Rising Health Care Costs: What s the Diagnosis?

Transcription

1 Rising Health Care Costs: What s the Diagnosis? A Luncheon Briefing presented by the American Academy of Actuaries November 10, 2005 Moderator Cori Uccello, MAAA, FSA, FCA, MPP Senior Health Fellow, American Academy of Actuaries Featured Speakers John Cookson, FSA, MAAA Lisa Tourville, ASA, MAAA Rising Health Care Costs Briefing 1

2 Terminology Member Individual covered life (e.g. employee, spouse, child #1, child #2, etc.) PMPM Per Member Per Month Standard measure for medical expense analytics Health Cost Category Physician, Inpatient, Outpatient, Ancillary, Pharmacy Allowed Cost Trend PMPM trend calculation based on total covered services (health plan liability + patient out of pocket) total provider reimbursement for covered services Net Trend PMPM trend calculation based on health plan liability only -2- Rising Health Care Costs Briefing 2

3 Terminology Utilization Changes in the frequency of services being utilized Intensity Changes in the type of services being utilized Unit Cost Changes in the cost per service including intensity. -3- Rising Health Care Costs Briefing 3

4 Components of Health Cost Trend John Cookson, FSA, MAAA Rising Health Care Costs Briefing 4

5 Health Cost Index Developed in late 1980s to track underlying health cost trend pressure Underlying force of trend representing provider revenues Adjust out Medicare Non-Medicare force of trend Public population-based data sources Proprietary methodology Did not want to tie to carrier trends Each one unique Don t want extraneous factors -5- Rising Health Care Costs Briefing 5

6 Factors Causing Deviation from HCI Adverse selection Benefit differences Mandated benefits Statistical fluctuations Medicaid and uninsured Provider contract arrangements Local economic conditions HMO/PPO activity Durational impacts of underwriting and pre-existing conditions Impact of buy-downs on utilization -6- Rising Health Care Costs Briefing 6

7 Total Medicare vs. Health Cost Index 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Jan-78 Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Health Cost Index (excluding drugs) Total Medare Revenue Per Capita Health Cost Index is based on a $0 deductible. Source: Milliman, Inc. CMS: Medicare Trustees Report, Annual Data Interpolated -7- Rising Health Care Costs Briefing 7

8 Health Cost Index vs. Medicare Physician 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Jan-78 Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Health Cost Index Physician Medicare Physician Revenue Health Cost Index is based on a $0 deductible. Source: Milliman, Inc., CMS: Medicare Trustees Report, Annual Data Interpolated -8- Rising Health Care Costs Briefing 8

9 Health Cost Index vs. Medicare Inpatient 25% 20% 15% 10% 5% 0% -5% -10% Jan-78 Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Health Cost Index Hospital Inpatient Medicare Inpatient Revenue Health Cost Index is based on a $0 deductible. Source: Milliman, Inc., CMS: Medicare Trustees Report, Annual Data Interpolated -9- Rising Health Care Costs Briefing 9

10 Health Cost Index vs. Medicare Outpatient 30% 25% 20% 15% 10% 5% 0% -5% Jan-78 Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Health Cost Index Hospital Outpatient Medicare Outpatient Revenue Health Cost Index is based on a $0 deductible. Source: Milliman, Inc., CMS: Medicare Trustees Report, Annual Data Interpolated -10- Rising Health Care Costs Briefing 10

11 Health Cost Index Comparisons to Insured Experience Source of Deviation Remove Medicaid and Uninsured Reimbursement Controls Legislative/Regulatory Change Adverse Selection Benefit Differences Mandated Benefits Utilization Impact of Benefit Downgrades Typical Average Range Typical Long-Term Average Deviation Range.5 to 1% -1 to 3% -1 to 2% 0 to 5% -.5 to 3% 0 to 1%.2 to 1% 1 to 6% Source: Milliman, Inc Rising Health Care Costs Briefing 11

