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|Title||State health care expenditures : experience from 2000|
|Creator||Maryland Health Care Access and Cost Commission.|
|PDI.Title||State health care expenditures : experience from 2000|
Medical care, Cost of--Maryland.
Health care reform--Maryland.
Health Care Costs--Maryland.
Health Services Accessibility--Maryland.
W2 AM3 S75
|Description||Harvested from the web on 10/16/07|
|Publisher||Health Care Access and Cost Commission|
|Relation||Also available online.; http://digitalarchive.oclc.org/request?id%3Doclcnum%3A47921846|
|Format-Extent||1 v. : ill. ; 28 cm.|
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|Full-Text||MEDICARE MEDICAID PRIVATE OTHER GOVERNMENT OUT- OF- POCKET Released January 2002 Donald E. Wilson, M. D., MACP Chairman HEALTH CARE STATE EXPENDITURES 2000 Experience from HEALTH CARE COMMISSION MHCC MARYLAND MARYLAND HEALTH CARE COMMISSION Donald E. Wilson, M. D., MACP, Chairman Vice President for Medical Affairs Dean, School of Medicine University of Maryland Residence: Baltimore County Lenys Alcoreza Vice President of Marketing AMERIGROUP Maryland, Inc. Residence: Howard County George S. Malouf, M. D. Ophthalmologist Residence: Prince George’s County Evelyn T. Beasley Retired Elementary/ Middle School Principal & Associate Broker Residence: Baltimore City J. Dennis Murray President & CEO Bay Mills Construction Co., Inc. Residence: Calvert County Walter E. Chase, Sr. Retired Police Chief of Easton Residence: Talbot County Ernest B. Crofoot AFL/ CIO Residence: Anne Arundel County John A. Picciotto, Esquire Executive Vice President General Counsel & Corporate Secretary CareFirst BlueCross BlueShield Residence: Baltimore County Constance Row Lynn Etheredge Health Policy Research & Consulting Residence: Montgomery County Larry Ginsburg Service Employees International Union Residence: Baltimore County Partner, Row Associates Residence: Harford County Marc E. Zanger President & CEO CBIZ Benefits & Insurance Services of Maryland, Inc. Residence: Allegany County Allan Jensen, M. D. Ophthalmologist Residence: Baltimore City State Health Care Expenditure Accounts ( SHEA) - 2000 Maryland Health Care Commission TABLE OF CONTENTS i. ACKNOWLEDGEMENTS.......................................................................................... ii ii. PREFACE...................................................................................................................... iii iii. EXECUTIVE SUMMARY........................................................................................... v 1. STATE HEALTH CARE EXPENDITURES Health Care Expenditures in 2000................................................................................... 1 Expenditures by Source of Payment ................................................................................ 7 Expenditures by Source of Payment and Type of Service .............................................. 11 Out- of- Pocket Costs and the Uninsured .......................................................................... 14 Comparisons Between HMOs and Other Non- HMO Third Party .................................. 17 Summary........................................................................................................................ . 22 2. PER CAPITA HEALTH CARE EXPENDITURES IN MARYLAND Per Capita Expenditures in 2000 ..................................................................................... 25 Per Capita Direct Spending for Different Population Groups ......................................... 25 Summary........................................................................................................................ . 31 3. REGIONAL ANALYSIS OF MARYLAND’S HEALTH CARE MARKET PLACE Defining the Regions Within Maryland .......................................................................... 33 Regional Variation in Factors that Influence Health Care Utilization............................ 34 Regional Health Care Expenditures ................................................................................ 36 Understanding Regional Health Care Expenditures ........................................................ 38 Summary........................................................................................................................ . 42 Table References ............................................................................................................. 43 APPENDIX SHEA Technical Notes ................................................................................................... 47 Appendix Tables.............................................................................................................. 51 State Health Care Expenditure Accounts ( SHEA) - 2000 Maryland Health Care Commission ii i. ACKNOWLEDGEMENTS This report required the assistance of many individuals and offices in state government, private industry, and federal government. In particular, the Commission wishes to note special contributions from the following individuals and organizations. Patricia Holcomb, Office of Planning, Development, and Finance, Maryland Department of Health and Mental Hygiene ( DHMH) and Babi Lamba, Center for Health Program Development and Management, University of Maryland- Baltimore County, provided Medicaid expenditure and enrollment information and were especially helpful in answering questions. Jim Johnson, Budget Management Office, DHMH, and Dr. Anthony Swetz, Maryland Department of Corrections, supplied information on government spending, while Estelle Apelberg, Vital Statistics, DHMH, provided population statistics. Information on private insurance expenditures was supplied by Calvert Gorman and Robert Stolte, Maryland Insurance Administration. Jake Pyzik, Maryland Department of Budget Management, and Patricia Ball and Amy Weimerskirch of Ingenix, Inc. provided information used to develop private insurance expenditure patterns. As in previous years, Maribel Franey at Centers for Medicare and Medicaid ( CMS) assisted MHCC with the data use agreements that are necessary before Medicare information can be released. Karen Beebe and Russell Hindel, at CMS, conducted special analyses to provide accurate information on Medicare enrollment counts. Leroy McKnight in the federal government’s Office of Personnel Management supplied information on federal employees' insurance coverage. The development of the state health care expenditure analysis would not have been possible without the contributions of our consultants. This project was under the direction of Dr. Dean Farley, Healthcare Software Synergies, Inc. and assisted by Nancy Allen, Chris Brady, Lauralynn Smith, and Sophie Nemirovsky of Social and Scientific Systems; and Dr. Chris Hogan of Direct Research. State Health Care Expenditure Accounts ( SHEA) - 2000 iii Maryland Health Care Commission ii. PREFACE PURPOSE OF REPORT This report was developed to meet the requirement under Health- General Article, § 19- 1502( c)( 7), that directs the Maryland Health Care Commission to annually report on total reimbursement in the state for health care services. A basic mission of the Maryland Health Care Commission ( MHCC) is disseminating information that effectively portrays how the health care market in Maryland currently functions. An essential component in monitoring the performance of the health care system is the level and growth rate of health care spending. This report provides that information and describes the expenditure patterns that occurred in 2000 for the state’s residents and how these patterns differ from 1999. This report was designed to address the information needs of various stakeholders in the health care system. Payers, policymakers, and providers can use the aggregate and per capita health care expenditure analyses to assess the recent trends in the health care system. The provider/ service groups’ shares of total expenditures and growth rates can be compared to determine which are the most influential in shaping how health care resources are utilized and which services are increasing ( or decreasing) in relative significance. Aggregate and per capita information allows purchasers of health insurance to compare their pattern of health care service use to the state and the region in which they operate, and offers payers and policymakers some results with which to assess their policy decisions. ORGANIZATION OF REPORT / ISSUES INVESTIGATED CHAPTER 1: Statewide Health Care Expenditures ? ? Expenditures by service: How much was spent on health care statewide in 2000? How have expenditures changed from 1999 and for which service are expenditures growing most rapidly? What portion of expenditures is spent on physician services, hospital care, and other services? ? ? Expenditures by payer: What portions of expenditures do Medicare, Medicaid, health maintenance organizations and other private insurers pay? How have expenditures by each payer changed from 1999? ? ? Expenditures by delivery system: What differences exist in the level and distribution of expenditures between HMOs and traditional coverage in both the public and private sectors? ? ? Out- of pocket expenditures: How much do patients pay out of their own pockets due to co-payments and deductibles or because they lack insurance coverage for the service? How has this changed from 1999? State Health Care Expenditure Accounts ( SHEA) - 2000 Maryland Health Care Commission iv CHAPTER 2: Per Capita Expenditures in Maryland ? ? Overall: What is the average expenditure per person in 2000 and how has it changed from 1999? ? ? Expenditures for different insured populations: What are the average expenditures per person for insured services in Medicare, Medicaid, and private insurance compared to 1999? How have out-of- pocket payments for the co- payments, coinsurance and deductibles required by private insurance changed? CHAPTER 3: Regional Analysis of Maryland’s Health Care Market Place ? ? Regional variation in factors that influence utilization: How do Maryland’s different regions differ in health care coverage, economic, demographic, and health status measures? ? ? Regional health care spending: Does the proportion of total state spending attributable to each region reflect its share of the population? What other factors affect the share of health care spending in a region? What is the per capita expenditure in each region and how has it changed from 1999? NOTE ? ? This report presents information based on the health care expenditures of Maryland residents, not expenditures associated with Maryland providers. ? ? Technical Notes, at the end of the report, describe the data sources and methods used in the development of these accounts. ? ? All years are calendar years unless otherwise indicated. ? ? Numbers in the text and tables of this report may not add to totals because of rounding. State Health Care Expenditure Accounts ( SHEA) - 2000 v Maryland Health Care Commission iii. EXECUTIVE SUMMARY State Health Care Expenditures: Experience from 2000 examines the level, rate of growth, and the pattern of spending in Maryland’s large and complex health care market. Maryland experienced an 8.4 percent rate of growth in total health care expenditures in 2000, up significantly from the 4.6 percent increase in 1999. The 2000 rate of increase was the fastest since the Maryland Health Care Commission began estimating state health care spending in 1994. 1 The 2000 rate of increase is slightly higher than the 7.4 percent estimated national rate of increase in health care spending from 1999 to 2000 reported by the Centers for Medicare and Medicaid Services ( CMS). 2 Total health care spending for Maryland residents grew in 2000 to $ 19.4 billion, up from $ 17.9 billion in 1999. Average per capita expenditure s across all residents for all services in 2000 was $ 3,670, up 7.4 percent from $ 3,416 in 1999. Some analysts have predicted that the rate of spending would accelerate; the accuracy of these predictions is reflected in the 2000 SHEA for Maryland and in other national studies. 3 Higher rates of growth are expected to continue for several years due to continuing tight health care labor markets, the explosive growth of new medical technologies, and the migration away from tightly managed care. All of these factors contribute to rising health care costs. Health care expenditures for Maryland residents, as a share of personal income, are just under 11 percent. This share has remained nearly constant over the last 3 years, as growth in personal income has kept pace with increases in health care expenditures. 4 The slowing economy coupled with accelerating health care spending will likely lead consumers to spend a greater share of personal income on health care in the next several years. SOURCES OF PAYMENT Total private expenditures, including expenditures by private third party payers and patient out- of- pocket ( OOP) spending, grew at 9.2 percent to over $ 11 billion in 2000. The private sector, including private payers and patient OOP payments, funds the majority of health expenditures in the state ( 56.7 percent) accounting for 69 percent of total spending on physician services and 81 percent of all prescription drug expenditures. The government sector, principally the Medicare ( 21.5 percent) and Medicaid ( 16.4 percent) programs, accounts for 43 percent of spending, but funds 62 percent of inpatient hospital care, 70 percent of nursing home services ( primarily through the Medicaid program), and 58 percent of home health care services. As shown in Figure ES- 1, the growth in spending by private third party payers and patients account for more than 60 percent of the total increase in expenditures for 2000. Maryland’s 2000 private payer increase was slightly higher than the 8.4 percent rate of growth reported by CMS for private insurance for the U. S. Overall, Maryland government health care spending grew by 7.4 percent. 1 Previous state health expenditure reports were issued by the Health Care Access and Cost Commission, which merged with the Maryland Health Resources Planning Commission in October 1999 to form the MHCC. 2 Centers for Medicare and Medicaid Services. National Health Care Expenditures. http:// www. hcfa. gov/ stats/ NHE-oact/ tables/ nhe00. csv ( January 2002). For the growth rates reported here, the NHE expenditures are limited to those included in the SHEA, see Chapter 1, footnote 1. 3 Strunk, Bradley C, Paul B. Ginsburg, and Jon R. Gabel. Tracking health care costs: Hospital care surpasses drugs as the key cost driver. Health Affairs 20( 6). Full text is available as a Web Exclusive at www. health affairs. org, posted in September 2001. 