Throughout our country, there is widespread agreement that the health care system is too expensive and inefficient, yet there is little agreement on what reforms and solutions we need. Despite this lack of consensus, changes are underway, including here in our region, which could lead to permanent structural improvements in cost and quality.

How, therefore, do we approach reform and improvements in the system? What best practices and emerging trends hold the most promise? The Silicon Valley Leadership Group offers some different perspectives and seek to identify common ground.

The Employer Perspective

According to the Centers for Medicare & Medicaid Services, health care expenditures in the US were over $2.6 trillion in 2010; this represented about 17.6% of GDP. Total health care spending is expected to nearly double to $4.6 trillion in 2020.

In Santa Clara County, the percentage of residents with insurance by their own employer or someone else’s (e.g. spouse, parent) is 76.8. Most employers in California offer, and pay for at least some portion of, their employees health care/insurance. Recent data indicate this is true for about 66% of employers, representing nearly 90% of workers in the state, with an estimated 63% of workers taking advantage of this benefit. However, this percentage has been slowly decreasing, due both to some employers dropping coverage and fewer new small businesses offering insurance. In 2010, 28% of California employers either reduced benefits or increased cost sharing for employees.

Costs, as measured by annual premium increases, are rising at a rapid rate. Premiums increased by 134.4% statewide from 2002 to 2010 (California HealthCare Foundation). In 2008, total health care expenditures grew at an annual rate of 4.4%. This increase was slower than recent years, but still outpaced inflation and growth of national income (Kaiser). Regional business leaders are very concerned about the increased healthcare costs because of the increasingly large impact it is having on their core business. Their concerns are being expressed through efforts such as the Silicon Valley Health IT Pay for Performance Program, which provides financial incentives for local providers to adopt electronic medical records and best practices in automation.

In general, employers continue to see their employees’ health as an imperative, but are struggling to reconcile price increases with the many other expenses that Silicon Valley companies face.

The Business Cluster Perspective

Hospitals, clinics, medical practices, insurers, biotech and pharmaceutical companies, and medical device companies are among the major business interests in the health care field.

Median household income: $57,708 (USCB 2010)Per capita spending on healthcare: $7,410 per person (World Bank 2009)

Silicon Valley’s unique ecosystem of venture capital, education institutions, and the highly educated workforce they spawn, create a dynamic environment where changes in policy for life sciences and medical fields are acutely felt. For example, the passage of the ballot initiative for state funded stem cell research, and subsequent establishment of its managing institute in San Francisco, has been met with great enthusiasm. Companies have been formed and made expansion decisions largely predicated on the institute and the commitment it represents to the industry.

Silicon Valley is home to concentrated clusters in the medical device industry as well as the research, testing and medical laboratories field, which are both large and rapidly growing compared to other areas. However, Southern California, New York/New Jersey, and other regions are major competitors. California struggles to maintain its position as other states aggressively pursue tax and economic development strategies to lure companies.

The Consumer Perspective

According to the Centers for Medicare & Medicaid Services, households expended 28% of the dollars for health care in the US in 2009. Private sector employers represented 21%, and the government paid 27%.

While a plurality of health care expenses continues to be borne by government, the trend in spending is toward greater consumer costs and away from employer costs. There are several components to this equation: increased employee participation in their premiums, larger co-payments, and a new “consumerism” represented by trends such as high deductible plans with health savings accounts.

Our current coverage rate in Santa Clara County is 76% (County Health Rankings), and there are some very positive developments in Silicon Valley that may decrease the number of uninsured. Santa Clara County is home to one of the earliest and most aggressive local efforts to get all children insured. It has had tremendous success enrolling eligible kids into existing state and federally funded programs, as well as directly insuring others. In recent years, the program funding has decreased. The Leadership Group played a large role in promoting Measure A, a parcel tax, to secure sufficient funding to the Healthy Kids program. Unfortunately, Measure A failed in 2010 and the Leadership Group continues to search for funding to insure the children of Santa Clara County.

A comparison region to Silicon Valley, Boston, is at the center of the statewide program initiated in Massachusetts to extend health insurance to all residents.

The Reform Perspective

With the implementation of the National Health Reform come many changes to Silicon Valley’s health policies. Some policy changes of interest to the Silicon Valley Leadership Group include:

Cost containment through innovation, quality and effectiveness

• Coordinated use of information technology (IT), not limited to electronic medical records, to improve efficiencies, reduce errors, and improve quality
• New, efficient and effective delivery models that include IT, prevention, care coordination and reimbursement for quality, not quantity
• Development of better treatment/maintenance of costly chronic diseases, early intervention and screening mechanisms
• Cost containment that does not discourage businesses to innovate new products
• Tort reform to reduce the defensive practice of medicine

Policy and incentives to promote prevention and wellness

• Since 75% of the nation’s $2.5 trillion spent in health care are medical costs associated with chronic disease, investments in keeping people healthy rather than treating them once they become ill will ease the total cost burden in the long run
• Encourage public and private sector partnerships incorporating schools and workplaces to bring environmental and behavioral changes around food, nutrition and physical activity
• Tax incentives or favorable regulatory environments for employer wellness programs including more flexibility for employers to offer incentives for healthy behavior and biometrics

Support for Medicaid in California

• California is disadvantaged by an unfair and outdated method of calculating federal assistance for Medicaid.  Federal Medical Assistance Percentages (FMAP), determines that calculated rates that the US Department of Health and Human Services will used in determining the amount of federal matching for state medical assistance. These percentages will be effective from October 1, 2011 through September 30, 2012. Currently, California’s FMAP is 50%.
• In the last three years, California has already made $57 billion in spending reductions and could possibly add another $1.8 billion to make up for federal losses.
• In 2010, the governor proposed deep reductions in Medicaid services. This includes a $1.5 billion reduction in K-12 and community college funding, a 5-10% cut in state employee salaries, a reduction in a monthly grants to low-income people who are elderly or have disabilities. The elimination of the state’s CalWorks program and a number of human service programs, along with the elimination of the state’s child care subsidy program will leave the low-income working parents of 142,000 children without a crucial support that helps them keep their jobs.