AARP Public Policy Institute The Costs of Doing Nothing: What s at Stake Without Health Care Reform November 2008
The Costs of Doing Nothing: What s at Stake Without Health Care Reform Table of Contents Personal health care costs will continue to escalate.3 Employers are also facing the high costs of health care..10 There are also high costs to society. 16 National health care costs will continue to soar.....19 Medicare costs will continue to increase....25 AARP s framework for health security...29 2
I. Personal health care costs will continue to escalate 3
The annual rate of increase in health insurance premiums has outpaced overall inflation and workers earnings Average Annual Rate of Increase 14% 12% 10% 8% 6% 4% 2% 0% 12.9 13.9 10.9 11.2 8.2 9.2 7.7 6.1 5.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 Health insurance premiums for a family of four Overall inflation Workers' earnings Source: HRET/Kaiser Family Foundation. 2008 Employer Health Benefits Survey. 4
The average total annual premium for single and family coverage has increased Average Total Annual Premium for Single and Family Coverage, 2000 and 2008 Single Family $12,680 $2,471 $6,438 $4,704 2000 2008 Source: HRET/Kaiser Family Foundation. 2008 Employer Health Benefits Survey. 5
But the more employees have to pay for premiums, the less likely they are to enroll in a health plan Single Coverage Take-Up Rate 89% 88% 84% 84% 84% 82% 78% 76% 78% 68% 0.1 to 7.7 No contribution 7.8 to 11.4 11.5 to 15.2 15.3 to 18.4 18.5 to 20.8 20.9 to 24.4 37.0 or more 28.6 to 36.9 24.5 to 28.5 Annual Worker Contribution Percentage Source: Kaiser Family Foundation. February 2007. Snapshots: Health Care Costs. Insurance Premium Cost-Sharing and Coverage Take-up. 6
The share of people experiencing high out-of-pocket burdens* is growing 25% Percentage of people in non-elderly families with high out-of-pocket burdens 20% 15.9% 17.2% 18.9% 17.9% 19.1% 15% 10% *A high burden is defined as having combined out-of-pocket expenses for services and premiums greater than 10 percent of after-tax family income 5% 0% 2001 2002 2003 2004 2005 Source: Jessica Banthin, Out-of-Pocket Burdens for Health Care: Insured, Uninsured, and Underinsured presentation. September 23, 2008. 7
People with private non-group insurance are most likely to spend more than 10 percent of their income on health care 60% Private ESI Private Non-group Public Uninsured All Year 50% 40% 30% 20% 10% 0% 2001 2002 2003 2004 2005 Source: Jessica Banthin, Out-of-Pocket Burdens for Health Care: Insured, Uninsured, and Underinsured presentation. September 23, 2008. 8
Being underinsured* and uninsured puts you at higher risk for going without needed care and having medical debt 53% 68% * Underinsured is defined as insured all year but experienced one of the following: medical expenses equaled 10 percent or more of income, medical expenses equaled 5 percent or more of income if low income (<200 percent of poverty), or deductibles equaled 5 percent or more of income. 45% 51% 31% 21% Went without needed care because of cost Have medical bill problem or outstanding debt Insured, not underinsured Underinsured Uninsured during year Source: C. Schoen et al., How Many are Underinsured? Trends Among U.S. Adults, 2003 and 2007, Health Affairs Web Exclusive, June 10, 2008. Data: 2007 Commonwealth Fund Biennial Health Insurance Survey. 9
II. Employers are also facing the high costs of health care 10
U.S. automakers estimate that $1,500 is added to the price of each car to provide health insurance to their employees $1,500 $$$ Source: Lisa Girion. Healthcare costs pinch employers. Los Angeles Times. May 6, 2008. 11
The share of small employers offering health insurance has declined as the cost of offering coverage has increased 68% 6 percentage points decline Small firms (employers) are defined as having between 3 and 199 workers 62% 2000 2008 Source: HRET/Kaiser Family Foundation. 2008 Employer Health Benefits Survey. 12
The high cost of premiums and small firm size are top reasons small employers choose not to offer health coverage Reasons for Not Offering Health Benefits among Small Employers Not Offering Coverage, 2008 48% 39% 22% 21% 9% 3% High Premiums Firm Size is Too Small Most Important Second Most Important Least Important Source: HRET/Kaiser Family Foundation. 2008 Employer Health Benefits Survey. 13
Most of the uninsured are in working families Non-elderly* Uninsured by Family Work Status, 2007 No Workers, 19% *Non-elderly is defined as those under age 65. Part-Time Workers, 12% 1 or More Full- Time Workers, 69% Source: Five Basic Facts on the Uninsured. Kaiser Commission on Medicaid and the Uninsured. September 2008. 14
For those without employer coverage, purchasing health insurance in the individual market may not be possible or affordable Share of Adults Ages 19 64 with Individual Coverage or Who Thought About or Tried to Buy Coverage in the Past Three Years Never bought a plan 89 Were turned down or charged a higher price because of a pre-existing condition 21 Found it very difficult or impossible to find affordable coverage 58 Found it very difficult or impossible to find coverage they needed 34 0% 20% 40% 60% 80% 100% Source: S. Collins et al., Squeezed: Why Rising Exposure to Health Care Costs Threatens the Health and Financial Well-Being of American Families (New York: The Commonwealth Fund, September 2006). 15
III. There are also high costs to society 16
