The United States Health Care System: A Case of Voodoo Economics?

1. The United States Health Care System:A Case of Voodoo Economics? Actuaries Club of Philadelphia February 15, 2011 John Dante, FSA, MAAA, FCA

2. Outline • Why should we care about Health Care? • What is Voodoo Economics? • What are some not-so-good attributes of the Current Health Care System? • What are some attributes that I consider to be Voodoo Economics? • What do I consider to be some better ideas?

3. Why should we care about health care? • Currently, the U.S. spends more per capita on health care than any other member nation of the United Nations. • Cost – Rising faster than inflation

4. U.S. is the Cost Leader OECD = Org. for Economic Co-operation and Development

5. Projected Federal Spending (% of GDP) Concerns: Rising cost of health care + aging of U.S. population

6. What is Voodoo Economics? • This was a term that George H. W. Bush used to describe Ronald Reagan’s economic policies prior to becoming Reagan’s running mate. • Later coined Reaganomics, the expectation was that reduced tax rates and regulation would actually result in more revenue for the Government.

7. Attributes of US Health Care System • Inconsistency in Costs of Health Care • Multiple Systems that Provide Funding • Third Party Payment • Lack of Coordination of Care • Large Segment of Population Lacks Coverage • Emergency Rooms are Crowded

8. Inconsistency in Costs of Health Care • Uninsured receive no discounts • Small Commercial Carriers receive small discounts from providers • Large Commercial Carriers receive large discounts from providers • Government Funded Programs (Medicare, Medicaid) pay the least

9. Multiple Systems that Provide Funding • Medicare • Medicaid • Veterans • Indians • Federal Employees • Employer-Based

10. Third Party Payment • Consumers are insulated from the costs • Cannot do their Consumer Thing • Few of those paying have the clout to influence cost containment

11. Lack of Coordination of Care • Physicians are not always sharing important information about patients • Duplication of tests • Lack of follow-up

12. Large Segment of Population Lacks Coverage • 50.7 million lacked health care insurance in 2009 • Even more lack health care insurance for some portion of a year • Constant flow of individuals terminating and re-enrolling in health insurance coverage

13. Emergency Rooms are Crowded • Wait for treatment can be several hours • Triage system employed • Some individuals use ER for primary care • Or lack of primary care results in some individuals ending up in ER

14. Attributes that I consider Voodoo Economics • Don’t Know Costs • Third Party Payer • No Incentive to Make Us Better • Efficacy of Treatments and Drugs Questionable

15. Don’t Know Costs • Patient is rarely aware of the cost • Physicians many times don’t know cost • Large variation is costs for same procedure

16. Third Party Payer • Consumer insulated from cost • System is structured improperly to provide incentive to contain costs

17. No Incentive to Make Us Better • What happens when you get a treatment that doesn’t make you better? • More physician visits, tests and drugs • You pay more • Physician makes more

18. Efficacy of Treatments and Drugs Questionable • Post treatment studies show that treatments are not always medically necessary • Drug efficacy studies most commonly funded by Drug company and Physician spokespeople often receive compensation

19. Some Better Ideas • National Fee Schedule • Efficacy of Treatments and Prescription Drugs • Simplification of Plan Designs • Single System • Expand Primary Care • Integrated Health Care Systems

20. National Fee Schedule • Variation hides price • Variation discourages competitors from entering the market • Variation causes Physicians to not take some insurances • Much time and money spent on fee schedule negotiations • When there is more transparency, Physicians can ask for more and consumers can shop

21. Efficacy of Treatments and Prescription Drugs • Use money from system simplification to study and create data bank of the most effective treatments and the most effective drugs • Structure greater payments to providers for these as well as lower copays to patients

22. Simplification of Plan Designs • Has innovative plans designs really made our system better? • The average person does not understand all the nuances of plan designs • Behaviorists say that when people are offered more than six choices, they get overloaded and are less likely to select the optimal choice • Every design could have a specific purpose • Leads to greater customer satisfaction?

23. Simplification

24. Single System • Not necessarily single payer • Structured so that various funders could just plug into it • Everyone has an equal vested interest in the system • Savings can be put towards making system more efficient and addressing fraud

25. Single SystemOne Proposal • Utilize a National Fee Schedule • Clinical Excellence Board to decide what is covered and how • Enrollment, Billing and Claims Payment • Wellness – Programs to encourage lower utilization • Risk Sharing Mechanism

26. Single SystemAdvantages of One Proposal • Compete on customer service • Make money through greater enrollment and more efficient systems • Make more money by making your population healthier • Beat the risk factor • Perhaps Medicare can outsource to private carriers

27. Expand Primary Care • Higher percentage of Primary Care Physicians (PCPs) leads to lower costs without a drop in quality • Encourage medical students to become PCPs • Utilize Physician Assistants, Nurse Practitioners and Clinics • Pay more for off-hours care

28. Integrated Delivery Systems • Encourage the use of Integrated Health Care Systems such as Accountable Care Organizations, Patient-Centered Medical Home and Integrated Hospital/Physician Systems • Take the money from those who want to continue business as usual

29. BOTTOM LINE • SIMPLIFY SYSTEM • ALIGN INCENTIVES PricewaterhouseCoopers Study • Wasteful spending in U.S. Health Care System calculated to be $1.2 Trillion • of the $2.2 Trillion Total Medical Spend

30. Questions&Answers

31. Contact Information John Dante, FSA, MAAA, FCA (570) 417- 9039 johndante@danteactuarial.com