I've often found that when close to being overwhelmed by the complexity of an issue - one is well served to take a step back and try to find the basic data (numbers) that can help one actually define the problem (i.e. root causes in six-sigma vernacular). I did that this weekend with the U.S. Health care system - using CMS, BLS and Census data I found some very interesting benchmarks.
- Private insurance premiums (paid in the US) were $775 billion in 2007. From these premiums, private insurers paid for $680.3 billion in care.
- The Federal Government collected approximately $503 billion for Medicare in 2007 and paid out $754.4 billion. A loss of $246.4 billion on an annual basis.
- If one is to extend the percentage of marketing expense of the two largest private insurers to the whole of the private sector insurance economy, it can be estimated that the health insurance industry expends over $14.4 billion a year in marketing and sales activities (this would be your box at the Indianapolis Colts games, advertising, broker kickbacks - oh, I'm sorry - bonuses, etc.
- The CMS (i.e. government agency) refers to this delta between premiums collected and the cost of care delivered the "cost of private insurance" while the cost of administering Government Programs are referred to as Government Administration (which is $59.5 billion total with the federal government taking $40.2 billion annually to administer health care services). Of course, the "cost" of private insurance must also at least partially account for a return to investors and use of funds cost in the private sector. No similar responsibility is accrued to the government side.
- The "overhead" factor for private insurance (given the numbers above - and with the same caveats, etc) is 12.2% of revenues. The government overhead is 5.3% of revenues.
- The amount of premiums paid per individual in the United States was about $4,200/year. The amount expended per person was $7,306.58. (Editorial note: I hate to be really picky with the two decimal points and all, but when you're dealing with a multiplier of 304 million - a couple of decimal points here and there really add up).
- In 2007 personal, out-of-pocket health care related expenses (not including insurance premiums) totaled $268.6 billion
- Let's look at the number of uninsured - Starting number is portrayed as 45.7 million. About 12 million are eligible for existing programs - but for whatever reason do not apply. Another 1.3 million are incarcerated. There are fully 9 million (estimate reduced to account for recent high unemployment rates) that make over $75,000/year and could/should provide their own insurance. And... another 9.7 million are not citizens (I know, they are still users of the system - they represent a real potential cost. However, we are discussing the insurance premium side here and I'm not sure, given our current inability to deal with the citizens of our country, we need to, as a first step - guarantee insurance coverage for everyone on the planet). This leaves us with a real number of 13.3 million of chronically uninsured.
So those are the basic numbers - where do they lead and what to do....what to do??? hmmm..
- If we were to give the chronically uninsured a voucher for $5,000/year year for health care. Note, this is more than the cost of premium/person and less than the cost of care/person. The cost would be $66.5 billion (less than 8% of the total cost of federal care currently).
- What if we did away with Medicare as we know it. This would eliminate between $375 and $512 billion/year in cost shifting/escalation caused by false medicare payment mechanisms. So let's see... 44.832 million Medicare Enrollees.... add the 13.3 million uninsured and you have a public insurance option need to cover 58.132 million Americans. If we give them the same $5,000 voucher there wouldn't be close to enough money to cover the existing costs.... but - there are a couple of variables at work here.
1 - it doesn't have to be a pure governmental program. What about a public/private partnership?
2 - Many, if not most, of the high cost/high risk patients are already within the populations with some form of coverage. That is to say, the 13.3 million Chronically uninsured do not generally fall into that 4% high cost/high utilization population that account for almost 40% of the overall costs. So the risk opportunity is smaller with this population.
OK... so we take the existing Medicare Revenues $503.8 billion/year. We do away with Medicare reimbursement cost allocations and complex administration - and give every Medicare enrollee a $10,000/year voucher for health care. This redistributes about $300 billion in cost shifting, allowing pricing competition to enter the market and enhances consumerism (i.e. patient decision making and cost allocations) thus aligning incentives. Any amount not utilized in any given fiscal year can be retained by the enrollee in a Medical Saving Account (MSA). Each enrollee must purchase some form of catastrophic event coverage and this should be acquired through the private sector. The government can serve as an information resource and "broker" if you will, for this information - allowing private carriers to vastly reduce their marketing expenses. Enrollees can either utilize part of their annual voucher money - or can utilize their own funds for any type of supplemental insurance coverage - and all privately earned money spend on health care, including health care insurance premiums, shall be deductible on a dollar for dollar basis.
