As a follow-up to Medicare: Why is it on the table?
, wherein we talked about the demographic time bomb that will inject 33 million new boomers into Medicare over the next two decades, we need to talk about some possible solutions.
Now, we need to be clear when we are talking about overall health care costs and expenditures, and when we are talking about Medicare. When health care costs go up, Medicare's will as well. And the best way to decrease Medicare's costs (with some factors peculiar to Medicare, covered below) is to decrease overall health costs.
As medical costs go up, and as more people use services, that means overall Medicare expenditures go up as well (USA Today):
The latest spending surge in federal health care is driven by more people getting more treatment, not by price increases. Health care inflation is at its lowest level in more than a decade — a 1.7% annual rate — but the aging population and the weak economy are sending more patients to government-financed care.
What do we spend our dollars on? This chart from Kaiser
helps illustrate where health care dollars go:
Slightly over half of the dollars are spent on doctors and hospitals, and seven percent is spent on administrative costs. Estimates suggest that government admin costs are lower than those in the private sector, which is an argument in favor of Medicare, single payer and other government programs. By the way, note that less than half of the administrative costs, only three percent, is spent on public health—an area I consider underfunded, but that's another story for another day.
Did you know that the health care sector is creating jobs?
More than one in four of the 117,000 new jobs created in the U.S. economy in July were in healthcare, according to preliminary figures from the Bureau of Labor Statics
Healthcare created 31,300 new jobs for the month and 170,900 new jobs in the first seven months of 2011. The healthcare sector has accounted for 18.4% of the 930,000 non-farm payroll additions in the overall economy so far this year, BLS preliminary data show.
That's another example of why it's tough to reform this sector, especially in the middle of a downturn. I repeat, this is not an argument from me against reform, just a "lay of the land" factoid to take into account.
Here are some more health care factoids from the actuaries at CMS:
• NHE (national health expenditure) grew 4.0% to $2.5 trillion in 2009, or $8,086 per person, and accounted for 17.6% of Gross Domestic Product (GDP).
• Medicare spending grew 7.9% to $502.3 billion in 2009, or 20 percent of total NHE.
• Medicaid spending grew 9.0% to $373.9 billion in 2009, or 15 percent of total NHE.
• Private health insurance spending grew 1.3% to $801.2 billion in 2009, or 32 percent of total NHE.
• Out of pocket spending grew 0.4% to $299.3 billion in 2009, or 12 percent of total NHE.
• The federal government share of health care spending increased just over three percentage points in 2009 to 27 percent, while the shares of spending by households (28 percent), private businesses (21 percent) and state and local government (16 percent) fell by about 1 percentage point each.
So, a fifth of the GDP is spent on health care (a huge reason why reform is so difficult ... that's a lot of vested interest!) and a fifth of that on Medicare, the program for over 65s. In fact, some more factoids, same CMS source
• Per person personal health care spending for the 65 and older population was $14,797 in 2004, 5.6 times higher than spending per child ($2,650) and 3.3 times spending per working-age person ($4,511).
• In 2004, children accounted for 26 percent of the population and 13 percent of PHC spending.
• The working-age group comprised the majority of spending and population in 2004, at 52 percent and 62 percent respectively.
• The elderly were the smallest population group at 12 percent of the population, and accounted for the remaining 34 percent of spending in 2004.
If you want to control Medicare costs, control overall costs, but if you want to do that, control health costs for the elderly. And that's where the cost of end-of-life care comes in. This USA Today
story from 2006 illustrates the issue (not much has changed):
Estimates show that about 27% of Medicare's annual $327 billion budget goes to care for patients in their final year of life.
, comes a ittle bit of reflection:
One way to look at the American health care experience is as an experiment to see how far a society can go towards making people if not perfect, then at least as healthy as possible, in spite of the sometimes self-destructive behaviors that undermine good health.
Which brings up the second conundrum—that this experiment has been conducted at an extraordinary cost given the increasingly marginal benefits in terms of outcomes and quality of life as death approaches.
