4 TECHNICAL DOCUMENTATION TO THE VERMONT THREE-YEAR HEALTH CARE FORECAST: 2006-2009 Besides the cost of health care services, the rates are driven by a variety of different benefit designs that exist for health plans. For example, the lower deductibles and co-pays are, the more likely premium rates will increase. Further, the better the scope of coverage, the more likely the premiums will be higher. Another factor, cost shifting, is less obvious to the consumer, but exists as lower payments by Medicare and Medicaid may cause a provider to increase the price to private premium plans. Also, an insurance company may need to raise premiums to strengthen its financial condition. Finally, the premium may need to increase if there are reductions in enrollment for those who participate in a particular plan. When all these factors are added up, the change in the price of a particular health insurance plan, not spending, from one year to the next is the increase the consumer sees. The difficulty in adequately measuring the factors affecting insurance rate increases was also discussed in the Cost Shift Task Force Report.5 In summary, the reader should be careful to consider all the factors that might influence the change from year to year for each category. Changes in both the number of events that might occur and their relationship to price influence the total increase in spending. E. Limitations All forecast models have limitations that are a function of a variety of assumptions and techniques that are used to project costs. Some of the limitations are outlined below. • Unavailability of Vermont specific data: Where possible, Vermont specific data is used to project costs. National data from CMS is the primary source for the forecast model, although BISHCA has more updated data from the Vermont community hospitals. Any analysis of projected expenditures should acknowledge that national data might not be typical of Vermont. Refinements of definitions: Definitions are sometimes being refined for the various health care provider categories. As these categories are adjusted for reporting and classification purposes, year-to-year growth trends could be altered. Changes in definitions can affect trends that are in the model. Projections of sources of funds: Since enrollment data is very difficult to predict, the HCA does not attempt to project changes in it. Instead, the projections of the sources of funds are heavily dependent upon the distribution of actual expenditures reported in the most recent year. • • See “Act 191 Cost Shift Task Force Report” under “Legislative Initiatives/Reports” on the Health Care Administration page of BISHCA’s web site, http://www.bishca.state.vt.us/HcaDiv/hcadefault.htm Page 8 5 TECHNICAL DOCUMENTATION TO THE VERMONT THREE-YEAR HEALTH CARE FORECAST: 2006-2009 F. Next Steps BISHCA will continue to work with providers, payers, and other interested parties to refine the three-year forecast process and determine the most appropriate use of the data as it relates to the BISHCA’s regulatory responsibilities. BISHCA is working to make the forecast more meaningful and more sensitive to Vermont’s experience. Improvements in the Expenditure Analysis should support this effort. Current efforts include developing the forecast model with easier software design to update and refine the information. Further, BISHCA hopes to provide greater access to this information by providing it on the Department’s web site. In addition, comments from payers and providers are encouraged to help refine the forecast model and further understand the relationship between actual and projected data. BISHCA is also examining how the forecast and the Health Resource Allocation Plan can inform each other. It is believed that these efforts, along with an improved understanding of insurance plan data, will help maximize the use of the three-year forecast. BISHCA believes that it is critical to provide a useful product for the stakeholders in the system that can help identify needed resources in future budget years. Page 