4 Personal income for Maryland residents was $ 167.1 billion in 1999 and $ 178.5 billion in 2000. State Health Care Expenditure Accounts ( SHEA) - 2000 Maryland Health Care Commission vi Higher private sector growth rates in 2000 follow the pattern for 1999 and 1998, when the percent increases in private coverage expenditures exceeded the statewide average. The increases in the private sector were in part due to the strong economy throughout much of 2000, which tightened labor markets and made employers willing to absorb a greater share of health care premiums to retain employees. By late 2000, the economy was weakening, although the upward pressure on health care spending continued. Government spending surged in 2000 after several years of slow growth. Spending in the Medicaid program grew by 9.9 percent, driven by the 7.4 percent growth in enrollment. By comparison, enrollment in private sector plans increased by less than 1 percent. As the economy continues to slow it is possible that the rate of growth in public programs, particularly Medicaid, will keep pace or even exceed the growth rate in the private sector. In 2000, the Medicaid program accounted for about 19 percent of the overall spending increase, significant in that Medicaid accounts for about 16 percent of total expenditures. Figure ES- 1: Sources of Maryland Expenditure Growth By Payer, 1999- 2000 Contribution to Total Spending Growth Percent Change from 1999 43.6% 19.0% 18.1% 11.7% 7.6% 0% 10% 20% 30% 40% 50% Private Insurance Medicaid Out- of- Pocket Medicare Other Govt 9.2% 9.9% 9.3% 4.4% 12.1% 0% 10% 20% 30% 40% 50% Private Insurance Medicaid Out- of- Pocket Medicare Other Govt SHIFTS IN DELIVERY SYSTEMS A FACTOR IN HIGHER GROWTH Non- HMO expenditures increased by nearly 9.8 percent in 2000 with an accompanying 3.2 percent gain in enrollment. In the private sector, non- HMO expenditures jumped 11.1 percent and enrollment increased by 3.1 percent. Large payers with extensive provider networks and offering products that increased consumer choice benefited from the transition away from managed care. Several large private payers that operate in Maryland reported revenue growth above 13 percent in 2000. HMO enrollment continues to decline for all payers, but Medicaid. HMO enrollment declined slightly in the private market, but enrollment and expenditures were down more significantly for seniors under Medicare+ Choice. In the private market, purchaser and consumer demand for HMOs continued to slow. In Medicare, the absence of plans is a major cause for the decline in enrollment. Only two commercial health plans, Kaiser Permanente and Elder Health offered Medicare+ Choice products in Maryland by the start of 2001. These plans serve the urban areas surrounding the Washington DC and Baltimore Metropolitan Areas. Medicare beneficiaries in State Health Care Expenditure Accounts ( SHEA) - 2000 vii Maryland Health Care Commission most rural areas of the state do not have access to a Medicare+ Choice plan. In contrast to shrinking HMO enrollment elsewhere, the Medicaid program experienced 10 percent growth in HealthChoice expenditures and a 6.5 percent increase in enrollment. However, the HealthChoice program faces similar challenges to Medicare+ Choice as commercial HMOs, except for United Health Care, have exited the program. Key findings for the major health care payer categories are summarized as follows: ? ? Medicare expenditures increased by 4.4 percent in 2000 bringing total Medicare expenditures to $ 4.2 billion. In contrast, Medicare increased by 5.6 percent nationally. In Maryland, enrollment in original Medicare grew by 4.6 percent, but Medicare+ Choice enrollment declined by 19.4 percent reflecting for- profit commercial HMOs’ retreat from the Maryland market. Program- wide, the average per capita spending ( including OOP) for a Maryland Medicare beneficiary rose 4.3 percent from $ 7,071 in 1999 to $ 7,371 in 2000. Per capita spending under traditional Medicare rose 3.5 percent versus 5.7 percent for Medicare+ Choice. The Balanced Budget Act ( BBA) of 1997 is the primary reason that the growth in Medicare spending was nearly half of the overall statewide growth rate. The first full year of BBA implementation was 1999 and its effects continued into 2000, although they were somewhat mitigated by the Balanced Budget Refinement Act of 1999. ? ? Medicaid expenditures grew from $ 2.9 billion to $ 3.2 billion in 2000. Medicaid HealthChoice spending increased 6.5 percent. Spending via the traditional program grew even more dramatically at 11.7 percent, despite an enrollment decline of 7.4 percent. Average per capita spending program- wide increased 2.3 percent from $ 6,835 in 1999 to $ 6,994 in 2000. The average per capita expenditure for a HealthChoice enrollee in 2000 was $ 3,311, a reduction of 8.6 percent from 1999 spending levels. Continuing enrollment of relatively healthy children and young women through the Children’s Health Insurance Program ( CHIP) may have contributed to the decline in per capita spending as these patients are relatively healthy compared to the traditional Medicaid population. ? ? Expenditures by private insurers and other third parties increased by 11.1 percent, but spending by private HMOs increased by 5.9 percent. Per capita spending for individuals covered by non- HMO products climbed 14.2 percent to $ 1,996. Per capita spending for HMOs was virtually unchanged from 1999 at approximately $ 1,985. ? ? Patient out- of- pocket ( OOP) spending grew by 9.3 percent. Increased patient cost- sharing driven by purchasers’ desire to hold down their health care costs and increasing numbers of uninsured could push OOP spend ing higher over the next several years. Growing prescription drug expenses could also drive OOP spending higher. Federal action to provide seniors with prescription drug coverage, which once looked promising, now seems further away. OOP spending accounts for 16.5 percent of total spending, a figure that is essentially unchanged from 1999. Patient OOP spending covers 41 percent of other professional services and nearly 35 percent of prescription drugs. By contrast, patients pay only 2 percent of inpatient hospitals costs. State Health Care Expenditure Accounts ( SHEA) - 2000 Maryland Health Care Commission viii LEADING HEALTH CARE EXPENDITURE SECTORS All major health care sectors experienced significant growth in 2000. Hospital outpatient care, which increased by 13.7 percent, was the most rapidly growing component of the SHEA. Prescription drugs, which rose 22.2 percent from 1998 to 1999, showed another double- digit increase of 10.9 percent and other professional services increased by a similar rate. By comparison, inpatient hospital care increased most slowly of all at 4.7 percent. Physician services, nursing home care, and home health care services increases ranged from 6.0 to 8.5 percent. Physician services, hospital outpatient care, and prescription drugs account for about 53 percent of the total expenditure growth ( Figure ES- 2). Use of these services is fueled by an increasing availability of pharmaceutical therapies and explicit efforts on the part of almost all payers to shift the delivery of services into outpatient settings whenever it is clinically appropriate. The relative share of health care dollars spent on inpatient services continues to decline. Hospital inpatient services, although it absorbs 25 percent of spending, accounts for a mere 14.3 percent expenditure growth. 25.0% 14.3% 14.1% 14.1% 12.6% 7.9% 6.4% 5.6% 0% 20% Physician Services Hospital Inpatient Hospital Outpatient Prescription Drugs Other Prof. Services Nursing Home Other Services & Home Health Administration 8.5% 4.7% 13.7% 10.9% 10.9% 9.7% 9.2% 6.0% 0% 20% Physician Services Hospital Inpatient Hospital Outpatient Prescription Drugs Other Prof. Services Nursing Home Other Services & Home Health Administration Figure ES- 2 dramatizes the widespread nature of the increase in spending for 2000. Because increases were widespread, a sector’s contribution to the total increase was consistent with that sector’s share of spending. One quarter of the increase in spending is attributable to physician services, a sector that accounts for roughly one- quarter of all spending. Forty percent of the increase is distributed among hospital services, prescription drugs, and other professional services. Togethe r, these factors account for about 55 percent of all spending. Key findings for leading health care expenditure categories are summarized as follows: ? ? Expenditures for physician services increased by 8.5 percent in 2000 to $ 4.8 billion. Increased service volume and greater resource intensity contributed to an overall growth higher than physician price inflation, which was up 1.6 percent nationwide in 2000 as Figure ES- 2: Health Service Sector Contributions to Growth Contribution to Total Spending Growth Percent Change from 1999 State Health Care Expenditure Accounts ( SHEA) - 2000 ix Maryland Health Care Commission measured by the Producer Price Index ( PPI). 5 Private payers and patient OOP spending account for nearly 70 percent of all payments for physician services. ? ? The hospital inpatient share of services continues to fall and is down from 25.5 percent in 1999. Inpatient hospital services as a share of total health care expenditures have decreased annually since 1995. Inpatient hospital spending was $ 4.7 billion, up 4.7 percent, an increase that made this the slowest growing sector. Medicare is the source of 42 percent of inpatient payments. ? ? The rate of growth in prescription drug expenditures slowed to 10.9 percent, compared to the 22.2 percent increase in 1999. Private payers’ move to three- tier benefit packages that offer broader drug choices but shift more costs to consumers appears to have slowed drug- spending growth for some plans. Patient OOP drug payments increased by 8.6 percent, however patients’ share of drug expenditures has fallen from 58 percent in 1992 to 35 percent in 2000. Many individuals with prescription drug coverage are buffered from the impact of greater prescription drug spending despite recent cost- saving measures. Patients without prescription coverage, however, pay an increasingly greater differential for drugs as the gap between retail prices and discounted prices negotiated by large purchasers widens. ? ? Spending on outpatient hospital services increased 13.7 percent. This increase is fueled by incentives for payers and hospitals to shift services to the outpatient setting whenever it is appropriate. The current Health Services Cost Review Commission ( HSCRC) methodology to regulate prices for hospital outpatient services does not include any incentives or controls to limit increases in utilization. Volume increases fueled some of the rapid increases in spending on hospital outpatient services. ? ? Spending on other professional health care services, including those provided by non-physician health care providers and organizations, such as ambulatory surgery centers, rose dramatically in 2000. Private payers and patient OOP expenditures are responsible for nearly 60.0 percent of spending in this category. OOP payments, including non- covered services and patient co- payments/ deductibles, account for 41 percent of payments reflecting the limited insurance coverage that exists for many services in this category. ? ? Nursing home expenditures grew by 9.7 percent in 2000. Medicaid accounts for over half of the spending for this service and patient OOP payments are the source of over one- quarter of the spending in this category. In Maryland, as throughout the nation, alternative sources of long term care, such as assisted living facilities, have increasingly become major sources of competition to traditional comprehensive care nursing centers. 6 ? ? Spending on home health care increased by 8.6 percent in 2000, after a drop of 3.4 percent in 1999. Medicare spending for this service fell by almost 11 percent in 2000. This decrease was more than offset by rapid growth in Medicaid and private sector spending for this care. 5 The PPI is preferable to the CPI for measuring price changes in health care because it surveys changes in discounted and negotiated prices paid by third parties as opposed to the CPI which measures changes in prices charged to consumers. However, the sample size for the PPI is too small to produce city- specific estimates. 6 Assisted living care is not reimbursed under Medicare, Medicaid, or through private insurance. Expenditures for assisted living services are included in the “ Other services” category of the SHEA. State Health Care Expenditure Accounts ( SHEA) - 2000 Maryland Health Care Commission x REGIONAL HEALTH CARE EXPENDITURES Significant differences exist be tween the proportion of the population living in a region and the proportion of state health care expenditures spent on that population due to the complex interaction of demographics, income, underlying health status, and available health resources. 7 The Baltimore Metropolitan Area represents 47.4 percent of state population, but this region accounts for 51.5 percent of expenditures. Compared to 1999, this region expanded its share of state spending although its share of population declined slightly. Conversely, the National Capital Area constitutes 31.6 percent of the population of the state but contributes just 28.7 percent of health care expenditures – the largest relative gap between population and expenditures shares of any region. The less urbanized portions of the state, including Western Maryland, Southern Maryland, and the Eastern Shore, also account for smaller shares of health care spending than their shares of the state population would suggest. Figure ES- 3: Regional Health Care Spending 31.6% 47.4% 7.5% 5.3% 8.2% 28.7% 51.5% 7.0% 5.0% 7.7% 0% 10% 20% 30% 40% 50% 60% National Capital Baltimore Metro Eastern Shore Southern MD Western MD Population 81.5% Payer- mix 4.4% Prices - Use 13.9% Unexplained 0.2% The pie chart above illustrates the relative influence of several factors that are important in describing the regional portions of statewide health expenditures. The dominant factor is the size of a region’s population, which accounts for more than 80 percent of the variation in regional shares of total spending. The differences in spending shares which remain after accounting for each region’s share of the populace – illustrated in the bar chart and discussed above – are explained by regional differences in health care prices, the service utilization patterns of the residents, and the proportions of the residents covered by the different types of payers. Regional differences in health care prices 7 Regional Breakdown: The National Capital Area consists of Montgomery and Prince George’s counties; Baltimore consists of Anne Arundel, Baltimore, Carroll, Harford, and Howard counties, and Baltimore City; the Eastern Shore is composed of Caroline, Cecil, Dorchester, Kent, Queen Anne’s, Somerset, Talbot, Wicomico, and Worcester counties; Southern Maryland includes Calvert, Charles, and St. Mary’s counties; and Western Maryland includes Allegany, Frederick, Garrett, and Washington counties. Shares of Expenditures and Population Factors Explaining Variation in Regional Shares of Total Spending State Health Care Expenditure Accounts ( SHEA) - 2000 xi Maryland Health Care Commission and service utilization patterns, as reflected in the Average Annual Per Capita Costs ( AAPCC) for Medicare beneficiaries in each region, accounts for about 14 percent of the variation in regional share of total spending, with regional differences in the per capita spending by payers (“ payer mix”) explaining an additional 4 percent of the variation. The Baltimore region’s percentage of state expenditures primarily reflects its high share of the state’s population; its above- expected share of spending results from relatively higher levels of health care utilization coupled with higher prices for care. The region has above- average portions of its residents enrolled in public insurance programs, whose beneficiaries have greater health care needs and use more services than the privately insured. Utilization is also influenced by a concentration of acute health care services that far exceeds what is available in rural regions, and its residents also have higher incomes than their rural counterparts, enabling them – especially those in Medicare – to obtain more care. And the reimbursement rates used by the public payers in the Baltimore region are above the rates paid in rural regions. Conversely, the National Capital Area’s below- expected share of spending reflects characteristics that tend to constrain health care spending: below- average percentages of residents enrolled in public insurance programs coupled with having nearly half of its privately insured in HMOs, which have lower expenditures per enrollee than other forms of private insurance coverage. IMPLICATIONS FOR PURCHASERS AND CONSUMERS The growth rates for health care spending in 2000 confirm that the competitive forces credited with slowing growth in the 1990s have run out of steam. As shown in Figure ES- 4, payers generally have experienced increasing rates of spending growth over the past several years. Although employers have been willing to absorb the higher costs over the last several years, the weakening economy in 2001 may mean that future premium increases will be passed along to enrollees. Recent national estimates show health insurance premiums rose significantly in 2001, up 11.0 percent overall and up 12.5 percent in the small group market. 