The Obama The Obama Administration andAdministration and

Health ReformHealth Reform

Will The Massachusetts Reform Plan Will The Massachusetts Reform Plan Serve As a Model?Serve As a Model?

Stuart H. AltmanStuart H. Altman

Sol C. Chaikin ProfessorSol C. Chaikin ProfessorThe Heller School for Social Policy and Management The Heller School for Social Policy and Management

Brandeis universityBrandeis university

The Stars are Aligned for The Stars are Aligned for Significant Health ReformSignificant Health Reform

BUT Major ObstaclesBUT Major Obstacles

Remain!Remain!

Major Options for Health ReformMajor Options for Health Reform

1.1. Create a All Government Paid Create a All Government Paid Healthcare Financing SystemHealthcare Financing System

2.2. Restructure the Existing Mixed Restructure the Existing Mixed Public/Private System and Maintain Public/Private System and Maintain Current Tax Preference for Current Tax Preference for Employer Sponsored CoverageEmployer Sponsored Coverage

3.3. Eliminate Tax Preference and Use Eliminate Tax Preference and Use Tax Credits to Subsidize Coverage Tax Credits to Subsidize Coverage

Candidate Obama Opted Candidate Obama Opted For Option 2 For Option 2

Similar To The Reform Plan of Similar To The Reform Plan of MassachusettsMassachusetts

Shared responsibilityShared responsibility• GovernmentGovernment• IndividualIndividual• EmployerEmployer

Shift from subsidizing safety net Shift from subsidizing safety net providers to insurance providers to insurance

Keep stakeholders connectedKeep stakeholders connected Put-off debate on controlling Put-off debate on controlling

spendingspending

Massachusetts VisionMassachusetts Vision

How Is The Plan WorkingHow Is The Plan Working Number of Uninsured Has FallenNumber of Uninsured Has Fallen

• Lowest in Nation---Estimate of 2 ½%Lowest in Nation---Estimate of 2 ½% Cost of Plan Higher Than EstimatedCost of Plan Higher Than Estimated

• More individuals receiving a state subsidyMore individuals receiving a state subsidy Connector Liberalized subsidy systemConnector Liberalized subsidy system

• Plan includes prescription drugsPlan includes prescription drugs• Healthcare costs rising faster than expectedHealthcare costs rising faster than expected

Employer penalty fund less than expectedEmployer penalty fund less than expected• No penalty if employer provides at least 25% of workers and No penalty if employer provides at least 25% of workers and

pays at least 33% of premiumpays at least 33% of premium Of newly insured 40% in private plansOf newly insured 40% in private plans Hospitals Have Several ConcernsHospitals Have Several Concerns

• Safety net hospitals say they are receiving less because of Safety net hospitals say they are receiving less because of reductions from free care poolreductions from free care pool

• Medicaid rates that were suppose to increase have been cutMedicaid rates that were suppose to increase have been cut• However some evidence that hospitals are seeing less However some evidence that hospitals are seeing less

uninsured but bad debt is growinguninsured but bad debt is growing• Lack of primary care in some areasLack of primary care in some areas

Administration Has Already Made a Administration Has Already Made a Down Payment on Health ReformDown Payment on Health Reform

The Economic Stimulus Plan Included:The Economic Stimulus Plan Included:• Expansion of SCHIP– To support coverage for Expansion of SCHIP– To support coverage for

ChildrenChildren• $20 to $35 Billion for Health Information $20 to $35 Billion for Health Information

TechnologyTechnology• $1.5 Billion for Comparative Effectiveness $1.5 Billion for Comparative Effectiveness

ResearchResearch• Subsidies for individuals to buy Cobra Subsidies for individuals to buy Cobra

Insurance coverageInsurance coverage• Funds to Help States Maintain Medicaid Funds to Help States Maintain Medicaid

Coverage Coverage

Washington Pressure To Change Washington Pressure To Change Obama PlanObama Plan

Cannot Pass Significant Health Cannot Pass Significant Health Reform Without Serious Reductions Reform Without Serious Reductions In Spending for HealthcareIn Spending for Healthcare

Single Payer Advocates Want A Single Payer Advocates Want A Public Insurance Plan Option Open to Public Insurance Plan Option Open to Every AmericanEvery American

Must Include a Mandate That Must Include a Mandate That Requires Everyone to Have Health Requires Everyone to Have Health InsuranceInsurance