9 TECHNICAL DOCUMENTATION TO THE VERMONT THREE-YEAR HEALTH CARE FORECAST: 2006-2009 This page intentionally left blank. Page 10 TECHNICAL DOCUMENTATION TO THE VERMONT THREE-YEAR HEALTH CARE FORECAST: 2006-2009 APPENDICES A. B. C. D. E. Vermont Statute 18 V.S.A. § 9406 Category Definitions and Data Sources Data Tables Three-Year Forecast Model National Model, Methods, and Projections Page 11 TECHNICAL DOCUMENTATION TO THE VERMONT THREE-YEAR HEALTH CARE FORECAST: 2006-2009 This page intentionally left blank. Page 12 TECHNICAL DOCUMENTATION TO THE VERMONT THREE-YEAR HEALTH CARE FORECAST: 2006-2009 Appendix A Vermont Statute Title 18: Health Chapter 221: Health Care Administration 18 V.S.A. § 9406. Expenditure analysis; unified health care budget (a) Annually, the commissioner shall develop a unified health care budget and develop an expenditure analysis to promote the policies set forth in section 9401 of this title. (1) The budget shall: (A) Serve as a guideline within which health care costs are controlled, resources directed, and quality and access assured. (B) Identify the total amount of money that has been and is projected to be expended annually for all health care services provided by health care facilities and providers in Vermont, and for all health care services provided to residents of this state. (C) Identify any inconsistencies with the state health plan and the health resource allocation plan. (D) Analyze health care costs and the impact of the budget on those who receive, provide, and pay for health care services. (2) The commissioner shall enter into discussions with health care facilities and with health care provider bargaining groups created under section 9409 of this title concerning matters related to the unified health care budget. (b)(1) Annually the division shall prepare a three-year projection of health care expenditures made on behalf of Vermont residents, based on the format of the health care budget and expenditure analysis adopted by the commissioner under this section, projecting expenditures in broad sectors such as hospital, physician, home health, or pharmacy. The projection shall include estimates for: (A) expenditures for the health plans of any hospital and medical service corporation, health maintenance organizations, Medicaid program, or other health plan regulated by this state which covers more than five percent of the state population; and (B) expenditures for Medicare, all self-insured employers, and all other health insurance. (2) Each health plan payer identified under subdivision (1)(A) of this subsection may comment on the division's proposed projections, including comments concerning whether the plan agrees with the proposed projection, alternative projections developed by the plan, and a description of what mechanisms, if any, the plan has identified to reduce its health care expenditures. Page 13 TECHNICAL DOCUMENTATION TO THE VERMONT THREE-YEAR HEALTH CARE FORECAST: 2006-2009 Appendix A Comments may also include a comparison of the plan's actual expenditures with the applicable projections for the prior year, and an evaluation of the efficacy of any cost containment efforts the plan has made. (3) The division's projections prepared under this subsection shall be used as a tool in the evaluation of health insurance rate and trend filings with the department and shall be made available in connection with the hospital budget review process under subchapter 7 of this chapter, the certificate of need process under subchapter 5 of this chapter, and the development of the health resource allocation plan. (4) The division shall prepare a report of the final projections made under this subsection, and file the report with the general assembly on or before January 15 of each year. (Added 1991, No. 160 (Adj. Sess.), § 1, eff. May 11, 1992; amended 1995, No. 180 (Adj. Sess.), §§ 12, 38(a); 1997, No. 54, § 13, eff. June 26, 1997; 2001, No. 121 (Adj. Sess.), §§ 1, 2, eff. June 5, 2002; 2003, No. 53, §§ 6, 26; 2003, No. 122 (Adj. Sess.), § 294m.) Page 14 TECHNICAL