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					                          Acess Now
Arizona CAN! Coverage and AccessNow

                                        Crisis or
                                      Opportunity?
                                      Arizona Health Care
                                         Forecast 2005
                          Acess Now
Arizona CAN! Coverage and AccessNow        Crisis or Opportunity:
                                             A Tour in Six Parts

                                      1.   Back to the Future
                                      2.   An Arizona Snapshot
                                      3.   What’s Going On in Other States?
                                      4.   What About the Feds?
                                      5.   An Arizona Forecast
                                      6.   An Agenda For Today
                          Acess Now
Arizona CAN! Coverage and AccessNow
                                            Back to the Future
                                      “On average, health insurance premiums
                                        have risen about 116% in the past five
                                        years. General Motors pays more for
                                        health care than it does for steel.
                                        Insurance premiums are going up 20% to
                                        30%. Hospital charges are rising 20% a
                                        year. The way our health care system
                                        operates, there is very little incentive for
                                        anyone except employers to control
                                        costs.‖

                                                   Employee Benefit News, 1976
                          Acess Now
                                                 Then and Now
Arizona CAN! Coverage and AccessNow
                                      • 1975 –
                                        – $130 Bil. Total health care expenditures
                                        – 8% GDP
                                        – $600 per capita

                                      • 2004 (approx.) –
                                        – $1.8 Tril. Total health care expenditures
                                        – 15% GDP
                                        – $6,000 per capita
                          Acess Now
                                               Then and Now
Arizona CAN! Coverage and AccessNow

                                      1975-
                                       -- Nobody wanted higher prices,
                                         restricted access, increased
                                         regulation, diminished autonomy, high
                                         number of uninsured, corporate
                                         medicine.
                                      2005 –
                                       -- That’s exactly what we got.
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                                           Will the Bubble Burst?
Arizona CAN! Coverage and AccessNow
                                      • In 1976, U.S. business dominated the
                                        global stage. Businesses passed on
                                        health care costs.
                                      • In 2005 and beyond, U.S. businesses
                                        are under intense global pressure…
                                        harder to pass on the health care
                                        costs.
                                      • At what point does the trajectory stop?
                                         – Gap between haves and have-nots
                                         – Gap between generations
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Arizona CAN! Coverage and AccessNow      Crisis: It’s a Way of Life
                                      • The U.S. health care system has been perceived
                                        to be in a state of crisis for the past 40 years.
                                          • Worldwide, most people think their country’s
                                           health care system is in a state of crisis. (65%)
                                         – Think the problem is more management than
                                           funding.
                                         – Prefer public to private funding.
                                      • People are generally satisfied with their own
                                        health care.
                                      • Most people expect government to ―do
                                        something.‖
                                      • Most people don’t trust government to do the
                                        right thing.
                          Acess Now
Arizona CAN! Coverage and AccessNow                The System:
                                              It’s Really Quite Simple

