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Chapter 2 - Cost of Health Care

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CHAPTER 2 - COST OF HEALTH CARE

Content Last Updated: 6/17/2010 7:52:31 PM
Graphics Last Updated: 6/15/2010 8:25:13 AM
Note: Terms in green will show glossary definitions when clicked.

Originally written by Meena Seshamani, M.D., Ph.D., Johns Hopkins University School of Medicine. Updated May 2010 by Len Nichols, Ph.D., George Mason University. This chapter was made possible by the Robert Wood Johnson Foundation.

FAST FACTS

  • The United States spent $2.3 trillion on health care in 2008, or $7,681 per person. This amounted to 16.2 percent of the nation’s gross domestic product (GDP).1
  • Health care costs more than tripled from 1990 to 2008,2 and are projected to rise to 19.3 percent of GDP in 2019.3
  • The average cost of an employer-based family insurance policy in 2009 was $13,375, close to the annual earnings of a full-time minimum wage job. 4
  • Premiums for employer-sponsored family health coverage more than doubled from 2000 to 2009.5
  • Since 1990, per capita health spending has grown almost 2 percent faster than per capita GDP.6  
  • The tax exemption for employer health premium contributions is the nation’s largest tax expenditure,7 totaling $246.1 billion in federal revenue passed up in 2007. 8
  • The United States spends more per capita on health care than any other nation in  the 40-country Organization for Economic Co-operation and Development (OECD).
  • OECD countries—most of which are developed nations-- spent an average of about 9 percent on gross domestic product on health expenditures in 2007. The U.S spent 16 percent of GDP. Next closest was France at 11 percent. 9
  • The Patient Protection and Affordable Care Act of 2010 (PPACA) supports pilot testing of several new provider payments mechanisms that could help constrain spending, including accountable care organizations, patient-centered medical homes and bundled payments. 10
  • The PPACA also establishes a new Independent Payment Advisory Board whose charge is to recommend specific Medicare cost saving techniques to the Congress if expected cost growth targets are not hit.11

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BACKGROUND

The cost of health care has long been a leading domestic issue for the American people. In 2008, $2.3 trillion was spent on health care in the U.S., an average of $7,681 per person. (See chart, "Sources of National Health Spending, 2008.") The federal government estimates that health care costs more than tripled from 1990 to 2008. 12 13

Health care spending constituted 16.2 percent of the gross domestic product (GDP) in 200814 and is projected to rise to 19.3 percent of GDP in 2019.15 Medicare and Medicaid together, which made up 5.6 percent of GDP in 2008,16 are expected to equal 8 percent of GDP in 2019, making health spending a major force behind rising federal spending and projected deficits in the coming years (and an obvious target for addressing our structural budget imbalances).17

For every dollar spent on health care, 31 cents goes to hospitals, another 31 cents to professional services (including physicians and dentists), 10 cents to prescription drugs bought at retail, and 6 cents to nursing home care.18 (See chart, "Where the Health Care Dollar Went, 2008.")

 

Health spending in the U.S. stands above that in other developed countries, both per capita and as a percent of GDP. The United States spends more per capita on health care than any other nation in the 40-country Organization for Economic Co-operation and Development (OECD).19 Health costs per capita have also grown faster here than in other countries since 1980. 20

What is driving our unsustainable rate of increase in costs? Most analysts agree that new technologies and services as well as greater use of existing technologies are the primary reasons.  This is not necessarily bad, since we are quite a bit better at fixing hips and hearts, even broken hearts, than we were 30 years ago. But by a large margin, we are getting far less health value per dollar spent than other countries, 21 22 and so the quest for greater effectiveness and efficiency is intensifying. 

Other cost growth drivers include a relative rise in health service prices vs. general inflation,23 partly due to consolidation and local market power among hospitals, physician groups, and insurers. 24 In addition, worsening health status (particularly obesity), a high proportion of specialists in a region,  and low productivity gains in the health care sector generally contribute to cost increases. 25

Reduced cost sharing and malpractice are often cited as major cost drivers. But cost sharing fell far more rapidly in the US between 1960 and 1990 than it has since; excess cost growth (over GDP growth) has been remarkably constant.  Furthermore, cost sharing has been increasing within employer sponsored insurance – still the largest type of insurance in the U.S. – since 2000, as employers have shifted more and more costs to workers in order to stem premium increases.26

Careful analysis has always found malpractice to contribute far less to costs than it does to physician fear.  Most analysts agree that the malpractice system should be reformed, but the largest gain from this will be more justice for patients and less unnecessary fear among clinicians, not lower costs.27  

The elderly account for a disproportionate amount of health care spending, with nearly half of lifetime expenditures per capita occurring after age 64.28 But population aging plays only a minor role in explaining health cost increases over time. 29 Most analysts also conclude that defensive medicine induced by fears of malpractice suits does not contribute to much of the growth.30

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Consequences of Rising Costs

The rise in health care costs has affected the health and financial well-being of individuals and families, and the fiscal futures of employers and governments. 

Especially during the ongoing recession, health care costs have been a source of stress for private sector employers, who provided $532 billion in health benefits in 2007.31 Some major U.S. automakers, for example, note that they spend more on health care than on steel for their cars.32 33

The average cost of an employer-based family insurance policy in 2009 was $13,375,34 close to the annual earnings of a full-time minimum wage job. Premiums for employer-sponsored family health coverage more than doubled from 2000 to 2009, 35 and increased faster than other economic indicators.