8 Increases reported for 2002 have been comparable. Federal Employee Health Benefit Program premiums increased by about 13 percent in 2002, while in Maryland, state public employee medical premiums increased about 9 percent and prescription drug premiums grew by 17 percent. These premium increases will inevitably reduce employers’ willingness to underwrite health insurance premiums and negatively impact the affordability of insurance for employees. These increases also affect the insurance products that are available, resulting in more narrow benefit packages and increased cost- sharing for employees and consumers. 8 John Gabel, Larry Levitt, Jeremy Pickreign, et al, “ Job- Based Health Insurance in 2001: Inflation Hits Double Digits, Managed Care Retreats, Tracking Health Care Costs: Inflation Is Back”, Health Affairs, Vol. 20, No. 5 ( November/ December 2001): p 181. State Health Care Expenditure Accounts ( SHEA) - 2000 Maryland Health Care Commission xii FIGURE ES- 4: RATES OF INCREASE IN HEALTH CARE SPENDING FOR MARYLAND AND THE UNITED STATES, BY SECTOR, 1995- 2000 - 2% 0% 2% 4% 6% 8% 10% 1995 1996 1997 1998 1999 2000 US Total MD Total US Private MD Private US Public MD Public In the public sector, expenditures are surging at a time of shrinking revenues, diminishing the opportunities for coverage expansions and adding strains to state budgets. Medicaid expenditures in 2000 grew more rapidly than they did for any other payer, as did Medicaid enrollment, demonstrating that public expansions can continue to reach relatively vulnerable populations, thereby reducing the number of uninsured. State Health Care Expenditure Accounts ( SHEA) - 2000 1 Maryland Health Care Commission 1. STATE HEALTH CARE EXPENDITURES This chapter discusses the fundamental issues addressed by the Maryland State Health Expenditure Accounts ( SHEA), that is, what are statewide expenditures by Maryland residents on health care and how have those expenditures changed from 1999? The chapter also examines how those expenditures are distributed by type of service and source of payment. 1 The five major categories used to describe source of payment are: ? ? Medicare ( subdivided into Original Medicare and Medicare managed care, which is now known as Medicare+ Choice) ? ? Medicaid ( subdivided into Traditional Medicaid and Medicaid managed care, which is known as HealthChoice) ? ? Other Government ( non- Medicare and non- Medicaid) sources, which include state and local governments ? ? Private Coverage ( subdivided into Private Insurance, including indemnity- type arrangements and self- insured groups, and Private HMOs [ health maintenance organizations]) ? ? Out- of- Pocket ( OOP) spending by individual Maryland residents Health care expenditures in Maryland rose by 8.4 percent in 2000, increasing to $ 19.4 billion from $ 17.9 billion in 1999 ( Table 1- 1). 2 This rate of increase is substantially higher than the 4.6 percent growth rate reported in the SHEA last year3 and slightly more than the 7.4 percent increase from 1999 to 2000 in health care spending nationally forecasted by the Centers for Medicare and Medicaid Services. 4 Several factors contribute to these rapid increases in health care expenditures in Maryland and the nation. These include: ? ? A strong economy and tight labor markets, which increase the cost of producing health care services and encouraged employers to maintain or even expand health care benefits; 1 SHEA payer source categories are generally constructed to be consistent with the National Health Expenditures ( NHE) Report with two exceptions: the SHEA excludes private or federal “ Other” payers and it defines Medicaid spending as the sum of federal, state, and local government payments for fully covered Medicaid enrollees. Service categories are also comparable to those used in the NHE Report except that the “ Other Professional Services” category in the SHEA includes dental services and the “ Other Services” category in the SHEA includes vision products and other medical durables. NHE service categories omitted from the SHEA include: ( 1) ( entire categories) other personal health care, government public health activities, research, and construction; ( 2) nonprescription drugs and medical sundries ( NHE combines these products with prescription drugs to make a medical nondurables service category). 2 The 1999 SHEA estimated that health care spending in Maryland was $ 19 billion in 1999. Technical improvements made this year reduce the 1999 estimate to $ 17.9 billion. Two factors account for the difference between this figure and the spending level estimated for 1999 in the 2000 SHEA. One involves routine and relatively modest methodological changes. Each year, the Maryland Health Care Commission ( MHCC) attempts to enhance the basic methodology used to develop SHEA estimates. Appropriately, these enhancements are applied to both the current and prior years to ensure accurate representation of year- to- year differences. ( The specific enhancements introduced into the 2000 SHEA are discussed later in this report.) However, MHCC also implemented a substantial methodological change this year involving estimated expenditures for individuals with private coverage from insurers and self- funded health plans. While the impact of this change is substantial, it results in a more accurate measure of spending by these individuals. 3 State of Maryland, Maryland Health Care Commission. State Health Care Expenditures: Experience from 1999. January 2001. 4 Centers for Medicare and Medicaid Services. National Health Expenditure ( NHE) Accounts by Type of Service and Source of Funds: Calendar Years 1960– 2000. http:// www. hcfa. gov/ stats/ NHE- oact/ tables/ nhe00. csv ( January 2002). The NHE data used to calculate this growth rate were limited to the types of spending reflected in the SHEA, as described in footnote 1. State Health Care Expenditure Accounts ( SHEA) - 2000 Maryland Health Care Commission 2 ? ? The proliferation of new medical technologies, which are often associated with higher costs and more clinical effectiveness; and ? ? Declining enrollment in health plans and insurance arrangements that attempt to reduce costs by aggressively managing care in favor of plans that place fewer restrictions on providers and enrollees. Last year, it was expected that the rate of increase in health care expenditures would grow, both nationally and in Maryland. 5 The accuracy of that prediction is reflected in the 2000 SHEA for Maryland and in other national studies as they relate to the rest of the United States. 6 These new, higher rates of growth are expected to continue for several years. Table 1- 1: Maryland State Health Care Expenditure Accounts: Total Maryland Expenditures ($ 000s) and Rate of Growth by Service Type, 1999– 2000 GOVERNMENT SECTOR PRIVATE SECTOR EXPENDITURE COMPONENTS Medicare Medicaid Other Gov’t Private Coverage Out- of- Pocket TOTAL 2000 EXPENDITURES TOTAL 1999 EXPENDITURES PERCENT CHANGE 1999– 2000 Total Health Expenditures $ 4,171,729 $ 3,188,138 $ 1,062,035 $ 7,805,361 $ 3,208,406 $ 19,435,669 $ 17,931,054 8.4% Hospital Services Inpatient 2,007,167 712,446 234,151 1,726,485 102,365 4,782,614 4,567,756 4.7 Outpatient 486,735 221,112 49,116 876,131 127,462 1,760,557 1,548,649 13.7 Physician Services 920,800 453,676 124,561 2,680,485 619,020 4,798,542 4,422,703 8.5 Other Professional Services 113,495 301,595 372,078 356,230 795,428 1,938,826 1,748,922 10.9 Prescription Drugs 15,363 303,693 97,120 1,001,634 750,725 2,168,536 1,956,255 10.9 Nursing Home Care 215,785 690,916 29,426 19,651 384,573 1,340,351 1,222,048 9.7 Home Health Care 110,281 301,221 4,061 83,522 213,608 712,693 656,278 8.6 Other Services 119,629 23,974 27,164 46,440 215,225 432,432 392,300 10.2 Admin. & Net Cost of Insurance 182,474 179,504 124,359 1,014,782 ----- 1,501,118 1,416,143 6.0 The 8.4 percent rate of growth in overall statewide spending is the result of relatively rapid increases in spending across all types of health care services. Hospital outpatient services display the largest rates of increase at 13.7 percent. Physician expenditures, which at $ 4.8 billion is now the largest single component of the SHEA, increased 8.5 percent from 1999 to 2000. This is the 5 Smith, S., Heffler, S., Freeland, M., and others. The next decade of health spending: A new outlook. Health Affairs 18( 4), pp. 86– 95. 6 Strunk, Bradley C, Paul B. Ginsburg, and Jon R. Gabel. Tracking health care costs: Hospital care surpasses drugs as the key cost driver. Health Affairs 20( 6). Full text is available as a Web Exclusive at www. health affairs. org, posted in September 2001. Note: Whenever possible, estimates presented in this table are based upon data obtained directly from Maryland sources. However, the distribution of expenditures by type of service for Medicare+ Choice and for OOP spending are based on national data sources. The distribution of Medicaid HealthChoice spending by type of service relies on the distribution of private HMO spending. Such estimates, which reflect reasonable approximations, should be interpreted with some caution. State Health Care Expenditure Accounts ( SHEA) - 2000 3 Maryland Health Care Commission lowest growth rate of any service category in the SHEA except for inpatient hospital care. In fact, the overall growth rate would have been even larger if inpatient hospital spending had not increased at a relatively modest rate of 4.7 percent. Yet, even this growth rate was much higher than last year, when an increase of 2.4 percent in inpatient hospital expenditures was reported. Figure 1- 1: Contributions of Specific Services to Statewide Growth Rate, 1999- 2000 The best way to understand what factors contribute to increases in statewide spending is to examine the relative contribution of different types of services to the overall growth in statewide health spending ( Figure 1- 1). Hospital care, inpatient and outpatient combined, is the largest single source of the increase in health care spending, accounting for more than 28 percent of the overall growth statewide . Inpatient hospital services, which represents 24.6 percent ( Figure 1- 2) of all spending in Maryland, contributed 14.3 percent ( Figure 1- 1) of the increase while outpatient hospital services, which accounts for only 9.1 percent of overall spending, was responsible for 14.1 percent of the overall increase. Taken together, these estimates illustrate a continuing pattern in Maryland and in the rest of the country: fewer hospital admissions and greater use of hospital outpatient facilities. This trend is fueled by hospitals’ efforts to establish clinical practices as part of their own facilities and by payers’ efforts to shift the delivery of services into outpatient settings whenever it is clinically appropriate. Other types of services also made substantial contributions to the overall growth rate in 2000. Physicians, who account for one- quarter of the overall increase, are second only to hospitals as a source of increased spending, followed by prescription drugs ( 14.1 percent) and other professional services ( 12.6 percent). Even administrative costs were up substantially in 2000, representing 5.6 percent of the overall increase. However, it should be noted that this rate of increase suggests some Note: " Other" includes Home Health Care and Other Services. The statewide growth rate was 8.4 percent from 1999 to 2000. Inpatient Hospital 14.3% Outpatient Hospital 14.1% Physician Services 25.0% Prescription Drugs 14.1% Nursing Home 7.9% Other Professional 12.6% Administration 5.6% Other 6.4% State Health Care Expenditure Accounts ( SHEA) - 2000 Maryland Health Care Commission 4 ABOUT MARYLAND’S HEALTH CARE EXPENDITURE ACCOUNTS Data to support these accounts were gathered from many sources, including annual financial reports submitted by payers to the Maryland Insurance Administrator ( MIA). Additional information was obtained from the Centers for Medicare and Medicaid Services ( CMS) and Maryland’s Medicaid Program, administered by the Department of Health and Mental Hygiene ( DHMH). Data used to develop the account of other government expenditures were obtained and analyzed from Maryland’s Department of Corrections, DHMH state and local program budget documents, DHMH state hospital budget documents, U. S. Department of Veterans Affairs, and the Civilian Health and Medical Program of the Uniformed Services ( CHAMPUS). Additionally, data from two state- funded programs, the Pharmacy Assistance Program and the AIDS Insurance Assistance Program, were included in this payer category. To the extent possible, MHCC collected expenditure data for health services that were rendered in calendar year 2000. Private indemnity insurers and HMOs report expenditures by date of incurred services to the MIA for each calendar year. Some secondary data from payers were only available in forms that did not conform to the 2000 service period. Data on state and county health department health expenditures, including Medicaid, are organized by the date payment was made to the provider and are summarized by state fiscal year ( July 1 to June 30). For those expenditures, the average of state fiscal years 2000 and 2001 ( which includes the last 6 months of calendar year 2000) was used to estimate calendar year 2000 expenditures. Because these data reflect when payment was made, a small portion of the expenditures reported here for 2000 actually occurred in late 1999. This is balanced somewhat by the fact that some services delivered in late 2000 were not captured because payment was not actually made until 2001. OOP expenditures are made by insured individuals to pay for co- insurance and deductibles on services and by individuals and philanthropic organizations to pay for noncovered goods and services. Noncovered services include not only those services consumed by individuals without insurance coverage, but also services not covered under health plans of insured individuals. OOP spending does not include spending for premiums that fund health insurance. National OOP expenditure information and its relation to total personal health expenditures were used to estimate Maryland’s total OOP spending for 2000. Enrollment information