DOCUMENTATION TO THE VERMONT THREE-YEAR HEALTH CARE FORECAST: 2006-2009 Appendix B Category Definitions and Data Sources: Resident (Payer) Matrix Expenditure Categories Definition Data Source for Payer Matrix Allocation to Provider Services Out-of-Pocket Includes expenditures made directly by 2005 was calculated using a 3Allocation based on NHE consumers to purchase health care services and year regression analysis and NHE distribution. supplies: includes deductibles and coinsurance. data. Excludes payments for insurance premiums that are included in the insurance expenditure category. Insurance - Private Includes expenditures made by BCBSVT, MVP, CIGNA and other private commercial payers that sell benefit plans regulated by BISHCA. Includes comprehensive major medical insurance, Medicare supplement insurance, long-term care, and dental insurance. Excludes accident only and disability insurance. BCBSVT, CIGNA, and MVP reported 2005 data by provider service category. Other private commercial insurance expenditures were calculated from the 2005 Annual Statement Supplement filed with BISHCA. Allocation as reported by BCBSVT, CIGNA, and MVP. Allocation based on BCBSVT and MVP distribution. - Self-Insured Includes expenditures by companies that assume financial risk and directly pay for health services for their employees. These plans are exempt from state regulation under ERISA. The estimate of self-insured lives Allocation based on BCBSVT and is a residual based on subtracting MVP distribution. data for lives enrolled in fully insured plans, Medicare, Medicaid and the uninsured from the total population. Total lives were multiplied by the Vermont State Employees Medical and Dental Plans’ premium rates. 2004 claims data for Medicare Allocation from 2004 claims data beneficiaries who are VT residents for VT beneficiaries. regardless of location of covered services received, and inflated by a 3-year average trend increase. Allocation based on input from AHS. Medicare Includes expenditures made by the federal government on behalf of beneficiaries of the national Medicare program, including the elderly and disabled. Medicaid Includes health expenditures for beneficiaries of 2005 CMS-64 and CMS-21 VT's medical assistance program, a federal-state reports prepared by AHS. health insurance program for certain lowincome and medically needy people and aged, blind, and disabled residents. The program provides medical and prescription drug coverage. Other Federal Includes federal expenditures to operate the 2005 data from V.A. Hospital, V.A. Hospital, grants administered by AHS for AHS, and the Bi-State Primary health care services not covered through the Care Association. Medicare or Medicaid program, and expenditures on federally qualified health centers. State & Local Includes public health activities and payments made by the state government for health care services that are not covered through the Medicare or Medicaid program. Allocation based on input from AHS. 2005 data from AHS, the VT State Allocation based on input from Hospital, V.A. Hospital, and AHS. DHCA. Note: Data quality can be different for different categories. The shading of the data matrices in the 2005 Vermont Health Care Expenditure Analysis & Three-Year Forecast (pages 30-33) indicates the different levels of data quality. White areas are relatively well documented and refer to Vermont specific sources. Gray areas have Vermont based information from which reasonable estimates can be calculated. Dark gray areas are based on estimates where there is no reliable Vermont specific information. Generally, national sources are used to make estimates in these areas. Please see that report for more information. Acronyms: AHS Agency of Human Services BCBSVT Blue Cross Blue Shield of Vermont BISHCA Department of Banking, Insurance, Securities and Health Care Administration CIGNA Connecticut General Life Ins Co of Amer. DHCA Division of Health Care Administration DME ERISA ICF NHE SNF V.A. VPQHC Durable medical equipment Employment Retirement