Likewise, employees and self-employed individuals have been feeling the pinch. A Gallup poll found that as of December 2008, 21 percent of respondents had had trouble paying for needed health care or medications during the preceding 12 months.36 Almost a quarter of respondents in a 2008 poll by the Kaiser Family Foundation said they had experienced a serious problem paying for health care or health insurance as a result of the recession.37

The amounts that workers pay for their coverage have far outpaced inflation. (See chart, "Percent Increase in Health Insurance Premiums Compared to Other Indicators, 2001 - 2009.") In 2000, workers paid an average of $135 monthly for family coverage and $28 for single coverage. By 2009, those amounts had grown to $293 (up 117 percent) and $65 (a 132 percent rise). 38 39 Inflation over that period amounted to 25 percent.40

Employers compensate for rising health care costs in part by keeping a lid on wages. One study estimates that an employer’s expenses for health benefits are offset by a 9 percent reduction in wages.41

In late 2008, the Congressional Budget Office issued a report laying out how it will go about estimating the impact of various proposals to reform health care. In describing why this task was so important, CBO painted a dire picture of what might happen if health care costs cannot be controlled. According to CBO, rising costs of health care and health insurance pose a serious threat to the future fiscal condition of the United States. Without changes in policy, a substantial and growing number of nonelderly people are likely to be without health insurance. 42 (For a detailed CBO analysis of some ways to restrain costs, see the report, “Budget Options: Volume 1, Health Care.”)

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LIKELY POLICY DEBATES

As health care costs continue to place pressure on both public and private insurers, debates about health care reform and entitlement reform will surely involve ways to constrain costs. 

The task won’t be easy. Health economists speaking at an Alliance for Health Reform/ Robert Wood Johnson Foundation briefing in 2008 noted how hard it is to control demand for health services, which some believed to be the only way to constrain costs. 43 Others focus on the quality and efficiency of care delivery, believing that the supply side (e.g., payment reform) is far more likely to be the source of systemic solutions than demand side (e.g., cost-sharing) or benefit limits.  Most agree we are going to need every tool available from both sides of the transaction to rein in health care cost growth permanently.  Some of the methods tried or proposed include:

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Increased Cost Sharing

Cost-sharing involves out-of-pocket spending by consumers for insurance deductibles, coinsurance, copayments, and premium contributions (see Glossary for definitions). As health care costs have risen, employers and public programs have shifted costs to consumers. 

By increasing the amount of out-of-pocket contributions from patients, cost-sharing schemes can increase patient cost-awareness in health care decision-making, providing an incentive to pursue cost-efficient treatments. One example of this effect is tiered copayments for prescriptions, which give consumers an economic incentive to select generic medications rather than brand name drugs. This incentive system helped increase the dispensing rate of generics from 56 percent of prescriptions in 2005 to 63 percent in 2006.44

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Consumer-Driven Health Plans

Making patients more aware of costs is also the reasoning behind consumer-directed health plans, which link a high-deductible health plan with tax-sheltered health reimbursement accounts (HRAs) or health savings accounts (HSAs). (See Glossary for definitions.) Patients make out-of-pocket health care payments from their HRA or HSA until they have reached their yearly deductible amount, at which point their health plan starts picking up expenses. 

Enrollment in such plans is growing slowly. A report by the Employee Benefit Research Institute found that in 2009, between 15 and 19 million individuals were enrolled in an HRA or HSA-eligible plan, representing 9 to 11 percent of the privately insured market. 45

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Changes in Provider Reimbursement

Payments to physicians and hospitals made up 52 percent of all health care spending in 2008.46 Thus, many methods have been tried to reduce payments to providers as a way of reining in health care costs.

Medicare is moving toward pay-for-performance reimbursement, whereby a specified percentage of a hospital’s payment would be based on performance measures, ranging from giving smoking cessation advice to peri-operative antibiotic administration. 47   

Payers can also simply decrease the amounts they pay providers. Medicare’s Sustainable Growth Rate (SGR) policy is supposed to do this, aiming to keep total spending for physician services in Medicare Part B under a defined target figure.48 The Balanced Budget Act of 1997 significantly cut Medicare reimbursements to providers. Similarly, from 2003 to 2005, several states reduced or froze Medicaid reimbursement rates in response to budget shortfalls.49 In the private sector, insurance companies try to negotiate lower rates. 

However, each of these policies can have unintended consequences. Providers may (and do) drop patients from lower-paying insurance plans, or refuse to accept them in the first place.50 Congress has repeatedly restored the physician payment cuts mandated by the Sustainable Growth Rate without implementing other ways to achieve the targeted savings. 51 And there is some (albeit conflicting) evidence to suggest that cutbacks to hospitals may decrease the quantity of services provided and adversely affect patient outcomes52 53 54 calling into question the sustainability of further price cuts.

For these and other reasons, current payment reform discussions are less about price cuts and more about changing the structure of provider payment, from very specific pay for volume fee-for-service – which has led us to 16 percent of GDP – to more global payments for value, i.e.,  pay for a large group of related services and for longer periods of time, and make the full payment only if quality, efficiency and patient satisfaction targets are all met. 

The core idea is that by aligning the incentives of providers, payers (including government), and patients alike (through evidence based cost sharing or value-based insurance design), self-interest can drive us to “bend the curve” and reduce cost growth over time.  This is why some analysts assess the payment reform pilots as the most promising delivery system components of the new health reform law.

The Patient Protection and Affordable Care Act includes a number of features that are designed to buttress these pilots -- and the newly created Center for Medicare and Medicaid Innovation (CMI) – as they encourage  the evolution of our delivery system from its focus on volume toward a more sustainable focus on value and health.

The PPACA signals that “business as usual is over” by reducing the known overpayment to Medicare Advantage plans relative to the costs of their enrollees,55 56 by reducing Medicare’s formerly automatic market basket update payments to hospitals. This in essence forces the plans to achieve efficiencies at the same rate as the economy as a whole, in part by reducing the price of a host of procedures, (e.g., imaging) whose volume has been exploding more for economic than for clinical value reasons. 