was gathered for each source of insurance coverage and delivery system to facilitate analysis of spending trends. These data also were used as the basis for determining the denominators for per capita expenditures reported in chapter 2. It is important to note that 45,216 Medicaid enrollees are estimated to also be enrolled in the Medicare Program in 2000. This group receives services from both programs, but they are counted as Medicare enrollees. In addition, an attempt has been made to net their Medicaid spending of the Medicaid totals reported here whenever comparisons are made between spending by Medicare and Medicaid beneficiaries. The total enrollments shown in tables and represented in graphs in this chapter represent the total for the three major sources of insurance coverage. Coverage by CHAMPUS or enrollments in single benefit programs, such as dental insurance, are not included in total enrollment. Because the development of a state system for reporting health expenditures is an ongoing process, the MHCC continues to refine its methodologies for estimating state health expenditures. At the same time, year- to- year consistency in method and format is required in order to identify trends. To make 1999 to 2000 comparisons with confidence that trends are due to changes in health care delivery and financing, rather than changes in methodology, MHCC has adjusted the 1999 health expenditure accounts using improvements developed for 2000. Where it is not possible to develop 1999 data consistent with 2000 methodologies, no attempt is made to compare the two years. State Health Care Expenditure Accounts ( SHEA) - 2000 5 Maryland Health Care Commission degree of administrative savings, since costs increased more slowly than overall state health care expenditures. Such savings were expected, given recent consolidation among health plans and insurers in Maryland. Possible explanations for these increases vary from one service to another. For example, the methodology used by the Health Services Cost Review Commission ( HSCRC) to regulate prices for hospital outpatient services in Maryland does not include any incentives or controls to limit increases in utilization. As a result, Maryland has experienced rapid increases in spending on hospital outpatient services, fueled primarily by volume increases. One source of increased volume has been the development of new technologies that enable hospitals to shift services out of inpatient settings into outpatient departments. Another has been a pattern of hospitals acquiring physician practices in an effort to develop integrated delivery systems and to stabilize the flow of patients into the facility. The situation with prescription drugs is quite different. While spending on prescription drugs was up significantly in 2000 and these increases account for 14.1 percent of overall statewide growth, the rate of increase in prescription drug spending is smaller this year than last. To some extent, the slowing in the rate of growth may reflect a more rigorous use of formularies by various insurers and health plans, increased use of generic equivalents in place of brand name drugs, higher copayments in drug benefits, and other actions that providers and payers have taken in response to the rising cost of pharmaceuticals. Such actions are embodied in the proliferation of triple- option prescription drug benefits under which beneficiaries pay incrementally higher copayments for ( 1) generic drugs, ( 2) brand name drugs included on a formulary, and ( 3) brand name drugs that are not on a formulary. The 2000 SHEA incorporates the following changes: ? ? Medicare Outpatient Hospital indemnity expenditures are estimated from national proportions due to the unavailability of the 2000 outpatient claims data from the CMS. ? ? Medicare+ Choice expenditures were determined by averaging selected monthly estimates derived from CMS Medicare+ Choice expenditure and enrollment data. Slightly different monthly reports were available in 1999 than 2000. ? ? Expenditure estimates for the Insurers and Self- Funded plans were refined to include more precise estimates of self- insured business and Federal Employee Health Benefit Plan contributions. These refinements were incorporated into both the 1999 Revised SHEA ( Appendix Table 1B) and 2000 SHEA ( Table 1- 1 and Appendix Table 1A). State Health Care Expenditure Accounts ( SHEA) - 2000 Maryland Health Care Commission 6 Figure 1- 2 compares the statewide distribution of health spending across service categories in 1999 ( SHEA 99) and 2000 ( SHEA 00). It also compares the statewide distribution of health spending in 2000 with the national distribution reported in the estimated 2000 NHE Accounts ( NHE 00). 8 Figure 1- 2 suggests that the overall distribution of health care spending in the state did not change dramatically from 1999 to 2000, and that Maryland’s overall distribution of health care dollars by service category is quite similar to national figures. Generally speaking, Maryland devotes a smaller proportion of all expenditures to inpatient hospital and nursing home services than the nation. On the other hand, Maryland residents appear to spend a slightly greater proportion of their dollars on physician and other professional services. Most of these differences are small enough that they may not be consequential, given differences in the way the SHEA and the national health accounts are constructed. Figure 1- 2: Where Did Maryland’s Health Dollar Go in 1999 and 2000? Note: SHEA 99 incorporates all revisions included in SHEA 00. NHE 00 is taken from source data cited in footnote 8. This year’s 8.4 percent growth in total expenditures is the result of changes in several factors. About one- third of the overall growth is due to general medical inflation. From 1999 to 2000, the Consumer Price Index for medical care was 2.6 percent in the Baltimore/ Washington DC Metropolitan Statistical Area ( MSA), compared to 3.9 percent nationally. 9 Another 0.9 percent is 8 Centers for Medicare and Medicaid Services. National Health Expenditure ( NHE) Accounts by Type of Service and Source of Funds: Calendar Years 1960– 2000. http:// www. hcfa. gov/ stats/ NHE- oact/ tables/ nhe00. csv ( January 2002). Service category distributions are calculated using the national categories that correlate to the SHEA, as noted in footnote 1. 9 Based on the Consumer Price Index for all urban consumers ( CPI- U) as compiled by the Bureau of Labor Statistics ( BLS). BLS provides a convenient reporting mechanism for the CPI- U and its components at http:// www. bls. gov/ cpi/. The Producer Price Index ( PPI) offers an alternative measure of medical care inflation, but this index is only available nationally. For reference purposes, the PPI increased 2.6 percent from 1999 to 2000 across the nation. 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% SHEA 00 24.6% 9.1% 24.7% 10.0% 11.2% 6.9% 3.7% 2.2% 7.7% SHEA 99 25.5% 8.6% 24.7% 9.8% 10.9% 6.8% 3.7% 2.2% 7.9% NHE 00 25.7% 8.9% 24.2% 9.0% 11.7% 8.4% 3.0% 1.7% 7.3% Inpatient Outpatient Physician Services Other Professional Services Prescription Drugs Nursing Home Care Home Health Care Other Services Admin. & Net Cost of Insurance State Health Care Expenditure Accounts ( SHEA) - 2000 7 Maryland Health Care Commission attributable to population growth. The remaining increase ( 4.9 percent) is due to a variety of factors that most likely include increased enrollment in government programs, increases in the demand for services associated with an aging population, and less aggressive use of managed care techniques. Rising discretionary spending, driven by growing personal income in a strong economy, may also contribute to expenditure growth. EXPENDITURES BY SOURCE OF PAYMENT This section describes the distribution of total expenditures by source of payment, looking at total dollar amounts and percentages of the total health care expenditures, as well as the distribution of payer expenditures among the various services. It focuses specifically on the portion of expenditures paid by Medicare, Medicaid, and private health plans. This section also describes how expenditure patterns have changed from 1999 and how expenditures vary by type of service and source of coverage. The private sector accounts for the majority of health care spending in Maryland, and this proportion actually increased from 1999 to 2000 ( Figure 1- 3). Private coverage accounts for 40.2 percent of statewide expenditures in 2000, up only slightly from 39.9 percent in 1999. Out- of-pocket spending, which accounts for the balance of the private sector, represents 16.5 percent of total spending, which is also up slightly from 1999. Overall the private sector represents 56.7 percent of health expenditures in Maryland in 2000, compared to 56.3 percent in 1999. Medicare— the largest government payer— funded 21.5 percent of all expenditures in 2000, while Medicaid paid for 16.4 percent of expenditures. The Medicare figure is down from 1999, when Medicare accounted for 22.3 percent of spending. In contrast, the share of spending attributable to Medicaid in 2000 was up slightly from 16.2 percent in 1999. Figure 1- 3: Where Did the Maryland Health Dollar Come from in 2000 ( 1999)? Note: Overall statewide spending increased $ 1,504,615,000 or 8.4 percent in 2000. Out- of- Pocket 16.5% ( 16.4%) Private 40.2% ( 39.9%) Other Government 5.5% ( 5.3%) Medicaid 16.4% ( 16.2%) Medicare 21.5% ( 22.3%) State Health Care Expenditure Accounts ( SHEA) - 2000 Maryland Health Care Commission 8 Much of the growth in statewide spending ( 43.6 percent) is the result of spending by private insurers, self- funded plans, and private HMOs, as illustrated in Figure 1- 4. The leading role played by private third parties clearly reflects the strong economy in 2000, which tends to increase the number of people with privately sponsored coverage and makes it possible for employers to offer more generous benefit packages. 10 The Medicaid program, which accounts for 19 percent of the growth in statewide spending, is the second most important factor in explaining the growth in Maryland expenditures. Medicaid is followed closely by OOP spending, which represents 18.1 percent of this growth. Because private insurance typically involves deductibles and co- payments, it should not be surprising to find that increases in payments by private third parties correlate with increases in payment by the individuals whom they cover. Figure 1- 4: Composition of Statewide Growth by Source of Payment, 1999- 2000, As a group, public payers experienced a lower rate of growth in health expenditures in 2000 than private payers, as reported in Table 1- 2. Aggregate government expenditures increased 7.4 percent, while private expenditures increased 9.2 percent. These growth rates continue the pattern from last year, in which the growth rate for expenditures with private coverage exceeded the statewide average and the growth of public spending. However, the growth in spending within the public sector varies considerably by program. The growth rate associated with Medicare spending, at 4.4 percent, is especially modest and reflects many of the recent legislative and regulatory actions 10 From 1999 to 2000, personal income climbed from $ 167.1 billion to $ 178.5 billion, an increase of 6.7 percent. Bureau of Economic Analysis, U. S. Department of Commerce, Regional Accounts Data, available at Web site: http:// www. bea. doc. gov/ bea/ regional/ spi/ pcpi. htm., December 2001. Medicare 11.7% Medicaid 19.0% Private Insurance 43.6% Out- of- Pocket 18.1% Other Government 7.6% Note: Overall statewide spending increased $ 1,504,615,000 or 8.4 percent in 2000. State Health Care Expenditure Accounts ( SHEA) - 2000 9 Maryland Health Care Commission that have affected that program. 11 In contrast, expenditures associated with the Maryland Medicaid program grew 9.9 percent, significantly more than private payers, and other government spending rose 12.1 percent, more than any other pay source identified in the SHEA. Table 1- 2: Maryland’s Health Expenditures ($ 000s): Government and Private Sector, 1999– 2000 GOVERNMENT SECTOR PRIVATE SECTOR Medicare Medicaid Other Gov’t Total Gov’t Private Coverage Out- of- Pocket Total Private TOTAL 1999 $ 3,995,824 $ 2,901,556 $ 947,756 $ 7,845,135 $ 7,149,245 $ 2,936,674 $ 10,085,918 $ 17,931,054 2000 4,171,729 3,188,138 1,062,035 8,421,903 7,805,361 3,208,406 11,013,767 19,435,669 % Change 1999– 2000 4.4% 9.9% 12.1% 7.4% 9.2% 9.3% 9.2% 8.4% Private sector spending in Maryland continued to expand in 2000, in both absolute terms and in relation to public health care program spending. As shown in Table 1- 3, the growth in spending by private third parties increased rapidly from 1999 to 2000, substantially exceeding the rise in spending by Medicare. The relative increase in private spending in Maryland is consistent with the national trend in which the private- payer growth rate exceeded the rate of increase overall, and the private sector share of total spending grew from about 57 percent in 1999 to 58 percent in 2000. Medicaid spending increased at roughly the same rate as that of the private sector, in both Maryland and the U. S, respectively. These estimates are consistent with the notion that a strong economy and low unemployment, both nationally and in Maryland, contribute to expanding private coverage. The healthy economy also produced higher tax revenues, which funded an expansion of the Medicaid program in 2000 and contributed to the growth in Medicaid spending. With the economic recession and increased unemployment in 2001, it is likely that the rate of increase in private health care spending will moderate. However, increased unemployment will exert an upward pressure on Medicaid spending. 