Income Security Act of 1974 Intermediate Care Facility National Health Expenditures model Skilled Nursing Facility Veterans’ Administration Vermont Program for Quality in Health Care Page 15 TECHNICAL DOCUMENTATION TO THE VERMONT THREE-YEAR HEALTH CARE FORECAST: 2006-2009 Appendix B Category Definitions and Data Sources: Provider Matrix Expenditure Categories Hospitals Definition Includes net revenues from all inpatient and outpatient acute care services and paid physician salaries and expenses at VT community hospitals, Brattleboro Retreat, VT State Hospital, and V.A. Hospital. Data Source for Provider Matrix 2005 data from all VT non-profit community hospitals, VT State Hospital, V.A. Hospital, and Brattleboro Retreat. Allocation to Payers of Services Government expenditures allocated as reported by hospitals. Private expenditures allocated based on resident matrix. Allocation based on resident matrix. Represents total net practice revenue, not physician net income. Physician Services Includes revenue for all physicians, including 2002 U.S. Economic Census, inflated osteopathic physicians, rural health clinics, to 2005 with NHE data. federally qualified health centers, nurse practitioners, and physician assistants. Salaries and expenses paid for Vermont hospital-owned physician practices are excluded (see Hospital). Dental Services Includes revenue for dental and oral surgery services. 2002 U.S. Economic Census, inflated Allocation based on resident to 2005 with NHE data. matrix. Chiropractic, physical therapy, psychological, podiatrist, and other professional services data from 2002 U.S. Economic Census, inflated to 2005 with NHE data. Allocation based on resident matrix. Other Professional Includes all revenue for services provided by Services licensed health care professionals who are not physicians or dentists and who directly bill for their services. Includes: chiropractic services, physical therapy services, podiatrist services, psychological services, and all other expenditures for services provided by health professionals that are not specifically identified. Home Health Care Includes revenue from all services provided by home health agencies. 2005 data submitted by VT Assembly of Home Health Agencies (non-profit agencies) and Professional Nurses Service. Associates in Physical and Occupational Therapy inflated from 2004 data. Expenditures allocated based on resident matrix except government expenditures reported by VT Assembly of Home Health Agencies. Drugs and Supplies Includes all revenue for prescription drugs and non-durable supplies that are purchased by prescription. Non-prescription drugs are included. 2005 Verispan, L.L.C. data (posted by Allocation based on resident matrix. Henry J. Kaiser Family Foundation, State Health Facts Online at http://statehealthfacts.kff.org/) averaged with 2005 NHE drugs growth rate. Estimate for supplies added. 2002 U.S. Economic Census, inflated Allocation based on resident to 2005 with NHE data. matrix. Vision Products & DME Includes all revenue for products that aid sight and for all services provided by optometrists and opticians. Also includes expenditures for durable medical equipment purchased from independent vendors. Includes all revenues received by nursing homes, including ICFs and SNFs. Nursing Home Care Expenditure data reported to AHS Division of Rate Setting for 2005. Estimates added for non-Medicaid homes. Government expenditures allocated as reported by nursing homes to AHS. Private expenditures distributed based on resident matrix. Expenditures are classified primarily as out-of-pocket and state & local. Allocated as reported by AHS. AHS does not include employee or operating costs, only grant programs. DHCA includes employee and operating costs and contract with VPQHC. Other/Unclassified Includes all services not specified elsewhere University of Vermont, Vermont Health Services (e.g., those provided to college and public Department of Education, others. school students). Government Health Activities Includes all expenditures for