Understanding Obamacare– Will There Be Limits on Medical Treatment?

1. Understanding Obamacare– Will There Be Limits on Medical Treatment? Burke J. Balch, J.D. Robert Powell Center for Medical Ethics October 19, 2013

2. Two Questions • 1. Should the federal government • limit what private citizens • are allowed to spend on health care • to save the lives of their family? • 2. Should the federal government • limit how much life-saving medical treatment • doctors are allowed to give their patients?

3. Fundamental Issue • Obamacare based on erroneous assumption: that in order to provide an adequate health care safety net, especially for previously uninsured • Government must enforce limits on all health care spending/ including what private citizens and their employers spend to save lives and foster health

4. This talk will • 1. Describe 4 ways Obamacare limits what we’re allowed to spend to save the lives of our family members and what treatment doctors can provide • 2. Argue that America can afford unrationed health care • 3. Show how we can both provide an adequate health safety net and avoid government-imposed rationing

5. 1. 40% Tax on “Excess Benefit” Health Insurance • If health insurance employers provide has a value of more than $8500 for an individual or $23,000 for a family, the “excess” value is taxed at 40% • The limits increase by general but not medical inflation

6. Understanding Inflation • CPI is an AVERAGE • Price rise/decline of individual categories of goods & services varies

7. Understanding Inflation • Compare classroom grades: if average is C+, some get A’s and some get D’s • Primarily because HC is labor-intensive, medical inflation consistently higher than average inflation across all sectors • Since 1990, on average, annual Medical Inflation 3.3% higher than CPI

8. Medical vs. Average Inflation

9. Compounding annually, gap grows wider and wider

10. Politico article(September 30, 2013 ) • “[The level at which taxes kick in will] be linked to the increase in the consumer price index, but medical inflation pretty much always rises faster than that . . . . • David Nather, “How Obamacare affects businesses—large and small” (September 30, 2013), http://www.politico.com/story/2013/09/how-obamacare-affects-businesses-large-and-small-97460.html

11. Politico article(September 30, 2013 ) • “Think of the Cadillac tax as the slow-moving car in the right lane, chugging along at 45 miles per hour. It may be pretty far in the distance, but if you’re . . . moving along at a reasonable clip in the same lane – say, 60 miles an hour—and you don’t slow down, you’re going to run smack into it.”

12. Politico article(September 30, 2013 ) • Although the excess benefits tax does not apply until 2018, the Politico article reports, “Towers Watson found that more than six out of 10 employers said the fear of triggering [it] would influence their health care benefit strategies in 2014 and 2015. . . .

13. Politico article(September 30, 2013 ) • “For one thing, the thresholds were set in 2010, and even though the law has a method for raising them if there’s a lot of growth in health care spending, employers are still concerned that they’ll get busted for offering fairly standard plans.”

14. 2. Medicare Limits • $ 555 billion cut from Medicare over 10 years • But will the government allow senior citizens to make up the difference from their own funds?

15. 2. Medicare Limits • BEFORE: • Older Americans permitted to add their own money, if they chose, on top of the governmental payment, in order to get insurance plans less likely to ration. • (Known as Medicare Advantage private-fee-for-service plans.)

16. 2. Medicare Limits • UNDER NEW HEALTH LAW: • HHS given standardless discretion to reject any Medicare Advantage plan. • HHS can limit or eliminate ability to add own money to obtain health insurance less likely to ration seniors’ health care.

17. 3. Exchange Limits on What People Can Pay for Insurance • New state-based insurance “exchanges” • At first, individuals & small business employees • Later, all employees

18. 3. Exchange Limits on What People Can Pay for Insurance • Government officials will exclude health insurers • Whose plans inside or outside the exchange • Allow private citizens to spend whatever gov’t officials think is an “excessive or unjustified” amount on their own health insurance

19. 4. Independent Payment Advisory Board • Present public focus is on impact on Medicare

20. 4. Independent Payment Advisory Board • LITTLE ATTENTION TO MUCH MORE FAR-REACHING ROLE IN RATIONING:

21. 4. Independent Payment Advisory Board • IPAB directed to make recommendations every 2 years, starting in 2015 • “to slow the growth in national health expenditures” – i.e., nongovernmental spending • Below the rate of medical inflation

22. IPAB Must Limit HC Spending Growth to the LESSER OF:

23. 5. Independent Payment Advisory Board • The recommendations are to include those that federal Department of Health and Human Services “can implement administratively”

24. How will HHS enforce limits? • HHS empowered to impose “quality measures” on hospitals, doctors, & other health care providers • One uniform standard of care specifying under what circumstances treatment can – and cannot – be given

25. Enforcement • Physicians who give treatment not permitted by “quality” measures disqualified from contracting with “qualified” insurance plans

26. What if IPAB members not named? • Republican leaders have said will not name members they’re authorized to; may resist confirmation of Presidential appointees • BUT law provides that HHS given duty and authority to substitute if IPAB doesn’t

27. 4. Independent Payment Advisory Board • IPAB • Push private HC spending below med. inflation • Recommendations every 2 years • HHS • Imposes “quality” standards • Doctors must comply or lose insurance • contracts • Patients • Can’t get HC exceeding standards

