1. Health System Reform: Why Now? Why Colorado? Who’s Next? Len M. Nichols, Ph.D. Director, Health Policy Program New America Foundation Hot Issues in Health Care Legislative Conference Colorado Springs, Colorado November 17, 2006

2. 2 Overview Introduction to Health Markets Sources of extreme stress Why the national debate is stuck (for now) Competing Visions States as –Laboratories –Catalysts How Colorado could inspire the nation

3. 3 Are Health Markets “Different?” Information asymmetries –Clinician-patient –Consumer-insurer Third-party payment –Moral hazard Voluntary insurance purchase –Adverse selection Expenditure distribution skewed –Risk pooling necessary –Competing definitions of “fair” risk pool

4. 4 Linked Problems Low Value for Dollar Uneven quality Inequitable access to care

5. 5 Compared to Other Countries #1 in spending, share of GDP, per capita #37 (by WHO) on overall system performance, next to Slovenia and Costa Rica –Life expectancy, child survival, fairness, responsiveness, health outcomes

6. 6 Medicare Quality and Spending Correlation Source: Baiker and Chadra, Health Affairs we, April 7, 2004

7. 7 US Overuses interventionist technological procedures

8. 8 Institute for Healthcare Improvement’s Ventilator Associated Pneumonia program Known how to eradicate VAP since ’99 14 hospitals have 6 more have made great progress Why hasn’t every hospital nationwide done this?

9. 9 Percent of median family income required to buy family health insurance Source: Author’s calculations, using KFF and AHRQ premium data, CPS income data.

10. 10 Family health insurance premium as percent of wages Source: author’s analysis of KFF premium data, BLS wage data

11. 11 Labor Market Realities OccupationFamily premium/Median wage Physician 7.9% History professor14.8% Secretary 30.9% Carpenter25.6% Cook50.0% Source: KFF premium and BLS wage data, 2004.

12. 12 Premium Payments v. GDP Growth Rate Source: NIPA, BEA/Commerce Dept.

13. 13 Employer Health Insurance Payments / Corporate Profits

14. 14 Some Coverage Trends (percent of under-65 population) 198719932004 Employer 70.1%64.3%62.4% Medicaid+SCHIP 8.7%12.9%13.4% Uninsured13.7%16.0%17.8% Source: EBRI, December 2005.

15. 15 Result of our incremental approaches Health insurance as we know it is out of reach of a growing share of our workforce We tolerate a stunning amount of mediocre performance

16. 16 Linkages Among Problems Cost Quality Access

17. 17 Political Gridlock and Fear R’s don’t want real reform discussions –universal coverage threatens tax cuts (#1) –Serious cost-growth containment requires enhanced government role D’s don’t know what they want –Some want to use UC to get power –Others fear and want to avoid it to get power –Others fear any solutions which unions don’t like

18. 18 Visions of Problems Right: –High costs caused by moral hazard (too much insurance coverage) –Coverage expansion will require unimaginable taxes Left –High costs caused by market forces, market power/high profits, adverse selection Center –Problems LINKED, must be addressed simultaneously, for technical and political reasons

19. 19 Competing Policy Visions New Wild West, with tax breaks –Individual consumers will drive efficiency Musty Cocoon of Single Payer –Elite control will drive efficiency Brave New World –Mandates, smart regulation, combined buying power will drive efficiency

20. 20 President’s Proposals Encourage non-group purchase of HSA- eligible insurance –Premium + OOP from HSAs deductible –Payroll tax credit for HSA contribution Support passage of AHPs + federal override of state regulation of insurance markets Malpractice reform HIT and transparency exhortations

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22. 22 What Do We Need? Political Space to Begin the Conversation –Moral case Proof we are all in the same community –Economic case Delivery system “culture of value” Credible policy design –3 dimensions of credibility Stakeholders, politicians, people

23. 23 Health System Culture of Value Information infrastructure to support quality improvement Malpractice safe harbors and value-enhancing incentives (for all) Comparative technology assessment as countervailing power between medical technology and coverage/use decisions –Raise the bar at the FDA –Raise the bar for procedural interventions as well Create Health Home, pay Host to guide us through system, teach/learn evidence base with us

24. 24 Credible Policy Design Individual and Shared Responsibility –Individual purchase requirement –Purchasing pool Risk pooling/market rules Administrative economies of scale –Subsidies for lower income –Financing sources Culture of Value –Evidence-based limits on collectively financed benefits Preservation of liberty and choice

25. 25 Pew Typology: Support for government guarantee of health insurance, even if taxes must be raised Pew Center for Research on People & the Press: 2005

26. 26 States as Laboratories No inpatient coverage –Utah, West Virginia Limited inpatient coverage –Arkansas, New Mexico, Tennessee Piggyback on state’s purchasing power –West Virginia, Oklahoma Encourage offers within purchasing pools –Montana Adding Adults –Wyoming, Pennsylvania

27. 27 States as Catalysts Maine –Build it, capture savings, hope they’ll come Illinois –Cover all kids, cover all citizens? Vermont –Bipartisan, insurance home and subsidies for uninsured Massachusetts –Bipartisan, individual mandate, subsidize lower income in smaller firms, hard budget constraint

28. 28 Why Colorado Should Do This Ich Bien Ein Coloradan It would confound the cynics It would inspire the Just It would concentrate minds in Washington

29. 29 What Can Colorado Do Alone? Agree to work across party lines Create sustainable structures –Efficient markets –Transparent information systems –Subsidies and benefits for target population –Build in budget safeguards Agitate for Federal partnership