People who lack health insurance will receive about $56 billion in uncompensated care* in 2008 $56 billion *Uncompensated care is health care that is not fully paid for, either directly out of pocket by individuals or by insurance payers. This particular value includes care delivered to the uninsured by hospitals, community providers and physicians. Hospitals provide more than 60 percent of uncompensated care. Total cost of uncompensated care among those who lack coverage Source: J. Hadley et al., Covering the Uninsured in 2008: Key Facts about Current Costs, Sources of Payment, and Incremental Costs. Kaiser Commission on Medicaid and the Uninsured, 2008. 17
People who lack health insurance have a higher risk of dying prematurely than their insured counterparts According to an Institute of Medicine report, adults without health insurance were 25 percent more likely to die prematurely than those with health insurance. Source: Institute of Medicine, Care Without Coverage: Too Little, Too Late (Washington, DC: National Academy Press, 2002). 18
IV. National health care costs will continue to soar 19
Medical price inflation is a major driver, while population aging accounts for a small share of the spending growth Drivers of Spending Growth, 2006 Population Increase 15% Aging 6% Volume and Mix of Services 28% Medical Price Inflation 51% Source: California HealthCare Foundation. Snapshot, Health Care Costs 101, 2008. 20
Health spending increases with the number of chronic conditions Average Health Spending for Adults 50+ (2005) $15,937 $10,293 $3,994 $5,411 $7,382 $1,425 0 1 2 3 4 5+ Number of Chronic Conditions Source: Johns Hopkins Bloomberg School of Public Health analysis of Medical Expenditure Panel Survey, 2005. 21
Health spending will nearly double to $4.3 trillion by 2017 National Health Expenditures (billions) $4,277 $4,500 $4,000 * projected $3,098 $3,524 $3,500 $3,000 $2,500 $1,603 $1,852 $2,106 $2,394 $2,726 $2,000 $1,500 $1,000 $500 $0 2002 2004 2006 2008* 2010* 2012* 2014* 2017* Source: Centers for Medicare and Medicaid Services. National Health Expenditure Projections 2007 2017. Table 1. 22
Administrative expenses are projected to double to $298 billion by 2017 Program Administration and Net Cost of Private Health Insurance (billions) $298 $300 $250 * projected $197 $220 $249 $200 $129 $145 $168 $150 $107 $100 $50 $0 2002 2004 2006 2008* 2010* 2012* 2014* 2017* Source: Centers for Medicare and Medicaid Services. National Health Expenditure Projections 2007 2017. Table 2. 23
Prescription drug spending is projected to rise Annual Percent Change in Prescription Drug Expenditures * projected 9.6% 8.4% 8.5% 8.3% 8.9% 7.6% 6.8% 2004 2006 2008* 2010* 2012* 2014* 2017* Source: Centers for Medicare and Medicaid Services. National Health Expenditure Projections 2007 2017. Table 2. 24
V. Medicare costs will continue to increase 25
The share of large employers offering retiree health coverage has declined 46% 40% 41% 35% 38% 31% 35% 28% 29% 28% 29% 29% 23% 21% 21% 19% 1993 1995 1997 1999 2001 2003 2005 2006 Offer coverage to pre-medicare-eligible retirees Offer coverage to Medicare-eligible retirees Source: Mercer Health & Benefits. National Survey of Employer-Sponsored Health Plans. 2006 Survey Report. 26
Medicare expenditures have increased and are projected to reach $882 billion by 2017 Total Medicare Expenditures (in billions) $882 $900 $754 $800 $700 * projected $533 $600 $432 $500 $400 $222 $300 $200 $100 $37 $111 $0 1980 1990 2000 2007 2010* 2015* 2017* Source: Centers for Medicare and Medicaid Services. 2008 Annual Report of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. Table III.A1. 27
Without reform, Medicare Part B premium increases will continue to outstrip Social Security cost of living adjustments 20% 15% Percentage Change in Medicare Part B Premium and Cost of Living Adjustments 10% 5% 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 Medicare Part B Premium Cost of Living Adjustment Source: Centers for Medicare and Medicaid Services. 2008 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Fund, Table V.C1 and V.C2. 28
VI. AARP s framework for health security 29
AARP s framework to achieve health security includes options to Build the infrastructure for expanded coverage Reform health care delivery Transform Medicare into a value purchaser Improve health status through healthy behaviors, health promotion, and public health Finance health and long-term care 30
AARP s View on Cost Containment Specific ways to achieve cost containment include: Evidence-based guidelines and comparative effectiveness research to underpin benefit design and clinical practice, including evidence-based incentives to avoid inappropriate use of technology Standardized and simplified administrative process and adoption of health information technology throughout the system to lower administrative overhead, reduce medical errors, and improve quality More effective disease prevention and health promotion efforts Better coordination and management of chronic conditions, combined with personal assistance and support services Wider use of palliative care, especially at the end of life Incentives for health providers based on performance ( pay for performance ) and episodes of care across a continuum of services and settings ( episodebased reimbursement ) rather than fee-for-service reimbursement Effective health navigation and decision supports to enable patients to make evidence-informed decisions and better manage their own health 31
Compiled by Shelly-Ann Sinclair Public Policy Institute 601 E Street, NW Washington, DC 20049 202-434-3890 PH 202-434-6480 F www.aarp.org/ppi PPI M-7