The chronically uninsured will receive a $5000/year voucher for health coverage until such time as they qualify for Medicare or can afford private insurance. This variance is made possible by the fact that this current population does not possess many of the high use/high cost population.
The cost for this? $514.8 billion/year - very close to the existing revenue stream of the current Medicare Program. Savings are achieved through alignment of incentives, elimination of much of the need for the $40 billion in "administration costs", and most importantly, removal of the artificially high pricing in the remainder of the system caused by the cost shifting perpetuated by the current Medicare payment schedules.
Closing Thoughts....
Remember where we started... when overwhelmed in complexity - take a step back and look at what the numbers tell us. These numbers tell us there is a way, at least mathematically, to get to a more sane and efficient delivery of health care in our country. So, there is no need for overt nationalization of yet another industry. But simply because the numbers can work, doesn't mean they will.
The numbers are only reflections of the resources available (or necessary) to undertake value adding activities. At the end of the day, those activities (and how they are executed) determine the success or failure of an enterprise, program, or activity.
Other efficiencies must be part of our reform:
- As much as I am a patient advocate - there has to be checks and balances on the tort bar's ability to continually drive costs into the system. Reasonable and prudent actions - even suspect actions - cannot be continually distorted into absolute negligence. I don't know that tort limits are the answer - but I do know that the interests of reducing this cost threat into the system must be addressed.
- End of life care must be mainstreamed. Those of us who work in health care are witness to events every day that in one breath can be described as courageous, and in another breath, in another room, be described a futile. Without getting into the discussion of "at what cost life" - our medical training, systems and cultural education must be combined to get to an understanding that death is a natural part of the order of life. The extremes, in both cost and emotional pain, that our system incentivizes must be dealt with.
- Coordination of care - Data is readily available (and growing every day) about the geometrically positive impacts that can be accomplished with a coordinated care team and seamless patient data. Fully understanding the practical limits of implementing EHR's, legacy system issues, patient privacy, etc... I've heard them all - the interest of coordinated and well communicated patient care must be served and advanced.
- And much more..... continuation of human genome research, redefinition of systems of care delivery, etc... but enough for one day.
So --- thanks for sharing with me the product of my weekend. I hope, if nothing else, the numbers are thought provoking, and perhaps, in some small way, may inspire you to not lose hope. Remember, when approaching overwhelm...just take a step back.
Sunday, June 21, 2009
Friday, June 19, 2009
Health Care Reform - A starting point might be seperating Myth from Reality
Excuse me for just a minute while I take a step back and try to separate the trees from the forest. There are a lot of numbers being thrown around - most of which are so large as to be incomprehensible to any sane being.
The need to restructure health care has taken front stage in our political drama and before we cast the cement to what will be our legacy and our method of health care delivery for the next 50 years or so, we should probably take a good look at what we assume to be the "truth".
For example - everyone can agree (I think) that affordable access to quality health care is a noble and worth while goal - in fact, an imperative for an advanced civilization. We are told about the "fact" that 45 - 51 million Americans lack health insurance coverage. But is that true?
Well - sort of. Approximately half of that number opt to have no insurance as a choice. Young generation X'ers and Y'ers who have fallen off their parents policies and fallen out of their college health protection programs (during which they are showed to be "uninsured" although they are fully protected through these typically co-op, community paid health programs) and basically choose not to purchase insurance which can typically be obtained for something south of $150/month.
So we have a realistic number of about 23 million. There are a total of 2.5 million people in state, federal or local incarceration who already receive health care at the trough of the public dollar. So that brings the number down to about 21 million.
I think everyone can also agree that one of the primary concerns, just on the basis of fairness and equity, is the impact of unemployment on the number of uninsured. A study by the Kaiser Family Foundation estimates that every 1% growth in unemployment results in an increase in the Medicaid enrollment of about 1 million and an increase in the uninsured population of about 1.1 million. So given the increase in unemployment in this depression, there are approximately 5.3 million people who have become uninsured by the loss of a job.
If we apply the math we can see that the average annual salary in the US is $44,155 (2009 dollars). The combined Medicare contribution rate is 2.9%. Therefore, the immediate cost of providing insurance (note - not the cost of health care, but the cost of providing current levels of insurance protections for these individuals and families) is $6.8 Billion. That's at a Medicare level of insurance, not Medicaid - and that investment brings down our number of something close to 15 million people chronically uninsured.
