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Healthcare CostsHealthcare Costsin NH in NH

Presentation toPresentation to The COMMISSION TO INVESTIGATE COST DRIVERS IN The COMMISSION TO INVESTIGATE COST DRIVERS IN PROVIDING HEALTH CARE (HB 517, Chapter 297:1, PROVIDING HEALTH CARE (HB 517, Chapter 297:1,

Laws of 2007)Laws of 2007)

Our health system research undertaken with generous support from Steve Norton

Executive DirectorSeptember 12, 2007

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All of our reportsare available on the web:

www.nhpolicy.orgwww.nhpolicy.org

New Hampshire Center New Hampshire Center for Public Policy Studiesfor Public Policy Studies

Board of Directors

Martin L. Gross, ChairJohn B. AndrewsJohn D. CrosierGary Matteson Todd I. Selig Donna SytekGeorgie A. ThomasJames E. Tibbetts Brian WalshKimon S. Zachos

Executive DirectorStephen Norton

Executive Director, Emeritus Doug Hall

“…to raise new ideas and improve policy debates through quality information and analysis on issues shaping New Hampshire’s future.”

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Topics

• Trends in the Cost of Health Care• Health Care Expenditure Drivers• Cost Shifting• The Insurance Market• Health Care and the Economy

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Trends in the Cost of Health Care

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NHCPPS Health Care Finance ProjectConceptual Flow Chart of Funds in New Hampshire Health Care System

Ultimate Fundors: Level 1

Fundors: Level 2

Intermediaries: Level 3Payments to ProvidersAdministrationProfits

Providers: Level 4

Provider cost structures: Level 5Salaries and w ages $ ? $ ? $ ? $ ? $ ? $ ? $ ?

$ ? $ ? $ ? $ ? $ ? $ ? $ ?

In-state $ ? $ ? $ ? $ ? $ ? $ ? $ ?

Fringe benefitsOut-of-state $ ? $ ? $ ? $ ? $ ? $ ? $ ?

Consumable non-medical supplies $ ? $ ? $ ? $ ? $ ? $ ? $ ?

Consumable medical supplies $ ? $ ? $ ? $ ? $ ? $ ? $ ?

Cost of Capital (debt service) $ ? $ ? $ ? $ ? $ ? $ ? $ ?

Over-the-counter medications $ ? $ ? $ ? $ ? $ ? $ ? $ ?

Prescription medications $ ? $ ? $ ? $ ? $ ? $ ? $ ?

Malpractice insurance $ ? $ ? $ ? $ ? $ ? $ ? $ ?

Other insurance $ ? $ ? $ ? $ ? $ ? $ ? $ ?

Utilities $ ? $ ? $ ? $ ? $ ? $ ? $ ?

Office equipment $ ? $ ? $ ? $ ? $ ? $ ? $ ?

Clinical equipment $ ? $ ? $ ? $ ? $ ? $ ? $ ?

Profits $ ? $ ? $ ? $ ? $ ? $ ? $ ?

Etc…… $ ? $ ? $ ? $ ? $ ? $ ? $ ?

Etc…….

Changes in these lines constitute reimbursement control, not "cost control."

This is the only point at w hich real "cost control" can take place.

Nursing Homes(A)

Private Practioners(B)

Pharmacies(C)

Hospitals(D)

Independent Laboratories

(E)

CommunityHealth Centers

(F)

Commercial Health Insurers

(D)

Other Public Programs

(C)

State Medicaid Program

(B)

Medicare(A)

Investment Portfolios(E)

Private Sector Employers (D)

State Treasury(C)

Federal Treasury(B)

County Treasury(A)

Individuals(C)

Business Owners & Employees

(B)

Individual and Business Taxpayers

(A)

The Healthcare Finance System

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% of All Health Care Paid by Sources, 1965-2014

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

Year

Public Funding

Out-of-Pocket

Insurance

Other Private Sources

Source: National Health Expenditure Accounts, Centers for Medicare and Mericaid Services

projected

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Estimated Source of Funds Personal Health Care in US, 2006

Other Public8%

Medicaid16%

Other Private4%

Medicare22%

Insurance36%

Out-of-Pocket14%

Public Sources

46%

Private Sources

54%

Note: Some of the spending that is categorized as private insurance actually originates from public funds: insurance for teachers, postal employees, and other government workers.

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NH Health Expenditure as % of Gross State Product (GSP)

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Year

Projected

Source: Calculations by Douglas E. Hall, NH Center for Public Policy Studies, based on national projections made by Office of the Actuary, Center for Medicare and Medicaid Services, Washington DC.

