MEDICAL CARE ECONOMIC RISK

Measuring Financial Vulnerability
from Spending on Medical Care

Panel on Measuring Medical Care Risk in Conjunction with
the New Supplemental Income Poverty Measure

Michael J. O’Grady and Gooloo S. Wunderlich, Editors

Committee on National Statistics
Division of Behavioral and Social Sciences and Education
and
Board on Health Care Services
Institute of Medicine

NATIONAL RESEARCH COUNCIL AND
                  INSTITUTE OF MEDICINE
                          OF THE NATIONAL ACADEMIES

THE NATIONAL ACADEMIES PRESS

Washington, D.C.

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Panel on Measuring Medical Care Risk in Conjunction with the New Supplemental Income Poverty Measure Michael J. O’Grady and Gooloo S. Wunderlich, Editors Committee on National Statistics Division of Behavioral and Social Sciences and Education and Board on Health Care Services Institute of Medicine

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THE NATIONAL ACADEMIES PRESS  500 Fifth Street, NW  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/Grant No. HHSP23320042509XI, TO#39 between the National Academy of Sciences and the U.S. Department of Health and Human Services Office of the Assistant Secretary for Planning and Evalua- tion. Support for the work of the Committee on National Statistics is provided by a consortium of federal agencies through a grant from the National Science Foundation (award number SES-1024012). 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: 978-0-309-26604-8 International Standard Book Number-10: 0-309-26604-1 Additional copies of this report are available from the National Academies Press, 500 Fifth Street, NW, Keck 360, Washington, DC 20001; (800) 624-6242 or (202) 334-3313; http://www.nap.edu. Copyright 2012 by the National Academy of Sciences. All rights reserved. Printed in the United States of America Suggested citation: National Research Council and Institute of Medicine. (2012). Medical Care Economic Risk: Measuring Financial Vulnerability from Spending on Medical Care. Panel on Measuring Medical Care Risk in Conjunction with the New Supplemental Income Poverty Measure, M.J. O’Grady and G.S. Wunderlich, Eds. Committee on National Statistics, Division of Behavioral and Social Sciences and Education, and Board on Health Care Services, Institute of Medicine. 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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PANEL ON MEASURING MEDICAL CARE RISK IN CONJUNCTION WITH THE NEW SUPPLEMENTAL INCOME POVERTY MEASURE MICHAEL J. O’GRADY (Chair), President, West Health Policy Center DAVID M. BETSON, Department of Economics, University of Notre Dame JOHN L. CZAJKA, Mathematica Policy Research, Inc., Washington, DC EDWIN C. HUSTEAD, Actuary (retired), Alexandria, VA EMMETT B. KEELER, Pardee RAND Graduate School, School of Public Health, University of California, Los Angeles WILLARD G. MANNING, Harris School of Public Policy Studies, University of Chicago WILHELMINE D. MILLER, NORC at the University of Chicago CATHY SCHOEN, The Commonwealth Fund, New York, NY P.J. ERIC STALLARD, Social Science Research Institute, Duke University GOOLOO S. WUNDERLICH, Study Director JACQUELINE R. SOVDE, Program Associate JESSICA BANTHIN, Consultant v

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COMMITTEE ON NATIONAL STATISTICS 2011-2012 LAWRENCE D. BROWN (Chair), Department of Statistics, Wharton School, University of Pennsylvania JOHN M. ABOWD, School of Industrial and Labor Relations, Cornell University ALICIA CARRIQUIRY, Department of Statistics, Iowa State University WILLIAM DuMOUCHEL, Oracle Health Sciences, Waltham, MA V. JOSEPH HOTZ, Department of Economics, Duke University MICHAEL HOUT, Survey Research Center, University of California, Berkeley KAREN KAFADAR, Department of Statistics, Indiana University SALLIE KELLER, Provost, University of Waterloo, Ontario, Canada LISA LYNCH, Heller School for Social Policy Management, Brandeis University SALLY C. MORTON, Biostatistics Department, Graduate School of Public Health, University of Pittsburgh JOSEPH NEWHOUSE, Division of Health Policy Research and Education, Harvard University RUTH PETERSON, Department of Sociology (emeritus) and Criminal Justice Research Center, Ohio State University HAL STERN, Donald Bren School of Information and Computer Sciences, University of California, Irvine JOHN THOMPSON, NORC at the University of Chicago ROGER TOURANGEAU, Westat, Rockville, MD ALAN ZASLAVSKY, Department of Health Care Policy, Harvard Medical School CONSTANCE F. CITRO, Director vii

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BOARD ON HEALTH CARE SERVICES STEVEN A. SCHROEDER (Chair), Department of Medicine, University of California, San Francisco JOSEPH R. BAKER, Medicare Rights Center, New York ELISABETH BELMONT, Mainehealth, Portland, ME ROBERT A. BERENSON, The Urban Institute, Washington, DC LISA A. BERO, School of Medicine, University of California, San Francisco DAVID BLUMENTHAL, Harvard Medical School and Mongan Institute for Health Policy, Massachusetts General Hospital STUART BUTLER, Center for Policy Innovation, Heritage Foundation JON B. CHRISTIANSON, School of Public Health, University of Minnesota JACK EBELER, Health Policy Alternatives, Inc., Washington, DC ROBERT S. GALVIN, Equity Healthcare and Corporate Private Equity, Blackstone Group, New York REBEKAH E. GEE, Schools of Medicine and Public Health, Louisiana State University CARMEN R. GREEN, Schools of Medicine and Public Health, University of Michigan Health System MAREASA R. ISAACS, National Alliance of Multi-Ethnic Behavioral Health Associations, Silver Spring, MD BRENT C. JAMES, Institute for Health Care Delivery Research, Intermountain Healthcare, Salt Lake City, UT CHARLES N. KAHN, III, Federation of American Hospitals, Washington, DC ELIZABETH A. McGLYNN, Kaiser Permanente Center for Effectiveness and Safety Research, Oakland, CA CYNTHIA D. MULROW, University of Texas Health Science Center, San Antonio MARY D. NAYLOR, New Courtland Center for Transitions and Health and Interdisciplinary Nursing Quality Research Initiative, University of Pennsylvania ALAN WEIL, National Academy for State Health Policy, Washington, DC GAIL R. WILENSKY, Project HOPE, Bethesda, MD ROGER HERDMAN, Board Director ix

