Improving Health Care Cost Projections for the Medicare Population

Summary of a Workshop

Gooloo S. Wunderlich, Rapporteur

Committee on National Statistics

Division of Behavioral and Social Sciences and Education

NATIONAL RESEARCH COUNCIL
OF THE NATIONAL ACADEMIES

THE NATIONAL ACADEMIES PRESS

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Improving Health Care Cost Projections for the Medicare Population Summary of a Workshop Gooloo S. Wunderlich, Rapporteur Committee on National Statistics Division of Behavioral and Social Sciences and Education

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THE NATIONAL ACADEMIES PRESS 500 Fifth Street, N.W. Washington, DC 20001 NOTICE: The project that is the subject of this report was approved by the Govern- ing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineer- ing, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropri- ate balance. This study was supported by Contract No. N01-OD-4-2139, TO # 213 between the National Academy of Sciences and the National Institute on Aging. Support of the work of the Committee on National Statistics is provided by a consortium of federal agencies through a grant from the National Science Foundation (Number SES-0453930). Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the views of the organizations or agencies that provided support for the project. International Standard Book Number-13: 978-0-309-15976-0 International Standard Book Number-10: 0-309-15976-8 Additional copies of this report are available from the National Academies Press, 500 Fifth Street, N.W., Lockbox 285, Washington, DC 20055; (800) 624-6242 or (202) 334-3313 (in the Washington metropolitan area); Internet, http://www.nap. edu. Copyright 2010 by the National Academy of Sciences. All rights reserved. Printed in the United States of America Suggested citation: National Research Council. (2010). Improving Health Care Cost Projections for the Medicare Population: Summary of a Workshop. Gooloo S. Wun- derlich, Rapporteur. Committee on National Statistics, Division of Behavioral and Social Sciences and Education. Washington, DC: The National Academies Press.

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The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Acad- emy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding en- gineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineer- ing programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Charles M. Vest is presi- dent of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Insti- tute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sci- ences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Coun- cil is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. Charles M. Vest are chair and vice chair, respectively, of the National Research Council. www.national-academies.org

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STEERING COMMITTEE ON IMPROVING HEALTH CARE COST PROJECTIONS FOR THE MEDICARE POPULATION DANA P. GOLDMAN (Chair), Leonard D. Schaeffer Center for Health Policy and Economics, University of Southern California ALAN M. GARbER, Center for Health Policy and Center for Primary Care and Outcomes Research, School of Medicine, Stanford University MARILyN MOON, Health Program, American Institutes for Research, Silver Spring, Maryland JOSEPH P. NEWHOUSE, Division of Health Policy Research and Education, Harvard University JONATHAN S. SkINNER, Dartmouth Medical School and Dartmouth Institute of Health Policy and Clinical Practice, Dartmouth College GOOLOO S. WUNDERLICH, Study Director bRIDGET EDMONDS, Administrative Assistant iv

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COMMITTEE ON NATIONAL STATISTICS 2009-2010 WILLIAM F. EDDy (Chair), Department of Statistics, Carnegie Mellon University kATHARINE AbRAHAM, Department of Economics, University of Maryland, and Joint Program in Survey Methodology WILLIAM DuMOUCHEL, Lincoln Technologies, Inc., Waltham, Massachusetts JOHN HALTIWANGER, Department of Economics, University of Maryland V. JOSEPH HOTz, Department of Economics, Duke University kAREN kAFADAR, Department of Statistics, Indiana University SALLIE kELLER, Science and Technology Policy Institute, Washington, DC LISA LyNCH, Heller School for Social Policy and Management, Brandeis University DOUGLAS MASSEy, Department of Sociology, Princeton University SALLy C. MORTON, Biostatistics Department, University of Pittsburgh JOSEPH P. NEWHOUSE, Division of Health Policy Research and Education, Harvard University SAMUEL H. PRESTON, Department of Sociology, University of Pennsylvania HAL S. STERN, Department of Statistics, University of California, Irvine ROGER TOURANGEAU, Joint Program in Survey Methodology, University of Maryland, and Survey Research Center, University of Michigan ALAN zASLAVSky, Department of Health Care Policy, Harvard Medical School CONSTANCE F. CITRO, Director v