These signals are necessary for providers to see that a more prosperous future likely lies down the path of more global payments for quality and health outcomes than continuing to argue about the unit prices.  As this insight is adopted, clinicians and hospital executives will be more willing to explore and adjust to different incentive structures.

The American health system is famously heterogeneous, and a single new payment method is not likely to be a silver bullet in every community right away.  Among the new payment models that are explicitly included in the PPACA, and that many analysts think are most promising for CMI to develop and test across various locales and payers, are: 57

  • Accountable care organizations (ACOs) --  Through aligned incentives between hospitals and physicians, ACOs can assume full responsibility for the health of a defined patient population. They are willing to accept some financial risk in order to share in the savings compared to baseline trends or regional benchmarks if they deliver demonstrably high quality and effective care;
  • Patient-centered medical homes – Medical homes which represent a team approach to the ambulatory management of the chronically ill, combine the insights of  physicians, non-physicians and patients themselves (or their advocates).  Medical homes, in conjunction with cooperating specialists and hospitals, could reduce unnecessary hospitalizations and emergency department use and also share in the savings from doing so; and
  • Bundled payments -- By  linking the financial self-interest of hospitals and post-acute providers (and potentially with pre-acute or even primary care providers), bundled payments, would also provide powerful incentives for the coordination of care across settings.  Providing incentives to coordinate, and better communicate about,  care is increasingly seen as a necessary pre-condition for making our system deliver more value and become sustainable.  

No one thinks any of these models is going to be widespread before 2015 at the earliest, and some analysts fear substantial savings might take much longer.  That is why the PPACA also included two other features, to drive home the point that Congress is serious about cost growth containment this time. 

One is the Independent Payment Advisory Board, whose charge is to recommend specific Medicare cost saving techniques to the Congress if expected cost growth targets are not hit.  Members will be appointed by the president and confirmed by the Senate. In an unprecedented delegation of authority, the board’s recommendations will take effect automatically unless Congress substitutes others that the Medicare actuary thinks would be equally effective. 

Finally, the excise tax on high cost health insurance plans sends a very clear signal to the private sector that failure to get serious about cost growth containment in the long run will result in substantial penalties for employers, workers, and insurers. 

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Health Information Technology

Substantial financial support for health information technology (IT) expansion occurred early in the 111th Congress, buoyed by bipartisan backing and the enthusiasm shown by the Obama Administration. Electronic medical records can result in improved coordination of care among health care providers, reduce medical errors, and enable easier, standardized measurement of health care cost and quality. Moreover, improved clinical decision support for providers could decrease variability in the use of health care services.

But whether health IT can save substantial sums is as yet unanswered. Peter Orszag, director of the Office of Management and Budget, has concluded that health information technology alone is not sufficient as a cost saver without other simultaneous changes in the health care system. 58

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Chronic Disease Management

From 1987 to 2002, two-thirds of the growth in Medicare spending was for 10 chronic medical conditions, with 12 percent for heart disease alone. 59 A greater prevalence of chronic disease in the U.S. compared to its European counterparts, and higher rates of medication treatment of chronic diseases, are also believed to underlie some of the health care cost differences between the U.S. and its European counterparts.60   

Therefore, the prevention of chronic disease, and the improved, coordinated management of chronic disease once it develops, is critical to providing more cost-efficient, high quality care.

But disease-management has had mixed results as a cost-containment tool so far. Eight pilot programs conducted by Medicare did not reduce costs, largely because the sickest and most vulnerable (and thus most costly) patients were less likely to agree to participate in disease-management efforts. 61 Other studies have shown that efforts at preventing and dealing with chronic diseases typically add to health care spending, rather than reducing it. A review of 1,500 interventions for prevention and treatment found that about 20 percent did lower costs. The rest added more costs than they saved.62

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Pharmaceuticals 

Prescription drug spending increased 3.2 percent in 2008, according to the Centers for Medicare and Medicaid Services. This was a deceleration from the 8.6 percent growth in 2006 and 4.5 percent in 2007.63 This deceleration is occurring as brand name drugs face increased competition from generics and insurers aggressively used tiered formularies. The federal government estimates prescription drugs spending will grow by an average of 6.1 percent a year from 2009-2019.64   

Some suggest the following ways that government might lower costs: using the large market share of the elderly population in Medicare to negotiate lower prices with pharmaceutical companies, allowing importation of medications from other countries where they are cheaper, or revising patent laws to allow for generics to be brought to the market sooner.

Pharmaceutical companies challenge all of these methods. Estimates of savings from government price negotiations are modest. 65 Safety questions arise with imported drugs. Another general concern is that pharmaceutical profits provide the needed capital and incentive for research and development. In 2002, 82 percent of the investment by global pharmaceutical companies was spent in the United States, and pharmaceutical companies employ over 223,000 American workers.66

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Other methods

Many other cost-containment ideas have been implemented or proposed. These include reducing public program fraud and abuse, capping amounts paid out in malpractice judgments, boosting efforts to prevent disease, and sending Americans overseas for major surgery in less expensive countries. None to date has emerged as having a major impact on overall costs.67 (Click here to see text box with additional ideas for financing reform.)

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TIPS FOR REPORTERS

  • Consideration of health care quality and outcomes goes hand-in-hand with issues of health care costs.
  • Consider all of the various players in looking at health care costs. This includes health care providers, patients, payers, government, employers (large and small), employees, and health insurance plans. Each will have different interests and will be affected differently by policy changes.
  • The financial effects of health care policy should be considered in both the short and long term; a short-term investment may lead to long-term cost savings.
  • The way health care is financed can affect the way health care is provided. New financing mechanisms in the health reform law, such as bundling payments to providers, and cutbacks, such as to hospitals and Medicare Advantage plans, could change health care delivery in dramatic ways, for better or worse.

