Tuesday, February 24, 2009

Here’s a new number for you to memorize from Health Affairs: $2.4 trillion. The one that should scare you? 6.2%

***A DMCB early release***

Mr. Obama will be giving an address Congress tonight and the Disease Management Care Blog will be all ears. It hopes to learn more about the Administration’s coming plans for healthcare reform. The tone surrounding those plans may be gaining urgency thanks to a curiously timed if highly informative release of a Health Affairs web exclusive by actuaries from the Centers for Medicare and Medicaid services.

They’ve rendered up two numbers you may want to listen for tonight or in the coming days: 2.4 trillion and 6.2%. The former may make it into the speech. The latter probably won’t. The former is big and makes the stimulus package pale by comparison. The latter sounds small. Don’t let that fool you, however. 6.2% is really really scary.

The first number is the amount of money that will be spent on health care in 2008. As testimony to the huge size and strength of our economy, we can currently afford to spend that on ourselves every year. Unfortunately, we can’t afford the second number. That’s the rate of spending growth that is projected over the coming years. It contrasts with the 4.1% growth projected for the gross domestic product (GDP – or the sum of all goods and services produced in the course of a year). The mismatch means that year over year, more and more of both our individual income and taxes will be spent on our own and others’ health needs. Right now, that is about 16% of GDP. It could grow to a total of 20% in less than 10 years.

6.2% is known as ‘trend.’ While us mortals think about absolute numbers, actuaries lay awake at night worrying about the rate of growth. Successful insurers recognize that increases in the rate of health care costs are part of the business. Their job is to predict those increases and advise what the health insurance premium should be. The DMCB is no actuary, but it bets the Fed’s actuaries are telling their bosses that this kind of trend is this.

The number 1 and 2 drivers of the cost inflation is ‘medical prices’ and ‘growth in the use of services,’ which accounts for about 2/3 of the growth rate – not the aging of the population. Interestingly, the ‘administrative costs’ of private insurance are projected to continue to decline from over 13% to 12%, making it less likely that insurance company’s ‘profiteering’ can be blamed for our cost woes. And the DMCB doesn’t understand how spreading unsustainable health care costs over the uninsured is going to help either.

Right now, all we know are increased money going to the States for SCHIP/Medicaid and less money for Medicare Advantage. That’s easy. Now comes the hard part - where we see the difference between oratory and reality, bombast and bipartisanship, gimmicky delay versus the day of reckoning.

2/25/08 addendum: The Wall Street Journal points out that the numbers above were calculated without the additional spending in the current stimulus package. Yikes.

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