Toward a Satellite Account for Health Ana Aizcorbe Bureau of Economic Analysis

1. Toward a Satellite Account for HealthAna AizcorbeBureau of Economic Analysis CSLS-CMA Conference Improved Measures of Health Outputs and Outcomes Ottawa, Ontario October 30,2007

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

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 account for increases in the quality of treatments

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, and • Improved price deflators.

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. 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. BEA’s satellite account will include a disease-based price index. • Disease-based price indexes will better account for changes in costs that arise from the substitution across treatment classes. • These disease-based indexes will be used to construct • Price indexes for health expenditures by disease and product class, as currently reported in the accounts, and • Industry contributions to changes in the price indexes . • The index will not address the problem of accounting for improvements in treatments. • Difficult problem where there is no consensus on the solution.

8. Preliminary work on price indexes suggests the issue may be numerically important.

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.