Health care economics Ellen Andrews, PhD andrewse3@southernct.edu SCSU Spring 2018
health care not like other sectors Consumers don t see the full bill no skin in the game Moral hazard Adverse selection Nearly impossible to price shop Providers drive demand Insurance spreads the costs But we pay the full bill taxes, lost wages, out of pocket
health care not like other sectors Expanding supply is expensive and highly regulated Strong incentives to blow leaves onto others lawns = cost shift Tax incentives make buying more health care more attractive than wages Essential spending consumers in need will prioritize Easier to ignore/delay costs when healthy
health care spending growth has slowed in US
Trends shifting temporary or structural? Health care costs rising more slowly Controversy about whether the slowdown is temporary, due to recession, or stronger Medicare also slowing, not sensitive to unemployment rate Slowdown pre-dated 2008 recession Structural changes including payment reforms
An annual percentage point difference in growth rates makes a very large difference in spending over time Projected annual change in U.S. per capita health spending 2014 2023, alternative scenarios $18,000 Projected NHE Per Capita Projected Plus 1 Percentage Point Projected Minus 1 Percentage Point $16,430 $16,000 $14,000 $14,944 $13,580 $12,000 $10,000 $8,000 $6,000 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: Kaiser Family Foundation analysis of National Health Expenditure (NHE) data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group
Efficiency? 29 27 administration as % of total US health care workforce 25 percent 23 21 19 17 15 1969 1974 1979 1984 1989 1994 1999 Source: Woolhandler et. al., NEJM 349:768, 2003
cost drivers New technology Prices Utilization Rising incomes Ownership interests, incentives Fragmentation of system Tax subsidies Aging population Administration
US higher costs than other countries and gap is rising
US life expectancy lower than all other comparable countries
US higher mortality rates than comparable countries
US higher in avoidable deaths
Medical errors higher in US
Spending on public health has increased, particularly by state and local governments Local and federal expenditures on public health, US $Millions, 1970-2013 $80,000 Federal State and Local $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2013 Source: Kaiser Family Foundation analysis of National Health Expenditure (NHE) data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group
On average, larger shares of household budgets are devoted to health expenses than 10 years ago Average portion of household budget devoted to health (nonelderly families), 2002-2012 6.0% 5.0% 4.0% 3.0% 4.4% Total health expenses: 5.2% Insurance premiums: 3.1% 2.0% 1.0% Out-of-pocket costs: 2.1% 0.0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Kaiser Family Foundation analysis of Consumer Expenditure Survey
People age 55 and over account for about half of total health spending Share of total health spending by age group, 2012 100% 90% Under 19 80% 11% of spending (by 25% of population) 13% (by 22%) 70% 60% 50% 40% 30% 20% 10% 0% 19 to 34 35 to 44 45 to 54 55 to 64 65 and over Share of Population 9% (by 13%) 16% (by 14%) 21% (by 12%) 31% (by 14%) Share of Spending Source: Kaiser Family Foundation analysis of Medical Expenditure Panel Survey, Agency for Healthcare Research and Quality, U.S. Department of Health and Human Services
CT healthcare spending Connecticut residents spend more per person on health care across payers than most Americans. However, per person health costs are rising more slowly in Connecticut than in most states, particularly for Medicaid members. In 2014 Connecticut devoted 14.4% of the state s economy to personal health care services, very close to the national average of 14.8% Over half of health spending in Connecticut is consumed by hospitals, physicians and clinics. Drug costs are the main driver of rising health costs in Connecticut, growing faster than any other sector. Since 2003, drug costs have grown faster in Connecticut than the rest of the nation Beginning in 2009, Medicare and Medicaid s combined share of Connecticut s health spending outpaced private health insurance. And the gap is growing. CT Health Policy Project November 2017 20
$12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 Per capita health spending 1991 1992 1993 1994 1995 1996 1997 1998 United States CT Health Policy Project November 2017 1999 2000 2001 2002 2003 2004 Connecticut 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Key Findings Health spending is rising for both Connectic ut residents and all Americans 21
16% 14% 12% 10% 8% 6% 4% 2% 0% 1980 1981 1982 Health care share of GDP 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Key Findings In 2014 CT devoted 14.4% of our economy to health care, slightly below the US rate of 14.8% United States Connecticut CT Health Policy Project November 2017 22