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Acknowledgments T his report is a summary of the January 2010 workshop, Improving Health Care Cost Projections for the Medicare Population. The workshop was convened by the Committee on National Statistics (CNSTAT) of the Division of Behavioral and Social Sciences and Educa- tion (DBASSE) of the National Research Council (NRC). Support for the workshop was provided by the National Institute on Aging. As chair of the steering committee, I wish to thank my colleagues on the committee for their helpful guidance and leadership in planning the workshop and moderating the sessions. I acknowledge with appreciation the many people who participated in the workshop and contributed to its success. I thank all the presenters for their expert presentations and John N. Friedman for the background paper he prepared for the workshop. I also thank all the participants for their stimulating and insightful comments and discussion. On behalf of the steering committee, I acknowledge with gratitude the contributions of staff. Constance F. Citro, director of CNSTAT, provided guidance and support throughout the project. Gooloo S. Wunderlich, study director, oversaw the detailed planning and organization of the workshop based on the guidance of the steering committee, as well as the preparation of this summary and responding to the comments of the reviewers. Bridget Edmonds managed the administrative details and workshop arrangements. Christine McShane, DBASSE senior editor, provided editing advice; Yvonne Wise, DBASSE production editor, processed the report through the final production; and Kirsten Sampson Snyder, DBASSE senior report review of- ficer, efficiently shepherded the report through the report review process. vii

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viii ACKNOWLEDGMENTS This report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the Report Review Committee of the NRC. The purpose of this independent review is to provide candid and critical com- ments that will assist the institution in making its published report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the deliberative process. We thank the following individuals for their review of this report: Marilyn Moon, Health Program, American Institutes for Research, Silver Spring, MD; Sally C. Morton, Department of Biostatistics, Graduate School of Public Health, University of Pittsburgh; Karen Lynn Nonnemaker, Public Policy Institute, AARP, Washington, DC; and Barry M. Popkin, Carolina Population Center, University of North Carolina, Chapel Hill. Although the reviewers listed above provided many constructive com- ments and suggestions, they were not asked to endorse the content of the report nor did they see the final draft of the report before its release. The review of this report was overseen by Melvin Worth, Senior Institute of Medicine Fellow (retired), Sun City Center, FL. Appointed by the NRC, he was responsible for making certain that an independent examination of this report was carried out in accordance with institutional procedures and that all review comments were carefully considered. Responsibility for the final content of this report rests entirely with the author and the institution. Dana P. Goldman, Chair Steering Committee on Improving Health Care Cost Projections for the Medicare Population

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Contents 1 INTRODUCTION 1 Workshop Focus, 2 Workshop Organization, 4 Plan of the Report, 4 2 CURRENT MODELS OF HEALTH CARE COST PROJECTIONS 7 Predicting Medicare Cost Growth, 8 Medicare Cost Modeling for Health Care Spending at CBO, 11 Long-Range Medicare Health Expenditure Projections by the CMS Office of the Actuary, 14 MEPS as a Resource for Economic Models and Projections of Health Care Expenditures, 20 Discussion, 26 3 MODELING MEDICAL TECHNOLOGy 31 Current Law Brakes on Health Care Cost Growth, 32 Pharmaceutical Innovation, Spending, and Health, 35 Medical Technology as a Cost Driver, 39 Discussion, 42 ix

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x CONTENTS 4 FACTORS AFFECTING HEALTH STATUS 47 Health and Health Care Cost Consequences of Obesity, 47 Socioeconomic Status and Health-Related Behavior as Factors in Medical Care Spending, 51 Disability, Chronic Disease, and Medicare Spending, 55 Discussion, 59 5 PARTICIPANTS’ VIEWS ON NEEDED RESEARCH 65 Opening Remarks, 65 General Discussion, 67 Closing Remarks, 72 REFERENCES 77 APPENDIXES A Predicting Medicare Cost Growth 83 John N. Friedman B Workshop Agenda and Presenters 107 C Biographical Sketches of Steering Committee Members 113