health activities AHS and DHCA. through AHS, public mental health funding, Corrections, and case management services. Federal grants and DHCA expenditures are also included. Page 16 TECHNICAL DOCUMENTATION TO THE VERMONT THREE-YEAR HEALTH CARE FORECAST: 2006-2009 Appendix C 2001-2009 Vermont Resident Expenditures (by Payer) ($ in thousands) PAYERS Out-of-Pocket Private Self-Insured BCBSVT MVP Other Private Medicare Medicaid Other Government Other Federal State & Local TOTAL RESIDENT EXPENDITURES 2001 $357,680 $1,005,937 $426,578 $267,703 $123,670 $187,986 $448,697 $633,960 $92,114 $58,452 $33,663 $2,538,388 2002 $401,055 $1,127,993 $499,338 $311,692 $101,195 $215,768 $473,692 $709,857 $91,497 $64,809 $26,688 $2,804,094 2003 $431,308 $1,239,947 $537,645 $366,580 $104,238 $231,483 $505,566 $762,963 $105,573 $70,035 $35,538 $3,045,357 2004 $471,428 $1,283,238 $521,228 $412,761 $116,893 $232,357 $544,788 $855,124 $120,027 $79,959 $40,068 $3,274,606 2005 $495,173 $1,397,439 $479,531 $444,048 $115,499 $358,361 $581,212 $914,567 $123,265 $71,384 $51,881 $3,511,657 2006 $529,969 $1,504,676 $516,773 $478,164 $124,398 $385,341 $625,841 $980,993 $133,113 $77,271 $55,842 $3,774,592 Projected 2007 2008 $566,830 $607,378 $1,620,031 $1,747,048 $556,111 $598,854 $514,790 $554,991 $133,947 $144,464 $415,183 $448,739 $671,836 $720,886 $1,052,337 $1,130,555 $143,340 $154,146 $83,329 $89,560 $60,012 $64,586 $4,054,373 $4,360,013 2009 $649,964 $1,884,007 $644,478 $598,315 $155,781 $485,433 $772,928 $1,214,794 $165,750 $96,235 $69,515 $4,687,443 Annual Percent Change 2002-2005 Average Annual Change 8.5% 8.6% 3.0% 13.5% -1.7% 17.5% 6.7% 9.6% 7.6% 5.1% 11.4% 8.5% Projected 2006-2009 Average Annual Change 7.0% 7.8% 7.7% 7.7% 7.8% 7.9% 7.4% 7.4% 7.7% 7.8% 7.6% 7.5% PAYERS Out-of-Pocket Private Self-Insured BCBSVT MVP Other Private Medicare Medicaid Other Government Other Federal State & Local TOTAL RESIDENT EXPENDITURES 2002 12.1% 12.1% 17.1% 16.4% -18.2% 14.8% 5.6% 12.0% -0.7% 10.9% -20.7% 10.5% 2003 7.5% 9.9% 7.7% 17.6% 3.0% 7.3% 6.7% 7.5% 15.4% 8.1% 33.2% 8.6% 2004 9.3% 3.5% -3.1% 12.6% 12.1% 0.4% 7.8% 12.1% 13.7% 14.2% 12.7% 7.5% 2005 5.0% 8.9% -8.0% 7.6% -1.2% 54.2% 6.7% 7.0% 2.7% -10.7% 29.5% 7.2% 2006 7.0% 7.7% 7.8% 7.7% 7.7% 7.5% 7.7% 7.3% 8.0% 8.2% 7.6% 7.5% 2007 7.0% 7.7% 7.6% 7.7% 7.7% 7.7% 7.3% 7.3% 7.7% 7.8% 7.5% 7.4% 2008 7.2% 7.8% 7.7% 7.8% 7.9% 8.1% 7.3% 7.4% 7.5% 7.5% 7.6% 7.5% 2009 7.0% 7.8% 7.6% 7.8% 7.8% 8.2% 7.2% 7.5% 7.5% 7.5% 7.6% 7.5% Page 17 TECHNICAL DOCUMENTATION TO THE VERMONT THREE-YEAR HEALTH CARE FORECAST: 2006-2009 Appendix C 2001-2009 Vermont Provider Expenditures (by Provider) ($ in thousands) Projected PROVIDERS Hospitals Community Hospitals Veterans Hospital Psychiatric Hospital: State Psychiatric Hospital: Private Physician Services Dental Services Other Professional Services Chiropractor Services Physical Therapy Services Psychological Services Podiatrist Services Other Home Health Care Drugs & Supplies Vision Products & DME Nursing Home Care Other/Unclassified Health Services Admin/Net Cost of Health Insurance Change in Surplus Administration Government Health Activities AHS - DAIL AHS - Health AHS - Mental Health/Retardation AHS - PATH (DCF) AHS - All Other Departments Dept. of Education Administrative Allocation Health Care Administration TOTAL PROVIDER EXPENDITURES 2001 $1,033,254 $932,403 $75,018 $6,848 $18,985 $365,148 $141,898 $110,424 $17,099 $11,299 $34,415 $3,209 $44,403 $73,830 $317,024 $40,328 $191,180 $19,096 N/A N/A N/A $227,646 $3,882 $15,993 $143,859 $5,156 $22,976 $33,303 n.a. $2,477 $2,519,828 N/A n.a. 2002 $1,108,698 $1,000,992 $82,314 $7,208 $18,185 $407,208 $173,861 $129,200 $22,925 $23,823 $31,137 $3,040 $48,275 $81,367 $386,769 $56,422 $197,634 $21,850 N/A N/A N/A $251,801 $1,377 $19,082 $156,966 $6,137 $25,814 $39,900 n.a. $2,526 $2,814,812 Not Applicable Not Available 2003 $1,197,630 $1,069,848 $89,130 $11,893 $26,759 $437,446 $181,667 $138,374 $24,520 $25,496 $32,971 $3,192 $52,195 $87,322 $399,695 $59,434 $202,980 $23,557 N/A N/A N/A $270,705 $2,380 $24,130 $170,362 $9,129 $28,652 $33,045 n.a. $3,005 $2,998,810 2004 $1,306,566 $1,163,867 $101,293 $13,063 $28,344 $476,643 $192,134 $148,917 $26,261 $28,432 $36,231 $3,495 $54,499 $90,325 $443,272 $63,758 $210,889 $24,535 N/A N/A N/A $281,770 $2,563 $26,529 $176,500 $11,325 $30,047 $31,702 n.a. $3,105 $3,238,809 2005 $1,410,178 $1,265,793 $99,767 $15,373 $29,246 $516,394 $206,063 $157,646 $27,800 $30,098 $38,355 $3,700 $57,693 $93,398 $460,511 $66,576 $221,828 $25,540 N/A N/A N/A $313,876 $103,908 $58,805 $52,223 $30,101 $25,436 $40,075 n.a. $3,330 $3,472,011 2006 $1,527,719 $1,371,227 $108,077 $16,653 $31,761 $556,448 $222,283 $168,597 $29,731 $32,189 $41,019 $3,957 $61,701 $99,619 $493,677 $70,465 $232,294 $27,559 N/A N/A N/A $338,343 $112,007 $63,389 $56,293 $32,447 $27,418 $43,199 n.a. $3,589 $3,737,005 2007 $1,648,414 $1,479,426 $116,605 $17,967 $34,415 $596,369 $238,803 $180,641 $31,855 $34,488 $43,949 $4,240 $66,109 $105,911 $530,680 $74,333 $242,703 $29,793 N/A N/A N/A $364,639 $120,712 $68,315 $60,668 $34,969 $29,549 $46,556 n.a. $3,868 $4,012,284 2008 $1,771,532 $1,589,551 $125,285 $19,305 $37,391 $641,114 $256,790 $194,157 $34,238 $37,069 $47,238 $4,557 $71,055 $112,791 $571,027 $78,724 $254,526 $32,650 N/A N/A N/A $392,980 $130,095 $73,625 $65,384 $37,687 $31,846 $50,175 n.a. $4,169 $4,306,290 2009 $1,903,842 $1,707,873 $134,611 $20,742 $40,616 $686,686 $275,438 $207,592 $36,608 $39,634 $50,506 $4,872 $75,972 $119,975 $614,771 $82,609 $267,135 $35,806 N/A N/A N/A $423,408 $140,168 $79,326 $70,446 $40,605 $34,312 $54,060 n.a. $4,491 $4,617,260 Page 18 TECHNICAL DOCUMENTATION TO THE VERMONT THREE-YEAR HEALTH CARE FORECAST: 2006-2009 Appendix C 2001-2009 Vermont Provider Expenditures (by Provider) Annual Percent Change 2002-2005 Average Annual Change 8.1% 7.9% 7.4% 22.4% 11.4% 9.1% 9.8% 9.3% 12.9% 27.8% 2.7% 3.6% 6.8% 6.1% 9.8% 13.4% 3.8% 7.5% N/A N/A N/A 8.4% 127.5% 38.5% -22.4% 55.4% 2.6% 4.7% N/A 7.7% 8.3% Projected 2006-2009 Average Annual Change 7.8% 7.8% 7.8% 7.8% 8.6% 7.4% 7.5% 7.1% 7.1% 7.1% 7.1% 7.1% 7.1% 6.5% 7.5% 5.5% 4.8% 8.8% N/A N/A N/A 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% N/A 7.8% 7.4% PAYERS Hospitals Community Hospitals Veterans Hospital Psychiatric Hospital: State Psychiatric Hospital: Private Physician Services Dental Services Other Professional Services Chiropractor Services Physical Therapy Services Psychological Services Podiatrist Services Other Home Health Care Drugs & Supplies Vision Products & DME Nursing Home Care Other/Unclassified Health Services Admin/Net Cost of Health Insurance Change in Surplus Administration Government Health Activities AHS - DAIL AHS - Health AHS - Mental Health/Retardation AHS - PATH (DCF) AHS - All Other Departments Dept. of Education Administrative Allocation Health Care Administration TOTAL PROVIDER EXPENDITURES 2002 7.3% 7.4% 9.7% 5.3% -4.2% 11.5% 22.5% 17.0% 34.1% 110.8% -9.5% -5.3% 8.7% 10.2% 22.0% 39.9% 3.4% 14.4% N/A N/A N/A 10.6% -64.5% 19.3% 9.1% 19.0% 12.4% 19.8% N/A 2.0% 11.7% N/A n.a. 2003 8.0% 6.9% 8.3% 65.0% 47.1% 7.4% 4.5% 7.1% 7.0% 7.0% 5.9% 5.0% 8.1% 7.3% 3.3% 5.3% 2.7% 7.8% N/A N/A N/A 7.5% 72.9% 26.5% 8.5% 48.8% 11.0% -17.2% N/A 19.0% 6.5% Not Applicable Not Available 2004 9.1% 8.8% 13.6% 9.8% 5.9% 9.0% 5.8% 7.6% 7.1% 11.5% 9.9% 9.5% 4.4% 3.4% 10.9% 7.3% 3.9% 4.2% N/A N/A N/A 4.1% 7.7% 9.9% 3.6% 24.0% 4.9% -4.1% N/A 3.3% 8.0% 2005 7.9% 8.8% -1.5% 17.7% 3.2% 8.3% 7.2% 5.9% 5.9% 5.9% 5.9% 5.9% 5.9% 3.4% 3.9% 4.4% 5.2% 4.1% N/A N/A N/A 11.4% 3953.5% 121.7% -70.4% 165.8% -15.3% 26.4% N/A 7.2% 7.2% 2006 8.3% 8.3% 8.3% 8.3% 8.6% 7.8% 7.9% 6.9% 6.9% 6.9% 6.9% 6.9% 6.9% 6.7% 7.2% 5.8% 4.7% 7.9% N/A N/A N/A 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% N/A 7.8% 7.6% 2007 7.9% 7.9% 7.9% 7.9% 8.4% 7.2% 7.4% 7.1% 7.1% 7.1% 7.1% 7.1% 7.1% 6.3% 7.5% 5.5% 4.5% 8.1% N/A N/A N/A 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% N/A 7.8% 7.4% 2008 7.5% 7.4% 7.4% 7.4% 8.6% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 6.5% 7.6% 5.9% 4.9% 9.6% N/A N/A N/A 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% N/A 