Remarks by Former HHS Secretary Kathleen Sebelius at the
American Academy of Actuaries Annual Meeting and Public Policy Forum in Washington, D.C.
November 13, 2014
 
Kathleen Sebelius: I want to thank President Terry for inviting me here. I wanted to start by just telling you a little of my personal experience with actuaries.
 
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I became first acquainted when I was elected insurance commissioner in 1994, and the actuaries in our department played a crucial role in helping us make important policy decisions about company rates, about balancing solvency with consumer protection, about forecasting into the future. So we did that on individual policy decisions, but also had a very critical role to play with helping to give advice on balancing the high-risk pool that we were running as a state. So I had both those roles—and a key team of actuaries in that department.
 
Then as governor, I worked a lot with the actuaries on the State Employee Health Insurance Plan. It was a self-funded plan, so clearly looking into the future about, again, how to balance what we were charging individual state employees with what the trends were looking like in the future was always a difficult assignment, but made easier by having teams of folks who I could rely on. And then finally, as HHS secretary, clearly the actuaries both within the Centers for Medicaid and Medicare Services, but also who worked with me as one of the trustees for Medicare and Social Security, provided again critical input. And I know as we looked at the ACA, members of your Academy provided, I think, amicus testimony at the Supreme Court level about issues like what the impact would be in the insurance market without an individual mandate, giving a very professional assessment of how that would impact the insurance industry into the future.
 
So I just want to start with a thank you for the important work you do. I think you are often out of the limelight, not necessarily front and center. That probably is a relief in many ways, but I can tell you as somebody who has been in the public sector for 30 years and dealing with complicated policy issues, the expertise that you bring to the table and your members bring to the table is really essential.
 
I want to spend a little bit of time this morning talking a bit about health care and at least some of the big trends [that] I think … are unfolding and may have an impact in the future. But I need to really start with the beginning, at least my beginning in this important role and job that I took.
 
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Now, HHS, just to put it in perspective a little bit, is one of the largest domestic agencies, with about 90,000 employees, just under a trillion-dollar budget, and 11 different agencies—everything from the National Institutes of Health doing world-class research, the Food and Drug Administration, the Centers for Disease Control and Prevention, and certainly the Centers for Medicare and Medicaid Services, where about 120 million people are insured right now. So almost a third of the country has some kind of insurance coverage with one of the public programs. That would be a pretty [big] health portfolio in any day and age, but certainly the commitment of this president to move ahead on comprehensive health reform added an additional layer to that. The office was very much involved in helping to frame some of the principles around the initial framework. But Congress was very engaged in writing bills. There were actually five bills, three in the House and two in the Senate, that ultimately were debated and brought to the floor. One bill passed the House and the Senate, ultimately reconciled and a final bill reached the president’s desk in March of 2010. And then we began the daunting task of implementation.
 
I would say that there is some nostalgia about the good old days. And I just want to give you a little snapshot of the good old days, because I think it helps with this perspective. This was an insurance market dealing with people who bought coverage on their own. They did not have coverage in their workplace, or they did not have a workplace, or they were in a small group market. And for the 10 years before the Affordable Care Act was passed, rates had gone up by double digits each and every year. Fewer employers were offering coverage, so more people were losing workplace coverage. There was a situation in the United States, where we were spending about two and a half times any nation on earth per capita for health care. We had mediocre—at best mediocre—health results, and the largest number of uninsured people of any developed country in the world. So that snapshot was also [exerting] huge financial pressure —employers’ profitability was being threatened, government budgets were being threatened, family resources were being threatened, and the outlook was not very rosy as you projected into the future. And I would just like to repeat that because I think sometimes going back to the good old days that is what the “good old days” looked like, with those kinds of gaps. And when the recession hit, those trends just accelerated dramatically.
 
I would say, overall, the early stages of implementation went pretty well, although it was a very complicated process with three different federal departments writing regulations. Pieces of the puzzle came into place, and then we reached the final phase, which was going to be open enrollment in October of 2013. I was worried and spent a lot of time and energy worrying about whether we would actually have a market. That to me was the big concern, because there was no mandate that companies had to sell in this virtual marketplace—and if we did not have competitive markets, as you all know well, prices could continue to skyrocket. There was also no real guarantee that a lot of people who were on the consumer side would buy. So we spent a lot of time and energy both creating a platform that would encourage insurance companies to come into what was often a consolidated market and trying to educate consumers. Clearly, not enough time on the website.
 
Let me just make that very clear. For those of you who might have missed it, but there was a little website issue, a little problem. And that was a disastrous rollout and a very, very difficult eight weeks. But [we] did what I think you need to do when there is a big mistake, which is own it and apologize for it, and fix it. And then hopefully, get it up and running. And that is what happened. So by December, we had a website that functioned far better. And my real regret about all the website issues is that it really still masked the fact that almost 8 million people ended up signing up through the website, and about 7.3 million people have coverage now in these markets across the country. And we have a real market—25 percent of the carriers were new in 2014. There is another additional 25 percent coming into the market in 2015, which means that for insurers, they looked at what the risk pool was at the end of the day and said, “This is a viable plan.” And that is a market bet on the future, which I think is very good news.
 
But I would tell you that the focus on the market, as important as it is to provide coverage for a number of Americans who had no coverage or had no affordable choices, misses a lot of the point of the Affordable Care Act. And that is really what I want to talk about for a few minutes. The framework of the Affordable Care Act is in part expanding access, but a large part is really dealing with what is the bigger elephant in the room, which is delivery system reform, and how you change that trajectory that I talked about a little while ago, where America was spending so much more per capital on health care and our health results really were pretty lousy. And that reform is very much under way. And I just want to mention I think four big trends that are playing out, and I think will be accelerated in the next couple of years.
 