Obama’s Health Reform PrinciplesObama’s Health Reform Principles

1.1. Protect families’ financial healthProtect families’ financial health

2.2. Make health insurance affordableMake health insurance affordable

3.3. Aim for universal coverageAim for universal coverage

4.4. Provide portability of coverageProvide portability of coverage

5.5. Guarantee choiceGuarantee choice

6.6. Improve patient safety and qualityImprove patient safety and quality

7.7. Invest in prevention and wellnessInvest in prevention and wellness

8.8. Maintain long-term fiscal sustainabilityMaintain long-term fiscal sustainability

The Two Most Contentious The Two Most Contentious Issues in Current Health Issues in Current Health

Care Reform DebateCare Reform Debate

1.Whether to Create a Public Plan That 1.Whether to Create a Public Plan That Competes With Private InsuranceCompetes With Private Insurance

2. Should The Plan Include Serious Cost 2. Should The Plan Include Serious Cost Containment Provisions Containment Provisions

Provider Payment Rates and Administrative Provider Payment Rates and Administrative Costs Under a Medicare-Type Public Plan and Costs Under a Medicare-Type Public Plan and

Private InsurancePrivate Insurance

71%

81%

31.70%

13.20%

Hospital Care Physician Care Private Public

Source: The Lewin Group Staff working Paper #4 The Cost and Coverage Impacts of a Public Plan: Alternative Design Options, April 6, 2009

Medicare Provider Payments as a Percent of private Payer Rates

Administrative Costs as a Percent of Claims Costs: Small Firms

Enrollment In Public Plan Under Alternative Enrollment In Public Plan Under Alternative AssumptionsAssumptions

(In Millions of Persons)(In Millions of Persons)

17.0 20.6

31.5

77.5

42.9

131.2

Small Firms, Self-employed and Individuals All Firms and Individuals

Pvt. Pymt Midpoint Payment Medicare Payment Rates

Source: The Lewin Group Staff working Paper #4 The Cost and Coverage Impacts of a Public Plan: Alternative Design Options, April 6, 2009

If Reform Includes Serious If Reform Includes Serious Cost Containment and An Cost Containment and An

Extensive “Public Plan” We Extensive “Public Plan” We May Not Be Able to Repeal--May Not Be Able to Repeal--

ALTMAN’S LAWALTMAN’S LAW

ALTMAN’S LAWALTMAN’S LAW

Most Every Major Healthcare Constituent Most Every Major Healthcare Constituent Group Favors Universal Coverage and Group Favors Universal Coverage and

Healthcare Reform Healthcare Reform BUTBUT

If The Plan Deviates From Their Preferred If The Plan Deviates From Their Preferred Approach They Would Rather Remain With Approach They Would Rather Remain With

The “Status Quo”The “Status Quo”

The Original Obama Cost The Original Obama Cost Control Plan Was LimitedControl Plan Was Limited

System Saving FeaturesSystem Saving Features(Obama Plan)(Obama Plan)

Promote Comparative Promote Comparative Effectiveness---Effectiveness---Establish Institute to Establish Institute to guide review and research on comparative guide review and research on comparative effectivenesseffectiveness

Fund Health Information Fund Health Information Technology---Technology--- Provide $10 billion Provide $10 billion annually for 5 yrs to expand use of HITannually for 5 yrs to expand use of HIT

Reduce Payments to Medicare Reduce Payments to Medicare Advantage Plans---Advantage Plans---Reduce MA Reduce MA payments to equal Medicare FFS paymentspayments to equal Medicare FFS payments

System Saving FeaturesSystem Saving Features(Obama Plan)(Obama Plan)

Pres. Drug Price Negotiation---Pres. Drug Price Negotiation---Govt. Govt. would negotiated directly with manufactures for would negotiated directly with manufactures for drugs for Medicare Part Ddrugs for Medicare Part D

Drug- Re-importation---Drug- Re-importation---Permit drug re-Permit drug re-importation of drugs from other countriesimportation of drugs from other countries

Disease Management---Disease Management---Require use of DM Require use of DM for National Exchange and new FEHBP planfor National Exchange and new FEHBP plan

Medical Home---Medical Home---Encourage use of Medical Encourage use of Medical Home model for special paymentsHome model for special payments

Pay for Performance---Pay for Performance---Require use of Require use of Medicare P4P model for National Exchange Medicare P4P model for National Exchange and FEHBP plansand FEHBP plans

How The Obama Plan Cost How The Obama Plan Cost Control Proposals Stack Control Proposals Stack Up Against Techniques Up Against Techniques That Will Really Control That Will Really Control

Spending?Spending?