                                      •   Everybody wants to increase revenue
                                      •   Everybody wants to control costs
                                      •   Everybody wants unfettered access
                                      •   Everybody wants high quality care
                                      •   Nobody likes to pay more
                                      •   Nobody likes to lose
                                               Guess Who’s Winning!
                          Acess Now
Arizona CAN! Coverage and AccessNow
                          Acess Now
Arizona CAN! Coverage and AccessNow             Arizona at a Glance
                                      • $21.5 B in health expenditures in 2002
                                         – $4,234 per capita, compared to U.S. $5,540
                                      • Why lower expenditures in AZ?
                                         – Lower wage state – median family income
                                           declined 3.8% between 2001-2003 (-.6% U.S.)
                                         – Higher relative population growth
                                         – Higher influx of young people, immigrants, the
                                           uninsured
                                         – Fewer staffed hospital beds, physicians,
                                           inpatient admissions, office visits
                                         – More people reporting unmet medical needs,
                                           delaying care
                                         – Relative lower pricing structure
                          Acess Now
Arizona CAN! Coverage and AccessNow              We spend less.
                                               Are we less healthy?
                                      • Not necessarily
                                        – 21st in U.S. in health outcomes
                                        – 30th in U.S. in risk factors
                                        – 23rd composite score
                                        Do well: heart disease, cancer deaths
                                        Do poorly: children in poverty, prenatal
                                         care
                                        There is no necessary relationship between
                                         expenditures and health outcomes.
                          Acess Now
Arizona CAN! Coverage and AccessNow         AZ Health Expenditures
                                               2004 projected ($23.5 B)
                                      • Hospital (inpatient, outpatient) – 21%
                                         – 12% individual, 17% small employer to 41%
                                           AHCCCS
                                      • Pharmacy – 19%
                                         – 10% in AHCCCS to 26% for uninsured
                                      • Out-of-Pocket - 18%
                                         – 1% in AHCCCS to 36% individual, 27% small
                                           business
                                      • Physicians – 17%
                                         – 11% individual to 27% AHCCCS
                                      • Administration – 13%
                                         – 10% for AHCCCS to 22% for individual
                                      • Other – 12%
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Arizona CAN! Coverage and AccessNow             AZ Health Players
                                      Hospitals
                                      – Net margins averaged 2.5% between 2000-
                                        2003, ranging from .9% in 2000 to 4.8% in
                                        2003.
                                      – About 1/3 of AZ hospitals are losing money.
                                        Mirrors national trends.
                                      – Uncompensated care = $211 mil. in 2003-up
                                        14% from 2000.
                                      – Major issues: access to capital, workforce,
                                        competition, technology, nonprofit status
                                      – What business will hospitals be in tomorrow?
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Arizona CAN! Coverage and AccessNow            AZ Health Players
                                      • Health Plans
                                        – Making money now: AZ HMOs made $173
                                          mil. net profits during first half of 2004.
                                        – Lost money in 2000 and 2001. Follows
                                          underwriting cycle.
                                        – HMO membership continues to drop –
                                          down 17% from one year ago.
                                        – Higher costs being passed on to
                                          employers
                                        – What business will health plans be in
                                          tomorrow?
                          Acess Now
Arizona CAN! Coverage and AccessNow          AZ Health Players
                                      • Workforce
                                        – Comparative Rankings (2000)
                                             •   Physicians – 33rd
                                             •   Nurses – 19% below national average
                                             •   Dentists – 41st
                                             •   Pharmacists – 50th
                                             •   Chiropractors – 3rd
                                             •   Employment in Offices and Clinics – 6th
                                        –   Reimbursement, turnover, cultural issues
                                        –   Scope of practice, lifestyle issues
                                        –   Quality, efficiency, training issues
                                        –   Competition and Technology Issues
                          Acess Now
Arizona CAN! Coverage and AccessNow
                          Acess Now
Arizona CAN! Coverage and AccessNow                AZ Health Players
                                      Employers
                                      • ―General Motors is a health insurer that just happens
                                        to sell cars.‖
                                      • Employer-based health insurance in AZ declined 7.5%
                                        between 2000-2003 (59.1% to 54.8%)
                                         – Nationally, it declined 5%: 63.6% to 60.4%.
                                      • AZ: small business, big service sector, lower wages.
                                      • Recent survey: 44% of Maricopa County small
                                        businesses say they can’t afford to offer health
                                        insurance. (Behavior Research Center)
                                      • Passing on more costs to employees: deductibles up
                                        40% between 2001-2004.
                                      • Lower subsidies for families, more emphasis on
                                        disease management programs, wellness programs,
                                        etc.
                          Acess Now
Arizona CAN! Coverage and AccessNow           Health Insurance
                                      • Premium increases are slowing down – a
                                        mere 11.3% increase projected for 2005 –
                                        1% less than 2004. (Hewitt survey)
                                         – Phoenix made the top 10 list for highest
                                           rate increases in 2004 – just under 15%.
                                      • AZ 2004 projected OOP costs for persons
                                        insured individually or through small
                                        employer average between $1,260-$1,404
                                        compared to $540 for those covered
                                        through large employer.
                          Acess Now
Arizona CAN! Coverage and AccessNow




                                      2004 Annual Health Benefits Survey, The Kaiser Family
                                      Foundation and Health Research & Education Trust.
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Arizona CAN! Coverage and AccessNow
                                      2004 Annual Health Benefits Survey, The Kaiser Family
                                      Foundation and Health Research & Education Trust.
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Arizona CAN! Coverage and AccessNow   Factors Driving Premium Increases

