  Health System Reform: Why Now? Why Colorado? Who’s Next? Len M. Nichols, Ph.D.Director, Health Policy ProgramNew America FoundationHot Issues in Health Care Legislative Conference Colorado Springs, ColoradoNovember 17, 2006

Overview • Introduction to Health Markets • Sources of extreme stress • Why the national debate is stuck (for now) • Competing Visions • States as • Laboratories • Catalysts • How Colorado could inspire the nation

Are Health Markets “Different?” • Information asymmetries • Clinician-patient • Consumer-insurer • Third-party payment • Moral hazard • Voluntary insurance purchase • Adverse selection • Expenditure distribution skewed • Risk pooling necessary • Competing definitions of “fair” risk pool

Linked Problems • Low Value for Dollar • Uneven quality • Inequitable access to care

Compared to Other Countries • #1 in spending, share of GDP, per capita • #37 (by WHO) on overall system performance, next to Slovenia and Costa Rica • Life expectancy, child survival, fairness, responsiveness, health outcomes

Medicare Quality and Spending Correlation Source: Baiker and Chadra, Health Affairs we, April 7, 2004

US Overuses interventionist technological procedures

Institute for Healthcare Improvement’sVentilator Associated Pneumonia program • Known how to eradicate VAP since ’99 • 14 hospitals have • 6 more have made great progress • Why hasn’t every hospital nationwide done this?

Percent of median family income required to buy family health insurance Source: Author’s calculations, using KFF and AHRQ premium data, CPS income data.

Family health insurance premium as percent of wages Source: author’s analysis of KFF premium data, BLS wage data

Labor Market Realities Occupation Family premium/Median wage Physician 7.9% History professor 14.8% Secretary 30.9% Carpenter 25.6% Cook 50.0% Source: KFF premium and BLS wage data, 2004.

Premium Payments v. GDP Growth Rate Source: NIPA, BEA/Commerce Dept.

Employer Health Insurance Payments / Corporate Profits

Some Coverage Trends (percent of under-65 population) 1987 1993 2004 Employer 70.1% 64.3% 62.4% Medicaid+SCHIP 8.7% 12.9% 13.4% Uninsured 13.7% 16.0% 17.8% Source: EBRI, December 2005.

Result of our incremental approaches • Health insurance as we know it is out of reach of a growing share of our workforce • We tolerate a stunning amount of mediocre performance

Linkages Among Problems Access Cost Quality

Political Gridlock and Fear • R’s don’t want real reform discussions • universal coverage threatens tax cuts (#1) • Serious cost-growth containment requires enhanced government role • D’s don’t know what they want • Some want to use UC to get power • Others fear and want to avoid it to get power • Others fear any solutions which unions don’t like

Visions of Problems • Right: • High costs caused by moral hazard (too much insurance coverage) • Coverage expansion will require unimaginable taxes • Left • High costs caused by market forces, market power/high profits, adverse selection • Center • Problems LINKED, must be addressed simultaneously, for technical and political reasons

Competing Policy Visions • New Wild West, with tax breaks • Individual consumers will drive efficiency • Musty Cocoon of Single Payer • Elite control will drive efficiency • Brave New World • Mandates, smart regulation, combined buying power will drive efficiency

President’s Proposals • Encourage non-group purchase of HSA-eligible insurance • Premium + OOP from HSAs deductible • Payroll tax credit for HSA contribution • Support passage of AHPs + federal override of state regulation of insurance markets • Malpractice reform • HIT and transparency exhortations

What Do We Need? • Political Space to Begin the Conversation • Moral case • Proof we are all in the same community • Economic case • Delivery system “culture of value” • Credible policy design • 3 dimensions of credibility • Stakeholders, politicians, people

Health System Culture of Value • Information infrastructure to support quality improvement • Malpractice safe harbors and value-enhancing incentives (for all) • Comparative technology assessment as countervailing power between medical technology and coverage/use decisions • Raise the bar at the FDA • Raise the bar for procedural interventions as well • Create Health Home, pay Host to guide us through system, teach/learn evidence base with us

Credible Policy Design • Individual and Shared Responsibility • Individual purchase requirement • Purchasing pool • Risk pooling/market rules • Administrative economies of scale • Subsidies for lower income • Financing sources • Culture of Value • Evidence-based limits on collectively financed benefits • Preservation of liberty and choice

Pew Typology: Support for government guarantee of health insurance, even if taxes must be raised Pew Center for Research on People & the Press: 2005

States as Laboratories • No inpatient coverage • Utah, West Virginia • Limited inpatient coverage • Arkansas, New Mexico, Tennessee • Piggyback on state’s purchasing power • West Virginia, Oklahoma • Encourage offers within purchasing pools • Montana • Adding Adults • Wyoming, Pennsylvania

States as Catalysts • Maine • Build it, capture savings, hope they’ll come • Illinois • Cover all kids, cover all citizens? • Vermont • Bipartisan, insurance home and subsidies for uninsured • Massachusetts • Bipartisan, individual mandate, subsidize lower income in smaller firms, hard budget constraint

Why Colorado Should Do This • Ich Bien Ein Coloradan • It would confound the cynics • It would inspire the Just • It would concentrate minds in Washington

What Can Colorado Do Alone? • Agree to work across party lines • Create sustainable structures • Efficient markets • Transparent information systems • Subsidies and benefits for target population • Build in budget safeguards • Agitate for Federal partnership