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STORY IDEAS

  • Contact local employers, both small and large, and find out how rising health care costs have affected their business practices. This can include pricing of products, business investments, other employee benefits, and contract negotiations. 
  • Find out what kinds of changes local employers have made to their health plans in terms of increased cost-sharing (copayments, deductibles), alternative plan structures such as Health Savings Accounts, or dropping coverage. What do they consider to be the pros and cons of each option? How have employees reacted to such changes?
  • Interview providers about whether the level of cost-consciousness in health care has changed in recent years, among providers and among patients. What kinds of efforts have been made by providers to incorporate cost in management decisions? 
  • Interview local hospital officials to find out what utilization management or education programs have been or are being implemented to try to make health care provision more cost-efficient. This could include an examination of physician practices compared to their peers, programs to prevent medical errors and complications, and health prevention.
  • Interview employers as to what employee wellness, educational, or health utilization programs they have implemented to try to rein in health care costs. Have they found these programs to make a difference? How have employees responded to them?
  • Contact local government officials and find out what the challenges they face in covering Medicaid patients and administering public health programs. What measures have been taken to manage the costs? How are the effects of the recession affecting funding for public health programs?
  • What cost containment lessons are being learned in reform-oriented states, such as Massachusetts and Vermont? For instance, a Vermont law enacted in May 2010 caps hospital budget increases. How is this working out?  
  • Contact administrators at local health insurance plans to find out which areas have generated high costs and what efforts have been made to streamline care in those areas. Examples could include efforts to move away from care provided in the emergency room setting toward primary care office visits; wellness and prevention programs; and incentive structures for providers.
  • Conduct a round-table discussion or focus group with members of the community to discuss rising health care costs. What do they think are the causes? Would higher co-payments and deductibles make them more cost conscious in their decisions? Would it lead them to not access care? What are areas to target?


EXPERTS AND WEBSITES

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Analysts/Advocates

Henry Aaron, Senior Fellow, Economic Studies,  Brookings Institution, 202/797-6128,   haaron@brookings.edu

Drew Altman, President and CEO, Kaiser Family Foundation, 650/854-9400

Joseph Antos, Wilson H. Taylor Scholar in Health Care and Retirement Policy, American Enterprise Institute, 202/862-5938, jantos@aei.org

Katherine Baicker, Professor of Health Economics,  Department of Health Policy and Management, Harvard University School of Public Health,  617/432-5209

Robert Berenson, Senior Fellow, Urban Institute,  202/833-7200

Brian Biles, Professor, Department of Health Policy, George Washington University, 202/416-0066

Michael Cannon, Director of Health Policy Studies, Cato Institute, 202/789-5200,  mcannon@cato.org

Michael Chernew, Professor of Health Care Policy, Harvard Medical School, Harvard University, 617/432-0174

Gary Claxton, Vice President/Director, Health Care Marketplace Project, Kaiser Family Foundation, 202/347-5270

Alan Cohen, Executive Director, Health Policy Institute, BostonUniversity, 617/353-9222, abcohen@bu.edu

David Cutler, Otto Eckstein Professor of Applied Economics, Harvard University, 617/496-5216

Robert Friedland, Associate Professor, School of Nursing and Health Studies, Georgetown University, 202/687-1287

Paul Fronstin, Director, Health Research Program,  Employee Benefit Research Institute, 202/775- 6352, fronstin@ebri.org

Jon Gabel, Senior Fellow, National Opinion Research Center, 301-634-9313,  Gabel-Jon@norc.org

Paul Ginsburg, President, Center for Studying Health System Change, 202/484-5261,   pginsburg@hschange.org

Sherry Glied, Department Chair, Professor of Health Policy and Management, Columbia University, 212/305-0299

Robert Greenstein, Founder and Executive Director, Center on Budget and Policy Priorities, 202/408-1080, greenstein@cbpp.org

Jonathan Gruber, Professor of Economics,  Massachusetts Institute of Technology, 617/253-8892

Stuart Guterman, Assistant Vice President, Payment System Reform, The Commonwealth Fund, (202)292-6735,  SXG@cmwf.com

John Holahan, Director of Health Policy Research, Urban Institute, 202/261-5666

Pamela Larson, Executive Director, National Academy of Social Insurance, 202/452-8097

Larry Levitt, Vice President, Kaiser Family Foundation, 650/854-9400

Jack Meyer, Principal, Health Management Associates, (202)785-3669,   jmeyer@healthmanagement.com

Tom Miller, Resident Fellow, American Enterprise Institute, 202/862-5886, tmiller@aei.org  

Marilyn Moon, Vice President and Director of the Health Program, American Institutes for Research, 301/592-2101, MMoon@AIR.org

Joseph Newhouse, John D. MacArthur Professor of Health Policy and Management, Harvard University, 617/432-1325

Len M. Nichols, Professor of Health Policy and Director, Center for Health Policy Research and Ethics, George Mason University, 703-993-1978, lnichol9@gmu.edu

Ron Pollack, Executive Director, Families USA,  202/628-3030, Communications Director: David Lemmon -- dlemmon@familiesusa.org

Uwe Reinhardt, James Madison Professor of Political Economy, Princeton University, 609/258- 4781

Robert Reischauer, President, Urban Institute, 202/833-7200

Jack Rodgers, Director, Economic Policy Analysis Group, PricewaterhouseCoopers,  202/414-1646

John Rother, Executive Vice President for Policy and Strategy, AARP, 202/434-3701, jrother@aarp.org

Diane Rowland, Executive Vice President, Kaiser Family Foundation, 202/347-5270,  drowland@kff.org

Thomas Saving, Director, Private Enterprise Research Center, 979/845-7559,  t-saving@tamu.edu