Per capita health spending, 2014 Key Findings $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 All payers Medicaid Medicare private insurance Connecticut United States CT residents spend more on health care across payers than most Americans CT Health Policy Project November 2017 23
Per capita spending, average annual growth 2001 to 2014 Key Findings percent growth 6 5 4 3 2 1 0-1 Total Medicaid Medicare Private health insurance Connecticut United States CT Medicaid per person spending from 2001 through 2014 decreased while nationally costs have risen CT Health Policy Project November 2017 24
Share of total health spending Connecticut, 2014 Key Findings 40% 35% 30% 25% 20% Private insurance is the main payer of health care in CT 15% 10% 5% 0% Medicaid Medicare Private insurance CT Health Policy Project November 2017 25
Share of total Connecticut health spending Medicare + Medicaid, Private health insurance Key Findings 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Y1991 Y1992 Y1993 Y1994 Y1995 Y1996 Y1997 Private health insurance CT Health Policy Project November 2017 Y1998 Y1999 Y2000 Y2001 Y2002 Y2003 Y2004 Y2005 Y2006 Y2007 Y2008 Y2009 Y2010 Medicare + Medicaid Y2011 Y2012 Y2013 Y2014 In 2009, public coverage programs share of total CT health spending began to outpace private insurance And that gap is growing 26
State rank Per capita 2014 Average annual growth 1991 to 2014 CT Health Policy Project November 2017 Key Findings While CT s relative per capita health care costs are high among states, the rate of growth is much lower, particularly for Medicaid 27
Per capita spending by service drugs, nondurable products 14.97% nursing homes 8.66% Other 8.01% DME 1.43% home health care 3.00% dental 4.76% Other professionals 3.27% CT Health Policy Project November 2017 Connecticut, 2014 hospital physicians, clinics 22.17% Key Findings Over half of CT health spending goes to hospitals and physicians /clinics 28
8% 7% 6% 5% 4% 3% 2% 1% 0% Per capita average annual growth by total hospital physicians, clinics service Connecticut, 1991 to 2014 dental home health care nursing home drugs, nondurable products Key Findings Drugs and other nondurabl e products are the main driver of growing health costs in CT CT Health Policy Project November 2017 29
Drug, nondurable product spending per capita Key Findings $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 1991 1992 1993 1994 1995 1996 1997 1998 United States CT Health Policy Project January 2018 1999 2000 2001 2002 2003 2004 Connecticut 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Drug and other nondurabl e product spending is higher for CT residents than most Americans And the gap is growing 30
State rank per capita drugs, nondurable product spending Per capita 2014 Average annual growth 1991 to 2014 Total per capita drugs, nondurable products cost, 2014 per capita, avg annual percent growth, 1991 to 2014 Delaware New York highest Connecticut New York Rhode Island Alabama West Virginia New Jersey Pennsylvania Missouri Louisiana Massachusetts Nebraska North Carolina Florida New Hampshire Tennessee Kentucky South Carolina Hawaii Oklahoma North Dakota District of Columbia Arkansas Maine Vermont Iowa Maryland Mississippi Indiana Kansas Michigan Wisconsin Texas Ohio Delaware Connecticut Maine Rhode Island Missouri North Dakota Alabama Nebraska South Carolina Vermont Pennsylvania Massachusetts North Carolina West Virginia Louisiana Arkansas Wisconsin New Jersey New Hampshire Oklahoma District of Columbia Iowa Florida Mississippi South Dakota Kentucky Kansas Tennessee Indiana Texas Minnesota Maryland Illinois Key Findings CT residents spend more per person than all but one other state s residents on prescriptions and nondurable healthcare products and that rate is growing much faster than other states. Virginia Illinois Nevada California Ohio Michigan Virginia Hawaii CT Health Policy Project January 2018 31
Drugs, nondurable products share of total per capita spending 20% 15% 10% 5% 0% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 United States CT Health Policy Project January 2018 2003 2004 2005 2006 Connecticut 2007 2008 2009 2010 2011 2012 2013 2014 Key Findings Since 2003 spending on drugs and other nondurabl e products have grown faster in CT than nationally 32
Pharmacy percent of total spending, CT private insurance Key Findings 25% 20% 15% 10% 5% 0% 2010/2009 2011/2010 2012/2011 2013/2012 2014/2013 2015/2014 2016/2015 CT Health Policy Project January 2018 Pharmace utical costs are consuming a growing share of CT private health insurance spending, rising to 23% in 2016/2015 33
Trends Conflicting signs about cost trends Market consolidation hospitals, practices, and health plans to increase market clout in negotiations with each other In most states, one insurer has half the total business Expected to accelerate under profit pressures of reform Raises costs and reduces options for consumers Inadequate state regulation Anti-trust concerns rising Concerns about physician and hospital interests in for-profit providers i.e. specialty hospitals, labs Strong lobbying interests, spending skyrockets, state and federal level