12 Employment Cost Index (HI) vs. Health Cost Index 25% 20% 15% 10% 5% 0% -5% Mar-81 Mar-83 Mar-85 Mar-87 Mar-89 Mar-91 Mar-93 Mar-95 Mar-97 Mar-99 Mar-01 Mar-03 Mar-05 Employment Cost Index (HI) Health Cost Index Health Cost Index is based on a $250 deductible. Source: Milliman, Inc., Bureau of Labor Statistics -12- Rising Health Care Costs Briefing 12

13 Health Cost Index (HCI) Deductible Leverage 25% 20% 15% 10% 5% 0% Jan-78 Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 $0 Deductible $250 Deductible Source: Milliman, Inc Rising Health Care Costs Briefing 13

14 HCI - Prescription Drug Copay Leverage 25% 20% 15% 10% 5% 0% Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 $0 Copay $5 Copay $10 Copay Full coverage of benefits assumed ($0 Deductible and No Out of Pocket Maximum) Source: Milliman, Inc Rising Health Care Costs Briefing 14

15 Out-of-Pocket Care Expenditures* and GDP Year Out-of-Pocket as a % of Personal HC Out-of-Pocket as a % of GDP Total Healthcare as a % of GDP * Excluding subscriber direct premiums Source: CMS: National Health Statistic Group, Office of the Actuary -15- Rising Health Care Costs Briefing 15

16 Factors Contributing to Rising Health Care Costs Lisa Tourville, ASA, MAAA Rising Health Care Costs Briefing 16

17 Descriptors and Sources Trend statistics included in this presentation are based on a national, commercial, fully-insured population Most recent 5 years of trends were studied Annualized values were derived from the historical data Sources of information include Proprietary detailed claim databases Companies quarterly earnings conference calls Reden & Anders and Ingenix trend-related research study efforts and products Rising Health Care Costs Briefing 17

18 Allowed Cost Trend Estimated annualized trend over the past 5 years = 12% Commercial (private payer), Fully-Insured High level break-outs include Unit cost trend includes intensity 8% Physician cost per procedure or cost per visit Inpatient cost per day or cost per admit Outpatient cost per visit or cost per procedure Pharmacy cost per script or cost per days supply Utilization trend 4% Physician procedures per 1,000 or visits per 1,000 Inpatient days per 1,000 or admit per 1,000 Outpatient visits per 1,000 or procedures per 1,000 Pharmacy scripts per 1,000 or days supply Allowed Cost Trend 12% Unit Cost Trend 8% Utilization Trend 4% -18- Rising Health Care Costs Briefing 18

19 Factors Affecting Allowed Cost Trend Unit Cost Trend Demographics Emerging Technologies (medical and pharmaceutical) Drugs Generic Introductions & Over-the-counter Mandated Benefits Medical Price Inflation Baseline or Mix-Adjusted Intensity Adjusted for the mix factors identified above Utilization Trend Demographics Emerging Technologies (medical and pharmaceutical) Drugs Generic Introductions & Over-the-counter Mandated Benefits Calendar make-up Baseline or Mix-Adjusted Utilization Adjusted for the mix factors identified above -19- Rising Health Care Costs Briefing 19

20 Demographic Mix Aging of the population Annual impact on trend is approximately +1.0% There will continue to be an impact on trend due to changing demographic mix until the population pyramid reaches a steady state Projected 2050 Projected Males Females Males Females Males Females -20- All Source: Rights Reserved U.S. Census Bureau Rising Health Care Costs Briefing 20

21 Emerging Technologies Annualized impact on trend is approximately +2.0% Can vary significantly from year to year Examples New diagnostic tests e.g., DNA HPV pap smear New treatments e.g., Wet Macular Degeneration New devices e.g., ICD s, Implantable Gastric Stimulator Changes in medical and pharmacy guidelines - e.g., New Cholesterol Guidelines Changes in FDA status e.g., Vioxx, Bextra New medications e.g., Symlin, Zetia, Ventavis, Exubera Costs can be managed Medical coverage policy set to include technologies where therapeutic advantage has been proven Develop medical management programs to manage use -21- Rising Health Care Costs Briefing 21