Cathy Schoen, Senior Vice President, Research and Evaluation, The Commonwealth Fund,  212/606-3800, cs@cmwf.com

Stephen Schondelmeyer, Director, Prime Institute,  University of Minnesota, 612/624-9931

James Tallon, President, United Hospital Fund,  212/494-0700, jtallon@uhfnyc.org

Ken Thorpe, Professor and Chair, Rollins School of Public Health; Executive Director, Partnership to Fight Chronic Disease Advisory Board, Emory University, 404/727-3373

Grace-Marie Turner, President, Galen Institute, 703/299-8900

Steve Zuckerman, Principal Research Associate,  Urban Institute, 202/833-7200

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Government

Peter Ashkenaz, Press Officer, Centers for Medicare and Medicaid Services, 202/690-6145,   peter.ashkenaz@cms.hhs.gov

Tom Bradley, Unit Chief, Health Systems and Medicare Cost Estimates Unit, Congressional Budget Office, 202/226-9010

Stephen Heffler, Director, Office of the Actuary,  Centers for Medicare and Medicaid Services,  410/786-1211

Marjorie Kanof, Managing Director, Health Care,  Government Accountability Office, 202/512-7114

Mark Miller, Executive Director, Medicare Payment Advisory Commission, 202/220-3700,   mmiller@medpac.gov

Richard Rimkunas, Head, Health Insurance and Financing, Congressional Research Service,  202/707-7334  

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Stakeholders

David Carlucci, Chairman and Chief Executive Officer, IMS Health, 203-845-5200

Brenda Craine, Director, Washington Media Relations, American Medical Association,  202/789-7447, brenda.craine@ama-assn.org

Alissa Fox, Senior Vice President, Office of Policy and Representation, Blue Cross Blue Shield Association, 202/626-8681,   alissa.fox@bsbsa.com

Mary Grealy, President, Healthcare Leadership Council, 202/452-8700,  mgrealy@hlc.org ; cguttmann@hlc.org (assistant)

George Halvorson, Chairman and CEO, Kaiser Permanente, 510/271-5660

Karen Ignagni, President and CEO, America's Health Insurance Plans, 202/778-3200,  kignagni@ahip.org

Charles Kahn, President, Federation of American Hospitals, 202/624-1500

Frank McArdle, Principal, Hewitt Associates LLC, 202/331-1155

Edwina Rogers, Vice President, Health Policy,  The ERISA Industry Committee, 202-789-1400,  erogers@eric.org

Gerry Shea, Assistant to the President, AFL-CIO, 202/637-5237,  gshea@aflcio.org

Rick Smith, Senior Vice President for Policy and Research, PhRMA, 202/835-3400,  rsmith@phrma.org

Reed Tuckson, Senior Vice President,  UnitedHealth Group, 952-936-1253,  reed_v_tuckson@uhc.com

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Websites

AARP  www.aarp.org

Academy Health  www.academyhealth.org

AFL- CIO  www.afl-cio.org

Alliance for Health Reform  www.allhealth.org

Alliance of Community Health Plans  www.achp.org

American Enterprise Insititute  www.aei.org

American Institutes for Research  www.air.org

American Medical Association  www.ama-assn.org

America's Health Insurance Plans  www.ahip.org

Blue Cross Blue Shield Association  www.bcbs.com

Boston University School of Management  http://management.bu.edu/index.html

Brookings Institution  www.brookings.edu  

Cato Institute  www.cato.org

Center for Studying Health System Change  www.hschange.org

Center on an Aging Society, Georgetown University http://ihcrp.georgetown.edu/agingsociety/

Center on Budget and Policy Priorities  www.cbpp.org

Centers for Medicare and Medicaid Services  www.cms.hhs.gov

Columbia University, Mailman School of Public Health  www.mailman.hs.columbia.edu

The Commonwealth Fund  www.commonwealthfund.org

Congressional Budget Office  www.cbo.gov

Consumers for Health Care Choice  www.chcchoices.org

Consumers Union  www.consumersunion.org

Council of Economic Advisors www.whitehouse.gov/cea/

Employee Benefit Research Institute  www.ebri.org

ERISA Industry Committee  www.eric.org

Families USA  www.familiesusa.org

Federation of American Hospitals  www.fah.org

Galen Institute  www.galen.org

George Washington University Department of Health Policy  www.gwhealthpolicy.org

Government Accountability Office  www.gao.gov

Health Affairs  www.healthaffairs.org

Healthcare Leadership Council  www.hlc.org

High and Rising Health Care Costs: Demystifying U.S. Health Care Spending
www.rwjf.org/pr/product.jsp?id=35368

IMS Health  www.imshealth.com

Kaiser Family Foundation www.kff.org

Kaiser Foundation Health Plan Inc.  www.kaiserpermanente.org

Lewin Group  www.lewin.com

Massachusetts General Hospital  www.mgh.harvard.edu

Medicare Payment Advisory Commission  www.medpac.gov

National Academy of Social Insurance  www.nasi.org

National Coalition on Health Care  www.nchc.org

New America Foundation  www.newamerica.net

Partners Healthcare  www.partners.org

Private Enterprise Research Center  www.tamu.edu/perc

Robert Wood Johnson Foundation  www.rwjf.org

Rollins School of Public Health, Emory University  www.sph.emory.edu

Service Employees International Union  www.seiu.org

United Hospital Fund www.uhfnyc.org

UnitedHealth Group  www.unitedhealthgroup.com

Univ. of Minnesota-Prime Institute  www.pharmacy.umn.edu/centers/prime/

Urban Institute  www.urban.org

Wharton School of the University of Pennsylvania  www.wharton.upenn.edu

 

ENDNOTES

1 Micah Hartman, Anne Martin, Olivia Nuccio, Aaron Catlin and the National Health Expenditure Accounts Team (2010). Health Spending Growth At A Historic Low In 2008. Health Affairs, January. (www.healthaffairs.org)

