Restructure Medicare & Medicaid: Economic Factors —

Restructure Medicare & Medicaid: Economic Factors — Employer and Government Funding System Separates Consumers from True Costs of Healthcare e When one doesn’t pay directly and gets an expensive good / service for free (or well below cost), one tends to consume more - it’s basic supply and demand economics. e Count up the subsidies: — Medicaid: 47 million (24MM children / 12MM low-income adults / 7MM disabled / 4MM elderly) Americans (15% of population) each received $6,872 in taxpayer funds, on average, for healthcare in 2008 through Medicaid. That $6,872 equals ~19% of annual per-capita income for Americans. — Medicare: 45 million elderly Americans (15% of population) averaged $7,991 per person for healthcare in 2008 ($4,875 for hospital care; $3,116 for medical insurance and prescription drugs). That equals ~23% of annual per capita income. — Private Market: 157mm Americans with private health coverage (subsidized by employers) in 2008 paid just 16% of the total premium cost themselves for single coverage and 27% for family coverage. In effect, that represented tax- free “earnings” of $3,951 for singles or $9,256 for families (not including the tax savings on their personal premium contributions). Source: Department of Health & Human Services, Centers for Medicare & Medicaid Services. (@)E) www.kpcb.com USA Inc. | What Might a Turnaround Expert Consider? 295 Restructure Medicare & Medicaid: Economic Factors— Healthcare Providers Are Rewarded for Driving Revenue ¢ While striving to provide the best care possible, healthcare providers tend to have financial / legal / societal incentives to provide more care, all else equal. ¢« Reimbursement for providers is generally volume-based (e.g., more procedures generate more revenue for care providers), though there are efforts to increasingly focus on quality. Unlike car buyers, for example, who often disregard a dealer’s maxed-out model and choose only the features that are important to them and what they can afford, healthcare buyers tend to buy all the “features” as: 1) buyers (patients in this case) are typically not medical experts, so they defer to doctors / care providers for decisions; and 2) buyers only bear a small portion of the costs as someone else (employer or government) is paying for the features. KP www.kpcb.com USA Inc. | What Might a Turnaround Expert Consider? 296 HOUSE_OVERSIGHT_020989