Using the CBO's rough numbers of the first take on the Kennedy Health bill - and this should not be taken as an endorsement of that particular approach - but just utilizing it as an order of magnitude comparison - applying those provisions to the real number of people who legitimately are underserved by our current system is closer to $533 billion (1/3 the cost of the projected current expense run) + $60.8 Billion (10 years at the current rate of unemployment -which is overly conservative) = $700 Billion as opposed to the $2+ Trillion currently estimated (which is sure to go higher). The other advantage of this approach is it actually provides coverage to real people and solves real problems.
There are two problems with this approach - one, it doesn't contribute to the nationalization of another part of our economy (which is becoming apparent as the real goal of this administration) and two - it doesn't deal the fundamental sustainability of the overall system.
We will deal with that in my next blog - but short term this is a much more rational approach that what our elected officials are scheming now.
Critical elements for reform - adequate reimbursement and aligned incentives, and reduction of non-patient related expenses. Government does have a role - but it's role should be in providing a marketplace of information from which consumers can make appropriate decisions. It should not be in the rationing of care. We see even fairly good approaches - for example the Medical Home model - corrupted and made evil by the governments mis-interpretation of it's highest and best, real world use.
Standby for more in my next rant!
The need to restructure health care has taken front stage in our political drama and before we cast the cement to what will be our legacy and our method of health care delivery for the next 50 years or so, we should probably take a good look at what we assume to be the "truth".
For example - everyone can agree (I think) that affordable access to quality health care is a noble and worth while goal - in fact, an imperative for an advanced civilization. We are told about the "fact" that 45 - 51 million Americans lack health insurance coverage. But is that true?
Well - sort of. Approximately half of that number opt to have no insurance as a choice. Young generation X'ers and Y'ers who have fallen off their parents policies and fallen out of their college health protection programs (during which they are showed to be "uninsured" although they are fully protected through these typically co-op, community paid health programs) and basically choose not to purchase insurance which can typically be obtained for something south of $150/month.
So we have a realistic number of about 23 million. There are a total of 2.5 million people in state, federal or local incarceration who already receive health care at the trough of the public dollar. So that brings the number down to about 21 million.
I think everyone can also agree that one of the primary concerns, just on the basis of fairness and equity, is the impact of unemployment on the number of uninsured. A study by the Kaiser Family Foundation estimates that every 1% growth in unemployment results in an increase in the Medicaid enrollment of about 1 million and an increase in the uninsured population of about 1.1 million. So given the increase in unemployment in this depression, there are approximately 5.3 million people who have become uninsured by the loss of a job.
If we apply the math we can see that the average annual salary in the US is $44,155 (2009 dollars). The combined Medicare contribution rate is 2.9%. Therefore, the immediate cost of providing insurance (note - not the cost of health care, but the cost of providing current levels of insurance protections for these individuals and families) is $6.8 Billion. That's at a Medicare level of insurance, not Medicaid - and that investment brings down our number of something close to 15 million people chronically uninsured.
Using the CBO's rough numbers of the first take on the Kennedy Health bill - and this should not be taken as an endorsement of that particular approach - but just utilizing it as an order of magnitude comparison - applying those provisions to the real number of people who legitimately are underserved by our current system is closer to $533 billion (1/3 the cost of the projected current expense run) + $60.8 Billion (10 years at the current rate of unemployment -which is overly conservative) = $700 Billion as opposed to the $2+ Trillion currently estimated (which is sure to go higher). The other advantage of this approach is it actually provides coverage to real people and solves real problems.
There are two problems with this approach - one, it doesn't contribute to the nationalization of another part of our economy (which is becoming apparent as the real goal of this administration) and two - it doesn't deal the fundamental sustainability of the overall system.
We will deal with that in my next blog - but short term this is a much more rational approach that what our elected officials are scheming now.
Critical elements for reform - adequate reimbursement and aligned incentives, and reduction of non-patient related expenses. Government does have a role - but it's role should be in providing a marketplace of information from which consumers can make appropriate decisions. It should not be in the rationing of care. We see even fairly good approaches - for example the Medical Home model - corrupted and made evil by the governments mis-interpretation of it's highest and best, real world use.
Standby for more in my next rant!
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