Uwe Reinhardt pens an article in the New York Times today offering some perspective on the $1.6 trillion price tag attached to healthcare reform by the CBO. He uses the Milliman Medical Index to put that price tag in perspective. Excerpting from the article:
Based on a sample of several million American families with employment-based health insurance, the index represents the average annual cost of health care for a typical American family of four.
The “cost” figures in the graph are all inclusive. They are the sum of employer- and employee-paid health insurance premiums plus the family’s out-of-pocket spending on health care.
At the trend over the last decade, which is likely to continue, this cost index will stand at $18,000 by 2010. It will have more than doubled its level since 2001. And if that trend continues for another decade — and there is a good chance it will — then 10 years hence America’s health system will be able to extract from the rest of society the sum of $36,000 per typical non-elderly family of four.
Consider now an average American family that is sustained economically by a gross wage base of $60,000 today. By “gross wage base” economists mean the wages earned by the household’s breadwinners prior to the deduction of fringe benefits and taxes, whether paid by employer or employee. Business people would think of it as all the debits they make for an employee to the account “Payroll Expense.” Economists call it the “price of labor.”
All of the health care costs included the Milliman Index are financed by this gross wage base, which must also finance all of the family’s taxes and living expenses.
In the past decade, average wages in the United States have grown at about 3 percent per year. With the economy likely to be in the doldrums for years to come, it would be highly optimistic to expect an average growth rate in wages any higher than 3 percent. Most probably it will be lower.
But even at an optimistic 3 percent growth rate in the average gross wage base, a base of $60,000 now will have grown to only to about $80,000 a decade hence. The $36,000 of projected health spending would have to come out of that wage base of $80,000. In other words, health care alone would chew up 44 percent of the wage base that must support such a family.
One can change the assumed growth rates for such a calculation to get slightly different forecasts. But the conclusion for any realistic set of assumptions remains the same: In the coming decade, an ever larger number of middle-class American families will see their household budgets chewed up inexorably and mercilessly by the cost of health care.
Cost, Reform Milliman Medical Index, Uwe Reinhardt
Continuing our series of interviews looking at health systems from around the world, Milliman consultant Axel Meder discusses the healthcare system in his native Germany.
Q: The healthcare system in Germany has been in place for a long time. How is it funded?
A: The system is more than 150 years old, and has remained viable through economic ups and downs—notably, two world wars and the depressions that followed. It’s a hybrid system, funded through both public and private entities. Most of the population is covered through the public system. But those who are self-employed or who earn more than 4,050 Euros per month may purchase private health insurance coverage. We call it “substitute” coverage, because it takes the place of the public insurance coverage others use.
Q: Are there differences in coverage between the public and private systems?
A: In the German healthcare system, coverage is mandatory. All citizens can see a physician or use a service as they see fit, regardless of whether they are covered by public or private insurance. It is essentially a one-tier system. About 90% of the German population is covered by the public healthcare system, with the remaining 10% covered privately. Private insurance must provide a minimum level of coverage and it also allows people to purchase additional benefits, like a single-bed hospital room, consultations with the chief doctors, and upgraded benefits for prescription drugs. But all patients have access to essentially the same treatments and options, although there are physicians and clinicians who offer their services to private patients only. There is no obligation for higher-earning people to opt out of the public system—private insurance is entirely voluntary.
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Global Axel Meder, Germany, lifetime reserves
We have talked about this before: So much in estimating the cost of covering the uninsured depends on starting with the right assumptions. The Wall Street Journal has an article on this topic today. Here’s an excerpt:
The Census Bureau estimates that the number of uninsured amounts to 45.7 million people. But the agency might be overcounting by millions due to faulty assumptions. Another problem: That 45.7 million figure includes undocumented immigrants, even though they aren’t likely to be covered under new laws.
“There is a range of uncertainty in health legislation that probably exceeds that of most other issues before Congress,” says Robert D. Reischauer, who headed the Congressional Budget Office when it was analyzing the Clinton health plan.
Cost, Uninsured Cathy Murphy-Barron, Cost, Uninsured
During the last week we have blogged about the different variables that affect plan cost and complexity. Today’s post looks at how these different variables fit together.
There are at least five different variables at work—the person’s health, benefit design and how it affects selection and utilization, provider choice, location, and then, of course, the final cost. These variables can work in either similar or opposing directions, which is why oversimplifying a discussion of how to reform healthcare can be perilous. Reform proposals that overlook any one variable can be seriously misleading. We hope the critical importance of actuarial modeling will be recognized in the reform debate.
Cost, Reform
What follows is excerpted from the new health reform briefing paper, Understanding Healthcare Plan Costs and Complexities.
Not all health plans pay providers at the same rates, creating another layer of complexity. The Centers for Medicare and Medicaid Services can pay less for Medicare services than commercial insurers because of the strength that comes with its size (it is the largest payor in many if not all U.S. markets) and because of the fact that it is backed by the power of federal law. The same principles apply to state Medicaid programs, although the relatively low levels of reimbursement, even compared to Medicare, have led to problems in a number of geographic areas with access to certain types of providers. In private commercial healthcare plans, the largest insurers can generally negotiate better rates than smaller payors, and typically enjoy competitive advantages as a result.