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Average Annual Health Insurance Premium

New Hampshire US

2000 2004Annual increase 2000 2004

Annual increase

1-Person coverage $2,790 $4,084 10.0% $2,655 $3,705 8.7%

Family coverage $7,525 $11,156 10.3% $6,772 $10,006 10.3%

2-person coverage[1] n/a $8,495 - n/a $7,056 -

[1] MEPS did not begin to collect premium information for 2-person coverage nationally until 2001 and for New Hampshire until 2002.

Sources: Agency for Healthcare Research and Quality, Center for Financing, Access and Cost Trends. 2004 Medical Expenditure Panel Survey (MEPS) -Insurance Component.

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Average Annual Employee Contribution to Health Insurance

New Hampshire US

2000 2004

Annual increase 2000 2004

Annual increase

Single coverage $470 $944 19.1% $450 $671 10.5%

Family coverage $1,752 $3,102 15.4% $1,614 $2,438 10.8%

2-person coverage n/a $2,010 - n/a $1,667 -

Sources: Agency for Healthcare Research and Quality, Center for Financing, Access and Cost Trends. 2004 Medical Expenditure Panel Survey (MEPS) -Insurance Component.

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Annual Health Insurance Premium for 1-Person Coverage as Percent of Per Capita Income

1998 1999 2000 2001 2002 2003 2004

1-Person Coverage Premium $2,356 $2,790 $3,263 $3,563 $4,084

Per Capita Income $24,583 $25,632 $27,129 $26,467 $27,407

% of Per Capita Income 11.4% 12.0% 13.5% 14.9%

Per Capita Income and Premium Costs

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• The short answer? Not certain. • Some studies suggest that investment in

health care have yielded significant benefits (in terms of life years).

• Others are less certain: • “Regions experiencing the largest spending gains

were not those realizing the greatest improvements in survival. Factors yielding the greatest benefits to health were not the factors that drove up costs.” Health Affairs 25 (2006)

• Hospitals and physicians are competing for profitable services, making costly investments in the latest medical technologies. These market forces are largely going unchallenged by insurers and regulators (Center for Health Systems Change, Issue Brief No. 97)

• Elliot Fisher’s Work suggest some services are ‘unnecessary.’

Are we getting value?

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Outpatient Knee Arthroscopy Procedures: Average Paid per Procedure By HSA: NH CHIS 2005 Incurred Claims - private payer claims

$7,468$5,798

$5,774

$5,649

$5,162

$4,924

$4,851

$4,788

$4,765

$4,737

$4,591

$4,538

$4,390

$4,289

$4,227

$4,131

$4,104

$4,030

$3,621

$3,619

$3,459

$3,084

$2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000

Littleton

Lancaster

Woodsville

Claremont

Berlin

Concord

Exeter

Portsmouth

Peterborough

Franklin

North Conway

Keene

Rochester

Dover

Colebrook

Wolfeboro

Laconia

Lebanon

Manchester

Derry

Plymouth

Nashua

NH average rate = $4,064

ME average rate = $4,614

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Health Care Expenditure Drivers

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Estimated Personal Health Care Spending in NH, 2006(in $ million)

$2,747

$2,359

$417

$335

$936

$110

$679

$170

$384

Hospital Care

Physicians, Clinics, & Other Professional

Services

Dental Services

Home Health Care

Prescription Drugs

Durable Equipment

Nursing Home Care

Other Personal Health Care Total:

$8,137 million

Other Non-durables

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NH Personal Health Care Spending, 1990-2005

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,00019

90

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Year

Exp

end

itu

re (

$ m

illi

on

s)

Hospital CarePhysician ServicesOther Professional ServicesDental ServicesHome Health CarePrescription DrugsOther Non-Durable Medical ProductsDurable Medical ProductsNursing Home CareOther Personal Health Care

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Most costs are for those over 40.

Distribution of Total Private Insurance Payments by Age <= 65CHIS Data, NH Residents Only, 2005

$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64

Age

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Age Distribution: 1970

Distribution of NH Population by Age in 1970

(60,000) (40,000) (20,000) - 20,000 40,000 60,000

0-4

5-9

10-14

15-19

20-24

25-29

30-34

35-39

40-44

45-49

50-54

55-59

60-64

65-69

70-74

75-79

80-84

85+

Persons

(60,000) (40,000) (20,000) - 20,000 40,000 60,000

Males Females

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Age Distribution: 1995

Distribution of NH Population by Age in 1995

(60,000) (40,000) (20,000) - 20,000 40,000 60,000

0-4

5-9

10-14

15-19

20-24

25-29

30-34

35-39

40-44

45-49

50-54

55-59

60-64

65-69

70-74

75-79

80-84

85+

Persons

(60,000) (40,000) (20,000) - 20,000 40,000 60,000

Males Females

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Age Distribution: 2020?

