Pennsylvania single payer november 2013 131103

Sustainable Quality Health Care for PennsylvaniaSingle Payer is not an Answer, it is the Answer

Gerald FriedmanProfessor of Economics

University of Massachusetts at AmherstNovember 2013

gfriedma@econs.umass.edu

Two reasons why Economists are unpopular

• If any good could be done, someone would have been done already.– George Stigler would not bend down to pick up a $20. If it were real, someone else would

have picked it up already.

• Markets perfectly balance desire and cost– They assume that health care is “overused” because it is free on the

margin to those with insurance.

I am a different type of economistI will pick up money

In US health care, there is a lot of money lying around.

Billions upon billions upon billions!

Where we are going

• Problems with US (and Pennsylvania) health care finance

• Waste is no accident but built into private, for-profit health care

• Our solution: the PHCP• Financing and distributional effects• Creating jobs

The Real Problem:Private, for-profit, health insurance

With wasteful funding and fragmented delivery, system drowning in administrative expense and monopolistic pricing

Pennsylvania past, and future?

Excess Health Burden

19971998

19992000

20012002

20032004

20052006

20072008

20092010

20112012

20132014

20152016

20172018

20192020

20212022

20232024

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

500%

PC Health Spending Per capita gross state product

Nationally: rising health care burden on household budgets

19701972

19741976

19781980

19821984

19861988

19901992

19941996

19982000

20022004

20062008

20102012

20142016

20182020

100%

600%

1100%

1600%

2100%

2600%

3100%

3600%

4100%

Index of per capita health care spendingIndex of SSA average wages

Growing burden of excess health care costs

Health care spending 6% of average wage in 1970, 20% in 2010, 24% in 2021

Burden of health care on the poor and middle class

Bottom 20% 2nd 20% middle 20% 4th 20% Next 15% Next 4% Top 1% Top 4000%

5%

10%

15%

20%

25%

Income group

Shar

e of

inco

me

spen

t on

heal

th c

are

and

taxe

s to

sup

port

hea

lth

care

Progressive federal taxes raise spending rate for higher income people.

We spend a lot on health care

Turke

y

Mexico

Estonia

Poland

Chile

Hungary

Slova

k Rep

ublic

Czech Rep

ublicKorea Isr

ael

Greece

Slove

nia

Portuga

lIta

lySp

ain

New Ze

aland ¹

Japan

Icelan

d

Finlan

d

United Kingd

omIre

land

Australi

a

Swed

en

Belgium ¹

France

Luxe

mbourg

Denmark

German

y

Canad

a

Austria

Netherl

ands ²

Switz

erlan

d

Norway

United St

ates

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

Per c

apita

spen

ding

, aro

und

2011

, $US

PPP

We are not getting our money’s worth

If we had the average OECD life expectancy, we’d have 4 more years of life.If we had the average OECD expenditures for our life expectancy, we’d be spending over $6700 less per person.

Source: OECD

4 years less than we should have for our money

$6700 more than we should spend for our life expectancy

$- $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 $10,000 66

68

70

72

74

76

78

80

82

84

86

f(x) = 2.60747921239033 ln(x) + 59.0296197778107R² = 0.722042794604868

Life Expectancy and Health Care Spending per Person, Nations and Average Value

Health Care Spending Per Capita ($US at purchasing power parity)

Life

Expe

ctan

cy a

t Birt

h

USA

Hong Kong

Denmark

Switz

Cuba

UK

Turkey

Italy

France

We die young because we lack access to careAnd it is getting worse!

Had a medica

l pro

blem, did not v

isit d

octor o

r clin

ic

Did not fill a

prescr

iption

Skipped reco

mmended test,

treatm

ent or f

ollow-u

p

Did not get n

eeded specia

list c

are

Any of the above acc

ess pro

blems0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

200120052010

US has most restrictive access to health care, for everyone

Australia

Canada

France

Germany

Netherla

nds

New Zealand

Norway

Sweden

Switzerla

nd UKUSA

USA insu

red all y

ear

USA uninsure

d0%

10%

20%

30%

40%

50%

60%

70%

Had cost related access problem

Source: Commonwealth Fund survey reported in Cathy Schoen, et al., "Access, Affordability, and Insurance Complexity" Health Affairs, Nov. 18, 2013

Americans have most problems, even those with insurance!

Access is a greater problem for those with lower incomesIncome-gradient of unmet needs for the less affluent is greater in US

* Did not get medical care, missed medical test, treatment or follow-up, did not fill prescription or missed doses.

Unmet care need* due to costs, by income group, 2007

Source: Commonwealth Fund (2008).

Note that even above-average income Americans have unmet health needs!