12 Table 1- 3: Estimated Rates of Change in Spending, by Source of Payment, in Maryland and the United States, 1999– 2000 GOVERNMENT SECTOR PRIVATE SECTOR TOTAL Medicare Medicaid Private Coverage All Sources of Payment Maryland 4.4% 9.9% 9.2% 8.4% United States 5.6 8.8 8.4 7.4 11 The Balanced Budget Act of 1997 ( BBA) was designed, among other things, to limit expenditures under federally financed health care programs such as Medicare and Medicaid. The first full year of BBA implementation was 1999 and its effects continued into 2000, although they were somewhat mitigated by the Balanced Budget Refinement Act of 1999. The BBA is arguably the primary reason that the growth in Medicare spending was nearly half of the overall statewide growth rate. 12 The dynamics of the individual markets is another factor that affects the growth rates shown in Table 1- 3. As discussed later in this chapter, for example, 2000 was marked by important changes in the extent of HMO coverage among the three major payer groups ( Medicare, Medicaid, private coverage). The movement of enrollees between HMO and non- HMO forms of coverage, and the reasons that such movements take place, help to explain the differential rates of growth shown in Table 1- 3. Note: National growth rates are for the National Health Expenditure Accounts, see footnote 4. State Health Care Expenditure Accounts ( SHEA) - 2000 Maryland Health Care Commission 10 The number of people with Medicare or private coverage increased modestly from 1999 to 2000, while Medicaid enrollment grew substantially during the same period. As illustrated in Figure 1- 5, Medicare beneficiaries and the number of individuals with private coverage grew approximately 1 percent in 2000. In contrast, the Medicaid population grew 7.4 percent according to data provided by the Maryland DHMH, which administers the state Medicaid program. However, changes in enrollment do not necessarily correlate with changes in spending. Private insurance had a large increase in expenditures ( 9.2 percent), despite its relatively small increase in enrollment. Medicare spending increased only 4.4 percent even though its increase in enrollment is similar to that of private insurance. Medicaid spending rose 9.9 percent, which is a relatively slow rate given its 7.4 percent increase in enrollment. Differences between the rates of growth in enrollment and spending are due to a number of factors, including changes in the nature of the benefits offered by different payers and the extent to which payers rely on managed care or HMO- type arrangements to deliver services. Figure 1- 5: Percent Change in Total Enrollment and Expenditures by Source of Coverage: 1999– 2000 1.1% 7.4% 0.9% 1.5% 4.4% 9.9% 9.2% 8.0% 0.02 0.04 0.06 0.08 0.1 0.12 0.14 0.16 Medicare Medicaid Private Total Insured Enrollment Expenditures State Health Care Expenditure Accounts ( SHEA) - 2000 11 Maryland Health Care Commission EXPENDITURES BY SOURCE OF PAYMENT AND TYPE OF SERVICE This section describes the distribution of expenditures for various services by source of payment. It illustrates how expenditure distributions relate to differences in the populations covered by specific payers and to differences in benefit packages. Government programs spend proportionately more on inpatient hospital and long- term care ( nursing home and home health services), while private plans spend proportionately more on physician services and prescription drugs ( Table 1- 4). While the distribution of dollars spent on various service categories varies widely by payer, these variations reflect differences across payers in the structure of their benefit packages and in the health care needs of the population that they serve. For example, as the only payer in either the government or private sector that offers more than post- acute coverage for nursing home services, Medicaid spends a much larger share of its dollars on long- term care services than any other payer. A substantial portion ( 21.7 percent) of all Medicaid expenditures are for nursing home care, while private third parties spend less than 1 percent of their dollars on nursing home care. Similarly, many private- sector plans offer prescription drug coverage, whereas the original Medicare ( non- HMO) benefit package has no prescription drug benefits. For this reason, 12.8 percent of spending under private coverage is on prescription drugs. Government programs spend considerably less on prescriptions ( 0.4 percent overall for Medicare and 9.5 percent for Medicaid). 13 Table 1- 4: Distribution of Maryland Health Expenditures by Source of Payment, 2000 Expenditure Components Medicare Medicaid Other Gov’t Private Coverage Total Total Expenditures ($$) $ 4,171,729 $ 3,188,138 $ 1,062,035 $ 7,805,361 $ 19,435,669 Hospital Services Inpatient 48.1 22.3 22.0 22.1 24.6 Outpatient 11.7 6.9 4.6 11.2 9.1 Physician Services 22.1 14.2 11.7 34.3 24.7 Other Professional Services 2.7 9.5 35.0 4.6 10.0 Prescription Drugs 0.4 9.5 9.1 12.8 11.2 Nursing Home Care 5.2 21.7 2.8 0.3 6.9 Home Health Care 2.6 9.4 0.4 1.1 3.7 Other Services 2.9 0.8 2.6 0.6 2.2 Admin. & Net Cost of Insurance 4.4 5.6 11.7 13.0 7.7 Total All Services 100.0% 100.0% 100.0% 100.0% 100.0% 13 The lower percentage of Medicaid expenditures on prescription drugs is partly due to the diluting effect of the higher percentages of Medicaid expenditures for nursing home and home health care. Note: The total column includes out- of- pocket expenditures that are not shown separately. State Health Care Expenditure Accounts ( SHEA) - 2000 Maryland Health Care Commission 12 One factor that complicates the construction and interpretation of private expenditure data in the SHEA for both HMOs and non- HMOs is the practice of “ carving out” specific services, such as mental health and prescription drugs. The SHEA estimates of private expenditures are based on submissions to the MIA by private insurance companies and by HMOs. To the extent that employers or other groups purchase specialty services directly from providers, the expend itures reported in the SHEA could understate actual spending, because such dollars would not flow through insurance arrangements within the jurisdiction of the MIA. A similar problem involves large groups that choose to self- insure for specific services while providing insurance or health plan coverage for the remainder of their health benefits program. Table 1- 5 shows how total expenditures and expenditures on services are distributed across payers. Comparing the proportion of total expenditures in the state that are covered by a particular payer to that same payer’s proportion for a particular service indicates specific services where a payer’s spending is out of proportion to its overall share of expenditures. Benefit package design and characteristics of the covered population both influence the proportions of spending, as discussed below. Table 1- 5: Government and Private Expenditures as a Percent of Total Service Category Expenditures, 2000 EXPENDITURE GOVERNMENT SECTOR PRIVATE SECTOR COMPONENTS Medicare Medicaid Other Gov’t Total Gov’t Private Coverage Out- of- Pocket Total Private TOTAL Total Health Expenditures 21.5% 16.4% 5.5% 43.3% 40.2% 16.5% 56.7% 100.0% Hospital Services Inpatient 42.0 14.9 4.9 61.8 36.1 2.1 38.2 100.0 Outpatient 27.6 12.6 2.8 43.0 49.8 7.2 57.0 100.0 Physician Services 19.2 9.5 2.6 31.2 55.9 12.9 68.8 100.0 Other Professional Services 5.9 15.6 19.2 40.6 18.4 41.0 59.4 100.0 Prescription Drugs 0.7 14.0 4.5 19.2 46.2 34.6 80.8 100.0 Nursing Home Care 16.1 51.5 2.2 69.8 1.5 28.7 30.2 100.0 Home Health Care 15.5 42.3 0.6 58.3 11.7 30.0 41.7 100.0 Other Services 27.7 5.5 6.3 39.5 10.7 49.8 60.5 100.0 Admin. & Net Cost of Insurance 12.2 12.0 8.3 32.4 67.6 ----- 67.6 100.0 The government sector funds only 43.3 percent of all expenditures in the state ( Table 1- 5). However, it pays the majority of expenditures for hospital inpatient care ( 61.8 percent), nursing home care ( 69.8 percent), and home health care ( 58.3 percent). The public share of inpatient expenditures is driven largely by the Medicare population, which tends to use proportionately more hospital care Note: Out- of- pocket expenditures ( OOP) in Maryland are calculated on a service- specific basis by applying es timates of OOP as a percent of total spending by service to estimates of spending by all other sources. The NHE projections for 2000 were used to estimate OOP as a percent of total spending, with the NHE limited to SHEA payer and service categories. State Health Care Expenditure Accounts ( SHEA) - 2000 13 Maryland Health Care Commission than younger populations. In particular, while Medicare funds just over one- fifth of all state health expenditures ( 21.5 percent), it pays for 42.0 percent of all inpatient services. Similarly, although Medicaid represents only 16.4 percent of total Maryland expenditures, it pays for more than half of all nursing home care and a large portion of home health expenditures in the state ( 51.5 percent and 42.3 percent, respectively). Medicaid pays proportionately less than its total share of expenditures for hospital outpatient, physician, other professional services, and prescription drugs. The private sector funds the majority of health exp enditures in the state ( 56.7 percent). It accounts for almost 70 percent of all spending on physician services ( 68.8 percent) and 80.8 percent of all prescription drug expenditures. Within the private sector, private coverage specifically pays for 40.2 percent of all state health expenditures, but it accounts for half ( 49.8 percent) of all hospital outpatient spending, 55.9 percent of all physician services, and 46.2 percent of the expenditures on prescription drugs. Table 1- 5 also illustrates the fact that private coverage tends to be more costly to administer than public programs. While private coverage represents 40.2 percent of all covered expenditures, it accounts for more than two- thirds ( 67.6 percent) of all expenses associated with administration and the net costs of insurance. Table 1- 5 also shows that OOP expenditures represent 16.5 percent of all spending in Maryland and that the OOP rate varies widely across services. 14 OOP expenditures represent funds spent by residents for co- payments, for coinsurance and deductibles, and for services that are not covered by a health plan. This category also contains expenditures by the uninsured. Such expenditures exist for two reasons. One is the desire on the part of health plans and insurers to create financial incentives for their enrollees that encourage them to use health care services in an appropriate and efficient manner. The other reason involves gaps in insurance coverage, that is, some individuals have no insurance whatsoever while others ha ve policies that contain specific exclusions or limitations on the extent of coverage. 15 The pattern of OOP spending in Table 1- 5 reflects variations in insurance coverage that exist in both Maryland and the rest of the nation. OOP spending is a small portion of expenditures for hospital services, because health plans and insurers typically provide comprehensive coverage for hospital care. The same is also true for physician services, where OOP represents 12.9 percent of spending. At the other extreme, OOP accounts for 41.0 percent of spending on other professional services, 34.6 percent of spending on prescription drugs, and about 30 percent of spending each on nursing home and home health services. Each of these categories involves services where insurance coverage tends to be limited, with substantial requirements for cost- sharing on the part of patients. 14 In evaluating the OOP estimates presented here, it is important to recognize limitations associated with the SHEA methodology. In most instances, MHCC is unable to measure OOP spending directly for Maryland residents. Instead, we estimate the percent of spending for specific services paid out of pocket from National Health Accounts. ( See footnote 3.) National, service- specific OOP rates are then applied to Maryland service- specific spending levels. This means that the rate of growth in estimated OOP spending is driven by two factors: national changes in the portion of services that are paid out- of- pocket and changes in the level of spending on health care services in Maryland. 15 The 2000 SHEA makes no effort to distinguish OOP spending on uninsured services from OOP spending attributable to cost- sharing arrangements because of methodological difficulties in separating the two for individual sources of payment. State Health Care Expenditure Accounts ( SHEA) - 2000 Maryland Health Care Commission 14 Out- of- Pocket Costs and the Uninsured Out- of- pocket ( OOP) costs are payments made directly by consumers to health care providers. For those with insurance, OOP costs consist mainly of deductibles and coinsurance for covered services, but may also include payment for services and items not covered by their insurance policies. For the uninsured, OOP spending is the principal source of payment for health care. This is supplemented by special state or local programs for indigent care, workers' compensation, or other payment sources when applicable. Nationally, OOP expenditures account for over 15 percent of all health care spending. i This percentage may grow as health care costs and insurance premiums rise and economic growth slackens. Persons with employer- sponsored insurance are facing higher deductibles and coinsurance as employers try to hold down premium increases. ii At the same time, slack job markets and rapidly rising premiums tend to increase the number of uninsured persons. iii For retirees, rapidly rising health care costs have resulted in reduced availability and increased cost sharing for both employer- sponsored retirement benefits and Medicare+ Choice plans. iv Demographics of the uninsured population. A recent in- depth study by the Institute of Medicine ( IOM) provides a definitive characterization of uninsured Americans. v Virtually everyone over age 65 has some health insurance, so studies focus on the under- 65 population. The typical uninsured person is a young adult working at a low- wage job. Over 80 percent of the uninsured are in families with at least one wager earner, yet two- thirds live in low-income families ( defined as income under twice the federal poverty level). About one- fifth of the uninsured were offered insurance at their placeof employment but turned it down, with poorer workers much more likely to refuse the offer of health insurance. vi OOP Spending by the Insured and Uninsured This analysis looks at acute care OOP spending using the Medical Expenditures Panel Survey ( MEPS) collected by the Agency for Healthcare Research and Quality ( AHRQ). MEPS contains information for a nationally- representative sample of the non- institutionalized population that can be used to analyze typical OOP payments for insured and uninsured individuals. vii All respondents in the Northeast were used to proxy typical spending patterns in Maryland. Costs of nursing home or other institutional care are excluded. The 1997 MEPS database ( the most recent available) contains detailed cost data on more than 6,000 residents of the Northeast, of which about 10 percent ( 12 percent of the under- 65 population) were identified as uninsured throughout the year. This sample is small but adequate to show key differences between the insured and uninsured populations. The MEPS Northeast uninsured estimates closely correspond to average estimates of the uninsured derived for Maryland from the 2000 and 2001 Current Population Survey. Any Use of Care Uninsured persons are less likely than others to use all types of health care services ( Figure 1). About 60 percent of the uninsured had contact with the health care system, compared to 85 percent of under- 65 insured persons. For individual service categories, use of some care by the uninsured ranges from half to about two- thirds of the level for the under- 65 insured population. Figure 1: Percent of Population Using Care 0% 20% 40% 60% 80% 100% Home Health Hosp IP Other Hosp OP Dental/ Oth Rx Physician Total Over 65 Under 65 Insured Under 65 Uninsured State Health Care Expenditure Accounts ( SHEA) - 2000 15 Maryland Health Care Commission The largest relative gaps occurs for inpatient and dental/ other professional care. The smallest relative gap involves hospital outpatient services, including emergency room care. Costs by Type of Service For the typical person, the fraction of annual health care expenditures paid directly out of pocket varies by service ( Figure 2). Regardless of insurance status, OOP payments are typically a negligible portion of hospital inpatient facility reimbursements. For all other types of care, uninsured persons’ OOP payments make up 60 to 90 percent of total reimbursements for their care. ( Workman's compensation, special state/ local programs, and other sources account for the remainder of payments.) For the insured population, the high OOP percentage for prescription drugs and other medical goods ( e. g., eyeglasses) reflects lack of coverage and ( typically) higher coinsurance rates. Lower OOP shares for the insured’s physician and hospital