2 Micah Hartman, Anne Martin, Olivia Nuccio, Aaron Catlin and the National Health Expenditure Accounts Team (2010). Health Spending Growth At A Historic Low In 2008. Health Affairs, January. (www.healthaffairs.org)

3 Christopher J. Truffer, Sean Keehan, Sheila Smith, Jonathan Cylus, Andrea Sisko, John A. Poisal, Joseph Lizonitz, and M. Kent Clemens (2010). Health Spending Projections Through 2019: The Recession’s Impact Continues. Health Affairs, March. (www.healthaffairs.org)  

4 Kaiser Family Foundation and Health Research and Educational Trust (2009). 2009 Employer Health Benefits Survey. Exhibit 6.4, Sept. 15. ( www.kff.org). 

5 Kaiser Family Foundation and Health Research and Educational Trust (2009). 2009 Employer Health Benefits Survey. Exhibit 6.4, Sept. 15. ( www.kff.org). 

6 Calculated from Center for Medicare and Medicaid Services, Table 1:

 National Health Expenditures Aggregate, Per Capita Amounts, Percent Distribution, and Average Annual Percent Growth, by Source of Funds: Selected Calendar Years 1960-2008, downloaded May 20, 2010, (www.cms.gov/NationalHealthExpendData/downloads/tables.pdf)

7 Office of Management and Budget (2008). “Budget of the United States, Analytical Perspectives” pp. 287-290. ( www.whitehouse.gov/omb/budget/fy2008/pdf/apers/receipts.pdf ).

8 Joint Committee on Taxation (2008). “Tax Expenditures for Health Care.” July 30, Table 1. ( http://www.house.gov/jct/x-66-08.pdf).    

9 Mark Pearson (2009). “Why does the United States spend so much more than other countries?” Written statement to the Senate Special Committee on Aging. OECD, Sept. 30, Chart 1. (www.oecd.org/dataoecd/5/34/43800977.pdf

10 David M. Cutler, Karen Davis and Kristof Stremikis (2010). “The Impact of Health Reform on Health System Spending.” Center for American Progress and The Commonwealth Fund, May 21. (www.commonwealthfund.org/~/media/Files/Publications/Issue%20Brief/2010/May/1405_Cutler_impact_hlt_reform_on_hlt_sys_spending_ib_v4.pdf)

11 H.R. 3590, The Patient Protection and Affordable Care Act." 111th Cong. (enacted). Section 3403. ( http://democrats.senate.gov/reform/patient-protection-affordable-care-act-as-passed.pdf ). The name of entity, earlier called the Independent Medicare Advisory Board, is changed by Section 10320.

12 Micah Hartman, Anne Martin, Olivia Nuccio, Aaron Catlin and the National Health Expenditure Accounts Team (2010). Health Spending Growth At A Historic Low In 2008. Health Affairs, January. (www.healthaffairs.org)

13 Micah Hartman, Anne Martin, Olivia Nuccio, Aaron Catlin and the National Health Expenditure Accounts Team (2010). Health Spending Growth At A Historic Low In 2008. Health Affairs, January. (www.healthaffairs.org)

14 Christopher J. Truffer, Sean Keehan, Sheila Smith, Jonathan Cylus, Andrea Sisko, John A. Poisal, Joseph Lizonitz, and M. Kent Clemens (2010). Health Spending Projections Through 2019: The Recession’s Impact Continues. Health Affairs, March. (www.healthaffairs.org)

15 Micah Hartman, Anne Martin, Olivia Nuccio, Aaron Catlin and the National Health Expenditure Accounts Team (2010). Health Spending Growth At A Historic Low In 2008. Health Affairs, January. (www.healthaffairs.org)

16 Calculations based on figures in Christopher J. Truffer, Sean Keehan, Sheila Smith, Jonathan Cylus, Andrea Sisko, John A. Poisal, Joseph Lizonitz, and M. Kent Clemens (2010). Health Spending Projections Through 2019: The Recession’s Impact Continues. Health Affairs, March. (www.healthaffairs.org) and Congressional Budget Office (2010)  “The Budget and Economic Outlook: Fiscal Years 2010 to 2020.” January, Table E-1. ( (www.cbo.gov/ftpdocs/108xx/doc10871/01-26-Outlook.pdf)

17Micah Hartman, Anne Martin, Olivia Nuccio, Aaron Catlin and the National Health Expenditure Accounts Team (2010). Health Spending Growth At A Historic Low In 2008. Health Affairs, January. (www.healthaffairs.org)

18 Mark Pearson (2009). “Why does the United States spend so much more than other countries?” Written statement to the Senate Special Committee on Aging. OECD, Sept. 30, Chart 1. (www.oecd.org/dataoecd/5/34/43800977.pdf )  OECD (2009), Expensive Health Care is Not Always the Best Care, Chart 5, ( http://www.oecd.org/document/14/0,3343,en_2649_37407_44216846_1_1_1_1,00.html .)

19 Karen Davis, Cathy Schoen, Stuart Guterman and others (2007). “Slowing the Growth of U.S. Health Care Expenditures: What Are the Options?” The Commonwealth Fund, January. http://www.commonwealthfund.org/~/media/Files/Publications/Fund%20Report/2007/Jan/Slowing%20the%20Growth%20of%20U%20S%20%20Health%20Care%20Expenditures%20%20What%20Are%20the%20Options/Davis_slowinggrowthUShltcareexpenditureswhatareoptions_989%20pdf.pdf ,

20 Len M. Nichols (2009). “Competition in the Healthcare Marketplace.” Testimony submitted to Senate Committee on Commerce, Science and Transportation, July 16. (www.newamerica.net/files/NICHOLS_Commerce.pdf)

21 The Commonwealth Fund (2007). Mirror, Mirror on the Wall: An International Update on the Comparative Performance of American Health Care. May 15. 2007, (www.commonwealthfund.org/publications/publications_show.htm?doc_id=482678).