Cost drivers in health care

These are quality controlled price indices from the Bureau of Labor Statistics.

http://www.commonwealthfund.org/usr_doc/Davis_slowinggrowthUShltcareexpenditureswhatareoptions_989.pdf

Hospita

l care

Physicians s

ervice

s

Nursing homes a

nd home health ca

re

Prescr

iption drugs

Administra

tion of priv

ate health

insu

rance CPI

Wages

Per-capita

inco

me0%

500%

1000%

1500%

2000%

2500%

Increase 1980-2005

Administrative bloat is overwhelming American health care

• Administration of health insurers costs $200 billion

• Employers spend $32 b interacting with insurers

• US doctors spent 4x as much on billing and insurance as do Ontario doctors, $83,975 per doctor vs. $22,205– Staff spend 21 hours interacting with health plans,

10x as much as in Canada.

More office workers than nursesMore managers than doctors

Rising tide of administrators

Our health-care system is uniquely difficult

Australi

a

Canad

a

France

German

y

Netherla

nds

New Zeala

nd

Norway

Sweden

Switz

erland UK

USA0%

10%

20%

30%

40%

50%

60%

Report difficulties with insurance

All Adults Primary-care physicians

Source: Commonwealth Fund survey reported in Cathy Schoen, et al., "Access, Affordability, and Insurance Complexity" Health Affairs, Nov. 18, 2013

Those with market power exploit the rest of us

Drug prices 60% higher in the US than elsewhere.– Prices fall by 80% when they go off patent

$850 Billion spent on Health Insurance Premiums in 2010

Medical Mutual: US Healthcare Costs, 2010

How much waste?

Basis of estimate Waste shareUS excess spending compared with Canada (2008)

48.1%

US excess spending compared with affluent OECD (2008)

52.5%

US excess adjusted for life expectancy 75.2%

Excess US spending growth since 1971 44.2%

Excess US spending growth adjusted for slower growth of life expectancy

59.4%

State-level studies all find significant savings

Californ

ia

Colorado

Georgia

Hawaii

Kansas

Mary

land

Massa

chuse

tts

Minneso

ta

Miss

ouri

New York

Pennsylvania

Rhode Island

Vermont

0%

5%

10%

15%

20%

25%

30%

Friedman Lewin Gruber-Hsiao Other

Sing

le-p

ayer

Sav

ings

as

Shar

e of

Sta

te H

ealth

Spe

ndin

g

Administrative bloat is no accident

Part of insurers’ strategy to drive away claims and people who file claims.

Private insurers raise costs because they profit from waste

• 70:10 rule –70% of costs go to 10% of people.– Shoe companies try to sell more. Insurers profit by

selling less.

Find the 10%; drive them out!Cherry picking and lemon dropping

14:58

Failure to cheat risks insurance death spiral

Rising premiums

Relatively healthy opt

out

Pool becomes more

expensive

Rising coverage

costs

Good guys fail

System works: for insurers and drug companies

Profits for the ten largest insurance companies increased 250 percent between 2000-9.

The five largest – WellPoint, UnitedHealth Group, Cigna, Aetna, and Humana – took in profits of $12.2 billion, up 56 percent in 2009 over 2008.

This is enough to provide coverage for nearly 500,000 families

http://www.thefiscaltimes.com/~/media/Fiscal-Times/Research-Center/Health-Care/Government-Papers/2010/02/18/Insurance%20Companies%20Prosper%20Families%20Suffer.ashx based on SEC 10-K filings.

They profitWithout helping a single patient

CEOs of the five largest insurers were paid $73 million in 2009.

Ronald Williams, Aetna, $19 million.

Steven Hemsley, United Health Group, $9 million

Angela Braly, WellPoint, $13 million

Michael McCallister, Humana, $3 million

H. Edward, Hanway, Cigna, $29 million

Single payer is the solution

• Limits administrative waste• Restricts monopolistic pricing of drugs and

medical devices• Allows effective management of capital

investments• Allocates burden of cost of health care

according to ability to pay rather than burdening the sick and disabled

Savings estimated by comparison with single payer system

• Administrative costs by activity of US vs. Canada, 2003 (Himmelstein et al. “Cost of Health Care Administration in the United States and Canada”)

• Administrative costs Medicare vs. Medicaid, and Medicare vs. private insurance

• Pharmaceutical costs in US vs. average of OECD, from McKinsey Global (http://www.mckinsey.com/mgi/rp/healthcare/accounting_cost_healthcare.asp)

National Savings from HR 676

$221

$116

$197

$26 $32

Provider Administration

Drug purchasing

Private Insurance Administra-tion

Government Administration

Employer costs of administer-ing private health insurance plans

Total savings: $592 billion, or 19% of spending

Added costs for implementing HR 676• CBO estimates of uninsured. Assume that uninsured would spend

80% as much on health care compared with 55% now– Adds 3.4% of personal health care spending

• Utilization increase without copayments and deductibles– 3% for hospitalization, physicians, and pharmaceuticals, 22% for dental,

40% for home health care, 20% for nursing homes

• Medicaid rate equalization – Medicaid/Medicare rates 66% now; equal under ACA for primary care

• $25 billion for additional government administrative costs – Medicare rate for expanded system

• $20 billion for purchase of private, for-profit health facilities• $31 billion for unemployment insurance and retraining of

displaced workers.