22 Change in Status of Drugs Generic Introductions and OTC Annualized impact on trend is approximately -0.5% Can vary significantly from year to year Examples Brand name patent expirations, e.g., Wellbutrin Zocor Neurontin Allegra Move from prescription to over-the-counter, e.g., Claritin Prilosec Favorable cost impact can be maximized by tier management and manufacturer rebate negotiations -22- Rising Health Care Costs Briefing 22

23 Change in Status of Drugs OTC Example of Managing Costs 60% 55% A drug goes over the counter. In tiered plans, Brand #1 is placed in Tier 3 and Brand #2 is placed in Tier 2. 50% 45% 40% 35% 30% 25% Brand #1 - Tiered Plan Brand #1 - Open Plan Brand #2 - Tiered Plan Brand #2 - Open Plan -23- Rising Health Care Costs Briefing 23

24 Change in Status of Drugs Generic Introduction - Example Scripts per 1, A generic equivalent is introduced to the market. Total scripts reduce slightly. Overall costs decrease significantly. $ 1.00 $ 0.90 $ 0.80 $ 0.70 $ 0.60 $ 0.50 $ 0.40 $ 0.30 $ 0.20 $ 0.10 PMPM 0 $ 0.00 Generic Scripts Brand Scripts Combined PMPM -24- Rising Health Care Costs Briefing 24

25 Calendar Year Make-up Medical costs vary by day of the week and on holidays Tracking trend from one quarter to the next and one year over another could be affected by the calendar year make-up Long-term annualized impact on trend is zero Annual impact can be +/- 0.5% Quarterly impact can be +/- 2.0% Calendar Impact - Quarterly 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% -2.0% -25- Rising Health Care Costs Briefing 25

26 Mandated Benefits Legislation affecting medical costs Annualized impact on trend is approximately +0.5% nationally Can vary significantly by state Example: July 1, 2003: Colorado eliminates No Fault auto insurance and joins the majority of other states (37) already under the tort system Pertinence to medical insurance Under the no fault system, additional premiums were collected under the auto insurance program to cover medical expenses resulting from injuries obtained in an automobile accident Under the tort system, if the at-fault driver has no insurance, the injured person would still be able to access his or her own health insurance for medical care coverage Estimated impact to medical expenses = +2.0% -26- Rising Health Care Costs Briefing 26

27 Medical Price Inflation Changes in the price of services being utilized Annual price inflation is approximately +6.0% and is made up of General Inflation estimated at +2.5% per year Medical Inflation (adjustments in additional to general inflation) - estimated at +3.5% per year Includes approximately +2.0% for Provisions for provider medical malpractice insurance Nursing shortages Other And 1.5% for Provider negotiating power Hospital consolidation changes in marketshare Other Has proven to be the largest component of trend and the most difficult to manage 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% Estimated Medical "Price" Trend 0.0% ytd All Item CPI Medical CPI Estimated Medical Price Trend -27- Rising Health Care Costs Briefing 27

28 Baseline Utilization Changes in the frequency of services being utilized Annual impact on trend is approximately +2.0% and is made up of Changes in patient behavior Consumer Demand Advertising, etc. Economic conditions Lifestyle Tolerance Driven by changes in benefit plan design Changes in provider behavior Providing services previously outsourced Defensive medicine Environmental Conditions (e.g. flu season / availability of flu shots; hurricanes and other disasters) Medical management programs / Managed care guidelines Loosening or tightening Portions are manageable through medical management programs, patient education and provider counseling -28- Rising Health Care Costs Briefing 28

29 Consumer Demand - Example Colonoscopies per 1, March, 2002: Katie Couric has a colonoscopy on national Television Procedures per 1000 While this example is measurable, consumer demand is generally very difficult to quantify Rising Health Care Costs Briefing 29