22 Ginsburg, Paul (2008). High and Rising Health Care Costs: Demystifying U.S. Health Care Spending. Robert Wood Johnson Foundation, October. Figure 1, October. ( www.rwjf.org/pr/product.jsp?id=35368 ).

23 Len M. Nichols (2009). “Competition in the Healthcare Marketplace.” Testimony submitted to Senate Committee on Commerce, Science and Transportation, July 16. (www.newamerica.net/files/NICHOLS_Commerce.pdf)

24 Ginsburg, Paul (2008). High and Rising Health Care Costs: Demystifying U.S. Health Care Spending. Robert Wood Johnson Foundation, October. ( www.rwjf.org/pr/product.jsp?id=35368 ).

25 Kaiser Family Foundation and the Health Research and Educational Trust (2009). “Employer Health Benefits 2009 Annual Survey.” Exhibit 7.7 (http://ehbs.kff.org/?page=charts&id=2&sn=22&ch=1082)

26 Ginsburg, Paul (2008). High and Rising Health Care Costs: Demystifying U.S. Health Care Spending. Robert Wood Johnson Foundation, October. ( www.rwjf.org/pr/product.jsp?id=35368 ).

27 Berhanu, Alemayehu; Warner, Kenneth (2004). “The lifetime distribution of health care costs,” Health Services Research ; 39(3): 627-642. ( http://www.pubmedcentral.nih.gov/articlerender.fcgi?artid=1361028 ).

28 Ginsburg, Paul (2008). “High and Rising Health Care Costs: Demystifying U.S. Health Care Spending.” Robert Wood Johnson Foundation, October. ( www.rwjf.org/pr/product.jsp?id=35368 ). 

29 Ginsburg, Paul (2008). “High and Rising Health Care Costs:  Demystifying U.S. Health Care Spending.”  Robert Wood Johnson Foundation Research Synthesis Report. p.11. (http://www.rwjf.org/healthreform/product.jsp?id=35368 ).

30 US Department of Commerce, Bureau of Economic Analysis (2008). “Supplements to Wages and Salaries by Type.” ( www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=288&FirstYear=2002&LastYear=2004&Freq=Qtr ).

31 CNNMoney.com (2006). “Wagoner asks for modest health reforms.” July 13. ( http://money.cnn.com/2006/07/13/news/companies/gm_healthcosts/index.htm ).

32 Downey, K (2004). “A heftier dose to swallow.” Washington Post, Marc 6, p. E01. ( http://www.washingtonpost.com/ac2/wp-dyn/A34899-2004Mar5?language=printer ).

33 Kaiser Family Foundation and Health Research and Educational Trust (2009). “2009 Employer Health Benefits Survey.” Exhibit 6.4, Sept. 15. (www.kff.org)    And LaborLawCenter (2008). “Federal Minimum Wage Increase for 2007, 2008, 2009.” Updated June 12. ( www.laborlawcenter.com/t-federal-minimum-wage.aspx ).

34 Kaiser Family Foundation and Health Research and Educational Trust (2009). “2009 Employer Health Benefits Survey.” Exhibit 6.4, Sept. 15. ( www.kff.org

35 Liz Szabo and Julie Appleby (2009). "21% of Americans scramble to pay medical, drug bills." USA Today, March 13. ( www.usatoday.com/news/health/2009-03-10-gallup-medical-bills_N.htm ).

36 Kaiser Family Foundation (2008). “Kaiser Health Tracking Poll: Election 2008.” Issue 9, August. ( www.kff.org/kaiserpolls/upload/7808.pdf ).

37 Kaiser Family Foundation and Health Research and Educational Trust (2009). “2009 Employer Health Benefits Survey.” Exhibit 6.3, Sept. 15. ( www.kff.org).

38 Kaiser Family Foundation and Health Research and Educational Trust (2009). “2009 Employer Health Benefits Survey.” Exhibit 6.4, Sept. 15. ( www.kff.org).

39 Determined using U.S. Bureau of Labor Statistics inflation calculator ( http://data.bls.gov/cgi-bin/cpicalc.pl ).

40 Patricia G. Ketsche and William S. Custer (2004). “Impact of Health Insurance Benefits on Wages.” Presentation at AcademyHealth conference, San Diego, no. 21, abstract no. 960. ( http://gateway.nlm.nih.gov/MeetingAbstracts/ma?f=103623994.html ).

41 Congressional Budget Office (2008). “Key Issues in Analyzing Major Health Insurance Proposals.” December. Summary. ( www.cbo.gov/ftpdocs/99xx/doc9924/12-18-KeyIssues.pdf ).

42 Alliance for Health Reform (2008). “Putting the Brakes on Health Care Costs: Would the Candidates” Plans Work? Are There Better Solutions? Briefing, June 3. (www.allhealth.org/briefing_detail.asp?bi=129 ).

43 Catlin, Aaron; Cowan, Cathy; Hartman, Micah and others (2008). “National Health Spending In 2006: A Year of Change For Prescription Drugs.” Health Affairs, January/February, pp. 17-18. (www.healthaffairs.org).

44 Paul, Fronstin, Employee Benefit Research Institute (2009). “ "What Do We Know About Enrollment in Consumer-Driven Health Plans?" December, p. 15. (www.ebri.org/pdf/notespdf/EBRI_Notes_12-Dec09.TDFs.pdf)

45 National Health Spending In 2007: Slower Drug Spending Contributes To Lowest Rate Of Overall Growth Since 1998. Health Affairs, Jan./Feb., p. 246. (www.healthaffairs.org).