The fact that large government programs such as Medicare and Medicaid generally pay lower rates than commercial insurance plans creates a pattern of differential revenue levels to providers, which can produce a variety of consequences. For example, hospital payment rates for Medicare and Medicaid are determined unilaterally by those respective public programs. By contrast, most private healthcare plan payment schedules are negotiated. Cost-shifting to nongovernment plans and/or other steps to balance revenue against costs occur because of the overall budget needs and revenue desires of individual hospitals—which vary based on such factors as their mix of patients, their underlying cost structure, and the efficiency of their operations.
There is no easy solution given the need for fair and adequate payment to providers and the need for improved efficiencies and lower costs that do not impair access or quality. Both the potential revenue shortfalls and the need for increased efficiency are real. This added layer of complexity overlays the other variables at work to create a sometimes confounding interplay that demonstrates the shortcomings of simple solutions.
Cost, Reform Bob Dobson, complexity, Cost, Ron Harris, Tom Snook
What follows is excerpted from the new health reform briefing paper, Understanding Healthcare Plan Costs and Complexities.
Network and provider choice is another dimension that is important in figuring costs. When employees (or individuals purchasing their own insurance) are choosing a benefit plan from a list of potential choices, price will be a factor, and depending on their socioeconomic status, it may be the main factor. But the doctors and hospitals in the plan’s network may also be a factor. Often in the employer group market, provider options must meet certain minimum standards for an employer to even offer a particular benefit plan to its employees. For example, Phoenix has a number of hospitals, but there are three prestigious, tertiary, relatively expensive hospital systems—these are the hospitals with a reputation for excellence in treating complicated conditions and for performing highly specialized surgeries. A plan serving the Phoenix market usually must include two of these three hospitals in its network or find itself at a strong disadvantage from a competitive standpoint.
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Cost, Reform Bob Dobson, complexity, Cost, Ron Harris, Tom Snook
What follows is excerpted from the new health reform briefing paper, Understanding Healthcare Plan Costs and Complexities.
Selection is the notion that people will make economic choices to their own benefit when they choose an insurance plan. In this context, to their own benefit refers to the person’s need for insurance. Typically, people with high morbidity—that is, people with relatively higher expected claim costs in the coming year—are more inclined to select richer plans. They do so because they anticipate significant healthcare spending and they want to choose the plan that costs them the least out of pocket. Conversely, people who expect a lower morbidity—that is, people who don’t think they’re going to spend much on healthcare costs because of their age, health, etc.—usually choose relatively less rich benefit plans. This pattern is not absolute, but it holds up over a large population of insured.
For most healthier people, the cost sharing is not a large concern, although the share of health insurance premium that they are required to pay may be. These people may seek savings with a plan that requires them to pay a lower premium. This becomes important when considering plans like the most popular FEHBP plan and the Milliman Medical Index plan. The availability of a relatively rich benefit program, as is the case with these two examples, is more likely to attract sicker people, while healthier people are more likely to choose a less rich plan with lower associated premium costs. (This dynamic is discussed in more detail in an interview published last year.)
Cost, Reform adverse selection, Bob Dobson, complexity, Cost, Ron Harris, Tom Snook
What follows is excerpted from the new health reform briefing paper, Understanding Healthcare Plan Costs and Complexities.
Total cost depends on a number of factors that begin with plan design and then take into account specific characteristics of the population insured. Factors can include age, gender, and other demographics as well as health status and habits. Tables 2 and 3 give a sense of the range of costs associated with different people across different plan designs. There are several ways to compare cost, including the per-member per-month (PMPM) measure often used by insurers and other plan sponsors.
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Cost, Milliman Medical Index, Reform Bob Dobson, complexity, Cost, Ron Harris, Tom Snook
What follows is excerpted from a new health reform briefing paper, “Understanding Healthcare Plan Cost and Complexity.”
Healthcare plan design begins with the definition of services that are covered under the plan. Most comprehensive plans today cover the vast majority of services determined to be medically necessary by a licensed physician, although certain specific service types may be excluded under some plans. Other limits and conditions may also apply. For the purposes of comparative results in this paper, a broad and comprehensive scope is assumed (including coverage of preventive care and parity for mental health and substance abuse treatment).
Within the scope of covered services, benefit provisions vary widely. Some plans require copayments for certain types of services at the time the service is rendered. Some plans incorporate a deductible, which must be satisfied before benefit payments commence for the services involved. Following satisfaction of the deductible, coinsurance typically applies (e.g., 80% paid by the plan and the remaining 20% falling to the consumer as an out-of-pocket expense). Separate provisions may apply to out-of-network services or to services subject to prior authorization under an HMO or PPO.
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Cost, Reform Bob Dobson, complexity, Cost, Ron Harris, Tom Snook
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