1. Toward a Satellite Account for Health Ana Aizcorbe NEA Users’ Conference April 13, 2007

2. www.bea.gov 2 The rapid growth in health care expenditures has raised difficult questions. Source: Bureau of Economic Analysis  How do health expenditures translate into improvements in health?  What are the costs and benefits of treatments to society as a whole?

3. www.bea.gov 3 The type of information needed to address these questions is not readily available.  For example,  Nominal expenditures broken down by disease to assess the benefit of treatment  Price measures that accurately reflect increases in the quality of treatments

4. www.bea.gov 4 BEA plans to develop a Health Satellite Account to respond to these needs. The satellite account will provide:  A reconciliation of health care spending estimates from the Centers for Medicare and Medicaid Services (CMS) and those from the Bureau of Economic Analysis,  Data on nominal expenditures by disease that are consistent with CMS’s National Health Expenditures Accounts,  Improved price deflators, and  Measures for the indirect costs of illness, such as mortality costs and morbidity costs due to absenteeism.

5. www.bea.gov 5 Price indexes: Increasing prices are an important driver of cost increases  PCE for medical care grew 9 % per year from 1980-2005.  Over ½ of that growth represents increases in prices, as measured in standard price indexes.

6. www.bea.gov 6 But existing price indexes have well-known problems. Sensitive to underlying assumptions:  BLS’ Medical Care Price Index (MCPI) focuses on consumer payments  BEA price index relies on indexes from the BLS PPI program Both have problems accounting for  quality improvements, and  reduced cost of treatment

7. www.bea.gov 7 BEA’s satellite account will include a disease-based price index.  Disease-based price indexes will better account for reductions in cost that arise from the substitution across treatment classes.  These episode-based indexes will be used to construct indexes for expenditures by product class and by industry, as currently reported in the accounts.  The index will not address the problem of accounting for improvements in treatments.  Difficult problem where there is no consensus on the solution.

8. www.bea.gov 8 Preliminary work on price indexes suggests the issue may be numerically important. Comparison of Price Indexes for Medical Care, 2001-2003 (compound annual growth rates) Provider-BasedDisease-Based Source: A. Aizcorbe and N. Nestoriak, “Using Commercially-Defined Episodes of Illness for the Measurement of Health Accounts: A Progress Report,” Paper presented at NBER/CRIW Summer Institute, July 2006

9. www.bea.gov 9 Progress and Plans Two-year effort to study data sources and methods  Completed preliminary draft of study on disease-based price indexes. Continued interaction with members of the academic and statistical communities  Participating in National Academies Panel on Health Accounts  Working closely with David Cutler and Allison Rosen’s Health Accounts Group  Maintaining contact with colleagues at CMS, BLS, and other statistical agencies. Plan is to develop a detailed proposal for a BEA Health Satellite Account by the end of 2009.