Scenario One. Scenario Two. The Aging of the Population

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1 Scenario One Assumption: Reimbursement will not be sufficient to generate required operating margins; Cost shifting will no longer be tolerated by employers and employees Scenario Two Assumption: The 2009 Congress will enact legislation expanding health insurance coverage to many if not all uninsured Americans The Aging of the Population Not a serious part of national debate Facts do not cease to exist just because we choose to ignore them. -- Thomas Aldous Huxley

2 Medicare The only part of our health care financing system based on a statutory entitlement Eligibility starts at age 65 As the population ages enrollment in Medicare will increase Huge fiscal burden for federal government Demographics (Baby Boom Generation) 30% of the U.S. population 78 million people Start becoming eligible for Medicare in 2011 People are Living Longer 1965 life expectancy 68.5 years 2007 life expectancy 77 years % population over % population over 65

3 Medical Costs Increase with Age years old -- $3,759 per year years old -- $7,622 per year Over 65 years old -- $8,953 per year How Much is a Trillion Dollars? (Zeros matter) 1 million seconds ago Last week 1 billion seconds ago Nixon leaves White House 1 trillion seconds ago 30,000 B.C. Current national debt is $9 trillion Unfunded entitlement Medicare $67 trillion We must anticipate the implications of this demographic trend now while we still have time to plan for them. Scenario One Assumption: Reimbursement will not be sufficient to generate required operating margins; Cost shifting will no longer be tolerated by employers and employees

4 U.S Health Care Financing Structure Three Major Third Party Payers PRIVATE Voluntary Employer-Sponsored Coverage PUBLIC Medicare Medicaid Medicare Federal entitlement program Begins at age 65 Financed by those still working Medicaid Federal program administered by states Not an entitlement program What little flexibility states have to manage cost Determining provider reimbursement Setting income eligibility standards which allows them to reduce the number of people covered

5 Third Party Coverage Today 57% -- Employer Sponsored Coverage 15% -- Medicare 12% -- Medicaid 16% -- Uninsured (often no pay ) Only eligibility for Medicare is an entitlement Employer-sponsored coverage voluntary States can change income eligibility to reduce the number of people covered by Medicaid = De facto policy of universal access Cost Shifting (shifting accountability) Public Private Cut Reimbursement ER Under-insured Hospital Hundredth Meridian 2005 John A Kitzhaber, M.D.

6 National Trends As the cost of health care increases employers gradually withdrawing their commitment to workplace-based coverage Since % increase in health insurance premiums 19% increase in wages 17% increase in general inflation 5% annual erosion rate in employer sponsored coverage National Trends Decline in private sector coverage has led to increase in Medicaid enrollment Cost of Medicaid increasing much faster than state revenues State must operate within a balanced budget States reducing number of people covered by Medicaid National Trends Enrollment in Medicare will dramatically increase as Baby Boom generation begins to reach age 65 Huge financial burden for federal budget

7 Consequences Decline and collapse of safety net hospitals and clinics Some states may withdraw from Medicaid altogether Hospitals will intensify their efforts to capture paying patients and avoid non-paying patients Hospitals will increasingly invest in well-reimbursed services Consequences Capital investment decisions will be driven more by the need to capture market share than by community health needs Competition for paying patients and services will intensify between hospitals and between hospitals and physicians Increased pressure for federal action to stabilize a rapidly deteriorating situation in the face of a growing fiscal crisis Scenario Two Assumption: The 2009 Congress will enact legislation expanding health insurance coverage to many if not all uninsured Americans

8 76% Americans believe the uninsured is a very serious problem 94% -- Democrats 73% -- Independents 55% -- Republicans Candidate Health Plans Senator Hillary Clinton Former Senator John Edwards Individual mandate to expand coverage Financed by raising taxes on the wealthy and requiring large employers to help pay for insurance for their employees Choice between private coverage like the kind of insurance now offered to federal employees; or coverage through a Medicare like public option Senator Barack Obama Similar plan but without an individual mandate Candidate Health Plans Former New York City Mayor Rudy Giuliani Market-driven expansion of coverage Tax deduction of $7,500 per taxpayer Tax credits for poor workers to supplement Medicaid Employer contributions Former Massachusetts Governor Mitt Romney Signed a state law for universal coverage Mix of individual mandates, subsidies, and sliding scale premiums

9 Focus of National Debate The health care crisis is being defined as just an insurance problem a financing problem 2009 Congress is going to see its mandate as expanding coverage Consequences Enormous pressure on the delivery system Exacerbate the shortage of primary care providers People will seek care in other venues Emergency Department overcrowding will grow worse Consequences Sharp increase in retail-based health clinics Hospitals will seek to partner/compete with retail-based clinics increasing their use of nurse practitioners and physicians assistants, creating conflict with their medical staffs on issues of licensure

10 Consequences Dramatic increase in entrepreneurial activity to capture revenue from conditions/procedures which are wellreimbursed Cost will continue to escalate at an unsustainable rate Pressure for federal intervention well beyond the issue of financing to avert a serious fiscal crisis Strangely enough, I think it s politics. We have a dysfunctional political system in the sense that there are very serious fiscal problems out there, most importantly [is] Medicare. when the baby boom inexorably retires, given existing commitments with respect to Medicare we either are going to have to raise taxes very sharply or cut benefits by half. The one thing we can be reasonably sure of is that taxes alone cannot solve the Medicare problem which means that existing benefit levels cannot be sustained. We know that now. No politician wants to confront this. And this is a very sad event because what s at stake here is the fiscal stability of the American government. -- Alan Greenspan Fortune Magazine, September 2007

11 I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to earth. -- President John F. Kennedy Special Message to Congress September 12, 1962

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