                                      2001-2002:
                                      – Drugs/medical advances       22%
                                      – General inflation            18%
                                      – Provider expenses            18%
                                      – Mandates/Regulations         15%
                                      – Consumer Demand              15%
                                      – Litigation/Risk Management    7%
                                      – Other                         5%
                          Acess Now
Arizona CAN! Coverage and AccessNow             AHCCCS (Medicaid)
                                      • Over 1 million enrolled – approaching 20% of
                                        population.
                                      • Represents 24% of state budget:
                                         – General Fund Revenues – 18.3% (32.3% all states
                                           average)
                                         – Federal Revenues – 71.4% (59.8% all states)
                                         – Tobacco/other state funds – 10.4% (7.8% all
                                           states)
                                         – AZ Medicaid expenses increased 36.6% between
                                           2002-2004, compared to a 14.6% increase across
                                           all states.
                                         – Economic multiplier: $1.9 Bil. Investment
                                           leverages $9 Bil. In total new business activity
                                           (Families USA).
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Arizona CAN! Coverage and AccessNow             AZ Medicaid and
                                               Tax Revenue Growth
                                      Relative Rates of Growth for AZ Tax Revenue
                                          and Medicaid Expenditures 1997-2004
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Arizona CAN! Coverage and AccessNow             AZ Uninsured

                                      • Close to 1 mil. uninsured in AZ
                                        (994,000).
                                      • 80% of the uninsured in Arizona work.
                                         – 38% work for small businesses.
                                      • 71% make 200% of poverty or less.
                                         – 39% of uninsured could conceivably
                                           qualify for public programs (earn
                                           100% of poverty or less).
                          Acess Now
                                                   Medicare
Arizona CAN! Coverage and AccessNow

                                      • About 12% of AZ population is on
                                        Medicare (700,000).
                                      • Total Expenditures: $6.8 Bil (2004
                                        projected).
                                      • Medicare is 12% of the population but
                                        29% of expenditures.
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Arizona CAN! Coverage and AccessNow           Behavioral Health
                                      • A Separate System – and therein lies a
                                        problem.
                                      • ADHS/BHS budget for 2004-2005 is about
                                        $900 mil for approximately 100,000
                                        persons.
                                         – Children                     30%
                                         – General/Substance Abuse      40%
                                         – SMI                          30%
                          Acess Now
Arizona CAN! Coverage and AccessNow   What are Other States Doing?
                                      • Every Medicaid program instituted at least one
                                        cost control measure in FY 2004; the same is
                                        expected in FY 2005.
                                         – 47 states plan to freeze or reduce provider
                                           payments.
                                         – 14 plan to reduce eligibility
                                         – 9 will reduce or restrict benefits
                                         – 9 will increase co-payments
                                      • Have to deal with the possible loss of $20B in
                                        federal relief (enhanced federal match)
                                      • Bottom line: Costs are still rising faster than
                                        revenues.
                          Acess Now
Arizona CAN! Coverage and AccessNow   What Are Other States Doing?
                                      • SCHIP – enrollment increased in 37 states in
                                        2003; declined in 12 states. Same cost
                                        pressures, responses.
                                         – More states looking at prevention measures
                                           (improved prenatal, medical home, etc.)
                                      • Increasing coverage: risk pools, consumer-
                                        directed plans, outreach for Medicaid/SCHIP.
                                        Emphasize economic and social benefits.
                                      • Reducing pharmacy costs.
                                      • Medical Malpractice – state initiatives to lower
                                        caps on non-economic damages, ―three strikes
                                        and you’re out‖ initiatives, mediation, etc.
                                        Volatile area – generates more heat than light.
                          Acess Now
Arizona CAN! Coverage and AccessNow
                          Acess Now
                                      What Are Other States Doing?
Arizona CAN! Coverage and AccessNow