Distribution of NH Population by Age in 2020

(60,000) (40,000) (20,000) - 20,000 40,000 60,000

0-4

5-9

10-14

15-19

20-24

25-29

30-34

35-39

40-44

45-49

50-54

55-59

60-64

65-69

70-74

75-79

80-84

85+

Persons

(60,000) (40,000) (20,000) - 20,000 40,000 60,000

Males Females

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Why are people receiving services?

CCS Disease Category Total Payments Total ServicesSpondylosis intervertebral disc disorders other back problems $73,561,668 811,441 Medical examination and evaluation $41,418,052 889,474 Coronary atherosclerosis and other heart disease $40,745,832 144,075 Other connective tissue disease $39,905,691 505,419 Other screening for suspected conditions not mental disorders or infectious disease $36,233,235 486,031 Non specific chest pain $33,280,102 288,193 Osteoarthritis $31,401,029 122,805 Other and unspecified benign neoplasm $30,314,791 146,150 Cancer of breast $28,411,543 131,173 Abdominal pain $27,845,684 276,472

Distribution of Total Expenditures by Disease Category (CCS)New Hampshire Residents, CHIS Data, 2005

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Cost-Shifting

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Revenue Structure of a Health Care Provider

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

140%

150%

160%

170%

% of Gross Charges by Payer

% o

f C

ost

Pai

d

Insurance45%

Self-Pay7%

Medicare41%

Medicaid7%

0% 100%

If all payers pay 100% of COST, then the provider will break even.(If all pay 104% of cost, the provider will have a 4% operating margin)

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Revenue Structure of a Health Care Provider

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

140%

150%

160%

170%

% of Gross Charges by Payer

% o

f C

ost

Pa

id

Insurance45%

Self-Pay7%

Medicare41%

Medicaid7%

0% 100%

Revenue above 100%

Shortfalls

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Revenue Structure of a Health Care Provider

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

140%

150%

160%

170%

% of Gross Charges by Payer

% o

f C

ost

Pa

id

Insurance43%

Self-Pay8%

Medicare41%

Medicaid8%

0% 100%

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Hospital Cost-Shifting in 2005(Aggregate of 26 NH Acute Care Hospitals)

0%

50%

100%

150%

200%

250%

Percent of Gross Charges

Pay

men

t as

Per

cen

t o

f C

ost

3rd Party Payers (insurance) Medicare

Medicaid

bad debt & charity

Total amount cost-shifted: $345 million Net operating gain: $160 millionOperating margin: 5.8%

other

216%

+ $461 million

$157 million $ 63m. $124 m

illion

+ $35m.

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Hospital OwnershipCritical Access Designation?

Operating Margin After Tax

Parkland Medical For Profit 11.9%Portsmouth Regional For Profit 10.4%Exeter Not-For-Profit 10.3%So. NH Regional Not-For-Profit 10.0%Elliot Not-For-Profit 8.8%Memorial Not-For-Profit Yes 8.7%Catholic Med Ctr Not-For-Profit 7.3%Wentworth-Douglass Not-For-Profit 7.0%Littleton Not-For-Profit Yes 6.8%Frisbie Memorial Not-For-Profit 6.6%Lakes Region Not-For-Profit 5.8%St. Joseph Not-For-Profit 5.4%Concord Not-For-Profit 3.9%Cheshire Not-For-Profit 3.3%Upper Conn Valley Not-For-Profit Yes 3.3%Mary Hitchcock Not-For-Profit 3.2%Speare Memorial Not-For-Profit Yes 3.2%Androscoggin Not-For-Profit Yes 2.7%Valley Regional Not-For-Profit Yes 1.7%Weeks Memorial Not-For-Profit Yes 1.4%Huggins Not-For-Profit Yes 1.0%New London Not-For-Profit Yes 0.5%Franklin Regional Not-For-Profit Yes 0.3%Monadnock Not-For-Profit Yes 0.3%Cottage Not-For-Profit Yes 0.2%Alice Peck Day Not-For-Profit Yes -2.1%

NH Post-Tax Operating Margins (2005)

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New Hampshire Hospitals' Cost-Shift and Set-Aside for Margins2001 and 2005