Program Improvements with HR 676, 2014

$144

$110

$89

$31

$20

Increased utilization

Cost of expanded coverage and additional government admin-istration

Cost of Medicaid rate adjustment

Transition cost of unemployment insurance and retraining for dis-placed workers

Transition cost of capital buy-out of private health care facilities

Until we get national single payerPennsylvania Health Care Plan

• All in, no one out• Single payer allows – administrative savings– Effective bargaining with monopolistic drug

companies and medical device makers• Financing reduces penalty for being sick and

disabled, and the burden on business

Pennsylvania single payer produces large savings

Total savings of $32.8 billion!

$1,464

$12,815

$6,167

$7,983

$3,369

$956

Employer administrative costs for health insurance $1,464Administration in provider offices $12,815Administration of private insurance system $6,167Reduced drug prices $7,983Fraud reduction $3,369Administration of government programs $956

Savings finance program improvements

$1,398

$9,807

$4,616

Cost of System Improvements with PHCP

Net costs of health coverage for the uninsuredMedicaid ratesIncreased utilization of health care services

Net savings: $17 billion in reduced spending in first year

Spending under ACA including cost of administration of health insurance system, 2014 $ 144,736

Total savings from ACA spending $ 32,754 Net spending after savings, before coverage expansion $ 111,982

Added spending with PHCP

Net costs of health coverage for the uninsured $ 1,398

Medicaid rates $ 9,807

Increased utilization of health care services $ 4,616

Total added spending $ 15,820

Spending under PHCP $ 127,802

Savings increase over time because single payer allows more efficiency

• Savings from fraud reduction and duplicate billing

• Coordinated investment allows savings on equipment and facilities

• Coordinated electronic medical records

• Eliminates excessive growth of administrative burden and drug and equipment prices

Single Payer makes health care sustainable by establishing universal coverage and

eliminating private insurance and profit

Single payer savings grow over time

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 202419%

20%

21%

22%

23%

24%

25%

Health Care Spending of State Income

Without ACA With ACA Single Payer

Fairness

• Insurance means the sick are not to be victimized by the payment system

• Health care costs will be borne according to ability to pay, not by luck of good health.

Financing with existing revenues and payroll and income taxes replacing current health-insurance premiums

Needed revenueSpending 2014 $ 127,802 Existing spending sourcesMedicare $ 31,527 Medicaid (Fed and State) $ 27,591 Medicaid adjustments (Federal) $ 9,807 VA $ 2,371 State other than Medicaid $ 332 Exchange subsidies $ 1,005 Employer subsidies $ 251 Workers' Compensation $ 1,060 20% of out-of-pocket spending $ 5,073

10% payroll $ 30,813 3% income tax $ 19,075 Net surplus $ 1,102

Shift in funding: less spending but more Federal

Federal State and local government Business Households $-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

ACAPHCP

Spen

ding

in $

mill

ions

Extra federal spending for additional coverage and higher Medicaid rates. Employers (including public sector) and households save.

Single payer can shift cost of care from the unlucky sick to the relatively fortunate

$15,136 $36,248 $57,058 $85,025 $135,977 $222,366 $1,586,767

-10

-5

0

5

10

15

Income

Perc

enta

ge ch

ange

in n

et in

com

e

Single payer creates jobs

• Lower cost of health care will allow more consumer spending on other things

• Increased coverage brings federal money• Lower labor costs (3% of payroll) allows– Pennsylvania businesses to undersell competitors– investment to Pennsylvania– Use of more labor-intensive technology

Over 200,000 new jobs lowers unemployment rate by over 3%

Single Payer lowers local taxes

Philadelphia

Alleghany

MontgomeryBuck

s

DelewareBerks

Chester

York

Lanca

ster

Lehigh

Dauphin

Luze

rne

Northampto

nErie

Westm

oreland

Monroe

Lack

awana

Wash

ington

Fayette

Beaver$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

$700,000,000

Total local government savings from PHCP, 2014, selected counties

Total savings of $3.3 billion for local governments in 2014 plus $581 billion for state. Savings grow over time.

Single Payer savings and improvements in health care from eliminating private

insurance and profit

Profit motive is inimical to efficient, quality careThe best way to make profits is to drive away the sick and needy, adverse selectionCoverage restrictions invite other insurance in, bringing billing waste and all the evils of the current regime

All of us have right to health care.You can make it happen.