                                      • Workforce – various state efforts to increase
                                        number of nurses, address rural workforce
                                        shortages, physician specialties, scope of
                                        practice legislation, etc.
                                      • Long-Term care. Sleeping giant. State
                                        coordinated plans, home-based care,
                                        licensing/regulatory reform. Huge workforce
                                        issues here.
                                      • Medical Quality and Cost Reporting initiatives;
                                        report cards, making information available to
                                        consumers, pay-for-performance initiatives,
                                        efforts to reduce administrative costs, etc.
                          Acess Now
Arizona CAN! Coverage and AccessNow     What are Other States Doing?
                                      • Electronic Medical Records
                                         – Pretty much demonstration projects at this point;
                                           conflicting standards and platforms, lack of capital,
                                           but seems poised to take off.
                                      • Disease management/prevention programs
                                         – Often tied to health care contracts, Medicaid reform.
                                      • Looking for Revenue
                                         – 14 states considered legislation in 2004 to raise
                                           taxes on snack foods. None passed.
                                         – California passed initiative to raise tax on
                                           millionaires by 1% to fund behavioral health
                                           programs.
                                         – Usual assortment of sin taxes, etc. Not much
                                           enthusiasm for raising income taxes on general
                                           pop.
                          Acess Now
Arizona CAN! Coverage and AccessNow         What About the Feds?
                                      • Pressure to deal with the federal deficit,
                                        although polls indicate the public has ―tuned
                                        out‖ on this issue.
                                      • Pressure to cut Medicare. Hospitals are one
                                        likely target; physicians probably are not.
                                      • Interest in cutting Medicaid, but little
                                        consensus on how to do it. The idea of
                                        turning Medicaid into a capped grant program
                                        is still alive, but is resisted by the states.
                                      • Lots of talk about supporting information
                                        technology, but little action.
                                         – U.S. increased its health care IT budget to
                                           $100 mil. Canada, which has one-tenth as
                                           many people, spends $1 Bil.
                          Acess Now
Arizona CAN! Coverage and AccessNow          What About the Feds?
                                      • Privatize health care/Medicare
                                         – Employer-based health insurance:
                                           Regressive taxation
                                            • Lower-income families -- $125 tax benefit
                                            • Upper-income families -- $2,600 tax
                                              benefit
                                         – Bush: ―Revisit the business tax exclusion.‖
                                            • $189 Bil. in tax expenditures—right
                                              behind Medicare and Medicaid.
                                         – Tort Reform
                          Acess Now
Arizona CAN! Coverage and AccessNow           The Basic Quandary
                                      • States have exhausted most of their options.
                                      • The Federal government most likely can’t grow
                                        its way out of a ballooning deficit.
                                      • The issue is the mix of taxes and expenditures:
                                         – Some want policymakers to focus on
                                            ―runaway spending.‖
                                         – Some suggest that tax cuts are part of a
                                            strategy to starve government of resources
                                            needed to fulfill its obligations.
                                         – The answer is probably somewhere in the
                                            middle.
                          Acess Now
Arizona CAN! Coverage and AccessNow        The Basic Quandary
                                      • Various Options:
                                         – Cap domestic discretionary spending.
                                         – Scale back the 2001 tax cuts.
                                         – Make all earnings subject to Social
                                           Security tax.
                                         – Ensure that tax cuts are paid through
                                           offsetting spending or tax changes
                                           over a 10-year period.
                                         – Etc.
                          Acess Now
Arizona CAN! Coverage and AccessNow               An Arizona Forecast
                                                   (not a prediction!)
                                      • Following national trends, AZ health care costs will
                                        ameliorate in 2005 to 7-8%, but will still be 300%
                                        above the CPI.
                                      • Premium increases will come in around 11-12%, per
                                        business surveys.
                                      • We will continue to see more interest in MSAs and
                                        high-deductible ―PPO-like‖ products and more
                                        employers going to defined contribution schemes.
                                         – This will have zero impact on costs.
                                      • We will continue to see a rise in the number of
                                        employers generally, and small employers
                                        specifically, who don’t offer health coverage.
                          Acess Now
Arizona CAN! Coverage and AccessNow         An Arizona Forecast
                                      • Large employers who offer health insurance
                                        will continue to move to higher payroll
                                        contributions, lower subsidies for
                                        dependents and increased co-pays.
                                         – More interest in chronic disease
                                           management programs,
                                           wellness/prevention, P4P.
                                      • Numbers of uninsured should not change
                                        dramatically from current rates, assuming
                                        modest economic growth and no tightening
                                        of eligibility, etc. by legislature.
                                         – One might assume otherwise.
                          Acess Now
Arizona CAN! Coverage and AccessNow           An Arizona Forecast
                                      • Metro hospitals will continue to expand; the gap
                                        between the haves and have nots will grow.
                                         – Will look to stimulate demand in high margin
                                           areas (ads for bariatric surgery, for example).
                                         – Competition between the major players will
                                           intensify; search for capital is problematic.
                                      • Hospitals and others will make a major push to
                                        increase workforce capacity.
                                         – AzHHA is launching five-year, $40 m. effort
                                           to double the number of nursing graduates.
                                         – Hospitals will continue to struggle with lack
                                           of on-call specialists in emergency rooms.
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Arizona CAN! Coverage and AccessNow           An Arizona Forecast
                                      • The physician shortage will continue to be felt in
                                        certain specialties and rural areas.
                                         – Increasing use of physician ―extenders,‖
                                           scope of practice issue conflicts (but not a
                                           front-burner ).
                                      • Continuation of tort reform efforts; the opposition
                                        will get organized.
                                      • More fragmentation between hospitals and
                                        physicians, as physicians move high tech
                                        procedures into their offices and outpatient
                                        suites.
                                         – More use of foreign-trained physicians,
                                           contractual firms; hospitals will also look for
                                           creative ways to enter into partnerships with
                                           selected specialty groups.
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Arizona CAN! Coverage and AccessNow            An Arizona Forecast
                                      • For all the talk about prevention and public
                                        health, activities will be modest -- and so will
                                        the funding.
                                         – Prevention doesn’t drive the economic
                                            engine of needs.
                                      • The momentum to invest in biotechnology,
                                        medical research/education and economic
                                        development will continue to trump investing
                                        in the safety net.
                                         – Not an either/or, but that seems to be the
                                            political reality.
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Arizona CAN! Coverage and AccessNow                       Trends
                                      • The eclipse of traditional medicine and the rise
                                        of technological interventions. (more pills, less
                                        procedures).
                                      • Tension: More specialization, the need for
                                        integration.
                                      • The rise of the consumer and the decline of
                                        professional autonomy.
                                      • The logic of industrial efficiency and the
                                        displacement/shifting of jobs.
                                      • Eventually, a national system. Government as
                                        code regulator, private industry as the builder.
                          Acess Now
Arizona CAN! Coverage and AccessNow         An Agenda for Today
                                      • Invest in education and prevention: The
                                        best way to reduce health care costs is to
                                        stay out of the system.
                                      • Move the debate and energy from a
                                        preoccupation with social values to how
                                        to best invest in the education,
                                        technological and health care
                                        infrastructure that will keep Arizona
                                        competitive in a new century.
                                      • Invest in better information.
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Arizona CAN! Coverage and AccessNow