Techniques for Limiting Growth In Techniques for Limiting Growth In Health Spending and Likely ImpactHealth Spending and Likely Impact

Very Limited ImpactVery Limited Impact• Encourage Greater Use of Preventive Services (Short-term)Encourage Greater Use of Preventive Services (Short-term)

Limited ImpactLimited Impact• Provide Better Price and Quality InformationProvide Better Price and Quality Information• Require Patients To Pay MoreRequire Patients To Pay More• Restrict Use of Harmful CareRestrict Use of Harmful Care• Create a Governmental “High Cost Reinsurance System” with Effective Create a Governmental “High Cost Reinsurance System” with Effective

Disease Management Systems for Chronic ConditionsDisease Management Systems for Chronic Conditions• Reduce Expense and Waste of Medical Mal-Practice SystemReduce Expense and Waste of Medical Mal-Practice System• Reduce Administrative Costs of Insurance Reduce Administrative Costs of Insurance • Develop and Use Government Supported “Comparative Effectiveness Develop and Use Government Supported “Comparative Effectiveness

StudiesStudies Greater ImpactGreater Impact

• Restructure Payment System--- (Bundled Payment and Value Based Pricing)Restructure Payment System--- (Bundled Payment and Value Based Pricing)• Restructure Delivery System (Integrated Care)Restructure Delivery System (Integrated Care)• Restrict Use of Marginally Useful CareRestrict Use of Marginally Useful Care• Limit Supply of Expensive ServicesLimit Supply of Expensive Services• Incentives to Use Preventive Services (Long-Term)Incentives to Use Preventive Services (Long-Term)• Expand and Restructure Primary Care---Create Effective “Medical HomesExpand and Restructure Primary Care---Create Effective “Medical Homes for for

PatientsPatients) ) Greatest Potential ImpactGreatest Potential Impact

• Gov. Regulation of Payments To ProvidersGov. Regulation of Payments To Providers• Establish Global Budgets Establish Global Budgets

The 800 lb. Gorilla of The 800 lb. Gorilla of U.S. Healthcare U.S. Healthcare

Financing!Financing!

MedicareMedicare

HI Trust Fund Balance At Beginning Of HI Trust Fund Balance At Beginning Of Year As A Percentage Of Annual Year As A Percentage Of Annual

ExpendituresExpenditures

0%

20%

40%

60%

80%

100%

120%

140%

160%

1990 1995 2000 2005 2010 2015 2020

Beginning of January

SOURCE: 2004 Annual Report of The Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds

Historical Estimated

This year bankruptcy could fall This year bankruptcy could fall to 2015to 2015

Where We Need To GoWhere We Need To Go

Commonwealth Commonwealth Fund ---Fund --- “Framework “Framework

for a High Performance for a High Performance Health System”Health System”

Need to Deliver Care Through Need to Deliver Care Through Healthcare Systems That Healthcare Systems That

Emphasize Coordination and Emphasize Coordination and IntegrationIntegration

Authors of The Authors of The Commonwealth Fund Commonwealth Fund

Report Believe ---Report Believe ---

““Improved safety and quality envision Improved safety and quality envision cooperative behavior between hospitals cooperative behavior between hospitals

and physicians so as to make optimum use and physicians so as to make optimum use of expanded health IT, hospital P4P and of expanded health IT, hospital P4P and chronic care management for the frail chronic care management for the frail

elderly and patients with severe chronic elderly and patients with severe chronic conditions” conditions”

Any Significant Restructuring of Any Significant Restructuring of Healthcare Delivery System Will Healthcare Delivery System Will

Require Reimbursement Require Reimbursement Systems That Supports Such Systems That Supports Such

Behavior----Behavior----Fee-for-Service System Needs Fee-for-Service System Needs to be Modified or Abandoned!to be Modified or Abandoned!

Current Fee-for-Service Current Fee-for-Service Payment System Payment System

Encourages Aggressive Encourages Aggressive Competition Not Competition Not

Collaboration Between Collaboration Between Hospitals and PhysiciansHospitals and Physicians

Options For Changing Options For Changing Payment SystemPayment System

Bundled or Case PaymentsBundled or Case Payments Significant Pay-for-Performance Add-Significant Pay-for-Performance Add-

On or PenaltiesOn or Penalties Value-Based PaymentsValue-Based Payments Permit Wider Use of “Gain-sharing” Permit Wider Use of “Gain-sharing”

Between Hospitals and DoctorsBetween Hospitals and Doctors

Aligning Incentives Between Aligning Incentives Between Hospitals and DoctorsHospitals and Doctors

The Importance of a Value-Based The Importance of a Value-Based Payment System---Payment System---• Allows Hospitals to Be Rewarded for More Allows Hospitals to Be Rewarded for More

Appropriate and Cost Effective CareAppropriate and Cost Effective Care• Permits Hospitals to Share With Physicians Permits Hospitals to Share With Physicians

The Benefits of Higher Valued Care The Benefits of Higher Valued Care Need Transparency and Elimination of Need Transparency and Elimination of

Conflicts of InterestConflicts of Interest