$178,944,592

$344,853,233$48,498,241

$160,225,534

$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

2001 2005

Amount Set Aside for Margins

Amount Cost Shifted to Meet Costs

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Insurance Premium to Pay for Hospital Service (2004 and 2005)

  2004   2005

  Hospital Total   Hospital Total

Hospital Charge $10,000     $10,000  

   

Actual Cost of Service $4,854     $4,640  

Cost-shift surcharge $1,284     $1,576  

For operating margin $561     $866  

Claim to be paid $6,699     $7,082  

           

Claim to pay   $6,699     $7,082

Insurer admin/profit (17.6%)   $1,179     $1,246

Premium required   $7,878     $8,328

Premium as % of cost of service   162%     179%

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Revenue Structure of a Health Care Provider

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

140%

150%

160%

170%

% of Gross Charges by Payer

% o

f C

ost

Pai

d

Insurance43%

Self-Pay8%

Medicare41%

Medicaid8%

0% 100%

What happens as the population ages?What happens if the uninsured or underinsured population grows?

Demographics and Cost Shifting?

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Cost Shifting A Part of Cost Growth

• Hospitals’ financial stability, as measured by operating margins, has increased.

• Small rural hospitals have largely recovered (critical access designation)

• Cost shift has increased significantly, driven by both underpayment of public payers and increases in operating margins.

• Cost shift contributes to growth in health care costs borne by businesses and individuals through premium payments.

• This phenomenon not limited to hospitals, but data is not available for other providers.

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The Insurance Market

33

Market Share (Premiums) 2003-2006

$1,255,047,786 in Health Insurance Premiums in 2003

$286,250,036

$140,246

$250,855,362

$117,835,682

$599,966,460

Anthem

Cigna

Matthew Thornton

Aetna

HarvardPilgrim

$1,263,919,626 in Health Insurance Premiums in 2006

$430,811,229

$138,596,101

$242,296,689

$484,809,802

$8,245,825

Anthem

Cigna

Matthew Thornton

HarvardPilgrim

Patriot

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Use of Premiums by 5 NH Health Insurers, 2005

Medical/Hospital64%

Pharmacy12%

Other Professional Services

2%

ERs & Out of Area3%

Outside Referrals1%

General Administration7%

Net Underwriting Gain (Loss)

8%Claims Adjustment

3%82% of premiums paid for

claims while 18% was administration and profit

Total spending:$1,263,919,626

Based on annual financial reports filed with NH Department of Insurance

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Net Underwriting Profit (Loss) For 5 NH Insurers

$63,051,904

$29,214,515

$83,732,008

$96,796,649

$56,638,560

$36,029,896

$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

2001 2002 2003 2004 2005 2006

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Underwriting Profit (Loss) for Major NH Carriers as a % of Premiums 2001-2006

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2001 2002 2003 2004 2005 2006

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2006 Net Underwriting Profit (Loss)

$32,076,297

$62,431,535

-$7,496,736

-$938,436-$2,340,652

-$20,000,000

-$10,000,000

$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

Anthem Mathew Thorton Cigna Patriot Harvard Pilgrim

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2006 Net Underwriting Profit (Loss) as a % of Premium

7.3%

12.9%

-5.4%

-28.4%

-0.4%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

Anthem MathewThorton

Cigna Patriot Harvard Pilgrim

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Cost Summary

• Costs increases are about average; however, businesses and individuals face an increasing burden.

• Sectors contributing to growth: hospital (#1), physician (#2) and prescription drug (#3).

• Technology clearly plays an important role.

• Question for New Hampshire?• Average per-capita health costs remain

lower than the national average. • Premiums remain higher than the

national average …. Why?

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Health Care and the Economy

41

Grand Total Approved CON Applications~ $63 million per year

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

~ $700 Million

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Total Non-Farm Employment in New Hampshire (1990-2005)

0

100

200

300

400

500

600

700

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Th

ous

and

s

1.3% Per Year

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Job Growth in Healthcare in New Hampshire

0

10

20

30

40

50

60

70

80

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Tho

usan

ds

3.0% Per Year

44

Change in Job Growth Relative to Population Growth (2000-2005)

0.00

0.20

0.40

0.60

0.80

1.00

1.20

2000 2001 2002 2003 2004 2005

All JobsHealthcare

If jobsgrew at thesame rate as population, the lines would overlap at 1.0

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Healthcare and the Economy

• Healthcare is clearly an important contributor to the economic system in New Hampshire.

• This does not ‘eliminate’ the need to bring focused attention to growth in health care• Opportunity Cost (are these really

the jobs we want?)• Question of value still remains

primary

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