outpatient care reflect more complete coverage and limited coinsuranceviii The elderly pay the highest dollar amounts in total OOP spending ( Figure 3). Median spending shown here gives the 1997 annual OOP payment by the typical person using each type of service. ix For the elderly, median annual OOP for those. obtaining any care was about $ 470. Median OOP prescription drug costs exceeded $ 200 per person using prescription drugs. For the under- 65 population, median annual OOP payments for the uninsured were slightly higher than for insured service users. Among those obtaining any care, the uninsured spent about one- fifth more out- of pocket than did the insured. Figure 2: Average Per Person Out- of- Pocket Percentage of Total Spending, by Service, Across All Persons Figure 3: Median Out- of- Pocket Per User of the Service 0% 20% 40% 60% 80% 100% Hosp IP Hosp OP Other Dental/ Oth Rx Physician Total Over 65 Under 65 Insured Under 65 Ununsured $ 0 $ 100 $ 200 $ 300 $ 400 $ 500 Hosp IP Home Health Hosp OP Physician Rx Dental/ Oth Other Total Over 65 Under 65 Insured Under 65 Uninsured State Health Care Expenditure Accounts ( SHEA) - 2000 Maryland Health Care Commission 16 Sources of Out- of- Pocket Costs The various categories of service make different contributions to each population's total per- capita OOP spending ( Figure 4). x For the elderly, drug spending is the main driver behind OOP costs for acute care. For the non- elderly uninsured, prescription drugs, dental and other professional services, and physician services contribute equally to aggregate OOP burden, and together account for about 80 percent of costs for that population. Inpatient care is not associated with a large aggregate OOP burden for the uninsured because the uninsured have few admissions, and because hospitals often write off such admissions as charity care or bad debt. Most inpatient stays for uninsured MEPS respondents resulted in no payment of any kind. xi Costs Relative to Income The share of family income devoted to OOP costs roughly parallels the median spending data. Elderly families have the highest fraction of income devoted to acute- care OOP costs ( 4.7 percent). This reflects both high OOP costs and low average family income. For the under- 65 population, aggregate OOP costs amounted to about 2.2 percent of pre- tax income for uninsured families, versus 1.5 percent of pre - tax family income for those with insurance. xii This is mainly the result of lower average income among families without health insurance. Figure 4: Average OOP Spent For Each Type of Service, Across All Persons i This estimate is from the 1999 National Health Expenditure Accounts at www. hcfa. gov/ stats/ nhe- oact/ tables/ chart. htm ii Gabel, J, L Levitt, J Pickreign, et al., " Job- Based Health Insurance In 2001: Inflation Hits Double Digits, Managed Care Retreats", Health Affairs 20( 5), September- October 2001, pp. 180- 186. iii Gilmer, T, R Kronick, " Calm Before the Storm: Expected Increase in the Number of Uninsured Americans" Health Affairs 20( 6), November- December 2001, pp 207- 210. iv Gabel, Ibid, and Gold, M " Medicare+ Choice: An Interim Report Card", Health Affairs 20( 4), July- August 2001, pp. 120- 38. v Institute of Medicine, Coverage Matters: Insurance and Health Care, Committee on the Consequences of Uninsurance, Board on Health Care Services, Institute of Medicine ( Washington, DC: National Academy Press, 2001) vi Cunningham, P, E Schaefer, C Hogan, " Who Declines Employer- Sponsored Health Insurance and Is Uninsured?", Issue Brief No. 22, October 1999 ( Washington, DC: Center for Studying Health Systems Change). vii MEPS is used here because the data used for the SHEA cannot separately identify the uninsured. viii Percentages were calculated for each person, then averaged, which weights low and high spending equally. ix The medians for each category of service reflect only the persons who used that service at some time in 1997. x Earlier figures showed spending by the typical ( median) person. This figure shows average ( mean) spending per capita. Means greatly exceed the medians because a few high- cost cases contribute heavily to total spending. xi For charity care, bad debt, or other instances where service was rendered by no payment made, the MEPS data record charges but no payments. xii A similar calculation from the Bureau of Labor Statistics 1997 Consumer Expenditure Survey shows that OOP spending are 1.7 percent of pre- tax family income for the under- 65 population, close to estimates obtained from MEPS. $ 0 $ 100 $ 200 $ 300 $ 400 $ 500 $ 600 $ 700 $ 800 $ 900 Over 65 Under 65 Insured Under 65 Uninsured Rx Dental/ Oth Physician Hosp OP Other Hosp IP Home Health State Health Care Expenditure Accounts ( SHEA) - 2000 17 Maryland Health Care Commission COMPARISONS BETWEEN HMOs AND OTHER NON- HMO THIRD PARTY Unlike more traditional insurance arrangements, HMOs provide an administrative process that is designed to improve clinical decision making. Combined with financial incentives that encourage the efficient delivery of services, the growth of HMOs in the previous decade represented a significant change in the organization and financing of health care in Maryland. More recently, HMOs have begun to lose enrollment. For this reason, it is important to consider what differences exist in the level and distribution of expenditures by type of delivery system, how these differences have changed over time, and the implications of having less managed care in the future. The expenditure patterns shown in Table 1- 6 illustrate statewide trends in HMO arrangements. In particular, managed care continued the pattern of decline that first appeared in 1999. Medicare HMO ( Medicare+ Choice) expenditures fell more than 15 percent from 1999 to 2000, while expenditures by Medicare beneficiaries with the original type of fee- for- service coverage increased 7.1 percent. In contrast, Medicare+ Choice expenditures were reported in the SHEA only two years ago to have increased more than 50 percent, while spending under the original Medicare structure was essentially flat. In the Medicaid program, managed care ( HMO) expenditures rose 6.5 percent from 1999 to 2000, while spending by traditional Medicaid beneficiaries rose 11.7 percent. This is the first year in the last three in which Medicaid fee- for- service expenditures increased. In the previous two years, Maryland implemented its HealthChoice program under which large numbers of Medicaid beneficiaries were enrolled in managed care plans. Now that this implementation is complete, the data indicate substantial increases in health care spending among all Medicaid beneficiaries, regardless of whether they are enrolled in HealthChoice. Table 1- 6: Total Maryland Health Expenditure ($ 000s) by Delivery System and Source of Coverage, 1999– 2000 HMO NON- HMO THIRD PARTY Medicare Medicaid Private Total Medicare Medicaid Private Total 1999 $ 482,068 $ 999,994 $ 2,656,103 $ 4,138,166 $ 3,513,756 $ 1,901,561 $ 4,493,141 $ 9,908,459 2000 409,171 1,064,681 2,812,667 4,286,519 3,762,558 2,123,458 4,992,694 10,878,709 % Change 1999– 2000 - 15.1% 6.5% 5.9% 3.6% 7.1% 11.7% 11.1% 9.8% The private sector is also experiencing relatively slow growth in HMO expenditures. In fact, total estimated private HMO- related spending rose only 5.9 percent from 1999 to 2000, while expenditures under all types of private non- HMO arrangements were up 11.1 percent. The 1999 SHEA reported a small decline in private HMO- related spending and a 12.3 percent increase in private non- HMO outflows. While less severe than last year, the 2000 SHEA confirms the retrenchment in private HMO activity that was first reported last year and contrasts sharply with the rapid growth in HMO activity observed in previous years. State Health Care Expenditure Accounts ( SHEA) - 2000 Maryland Health Care Commission 18 Figure 1- 6: Percent Change in Enrollment and Expenditures for HMOs: 1999– 2000 Figure 1- 6 compares changes in expenditures and enrollments for HMOs by type of payer. The figure shows that changes in HMO expenditures are correlated with changes in enrollment across market segments. Medicare+ Choice enrollment fell by 19.5 percent, driving a 15.1 percent reduction in Medicare+ Choice spending. Medicaid HealthChoice expenditures grew 6.5 percent from 1999 to 2000 due to a 10.0 percent increase in enrollment. In the private sector, HMO expenditures rose a modest 5.9 percent, while enrollment actually fell 2.0 percent. Taken together, continued growth in HealthChoice enrollment almost offset declines in HMO enrollment among Medicare and private insured individuals, resulting in a small ( 0.6 percent) decline in HMO enrollment statewide. Table 1- 7: Changes in HMO Enrollment by Source of Coverage, 1995– 2000 ALL PAYERS MEDICARE MEDICAID PRIVATE 1999- 00 - 0.6% - 19.5% 10.0% - 2.0% 1998- 99 0.3 - 3.1 11.4 - 1.6 1997- 98 7.1 5.3 79.4 - 0.4 1996- 97 10.1 125.0 30.4 5.6 1995- 96 7.3 131.8 - 0.1 6.6 Table 1- 7 demonstrates that the stagnation of the HMO industry in Maryland actually began several years ago in the private sector. In fact, the reported enrollment in private HMOs has declined in each of the last three years, following two years of consistent, albeit declining, growth. Enrollment in Medicare HMOs began to tail off in 1998, leading to the steep decline that occurred in 2000. To some extent, these reductions were offset by increases in Medicaid enrollment resulting from the Medicaid HealthChoice program. Still, the private sector continues to be the dominant force in the - 0.6% - 2.0% 10.0% - 19.5% 3.6% 5.9% 6.5% - 15.1% Total Private Medicaid Medicare Enrollment Expenditures State Health Care Expenditure Accounts ( SHEA) - 2000 19 Maryland Health Care Commission HMO industry, as illustrated in Figure 1- 7. Privately insured enrollees represent 77.2 percent of all HMO enrollment in the state, followed by Medicaid and Medicare beneficiaries with 19.4 and 3.5 percent, respectively. This distribution reflects the history of HMO activity in Maryland. Originally, almost all HMO enrollment was associated with private coverage. Medicare HMOs came somewhat later, while Medicaid HMOs are a relatively recent phenomenon associated with the HealthChoice program. As a result, private HMOs account for the vast majority of HMO enrollees in the state, and the relatively modest declines in recent years have done little to change that fact. In contrast, Medicare+ Choice enrollment fell substantially in the last two years, primarily because many HMOs pulled out of the program. As a result, Medicare+ Choice now represents a disproportionately small portion of all HMO enrollment in the State. Figure 1- 7: Percent Distribution of HMO Enrollment in Maryland by Payer, 2000 Last year’s report offered possible causes for the problems that HMOs appear to be facing. One explanation was that Maryland residents are becoming less inclined to participate in tightly managed care programs of the type typically offered by HMOs. A second explanation was that the substantial growth in Medicaid managed care had somehow adversely affected the capacity of HMOs to provide services to privately sponsored enrollees. Another was that the distinction between HMOs and more traditional insurance arrangements has become increasingly blurred over time, as private insurers have adopted many managed care operating principles and as HMOs have begun to offer greater choice and to relax constraints on the ability of enrollees to use out- of- network providers. Given the continued declines in enrollment and modest increases in spending associated with HMOs in Maryland, it certainly appears that Maryland residents view HMOs less favorably now than several years ago. On the other hand, it is important to recognize that other types of health plans have adopted many of the techniques used by HMOs to control costs and improve clinical effectiveness. The decline of HMOs does not necessarily mean the decline of managed care. Private 78% Medicare 3% Medicaid 19% State Health Care Expenditure Accounts ( SHEA) - 2000 Maryland Health Care Commission 20 The relationship between changes in non- HMO enrollment and expenditures is shown in Figure 1- 8. Enrollment in original Medicare coverage increased 4.6 percent from 1999 to 2000, while expenditures rose 7.1 percent. In contrast, the number of Medicaid recipients outside of managed care arrangements fell 7.4 percent, even though their expenditures rose 11.7 percent. Private non- HMO enrollment increased 3.1 percent, while expenditures increased by 11.1 percent. On balance, one would expect expenditure changes to outpace enrollment for two reasons. One is the fact that health care costs tend to increase as a result of price changes, improvements in medical technology, and other factors. This increase is reflected in the overall difference between the growth in statewide spending ( 9.8 percent) and enrollment in non- HMOs ( 3.2 percent). The second reason is that the population that remains in non- HMO arrangements tends to be more expensive to serve than the population that moves to HMOs. For example, the nursing home population and those who are dually eligible for Medicare and Medicaid are not currently eligible to enroll in Medicaid’s HealthChoice program. Figure 1- 8: Percent Change in Enrollment and Expenditures for Non- HMOs: 1999– 2000 The distribution of health care expenditures by source of funding is shown in Table 1- 8. This table facilitates comparisons based on funding sources, but it also allows a comparison of expenditure distributions by HMOs and non- HMOs. Presumably, HMOs make more effort to substitute outpatient and preventive care for more expensive services, especially inpatient care. While HMO efforts to contain expenditures have certainly had spillover effects in the non- HMO market, most experts still believe that HMOs have made more of these shifts than non- HMO payers. According to data in Table 1- 8, private HMOs spend proportionately more than non- HMOs on physician services ( 38.0 percent and 32.3 percent, respectively) and a smaller share on prescription drugs ( 8.8 percent and 15.1 percent, respectively). Private HMOs also spend a higher proportion of their dollars on outpatient hospital services than private, non- HMO plans, 12.3 percent versus 10.6 percent. Surprisingly, private insurance and HMOs have similar shares of expenditures 3.2% 3.1% - 7.4% 4.6% 9.8% 11.1% 11.7% 7.1% Total Private Medicaid Medicare Enrollment Expenditures State Health Care Expenditure Accounts ( SHEA) - 2000 21 Maryland Health Care Commission on inpatient care ( 21.2 percent and 23.6 percent, respectively). Because HMOs are generally viewed as especially conservative in their use of acute inpatient services, this finding could reflect differences in the health status of the covered populations. To the extent that there are regional differences in market penetration by private managed care organizations, it could also reflect regional differences in local delivery systems. Table 1- 8: Distribution of Maryland Health Expenditures ($ 000s) by Source of Payment and Delivery System, 2000 MEDICARE MEDICAID PRIVATE COVERAGE EXPENDITURE COMPONENTS Original Medicare + Choice Traditional Medicaid HealthChoice Insurers & Self- Funded HMO Total Health Expenditures ($$) $ 3,762,558 $ 409,171 $ 2,123,458 $ 1,064,681 $ 4,992,694 $ 2,812,667 Hospital Services Inpatient 49.5 35.1 21.8 23.5 21.2 23.7 Outpatient 12.1 7.7 4.3 12.3 10.6 12.3 Physician Services 20.6 36.1 