28. New Health Care Law’sRoutes to Rationing • 1. 40% Tax on “Excess Benefits” • 2. Medicare Limits • 3. Exchange Limits on What People Can Choose to Pay for Insurance • 4. Independent Payment Advisory Board & “quality and efficiency” standards

29. CAN America AFFORD Unrationed Health Care?

30. The Paradox • Appearance: • HC spending eats up ability to pay for other goods and services (ultimately unsustainable) • Reality: • Rising productivity in other goods and services is freeing up resources to use to save lives and preserve health

31. **The HC, food, clothing & shoes, housing, and combination charts are versions, derived from updated data, based on Figure 4.3 in Sherry Glied, Chronic Condition: Why Health Reform Fails (Cambridge MA & London: Harvard Univ. Press, 1997), p.103. Data Source: (CEA 1991, 2011.) Available at http://origin.www.gpoaccess.gov/eop/tables09.html

35. Food, Clothing & Shelter Combined as a % of the Family Budget

36. What the Family Spends on 1. Essentials and 2. Essentials & Healthcare Combined

37. American Health Expenditures and Per Capita Gross Domestic Product 2040 2009 1960 30% 17.6% 82.4% 70% 94.7% 5.3% 76 % Increase for Non-Health Expenditures 279 % Increase for Non-Health Expenditures Health Expenditures Non-Health Expenditures Sources: available on request to bbalch@nrlc.org

38. Sherry Glied • Former Assistant Secretary for Planning and Evaluation • Department of Health and Human Services in Obama Administration • Chronic Condition: Why Health Care Reform Fails (1997)

39. Glied Is Not Alone . . . • William J. Baumol, “Do Health Care Costs Matter?” The New Republic, Nov. 22, 1993, Professor of Economics at New York and Princeton Universities • David F. Bradford, Professor of Economics and Public Affairs, Princeton University Woodrow Wilson School of Public and International Affairs • Edward Wolff, Professor of Economics, New York University • Eli Ginzberg, A. Barton Hepburn Professor of Economics, Columbia University • Joseph P. Newhouse, John D. MacArthur Professor of Health Policy and Management, Harvard University

40. Conclusions • NOT that American health care system is ideally efficient and can’t be improved • BUT if improvements are made in cost-effectiveness, we shouldn’t necessarily expect growth in health care spending to abate – we might just get more and better health care

41. Bottom Line: • As long as American productivity keeps increasing (in the long term), America can afford to continue to increase the resources used to save lives and preserve health • Real problem: providing safety net for those whose incomes are not average, and its implications for government budgets

43. The Real Problems • REAL: Distribution of income increases not equal • Those with less-than-average income increases have genuine difficulty coping with health care cost increases • Number of uninsured rises among low income • GOVERNMENT ACTS TO HELP: Medicaid, CHIP, now PPACA But government does not benefit equally with private sector from productivity increases in areas other than health care – the productivity increases that reduce the resources needed and free up resources for health care

44. What the Family Spends on 1. Essentials and 2. Healthcare Combined

46. PRIVATE SECTOR SPENDING- GDP GOVT. SPENDING- FEDERAL BUDGET 17.6 % (spent on H.C) 2011 23% (spent on H.C) 2011 15.1% tax rate to fund the Federal Budget 51% growth in economy by 2040 51% growth in government 2040 30% (spent on H.C) 2040 30% (spent on H.C.) 2040 H.C. Deficit – 7%

47. Understanding Private Sector Cost-Shifting • Faced with unsustainable health care cost increases, government actors tend to avoid unpopular benefit cuts, and focus on limiting the reimbursement rate for health care providers • Many health care providers assert they are then forced to charge higher rates to privately insured patients to make up for what they lose on governmentally insured patients (and on the uninsured EMTALA requires hospital emergency rooms to serve)

48. Hospital Cost Shifting- The Hidden Tax (as of 2009) Payment to Cost Ratio Cost= Payments 134.1% Private Payers 36.6% Medicare 39.4% Medicaid 15.9% Percent of Hospital Costs Uncompensated Care 6.1% Source: American Hospital Association and Avalere Health, Avalere Health analysis of 2009 American Hospital Association Annual Survey data, for community hospitals, Trendwatch Chartbook 2011, Trends Affecting Hospitals and Health Systems, March 2011, Tables 4.5-4.6 at http://www.aha.org/research/reports/tw/chartbook/ch4.shtml

49. Hospital Cost Shifting- The Hidden Tax (as of 2009) Payment to Cost Ratio 130.3% Private Payers 36.6% Medicare 39.4% Medicaid 15.9% Percent of Hospital Costs Uncompensated Care 6.1% Source: American Hospital Association and Avalere Health, Avalere Health analysis of 2009 American Hospital Association Annual Survey data, for community hospitals, Trendwatch Chartbook 2011, Trends Affecting Hospitals and Health Systems, March 2011, Tables 4.5-4.6 at http://www.aha.org/research/reports/tw/chartbook/ch4.shtml

50. Private Sector Cost-Shifting as a Solution • Key advantage of private sector cost-shifting is that it can grow proportionately with the resources the private sector allocates to health care • I.e., yields a % of what is actually spent on health care