System Wide Strategies: Controlling Costs Illinois Health Forum Chicago, Illinois December 7, 2005 Enrique Martinez-Vidal Deputy Director RWJFs State Coverage Initiatives program

National Health Spending in Billions Note: Selected rather than continuous years of data are shown prior to Years 2004 forward are CMS projections. Source: Centers for Medicaid and Medicare Services (CMS), Office of the Actuary.

Note: Selected rather than continuous years of data are shown. Years 2004 forward are CMS projections. Source: Centers for Medicaid and Medicare Services (CMS), Office of the Actuary. National Health Spending as a Share of Gross Domestic Product

Average Annual Growth Rate in National Health Expenditures Note: Selected rather than continuous years. Source: Centers for Medicare and Medicaid (CMS), Office of the Actuary.

Source: Centers for Medicare & Medicaid Services, Office of the Actuary. Note: Other = Durable Medical Equipment, Other Non-durable Medical Products, Public Health Activity, Research, Construction. Spending Distribution by Category, 2003 (Total Spending = $1.7 Trillion)

Annual Growth in Private Health Insurance Premiums as Reported by Employers KFF/HRET Survey of Employer-Sponsored Health Benefits: Data on premium increases reflect the cost of employer-based health insurance coverage for a family of four. Percent increase represents the growth over the immediate prior year.

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits; Dental work by Dr. Milstein. Note: Data on premium increases reflect the cost of health insurance premiums for a family of four. Why Do We Care? The Sharks Jaws Open

Total Health Care Spending as a Share of GDP YearPercent of GDP if health care spending grows 2.5 percentage points faster than GDP Percent of GDP if health care spending grows 1.0 percentage points faster than GDP Source: Henry J. Aaron, Brookings Institution, Its Health Care, Stupid! Why Control of Health Care Spending is Vital for Long-Term Fiscal Stability, Paper presented to the Conference of the Federal Reserve Bank of Boston, June 15, 2005.

Medicare and Medicaid Spending as a Share of GDP (includes State share of Medicaid spending) YearPercent of GDP if health care spending grows 2.5 percentage points faster than GDP Percent of GDP if health care spending grows 1.0 percentage points faster than GDP Source: Henry J. Aaron, Brookings Institution, Its Health Care, Stupid! Why Control of Health Care Spending is Vital for Long-Term Fiscal Stability, Paper presented to the Conference of the Federal Reserve Bank of Boston, June 15, 2005.

Percent of Median Family Income Required to Buy Family Health Insurance Source: Calculations by Len Nichols, using KFF and AHRQ premium data, CPS income data.

Labor Market Realities OccupationFamily premium/Median wage Physician 7.3% History professor15.8% Secretary 29.1% Carpenter24.2% Cook49.8% Source: KFF premium and BLS wage data.

Distribution of Health Spending, Adults Ages 18-64, 2001 Source: Employee Benefit Research Institute estimates from the 2001 Medical Expenditure Panel Survey.

Long-term Drivers (1) Transition to Looser Managed Care Provider Consolidation and Pushback Labor Shortages – Nurses/Other Practitioners Financing System Third-party payers with no predetermined/defined limits Relatively low patient out-of-pocket costs Payment system pays more to providers to deliver more services Limited information about the effectiveness of tests/procedures/drugs/etc. Advances in medical technology Provide better outcomes Same outcomes but less pain or shorter recovery Lower unit costs (but higher utilization)

Long-term Drivers (2) Increased resources in medical care More physician specialists More facilities Rising Prevalence of Treated Disease Lifestyle changes Obesity (linked to rising rates of diabetes, hyperlipidemia [i.e., high cholesterol], hypertension, heart disease) Direct-to-Consumer Marketing Associated with Strong Sales of Key Drugs (Lipitor, Nexium, Zocor, Norvasc, Prevacid) Oversold drivers Population aging (debatable) Professional liability/medical malpractice Mandated benefits

Conclusion Recent decline in cost trends appears to be leveling Todays cost trends continue to make insurance less affordable and strain public finances Current efforts to contain costs emphasize additional patient cost sharing and hopes for increased efficiency