2.4 37.8 32.3 38.0 Other Professional Services 2.9 0.7 12.2 4.0 4.9 4.0 Prescription Drugs ----- 3.8 9.9 8.8 15.1 8.8 Nursing Home Care 5.4 2.7 32.5 0.1 0.3 0.1 Home Health Care 2.8 1.6 13.8 0.8 1.2 0.8 Other Services 2.9 2.6 0.9 0.4 0.7 0.4 Admin. & Net Cost of Insurance 3.8 9.7 2.3 12.3 13.7 11.8 Total All Services 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% According to data in Table 1- 8, private HMOs spend proportionately more than non- HMOs on physician services ( 38.0 percent and 32.3 percent, respectively) and a smaller share on prescription drugs ( 8.8 percent and 15.1 percent, respectively). Private HMOs also spend a higher proportion of their dollars on outpatient hospital services than private, non- HMO plans, 12.3 percent versus 10.6 percent. Surprisingly, private insurance and HMOs have similar shares of expenditures on inpatient care ( 21.2 percent and 23.6 percent, respectively). Because HMOs are generally viewed as especially conservative in their use of acute inpatient services, this finding could reflect differences in the health status of the covered populations. To the extent that there are regional differences in market penetration by private managed care organizations, it could also reflect regional differences in local delivery systems. The Medicaid program is another payer where differences in spending patterns may be driven by differences in the health status of individuals with traditional coverage, compared to HMO benefits. According to Table 1- 8, Medicaid beneficiaries outside the HealthChoice program spend disproportionately more on nursing home, home health, and other professional services. This illustrates the traditional Medicaid role as a leading source of payment for subacute services in the health care industry. It also reflects the structure of the Medicaid program. As noted above, nursing home residents and individuals who are dually eligible for Medicare and Medicaid are not currently eligible to enroll in Medicaid’s HealthChoice program. State Health Care Expenditure Accounts ( SHEA) - 2000 Maryland Health Care Commission 22 Finally, it is interesting to consider which services have contributed to the growth of health care spending in Maryland and how those contributions differ by type of delivery system. Table 1- 9 presents this analysis for private coverage in 2000. Four services account for the majority of the growth in private health spending: inpatient hospital, outpatient hospital, physician services, and prescription drugs. However, the rate of growth in hospital services, especially outpatient services, has been significant ly higher among HMO enrollees than others with private coverage. In contrast, prescription drugs played a more prominent role in driving up spending by insurers and self- funded than it did for private HMOs. Prescription drugs account for 9.9 percent of the growth for HMOs compared to 16.8 percent for other forms of private coverage. One factor that is probably associated with this difference is relative improvements in prescription drug coverage by insurers and self-funded plans. HMOs have historically provided more generous coverage of prescription drugs than other forms of private coverage, although the difference has narrowed in recent years. Table 1- 9: Contributions of Specific Services to Private Coverage Growth Rates, 2000 SERVICES INSURERS AND SELF- FUNDED HMOs TOTAL PRIVATE COVERAGE Total Health Expenditures 100.0% 4.0% 4.6% Hospital Services Inpatient 7.1 30.7 12.7 Outpatient 18.4 23.9 19.7 Physician Services 36.3 28.0 34.3 Other Professional Services 6.9 0.5 5.4 Prescription Drugs 16.8 9.9 15.2 Nursing Home Care 0.3 0.2 0.3 Home Health Care 1.2 0.9 1.1 Other Services 0.8 0.5 0.7 Admin. & Net Cost of Insurance 12.2 5.3 10.6 Note: Table 1- 9 focuses on private coverage because Medicare and Medicaid are dominated by one form of delivery system. About 90 percent of Medicare beneficiaries in Maryland are covered by Original Medicare. Roughly 80 percent of Medicaid beneficiaries are enrolled in HealthChoice, and most of the remaining 20.0 percent are not eligible for HealthChoice because of their eligibility status or because they also have Medicare coverage. SUMMARY Total health care spending in Maryland during 2000 was $ 19.4 billion, or 8.4 percent more than the estimated 1999 spending level of $ 17.9 billion. The increase in 2000 is much larger than the 4.6 percent increase reported in last year’s SHEA. In fact, it is the most rapid increase in health care spending reported in Maryland in the last five years, as shown in Table 1- 10, which compares trends in the growth of health care spending in Maryland and the United States. State Health Care Expenditure Accounts ( SHEA) - 2000 23 Maryland Health Care Commission Table 1- 10: Trends in the Growth of Health Care Spending, Maryland vs. United States MARYLAND UNITED STATES 1999- 00 8.4 % 7.4 % 1998- 99 4.6 5.7 1997- 98 5.3 5.5 1996- 97 2.8 4.9 1995- 96 3.8 5.1 Maryland’s experience in 2000 is very similar to what took place nationally, where the growth rate accelerated from 5.7 percent in 1999 to 7.4 percent in 2000. However, for the first time in the last five years, the rate of increase in Maryland spending exceeded the rate of increase in the rest of the nation. While it is difficult to explain why health care spending in Maryland would increase more rapidly than in the rest of the country, it is reasonable to suspect that the robust state economy in 2000 could be a significant factor. The fact that relatively strong spending growth occurred in all sectors of the Maryland health care industry seems to support this notion. In contrast, for example, spending growth in 1999 was driven largely by increases in spending on prescription drugs and other pharmaceuticals. In relative terms, the private sector in Maryland expanded its role in financing health care expenditures in 2000. Spending growth in the private sector, including private coverage and OOP spending by consumers, was 9.2 percent overall. OOP spending, which includes direct payments by consumers for deductibles, co- insurance, and uninsured products and services, grew 9.3 percent, while expenditures paid by private third parties ( insurers, self- insured groups, and health plans) rose 9.2 percent. With these increases, the share of statewide health care spending associated with private sources was 56.7 percent. In contrast, the 2000 rate of growth for all government payers was 7.4 percent. Government spending on health care totaled $ 8.4 billion, or 43.3 percent of total expenditures. Most of the government spending ( 87.4 percent) was funded by Medicare and Medicaid, which together accounted for 37.9 percent of all health care spending in the state. Overall enrollment in Maryland HMOs was relatively stagnant in 2000, but the overall figures hide important changes in HMO participation among different payers. Enrollment in Medicaid HMOs continued to increase as a result of the HealthChoice program and expansions in program eligibility. At the same time, enrollment in private HMO arrangements and in Medicare+ Choice plans declined significantly. On balance, these changes left the size of the HMO sector in Maryland essentially unchanged from 1999 to 2000. In 1999, 38.6 percent of the Maryland population was enrolled in HMO plans; in 2000, the figure was 38.0 percent. The reported declines in HMO enrollment ( 19.5 percent for Medicare and 2.0 percent for private payers) are somewhat misleading, because distinctions between indemnity- type arrangements and formal HMOs have blurred substantially in recent years. Note: National growth rates are for the National Health Expenditure Accounts, see footnote 4. State Health Care Expenditure Accounts ( SHEA) - 2000 Maryland Health Care Commission 24 Most companies that sell HMO products also offer products with more flexibility such as point- of- service options. Even some traditional HMOs are experimenting with direct access to specialists. On the other hand, many traditional insurers now include some managed care provisions, especially with regard to prescription drug benefits, mental health services, and inpatient hospital care. For Medicare the story is more mixed because several large HMOs left the market. Enrollment in Medicare+ Choice has been severely affected by the availability of Medicare+ Choice plans. By the start of 2001, residents in 16 Maryland count ies had no access to Maryland+ Choice plans. This situation appears to be continuing into 2002. State Health Care Expenditure Accounts ( SHEA) - 2000 25 Maryland Health Care Commission 2. PER CAPITA HEALTH CARE EXPENDITURES IN MARYLAND The level of health care expenditures in Maryland depends upon two basic factors. One is the distribution of the population across various types of payers. When more people have health insurance for their use of health services, it is reasonable to expect that expenditures will go up. At the same time, given the distribution of people across types of payers, total spending will depend upon the average level of spending per person by type of coverage. This chapter addresses the second of these issues— patterns of per capita spending in Maryland both in the aggregate and by source of payment. Per capita expe nditures in 2000 for all health care services and administrative costs, averaged across all Maryland residents was $ 3,670, up 7.4 percent from the 1999 figure of $ 3,416.1 Per capita expenditures grew more slowly than total spending in Maryland because of the 0.9 percent growth in population. Direct spending per capita, which measures the value of health care services used by Maryland residents and excludes administrative costs, grew 7.6 percent from $ 3,146 to $ 3,386. The difference between these two per capita growth rates is attributable to information presented in Table 1- 1, namely that administrative costs and the net costs of insurance increased 6.0 percent, or 2.4 percentage points less than overall statewide spending, from 1999 to 2000.2 PER CAPITA SPENDING FOR DIFFERENT POPULATION GROUPS Table 2- 1 shows that statewide per capita figures conceal important payer- specific differences in average per capita spending. 3 The construction of this table is different from that of tables in the previous chapter, because it attributes spending to individuals based on their principal type of 1 The 2000 population data included in this report are taken from the 2000 Decennial Census conducted by the Bureau of the Census, U. S. Department of Commerce. The 1999 population data were estimated by MHCC based on the 2000 census data and population projections developed by the Maryland Office of Planning, Planning Data Services. The methodology was applied at a county level and involved first calculating the average annual rates of population growth that the Maryland Office of Planning had forecast for the period 2000 to 2005. These rates of growth were then used to move backward from 2000 Census estimates of the Maryland county populations to determine the 1999 population figures reported here. Estimated county populations were then aggregated up to regional and state estimates, as necessary. 2 For some purposes, direct spending is a better measure of the health care services provided to Maryland residents, because it is not confounded by such issues as who pays for utilization review; periodic changes in accounting standards; or the costs of marketing, sales, and claims processing. However, direct spending does not answer the question, “ How much do Maryland residents pay for health care?” precisely because it does not take into account such administrative costs. 3 One problem in developing per capita estimates from the SHEA is that some people have more than one type of coverage. Approximately 45,000 Maryland residents in federal FY2000 had both Medicare and Medicaid coverage. Another substantial number of residents had both Medicare and some type of private coverage. In constructing the payer-specific per capita estimates reported in this chapter, every effort was made to ensure that the expenditures in the numerator of the per capita ratio matched the individuals included in the denominator. Medicare expenditures include all Medicare program payments made on behalf of Maryland residents plus co- insurance and deductibles due for their services, regardless of whether they are paid by supplemental private insurance (“ MediGap”), Medicaid, or beneficiaries themselves. The creation of a single Medicaid per capita figure is more proble matic, because Medicaid actually involves several different programs with varying eligibility criteria and benefits. For this reason, the discussion regarding Medicaid per capita spending, with the exception of Table 2- 1, focuses on the HealthChoice program. State Health Care Expenditure Accounts ( SHEA) - 2000 Maryland Health Care Commission 26 coverage. Medicare spending is measured as the sum of benefits paid by the Medicare program or Medicare+ Choice contractors, copayments and deductibles paid on behalf of Medicare beneficiaries by Medicaid and private payers, out- of- pocket spending by beneficiaries themselves, and the costs of administering coverage for Medicare beneficiaries. This sum is divided by the average number of Medicare beneficiaries in Maryland to estimate per capita spending. Medicaid spending excludes amounts paid on behalf of Medicare beneficiaries. Private coverage is not shown separately in Table 2- 1 because of difficulties in measuring spending and enrollees on a consistent basis, but it is included in the statewide aggregates shown in the final column labeled “ All Residents.” Table 2- 1: Maryland Average Per Capita Expenditures for Medicare and Medicaid Enrollees Compared to All Residents, 1999 and 2000 MEDICARE1 MEDICAID2 ALL RESIDENTS3 1999 $ 7,071 $ 6,835 $ 3,416 2000 7,371 6,994 3,670 % Change 1999– 2000 4.3% 2.3% 7.4% Note: 1The sum of benefits paid by the Medicare program or Medicare+ Choice contractors, copayments and deductibles paid on behalf of Medicare beneficiaries by Medicaid and private payers, out- of- pocket spending by beneficiaries themselves, and the costs of administering coverage for Medicare beneficiaries ( including private health plans), divided by the average quarterly number of beneficiaries. 2 Medicaid spending excludes amounts paid on behalf of Medicare beneficiaries, but includes state and federal Medicaid program administration costs. The denominator is the average monthly enrollment in the Medicaid program, excluding those dually enrolled in Medicare and Medicaid. Spending for persons in special programs, such as the Maryland Pharmacy Assistance Program, is not included in Medicaid spending, and these types of enrollees are omitted from the denominator. 