Congressional Budget Office

Presentation for The Hastings Center

Rising Health Care Costs and the Federal Budget

May 20, 2008

Excess Cost Growth in Medicare, Medicaid, and All Other Spending on Health Care

Medicare Medicaid All Other Total

1975 to 1990 2.9 2.9 2.4 2.6

1990 to 2005 1.8 1.3 1.4 1.5

1975 to 2005 2.4 2.2 2.0 2.1

Percentage Points

Spending on Health Care as a Percentage of GDP If Excess Cost Growth Continues at Historical Averages

2007 2012 2017 2022 2027 2032 2037 2042 2047 2052 2057 2062 2067 2072 2077 2082

0

10

20

30

40

50

60

70

80

90

100

Medicare

Medicaid

All Other Health Care

Percent

Projected Spending on Health Care as a Percentage of Gross Domestic Product

Percent

2007 2012 2017 2022 2027 2032 2037 2042 2047 2052 2057 2062 2067 2072 2077 2082

0

5

10

15

20

25

30

35

40

45

50

All Other Health Care

Medicaid

Medicare

Federal Spending for Medicare and Medicaid as a Percentage of GDP Under Different Assumptions About Excess Cost Growth

Percent

2007 2012 2017 2022 2027 2032 2037 2042 2047 2052 2057 2062 2067 2072 2077 2082

0

5

10

15

20

25

30

35

40

CBO'sProjection

Excess Cost Growth of:

2.5 Percentage Points

1 Percentage Point

Zero

Federal Spending Under CBO’s AlternativeFiscal Scenario

Percentage of Gross Domestic Product

1962 1972 1982 1992 2002 2012 2022 2032 2042 2052 2062 2072 2082

0

10

20

30

40

Medicare and Medicaid

Actual Projected

Social Security

Other Spending (Excluding debt service)

Sources of Growth in Projected Federal Spending on Medicare and Medicaid

Percentage of GDP

2007 2012 2017 2022 2027 2032 2037 2042 2047 2052 2057 2062 2067 2072 2077 2082

Effect of Excess Cost Growth

Effect of Aging of Population

Interaction of Agingand Excess Cost Growth

20

15

10

5

0

Estimated Contributions of Selected Factors to Long-Term Growth in Real Health Care Spending per Capita, 1940 to 1990

Smith, Heffler, and Freeland (2000)

Cutler (1995)

Newhouse (1992)

Aging of the Population 2% 2% 2%

Changes in Third-Party Payment

10% 13% 10%

Personal Income Growth 11-18% 5% <23%

Prices in the Health Care Sector

11-22% 19%Not

Estimated

Administrative Costs3-10% 13%

Not Estimated

Defensive Medicine and Supplier-Induced Demand 0%

Not Estimated

0%

Technology-Related Changes in Medical Practice 38-62% 49% >65%

Challenge and Opportunity?

High or rising costs for health care might not be considered a “problem” if the benefits were clearly commensurate– Even if they were, have to figure out how to pay for them

But a substantial body of evidence suggests that the U.S. is not getting the most “bang for its buck”

Could the use of health care services (quantity and intensity) be reduced without harming health?– If so, how? What are the options and their effects?

Medicare Spending per Capita in the United States, by Hospital Referral Region, 2003

Source: www.dartmouthatlas.org.

$7,200 to 11,600 (74)6,800 to < 7,200 (45)

6,300 to < 6,800 (55)5,800 to < 6,300 (60)

4,500 to < 5,800 (72)Not Populated

Medicaid Payments per Elderly Enrollee, FY2005

Source: The Urban Institute and Kaiser Commission on Medicaid and the Uninsured

What Additional Services Are Provided in High-Spending Medicare Regions?

Source: Elliot Fisher, Dartmouth Medical School.

The Relationship Between Quality and Medicare Spending, by State, 2004

73

78

83

88

4,000 5,000 6,000 7,000 8,000

Spending (Dollars)

Composite Measure of Quality of Care

Source: Data from AHRQ and CMS.

Variations Among Academic Medical Centers

UCLA Medical Center

Massachusetts General Hospital

Mayo Clinic(St. Mary’s Hospital)

Biologically Targeted Interventions: Acute Inpatient Care

CMS composite quality score 81.5 85.9 90.4

Care Delivery―and Spending―Among Medicare Patients in Last Six Months of Life

Total Medicare spending 50,522 40,181 26,330

Hospital days 19.2 17.7 12.9

Physician visits 52.1 42.2 23.9

Ratio, medical specialist / primary care 2.9 1.0 1.1

Use of Biologically Targeted Interventions and Care-Delivery Methods Among Three of U.S. News and World Report’s “Honor Roll” AMCs

Source: Elliot Fisher, Dartmouth Medical School.

Factoids About End-of-Life Care

More than 80 percent of deaths occur on Medicare 25-30 percent of Medicare’s costs are for decedents

– That share has been stable over time – meaning that end-of-life spending has risen along with other health care costs

One older study examined predicted probabilities survival for ICU patients – Among those who lived, much more was spent on those who

had been expected to die– Among those who died, much more was spent on those who

had been expected to live