                                      -- Track system/population use/outcomes over
                                      time and across providers to improve access
                                      and quality, and lower costs.
                                      -- Integrate with efforts to move to electronic
                                      medical records; link up to regional and national
                                      data systems.
                                      -- Provides a forum to bring together hospitals,
                                      health plans, physicians, consumers,
                                      policymakers and others to work in a
                                      cooperative, non-threatening environment.
                          Acess Now
Arizona CAN! Coverage and AccessNow       An Agenda for Today

                                      • Eliminate barriers between consumers and
                                        practitioners. Educate, educate, educate.
                                      • Invest in the safety net. The economic and
                                        social benefits far outweigh the immediate
                                        investment.
                                      • Reduce unjustified disparities.
                                      • Plan for long term care.
                                      • Keep public programs healthy.
                                      • Innovate in coverage/access.
                          Acess Now
Arizona CAN! Coverage and AccessNow   i.e., Rethinking Health Insurance
                                       • Today, health insurance combines four different
                                         functions:
                                          – Meeting catastrophic and unexpected needs
                                          – Prepayment for preventive coverage
                                          – Discounts for routine care
                                          – Assistance in paying for maintenance of
                                            chronic illnesses
                                       • Could different entities/financial mechanisms
                                         take some of these on?
                                          – Reinsurance for high chronic care costs, etc.
                          Acess Now
Arizona CAN! Coverage and AccessNow
                          Acess Now
Arizona CAN! Coverage and AccessNow
                                                 Only Connect

                                      • Change the Paradigm: Move from deficits
                                        and needs to strengths and assets.
                                      • Empower communities and community
                                        health through grassroots organizing and
                                        community development.
                                      • Invest in public health. There really is a
                                        public good -- and we are it!

				
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