3 All Residents represents total health expenditures in Maryland divided by all Maryland residents. The average per capita spending for Medicare beneficiaries in 2000 was $ 7,371, and Medicaid spending per capita, averaged across all forms of coverage, was $ 6,994. Both exceed the statewide average of $ 3,670. Variations in the level of per capita expenditures by pay source reflect the different health care needs of enrolled populations and distinguishing aspects of the benefit packages of Medicare, Medicaid, and private health plans. Medicare covers a population that is elderly or disabled. For this reason, its per capita expenditures are more than twice the statewide average. Medicaid targets low- income residents and individuals with a substantial need for financial assistance in covering health care costs. The relatively high level of Medicaid spending is attributable to beneficiary health status, the comprehensive benefit package provided by Medicaid, and the expense involved in offering a nursing home benefit. In contrast, the relatively low statewide average spending shown in Table 2- 1 reflects more modest spending levels of individuals with private coverage. Because most private coverage is employment- related and good health is generally necessary to hold a job, this population tends to be in relatively good health. Per capita expenditures for the insured population overall increased 7.4 percent from 1999 to 2000. However, Table 2- 1 shows considerable variation in the rate of increase by payer. Medicare spending per capita only rose 4.3 percent, which probably reflects the impact of new payment systems and reforms designed to restrain Medicare spending. Medicaid per capita spending rose even less, 2.3 percent. As discussed below, such slow growth is largely the result of declining per capita spending among individuals enrolled in the HealthChoice program. State Health Care Expenditure Accounts ( SHEA) - 2000 27 Maryland Health Care Commission Table 2- 2: Maryland Average Per Capita Expenditures for Covered Services Among Residents with Medicare Coverage, by Type of Enrollment, 2000 AVERAGE EXPENDITURES % CHANGE 1999– 2000 Traditional Enrollees Medicare + Choice Enrollees Traditional Enrollees Medicare + Choice Enrollees Benefits Paid by Medicare $ 6,129 $ 5,316 2.3% 7.1% MediGap/ Retiree Coverage 811 ----- 8.9 ----- Patient Liabilities 245 182 13.8 13.8 Total Benefi ts Paid 7,185 5,499 3.3 7.3 Administration 340 572 5.9 - 7.8 Total Spending 7,524 6,071 3.5 5.7 Table 2- 2 shows the composition of the Medicare per capita figures and illustrates how the various components have grown differentially. The Medicare program paid an average of $ 6,129 to providers on behalf of beneficiaries enrolled in traditional Medicare in 2000, 15 percent more than the $ 5,316 paid to health plans to provide care to beneficiaries enrolled in Medicare+ Choice. The difference between traditional and Medicare+ Choice coverage is even larger when all types of spending are taken into account. Traditional enrollees averaged $ 7,524 in total spending, which includes more than $ 1,000 per year in coinsurance and deductibles paid by some type of MediGap coverage ($ 811) or by the beneficiaries themselves ($ 245). These estimates do not include other out- of- pocket ( OOP) spending for prescription drugs, vision care, and other items that are not included in the benefits of the traditional Medicare program. Medicare+ Choice enrollees averaged $ 6,071 in total spending, and their patient liability ( copayments of $ 182 per person) is significantly smaller than that averaged by traditional enrollees. Medicare+ Choice plans achieve these lower spending levels eve n though they typically offer more generous benefit packages than traditional Medicare. While some savings may be attributable to the effects of managed care and aggressive fee schedules negotiated by health plans with their network providers, they may also reflect differences in the health status of individuals who select Medicare+ Choice instead of traditional Medicare coverage. The administrative costs of the Medicare+ Choice program are somewhat higher than for traditional Medicare, because the traditional Medicare program is so large that it has been able to achieve substantial economies of scale in claims processing, medical management, and other administrative activities. To a large extent, the benefits paid by Medicare+ Choice plans are determined by Medicare, which sets capitation rates on a county- by- county basis. Historically, health plans initially accepted these lower spending levels and typically offered more generous benefit packages than traditional Medicare. While some savings in the early years of the program were likely attributable to the effects of managed care and aggressive fee schedules negotiated by health plans with their network Note: Medicare+ Choice benefits paid by Medicare are estimated as capitation payments to health plans by Medicare minus administrative expenses. The costs of administration for Medicare+ Choice, in turn, are estimated as the average administrative expense of plans reporting Medicare+ Choice enrollment in 2000, weighted by the dollar value of their Medicare business. State Health Care Expenditure Accounts ( SHEA) - 2000 Maryland Health Care Commission 28 providers, they probably also reflected the relatively good health status of the individuals who initially selected Medicare+ Choice over traditional Medicare coverage. Beneficiaries with serious health problems tended to remain in traditional Medicare in order to continue using their existing providers. However, some evidence suggests that many of those with health problems, especially those with lower incomes, began to shift into Medicare+ Choice once they realized how much they could save in OOP spending. Health plans complained that higher proportions of sicker beneficiaries, the need to pay more to providers to keep them in their network, and the rising costs of services such as prescription drugs made it impossible to provide care at established capitation rates. In response, many plans left the program, and those that remain have cut back on their benefit packages and/ or require an additional monthly premium from the beneficiary. Currently only two health plans offer coverage in Maryland. Consequently, some Maryland beneficiaries no longer have access to a Medicare+ Choice plan, while others have access to just one plan that requires a monthly premium ( such as Kaiser Permanente Senior Advantage). While the costs of traditional Medicare exceed those of Medicare+ Choice on a per capita basis, Table 2- 2 indicates that the relative gap narrowed somewhat in 2000. Medical benefits paid by traditional Medicare rose only 2.3 percent, which is below the overall statewide increase of 7.4 percent in direct spending per capita. In contrast, benefits paid under Medicare+ Choice coverage rose 7.1 percent, which is also below that statewide increase in direct spending per capita but larger than the increase in traditional Medicare. The increase in benefits paid under Medicare+ Choice is attributable to several factors. From 1999 to 2000, the average Medicare+ Choice capitation rate in Maryland increased 2.8 percent, which is only slightly larger than the increase in average benefits paid under traditional Medicare. However, there was also a shift in the distribution of Medicare+ Choice enrollees favoring counties with higher capitation rates. That is, a larger proportion of Medicare+ Choice enrollees lived in the Baltimore and Washington metropolitan areas in 2000 than in 1999, primarily because residents of more rural areas had less access to Medicare+ Choice plans for reasons discussed above. Finally, administrative expenses consumed less of the capitation dollar in 2000 than in 1999, which made more money available for health care benefits. The difference between traditional Medicare and Medicare+ Choice in their rates of growth is slightly smaller when it is based on total benefits paid ( 3.3 percent versus 7.3 percent) rather than benefits paid by Medicare ( 2.3 percent vs. 7.1 percent). Inflation in the prices providers charged for their services in 2000 pushed up coinsurance expenditures for traditional Medicare beneficiaries, because traditional Medicare coinsurance is usually calculated on the basis of charges rather than Medicare reimbursements. When charges increase more rapidly than Medicare reimbursements, the situation in 2000, the combined payments associated with traditional Medicare grow more rapidly than payments under Medicare+ Choice, all other things being equal. The only component shown in Table 2- 2 where Medicare+ Choice fared better than traditional Medicare is the estimated cost of administration, which is estimated to have fallen 7.8 percent. This reduction is due primarily to an increase in the market share of Medicare+ Choice plans with low administrative costs, meaning that they are able to provide more benefits out of a fixed capitation rate. The difference in administrative growth narrows the gap in growth rates for total per capita spending to 3.5 percent versus 5.7 percent. State Health Care Expenditure Accounts ( SHEA) - 2000 29 Maryland Health Care Commission Table 2- 3 compares the per capita spending levels for the Medicaid HealthChoice program in 1999 and 2000.4 The average per capita expenditure for a HealthChoice enrollee in 2000 was $ 3,647, a reduction of 8.3 percent from 1999 spending levels. The reduction in benefits paid was actually slightly larger ( 8.6 percent), but the difference in benefits paid was offset by a slightly smaller decline in the administrative costs of HealthChoice plans. Table 2- 3: Maryland Average Per Capita Expenditures for Covered Services Among Medicaid HealthChoice Enrollees, 1999- 2000 1999 2000 % Change 1999– 2000 Total Benefits Paid $ 3,622 $ 3,311 - 8.6% Administration 354 336 - 5.1 Total Spending 3,976 3,647 - 8.3 Note: HealthChoice enrollee benefits paid by Medicaid include any services obtained by HealthChoice enrollees through the traditional Medicaid fee– for- service ( FFS) program, e. g., mental health services, as well as services received through the managed care organizations. In the SHEA, all FFS services are reported in the traditional Medicaid column, regardless of which enrollees used the services. This result is consistent with the findings illustrated in Figure 1- 6, which show a 10 percent increase in Medicaid HealthChoice enrollment against a 6.5 percent increase in expenditures. Since spending went up less than enrollment, it means that spending must have fallen on a per capita basis. One reason for this pattern is that Medicaid HealthChoice enrollment increased because of federal legislation that extends Medicaid coverage to include mothers and children who did not previously qualify on the basis of income alone. Since these newly eligible Medicaid beneficiaries are relatively healthy, spending for their health care tends to be lower than the average for all Medicaid beneficiaries. On the other hand, overall Medicaid spending in Maryland increased 9.9 percent in 2000, which means that increases outside of HealthChoice substantially offset savings associated with the HealthChoice program. Average per capita expenditures for Maryland residents with private coverage are summarized in Table 2- 4. The methodology used in the Maryland SHEA to allocate the spending of individuals with private coverage across different services uses information that MHCC obtains from an organization that compiles insurance claims for analytic purposes. In addition to defining the service distribution for private coverage in the SHEA, these data can be used to estimate both benefits paid and residual patient liabilities associated with those claims for a well- defined group of more than 90,000 Maryland residents. These residents represent a range of experiences in terms of benefit packages, cost- sharing requirements, and medical management techniques. Because the individuals included in this database are not necessarily representative of all residents with private coverage, 4 This discussion focuses on HealthChoice enrollees, because it is the largest and most analytically meaningful portion of the Medicaid population. Among Maryland’s fully- insured Medicaid beneficiaries in 2000, 79 percent were enrolled in the HealthChoice program, 9 percent were dually eligible for Medicare and Medicaid, and 13 percent were enrolled in traditional Medicaid. Non- dual, traditional Medicaid beneficiaries in Maryland include primarily individuals living in institutions ( e. g., nursing homes), persons with high medical bills that “ spend down” to Medicaid eligibility limits, and certain enrollees in the Home & Community Based Waiver programs, i. e., disabled children and senior assisted housing residents. ( Participants in special programs like the Maryland Pharmacy Assistance Program are not fully insured and are not included here.) State Health Care Expenditure Accounts ( SHEA) - 2000 Maryland Health Care Commission 30 these data cannot be used to estimate total spending from private sources in Maryland. Also, because there are no claims submitted to private carriers and health plans for health care expenditures that are outside the scope of the benefit packages, these data do not capture all health expenditures for individuals with private coverage. However, these data do provide an interesting picture of how spending within the scope of such benefit packages changed in 2000 and how spending levels compare between HMOs and other types of private coverage on a per capita basis. Table 2- 4: Maryland Average Per Capita Expenditures for Covered Services Among A Sample of Residents with Employer- Based Private Coverage, by Type of Payer, 1999- 2000 2000 1999 Insurers and Self- Funded HMOs Insurers and Self- Funded HMOs Benefits Paid by Insurance $ 1,529 $ 1,611 $ 1,323 $ 1,593 Patient Liabilities 225 161 212 169 Total Benefits Paid 1,754 1,772 1,536 1,763 Administration 243 213 213 204 Total Spending 1,996 1,985 1,748 1,967 According to Table 2- 4, the average per capita expenditure by HMOs ($ 1,611) exceeded the average benefit paid by insurance or self- funded plans ($ 1,529) by 5.4 percent in 2000. However, when patient liabilities and administrative costs are taken into account, the total per capita spending for HMO enrollees is slightly below that of enrollees with other types of private coverage. The 2000 pattern differs considerably from 1999 when HMO benefits paid exceeded benefits paid by other types of private coverage by 20.4 percent ($ 1,593 versus $ 1,323). This gap was so large that in spite of lower per capita expenditures for administration and patient liability, total per capita spending for covered services for HMO enrollees was 12.5 percent above the rate for other types of private coverage ($ 1,967 versus $ 1,748). The apparent convergence of health spending under different types of private coverage is superficially due to the fact that per capita benefits paid by HMOs increased just 1 percent in 2000 while per capita benefits paid by other forms of private coverage rose 15.6 percent. The underlying factors that explain these changes are less obvious. These different rates of change could reflect changes in the relative health status of the underlying insured populations or in the geographic distribution of the HMO enrollees as a percent of all individuals with private coverage in this sample. In fact, the private HMO market penetration in 2000 increased in parts of the state with relatively low health care costs and fell in areas with higher costs per capita. The net effect was to reduce the statewide average cost per capita for private HMO enrollees. ( The regional distribution of health care spending is discussed in the following chapter.) Additionally, these differential growth rates could incorporate changes in the benefit packages provided by these employers, such as benefit expansions by non- HMO private coverage sources to meet the preference of enrollee|
|Relation-Is Replaced By||Maryland Health Care Commission. State health care expenditures|
|Relation-Replaces||Maryland Health Care Access and Cost Commission. Annual report on expenditures and utilization|