7.8% 7.3% 2009 7.5% 7.4% 7.4% 7.4% 8.6% 7.1% 7.3% 6.9% 6.9% 6.9% 6.9% 6.9% 6.9% 6.4% 7.7% 4.9% 5.0% 9.7% N/A N/A N/A 7.7% 7.7% 7.7% 7.7% 7.7% 7.7% 7.7% N/A 7.7% 7.2% Page 19 TECHNICAL DOCUMENTATION TO THE VERMONT THREE-YEAR HEALTH CARE FORECAST: 2006-2009 Appendix C This page intentionally left blank. Page 20 TECHNICAL DOCUMENTATION TO THE VERMONT THREE-YEAR HEALTH CARE FORECAST: 2006-2009 Appendix D Vermont Health Expenditures Three Year Forecast Model Forecast Expenditures: Provider Base Expenditures: Provider 2005 expenditures by provider service category from the Vermont Health Care Expenditure Analysis 2006 - 2009 projected expenditures by provider service category: Hospitals Physicians Dental Other Professionals Home Health Drugs & Supplies Vision & DME Nursing Home Other/Unclassified Admin./Net Cost of Health Ins. Gov't Health Activities Forecast Expenditures: Provider 2006 - 2009 projected expenditures by source of funds: Out-of-Pocket Self-insured BlueCross BlueShield MVP Other Private Medicare Medicaid Other Federal State/Local Growth Factors Individual growth estimates for providers from Centers for Medicare & Medicaid Services National Health Expenditure projections Allocation Allocation by source of funds from actual 2005 Vermont Health Care Expenditure Analysis Forecast Expenditures: Resident 2006 - 2009 projected expenditures by provider service category: Hospitals Physicians Dental Other Professionals Home Health Drugs & Supplies Vision & DME Nursing Home Other/Unclassified Admin./Net Cost of Health Ins. Gov't Health Activities Forecast Expenditures: Resident 2006 - 2009 projected expenditures by source of funds: Out-of-Pocket Self-insured BlueCross BlueShield MVP Other Private Medicare Medicaid Other Federal State/Local Base Expenditures: Resident 2005 expenditures by provider service category from the Vermont Health Care Expenditure Analysis Page 21 TECHNICAL DOCUMENTATION TO THE VERMONT THREE-YEAR HEALTH CARE FORECAST: 2006-2009 Appendix D This page intentionally left blank. Page 22 TECHNICAL DOCUMENTATION TO THE VERMONT THREE-YEAR HEALTH CARE FORECAST: 2006-2009 Appendix E National Health Expenditures Model, Methods, and Projections The following paragraphs were taken directly from the CMS website and are footnoted accordingly. Projections of National Health Expenditures: Methodology and Model Specification1 The Office of the Actuary (OACT) in the Centers for Medicare & Medicaid Services (CMS) annually produces 10-year projections of health care spending for categories within the National Health Expenditure Accounts (NHEA). The NHEA track health spending by source of funds (for example, private, Medicare, Medicaid) and by type of service (hospital, physician, pharmaceuticals, etc.). To produce projections for total National Health Expenditures (NHE), OACT combines projections for Medicare and Medicaid spending (based on actuarial techniques) with projections for private health spending (based on a multi-equation structural econometric model, hereafter referred to as the NHE Projection Model). The NHE Projection Model attempts to capture the causal relationships between major macroeconomic variables and private health spending, as well as interactions among major causal variables within the health sector. The macroeconomic and demographic outlook from the 2005 Trustees Report and the projections of Medicare and Medicaid spending produced by OACT are exogenous inputs into the model. Forecasting is contingent upon assumptions about macroeconomic conditions and their relationship to health care spending; thus, our projections are always subject to considerable uncertainty. As we have no historical experience with Medicare Part D, the uncertainty associated with this set of projections is greater than in previous years. http://www.cms.hhs.gov/NationalHealthExpendData/downloads/projections-methodology-2006.pdf See also Borger, C et al., “Health Spending Projections Through 2015: Changes on the Horizon,” Health Affairs, March/April 2006; Volume 25, Number 2: w61-w73. Page 23 1