For example, in the 1940s, the proliferation of low cost antibiotics such as penicillin saved millions of lives and transformed society. In the 2000s the creation of smart drugs such as Avastin—which acts in a novel way to choke off the blood supply to cancerous tumors—extends the lifespan of some cancer patients for only two months at a cost of about $55,000 for a year. Still, oncologists say that it improves a patient's quality of life more than other drugs.
As Americans our inclination is to give Avastin to everyone that it might help – an attitude that fits into our heroic-techno-medicine ethos, but also has contributed to the U.S. spending two to three times as much per capita as Britain, Canada, Japan and most other industrialized countries in the Organization of Economic Cooperation.
So the increased cost for the US is partly due to what we demand from the system. Think of it as the public at large demanding Congressmen fight to the death on issues, then hating Congress for not getting anything done. How do you judge that? Is it even possible?
Certainly, there's opportunity for savings there and in other areas (and voters recognize that.) The opportunity is there because there are huge regional variations in cost, as illustrated in Atul Gawande's report on McAllen, Texas and this comprehensive state estimate from the Dartmouth Health Atlas about the cost of care in the last two years of life (and see also Researchers Find Huge Variations in End-of-Life Treatment.)
Dartmouth Health Atlas, last two years of life costs
Follow me below the fold for more...
Searching for best practices, and counseling patients about the costs of futile care and the availability of living wills, was temporarily put on hold by Republicans demagoguing the issue, but its reappearance is inevitable in this era of fiscal constraint. (See? There's common ground with fiscal hawks!)
How can we even out that and other disparities and save by spending the money efficiently on best practices (also known as evidence-based medicine)? That's where the 2010 Patient Protection and Affordable Care Act (ACA) comes in. Imperfect as it is (and it is imperfect), parts of ACA are directed exactly at those kinds of savings.
For more insight on savings and cost from ACA and elsewhere, I contacted Paul Van de Water, a health care finance expert at the Center for Budget Policy and Priorities, and asked him to discuss what we can do to control costs, and how ACA is supposed to help. His reply in its entirety (emphasis added):
Anyone looking at Medicare in the context of reducing long-term deficits must keep two critical — but often overlooked — facts in mind.
First, the problem of rising health costs affects the entire health care system, public and private. For over 30 years, Medicare and private-sector health care costs have grown at about the same rate per beneficiary, which shouldn't be surprising since they use the same doctors, hospitals, and medical procedures. In fact, Medicare has been a leader in adopting cost-control policies that private insurers have then widely adopted.
Second, the Affordable Care Act (ACA) holds the potential to vastly improve Medicare’s long-term financial outlook. If the law’s Medicare savings fully materialize, they will close four-fifths of the long-term shortfall in Medicare’s Hospital Insurance program. And they will shrink Medicare’s total cost in 2035 by more than one-fifth—from 7.2 percent to 5.6 percent of gross domestic product—according to Medicare’s trustees.
To achieve these savings, the ACA establishes a host of new initiatives that aim to transform Medicare into a program that rewards health care providers based on the value of their care, not the volume of their procedures. These include bundling payments for episodes of care, reducing avoidable hospital readmissions, testing and implementing new ways to increase the value of care, coordinating care under Medicare and Medicaid, informing patients and payers about the quality of health care providers, and increasing funding for comparative effectiveness research. The law also creates an Independent Payment Advisory Board that will develop and submit proposals to reduce cost growth and improve quality in both Medicare and the health care system as a whole.
These reforms will take time to plan, test, and implement. But they can succeed only if we give them a chance, and that won’t happen if health reform opponents succeed in repealing them.
Even if all of the ACA’s savings materialize, we’ll need to do more over the long run to slow the growth of health care costs in the private and public sectors alike. In the near term, however, achieving large additional savings will be difficult, since the ACA includes most of the good ideas for slowing the growth of Medicare spending. Other proposals, like increasing the age of eligibility for Medicare or replacing the program with vouchers that wouldn’t keep pace with health costs, would generally just shift costs to beneficiaries, states, and employers — and in many cases would increase total health care spending.
Given the limited possibilities for more Medicare cuts in the next five to ten years, the Congressional “supercommittee” needs to develop a balanced package of deficit-reduction measures, including significant additional revenues.