30 Baseline Intensity Changes in the type of services being utilized Example: MRI s instead of X-Rays Annual impact on trend is approximately +1.0% and is made up of Changes in patient behavior Consumer Demand Advertising, etc. Economic conditions Lifestyle Tolerance Driven by changes in benefit plan design Changes in provider behavior Providing services previously outsourced Defensive medicine Environmental Conditions (e.g. flu season / availability of flu shots; hurricanes and other disasters) Medical management programs / Managed care guidelines Loosening or tightening Portions are manageable through medical management programs, patient education and provider counseling -30- Rising Health Care Costs Briefing 30

31 Patient behavior Example Morbid Obesity Admits per 1, Admits per 1,000 While this example is measurable, changes in patient behavior is generally very difficult to quantify Rising Health Care Costs Briefing 31

32 Allowed Cost Trend Summary 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% Demographics Emerging Technologies Drugs - Generics & OTC Mandated Benefits General Inflation Medical Inflation Baseline Utilization Baseline Intensity 0.0% -2.0% Factor -32- Rising Health Care Costs Briefing 32

33 Additional Factors to Consider Health Plan or Population-Specific Factors Geographic Mix Underwriting Wear-Off Product Mix Large Customer or Industry Mix Changes in internal policy or processes impacting claim payment calculations Translation from Allowed Cost Trend to Net Trend Benefit Plan Changes (change in out-of pocket expenses) Leveraging -33- Rising Health Care Costs Briefing 33

34 Net Trend Benefit Plan Changes Benefit Plan Changes Annual impact on trend is approximately -2.0% Changes to the structure and levels of out-of pocket expenses (i.e. patient liability) Office co-pays Inpatient deductibles Maternity deductibles Emergency Room Co-pay s Tiered drug co-pay s Consumer driven health plans Other -34- Rising Health Care Costs Briefing 34

35 Net Trend - Leveraging Leveraging Annual impact on trend varies significantly by health cost category and fixed copay structure. In recent years, it has varied between 0.5% and 1.5% The impact/relationship of fixed costs (deductibles & copays) to changing aggregate health care costs The greater the fixed costs as compared to total costs the greater the impact of leveraging as these fixed costs grow Pharmacy significantly impacted Pay special attention to recent large deductible plans -35- Rising Health Care Costs Briefing 35

36 Net Trend - Leveraging Leveraging Example Year 1: Total Allowed health care costs = $100; Copay/Patient liability = $10; Net costs/health Plan liability = $90. Year 2: Total Allowed health care costs = $115; Copay/Patient liability = $10; Net costs/health Plan liability = $105. Trends: Allowed ($115/$100) = 15%; Benefit Plan Change ($10-$10)/$100 = 0.0%; Net ($105/$90) = 16.7% Leveraging = ((1.15 / 1.167)-1) = 1.4% -36- Rising Health Care Costs Briefing 36

37 Summary Allowed medical trends have been in the double digits for 5+ consecutive years #1 driver is medical price component Cost management efforts have included increasing patient responsibility (out of pocket expenses) and re-introduce medical management programs that were reduced or eliminated in the early 2000 s High Deductible and Consumer Driven Health Plans are expected to reduce aggregate medical expenses by encouraging the patient to participate in the decision making process Alternatives to cost management are continually being investigated such as provider pay-for-performance -37- Rising Health Care Costs Briefing 37

38 Rising Health Care Costs: What s the Diagnosis? Q & A Rising Health Care Costs Briefing 38

39 Rising Health Care Costs: What s the Diagnosis? Contact Information: American Academy of Actuaries th Street, NW, 7 th Floor Washington, DC (202) Cori E. Uccello, Senior Health Fellow, Uccello@actuary.org Holly Kwiatkowski, Health Policy Analyst (Federal), kwiatkowski@actuary.org Rising Health Care Costs Briefing 39