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Acknowledgments The Panel on Measuring Medical Care Risk in Conjunction with the New Supplemental Income Poverty Measure acknowledges with apprecia- tion the contributions of the many individuals who gave of their time and knowledge to this report. Support for the study was provided by the Office of the Assistant Sec- retary for Planning and Evaluation, U.S. Department of Health and Human Services. Donald Oellerich, project officer for the study, was very helpful in providing relevant information and presenting at a workshop organized by the panel. In addition, David S. Johnson of the U.S. Census Bureau provided invaluable insights into the Census Bureau’s work on the measurement of poverty and its relationship with medical care out-of-pocket expenditures. We acknowledge with appreciation the many people who participated in a workshop convened by the panel and contributed to its success. We thank all the presenters for their expert presentations and the participants for their stimulating and insightful comments and discussion. A summary of the workshop is in Part II of the report. We are grateful to Jessica Banthin, Didem Bernard, John Czajka, Sarah Meier, and Barbara Wolfe, the authors of commissioned papers prepared for the study. These papers were used by panel and staff in drafting the report and are included in Part III of the report. Members of the panel gave generously of their time and expert knowl- edge in the deliberations that produced this report. Their timely and thoughtful work in drafting written reviews of various issues in the report is gratefully acknowledged. xi

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xii ACKNOWLEDGMENTS Staff of the Committee on National Statistics (CNSTAT) and the Divi- sion of Behavioral and Social Sciences and Education (DBASSE) provided important support and assistance to the panel. Gooloo S. Wunderlich, study director, was responsible for organizing the workshop and the meetings of the panel, preparing the summary of the workshop presentations and discussions, getting the background papers commissioned, drafting large portions of the report based on the reviews prepared by the panel mem- bers, and responding to the many comments from the reviewers on behalf of the panel. Jacqui Sovde provided administrative support. We gratefully acknowledge the important role of Constance F. Citro, director of CNSTAT, for providing guidance and support throughout the study and in the prepa- ration of this report. Christine McShane, DBASSE senior editor, provided editing advice, and Alisa Decatur provided advice on references. Yvonne Wise, DBASSE production editor, processed the report through the final production, and Kirsten Sampson-Snyder, DBASSE senior report review officer, efficiently shepherded the report through the report review process. 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 National Research Council (NRC). The purpose of this independent review is to provide candid and critical comments that will assist the institution in mak- ing 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: Greg J. Duncan, Department of Education, University of California, Irvine; Jonathan H. Gruber, Department of Economics, Massachusetts Institute of Technology; Gerald F. Kominsky, Department of Health Services, Univer- sity of California, Los Angeles, Fielding School of Public Health; Charles E. Phelps, University Professor and Provost Emeritus, University of Roch- ester; Timothy M. Smeeding, Institute for Research on Poverty, Robert M. LaFollette School of Public Affairs, University of Wisconsin–Madison; Laura Wheaton, Income and Benefits Policy Center, The Urban Institute; Gary J. Young, Center for Health Policy and Health Care Research, North­ eastern University; Alan M. Zaslavsky, Department of Health Care Policy, Harvard Medical School; and Julie Zissimopoulos, Department of Clinical Pharmacy and Pharmaceutical Economics and Policy, University of South- ern California. 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

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ACKNOWLEDGMENTS xiii of Medicine fellow (retired), Sun City Center, Florida (coordinator), and Jonathan S. Skinner, Economics Department and the Dartmouth Institute for Health Policy and Clinical Practice, Dartmouth College (monitor). Appointed by the NRC, they were 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 authoring panel and the institution. Michael J. O’Grady, Chair Panel on Measuring Medical Care Risk in   onjunction with the New Supplemental C Income Poverty Measure

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Contents SUMMARY 1 PART I:  REVIEW AND RECOMMENDATIONS 13 1 Introduction 15 2 Concepts of Medical Care Economic Burden and Risk 27 3 Concepts of Resources 51 4 Measures of Medical Care Economic Risk and Recommended Approach 67 5 Data Sources 89 6 Implementing Measures of Medical Care Economic Burden and Risk 101 References 107 Acronyms and Abbreviations 111 Appendix: Biographical Sketches of Panel Members and Staff 113 PART II:  RESOURCES FOR THE STUDY: DEVELOPING A MEASURE OF MEDICAL CARE ECONOMIC RISK— WORKSHOP SUMMARY 119 1 Introduction 121 2 Context for the Workshop 125 3 Measuring Medical Care Economic Risk 133 4 Issues in the Development of Thresholds 155 5 Issues in Defining Resources 175 xv

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xvi CONTENTS 6 Implementation Issues 191 7 Recap of Issues and Next Steps 203 References 215 Appendix: Workshop Agenda and Presenters 217 PART III:  RESOURCES FOR THE STUDY: BACKGROUND PAPERS 223 Conceptual Framework for Measuring Medical Care Economic Risk 225 Sarah Meier and Barbara Wolfe Incorporating Data on Assets into Measures of Financial Burdens of Health 267 Jessica S. Banthin and Didem Bernard An Assessment of Data Sources for Measuring Medical Care Economic Risk 281 John L. Czajka