In the end, tough decisions, such as empowering an Independent Payment Advisory Board, are going to be needed to rein in costs. From the White House site
, here's what the IPAB is supposed to do:
• IPAB would recommend policies to Congress to help Medicare provide better care at lower costs. This could include ideas on coordinating care, getting rid of waste in the system, incentivizing best practices, and prioritizing primary care.
• IPAB is specifically prohibited by law from recommending any policies that ration care, raise taxes, increase premiums or cost-sharing, restrict benefits or modify who is eligible for Medicare.
From Center for American Progress
ACA’s changes in Medicare are expected to reduce the federal deficit by about $525 billion from 2010 to 2019, according to Congressional Budget Office estimates. In addition, Medicare’s share of the gross domestic product will gradually decrease over time as a result of ACA provisions.
And while ACA isn't exactly as universally beloved as Social Security and Medicare, my colleague Christopher Hughes, MD (Doctors for America) points out to me that there was overwhelming public opposition to "mandatory" participation in Medicare prior to its passage! The ACA has its critics on both left and right, but among the popular features such as the ability to keep your kids on your insurance until age 26, and an intent to do away with denials due to pre-existing conditions (still a work in progress), the attempts to control costs and improve quality and help address regional disparities is an under-appreciated and important aspect of the new law. Who knows? It might grow on us over time. Republicans certainly think so, which is why they are so keen on repealing it.
Another area besides end-of-life reforms and ACA that might impact costs is a renewed look at prevention (and remember I said that public health was underfunded? It is!) This is from Kaiser in its list of possible remedies for reining in health care costs:
Prevention - The burden of chronic diseases, such as diabetes and cardiovascular disease, has risen dramatically; both of these chronic conditions are known to be correlated with obesity, smoking, and diet, and are very expensive to treat over long periods of time. Proposals have been put forward to emphasize prevention by providing financial incentives to workers to engage in wellness and prevention, in order to decrease the prevalence of these conditions and avoid incurring the long-term costs of treatment. However, it is unclear how much prevention programs will decrease costs, since paradoxically healthier people will likely live—and use the health system—longer. For those already suffering from chronic diseases, disease management strives to improve and streamline the treatment regimen for common, chronic health conditions.
The above illustrates that even best intentions don't always save money, though it also illustrates that sometimes getting to better health incurs cost. That's a decision as a society we will have to make.
In the meantime, there's a reminder that other state level initiatives are also going on. This one strikes a chord with a lot of us:
Vermont Passes Single-Payer Health Care, World Doesn't End
In order to get single payer back on the congressional menu, we need to watch what Vermont does, and emphasize that if you're a fiscal hawk, single payer is for you
Those numbers come courtesy of the Commonwealth Fund, which commissioned the Lewin Group to take a look at AmeriCare and a few other health-care proposals in 2009. The resulting study predicts that, because of a public plan’s lower provider reimbursement rates and administrative costs, as well as its ability to negotiate down drug prices, enacting the bill would have resulted in $58.1 billion less annual health spending in 2010. It would increase the federal deficit by $188.5 billion a year, and employers would pay $61.5 billion more annually, but state and local governments would save $83.6 billion, and households a whopping $224.5 billion.
Now, that's what I call deficit reduction. And one can be for single payer and still support the positive aspects of ACA. One's a goal, the other is current policy.
The bottom line is that an already enacted law (ACA) holds great promise for bending the curve and decreasing the rate of health cost increases (aka a Washington 'cut') but not as much as single payer or expansion of Medicaid to the under 50 crowd does. If Medicare is more efficient than private payer, go with it. But any such expansion or change will be difficult to enact in any circumstances, let alone with a GOP House, and with the emphasis (wrongly) on deficit reduction instead of jobs. We have a few years left to deal with this before it becomes unmanageable, but I think a better chance of dealing sensibly with the cost issues is in my opinion with a Democrat in the WH and a Democratic Congress.
For those of you who don't think it matters, I think it does. I don't see much chance of sensible reform with Republicans in charge. It's simply a matter of looking at the data (please click this link.)