46 Charland, Kim (2007). “Pay for performance comes to Medicare in 2009.” Healthcare Financial management 2007; 61(9):60-4.

47 Congressional Budget Office (2006). “The Sustainable Growth Rate Formula for Setting Medicare’s Physician Payment Rates.” Sept. 6. ( www.cbo.gov/ftpdocs/75xx/doc7542/09-07-SGR-brief.pdf ).

48 Coughlin, Teresa;  Zuckerman Stephen (2005).  “Three Years Of State Fiscal Struggles: How Did Medicaid And SCHIP Fare?” Health Affairs Web Exclusive, Aug. 16. (www.healthaffairs.org).  

49 R. Vesely (2008). “Ain’t no sunshine after 10% Medicaid rate cute in California.” Modern Healthcare; 38(27): 17. ( http://www.modernhealthcare.com/article/20080707/SUB/455025920/-1/toc07.07.08 ).

50 Congressional Budget Office (2006). “The Sustainable Growth Rate Formula for Setting Medicare’s Physician Payment Rates.” Sept. 6. ( www.cbo.gov/ftpdocs/75xx/doc7542/09-07-SGR-brief.pdf ). See also: Pear, Robert (2008). “Long-Term Fix Is Elusive In Medicare Payments.” New York Times, July 13. (www.nytimes.com).

51 Seshamani, Meena; Zhu, Jingsan; Volpp, Kevin (2006). “Did postoperative mortality increase after the implementation of the Medicare Balanced Budget Act?” Medical Care; 44(6): 527-533.

52 Shen, Yu-Chu (2003). “The effect of financial pressure on the quality of care in hospitals.” Journal of Health Economics 2003L 833:1-27. ( http://ideas.repec.org/a/eee/jhecon/v22y2003i2p243-269.html ).

53 Dranove D and White WD (1998). “Medicaid-dependent hospitals and their patients: How have they fared?” Health Services Research. 33(2): 163-185.

54 MedPAC (2010). “Fact Sheet: Report to the Congress, March 2010.” (www.medpac.gov/documents/Mar10_FactSheet.pdf)

55 H.R. 3590, The Patient Protection and Affordable Care Act." 111th Cong. (enacted). Section 3021. ( http://democrats.senate.gov/reform/patient-protection-affordable-care-act-as-passed.pdf ).

56 David M. Cutler, Karen Davis and Kristof Stremikis (2010). “The Impact of Health Reform on Health System Spending.” Center for American Progress and The Commonwealth Fund, May 21. (www.commonwealthfund.org/~/media/Files/Publications/Issue%20Brief/2010/May/1405_Cutler_impact_hlt_reform_on_hlt_sys_spending_ib_v4.pdf)

57 Alliance for Health Reform (2008). “Health Information Technology: More Than the Money.” October. ( www.allhealth.org/publications/Health_information_technology/Health_Information_Technology_More_
Than_the_Money_86.pdf ).

58 Thorpe, Kenneth; Howard, David (2006). “The rise in spending among Medicare beneficiaries: the role of chronic disease prevalence and changes in treatment intensity.” Health Affairs; 25(5): 380. ( http://content.healthaffairs.org/cgi/content/abstract/25/5/w378 ).

59 Thorpe, Kenneth; Howard, David; Galactionova, Katya (2007). “Differences in disease prevalence as a source of the U.S.-European health care spending gap.” Health Affairs; 26(6): 678-86. (www.healthaffairs.org).

60 McCall, Nancy; Cromwell, Jerry; Urato, Carol; Rabiner, Donna (2008). “Evaluation of Phase I of the Medicare Health Support Pilot Program Under Traditional Fee-for-Service Medicare: 18-Month Interim Analysis.” October. ( www.cms.hhs.gov/reports/downloads/MHS_Second_Report_to_Congress_October_2008.pdf ).

61 Russell, Louise (2009). “Preventing Chronic Disease: An Important Investment, But Don’t Count on Cost Savings.” Health Affairs, Jan./Feb. 28(1): 42-45. (www.healthaffairs.org).

62 Micah Hartman, Anne Martin, Olivia Nuccio, Aaron Catlin and the National Health Expenditure Accounts Team (2010). Health Spending Growth At A Historic Low In 2008. Health Affairs, January. (www.healthaffairs.org)

63 Christopher J. Truffer, Sean Keehan, Sheila Smith, Jonathan Cylus, Andrea Sisko, John A. Poisal, Joseph Lizonitz, and M. Kent Clemens (2010). Health Spending Projections Through 2019: The Recession’s Impact Continues. Health Affairs, March. (www.healthaffairs.org)

64 Congressional Budget Office (2007). Letter to Sen. Ron Wyden. April 10. ( www.cbo.gov/ftpdocs/79xx/doc7992/DrugPriceNegotiation.pdf ).

65 Lehman, B. The Pharmaceutical Industry and the Patent System . International Intellectual Property Institute (2003). ( www.earth.columbia.edu/cgsd/documents/lehman.pdf ).

66 Ginsburg, Paul B. (2008). “Don’t Break Out the Champagne: Continued Slowing Of Health Care Spending Growth Unlikely to Last.” Health Affairs 27, no. 1, January/February, p. 30. (www.healthaffairs.org).

 
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Graphics for This Chapter

The Effect of Rising Costs on Access to Care

Financing Health Care Reform

National Health Spending as a Percentage of GDP

Premiums vs. other indicators

Sources of National Health Spending 2008

Premiuims vs other indicators 2001 - 2009

Premiuims vs other indicators 2001 - 2009 -- June 15, 2010

Premiums vs other indicators 2001 - 2009

 

This sourcebook for journalists was made possible with the support of the Robert Wood Johnson Foundation.

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