The first one really is a move as rapidly as possible in the Medicare system from a fee-for-service payment to a value-based payment based on outcomes and measurements. While that has been discussed in the past, there really has not been much of a framework to do that. And just as recently as two years ago, you could have a situation where someone went into the hospital for surgery on his right arm, and the doctor performed the wrong surgery. Not only would they be paid for the wrong surgery by Medicare, but then they would be paid again to perform the right surgery. And as that patient recovered, if he got an infection in the hospital based on not what brought him in in the first place, but because of the infection rate in that hospital, the hospital would actually collect more money over the course of the stay based on the fact that that patient now is spending an additional two weeks in the hospital. And when that patient was released, if he came back into the hospital within 30 days, the way that one out of five Medicare patients did, without any kind of consultation with a health care provider, without any check, the hospital again would be paid additional fees for that stay. And there would be no measurement of whether or not that could have been prevented, whether or not that could have been avoided. Those incidents are now in the past. There is no more payment in Medicare for what [are] called “never events,” things that should have never happened in the first place.
 
There is a very comprehensive approach now to hospital-acquired infections that is actually having a very positive impact nationally on what is going on with infection rates in the hospitals. There are strategies in place for preventable readmissions, where there is a measurement if, indeed, patients come back for what could have been prevented by an intervention [by] a health care provider. Some of that is the way bundled payments are made, so you do not just dismiss a patient as he or she goes out the door—you actually have a responsibility to follow up for 30 or 60 days. But those kinds of strategies are part of payment schedules into the future, and I think can have a very positive impact, not only on cost but on quality of care that affects all of us, whether or not you have insurance coverage in or out of the marketplace. This is the quality of care that everybody receives. And we are seeing for the first time significant trends that are very positive in a number of these areas.
 
But the most important piece of this puzzle is that the Affordable Care Act gives CMS the authority to test protocol through innovation-centered tests and grants, to measure it with the actuaries saying, “This actually will lower costs and trends over time,” and then take it to scale nationally. No longer do you have to run a demonstration project in a small group and then go back to Congress and ask for permission. This is actually administrative authority to put in place protocols that improve quality and lower costs. And that is a huge impact that can have a very positive effect on care overall, and I think something that is likely to be accelerated.
 
The second trend in health care is, I think, the introduction finally of big data and the use of data. I would say that the health industry, a $2.5 trillion industry, was somewhat impervious to the technological advances, innovations and changes that were going on in every other industry in this country. And as recently as 2008, about 9 percent of hospitals and about 20 percent of doctors were not using any kind of comprehensive electronic health records. Now think about that. You have a $2.5 trillion industry still changing information on paper files throughout the system. And that lends to not only higher costs but more mistakes, difficulty measuring or looking at protocol, difficulty identifying outliers, figuring out practices. That snapshot now is that over 80 percent of hospitals are adopting and have in process electronic health records and the majority of doctors, even in small practices, which means for the first time, there really is an opportunity to look at data to make sure that outliers are identified. That practices are as efficient as they possibly can be, that hospitals are collecting information, and that patient care is actually improving.
 
The Department of Health and Human Services also has been unlocking these vast storages of data … pushing them out into the public domain. So entrepreneurs and engineers and policymakers can look at this, creating applications that people can use to monitor their own health, to choose their own providers, to measure their own care. There is a lot of grading going on right now. A lot more transparency around pricing and for the first time, I think we will introduce a major consumer voice into health care, which was really not heard from in the past. Because most people did not even have their own health data, much less be able to compare what was going on. So that is under rapid transformation, and I think that will also inform delivery system changes at a much more rapid pace.
 
I would say the third area is a focus—and, again, the Affordable Care Act helped to inspire a lot of this—on prevention and early intervention. There is finally a stream of not only resources available for a whole variety of preventive measures that can actually keep people healthier in the first place, but also a double down on two issues which are driving a lot of the chronic health care costs: smoking and obesity. And the United States had flat-lined our smoking cessation efforts. We were at about 20 percent. We have been at 20 percent for the last 20 years of young Americans as well as adults who were smokers. The FDA now has regulatory authority. That will continue to be an effort to really drive that rate down, which leads to far fewer diseases and chronic illnesses in the future. And on the other hand, the obesity issue is beginning to be tackled seriously for the first time. Focus on childhood obesity, changing rules and regs, changing the scenario. Looking at what is it that can change behaviors around obesity. But if those two issues can be successfully tackled and 50-year-olds, fewer of them are smokers and are overweight, there is a very different health care cost about the future of the next generation than we are looking at right now.
 
And, finally, I think that the fourth area, which is just beginning to play out and has huge impact and is really transformative, is the area of personalized medicine and targeted therapies. So the unlocking of the human genome really created a road map for the first time about how individuals react to certain drugs, and how individual diseases attack certain people, to the point that the FDA recently has identified 50 what they call potential breakthrough drugs. Eighty percent of those are in the targeted therapies area. So it is, while we know that a drug may not have been effective for a whole host of diabetics, it may be effective for 50-year-old women who have this certain genetic makeup as diabetes. And that can be a huge breakthrough. There are drugs that are advancing to tackle advanced lung cancer, which has had amazing impact. Populations who have cystic fibrosis, who have certain tumor organizations, are now able to take a medication that just was not available before. Amazing NIH/FDA collaboration going on with the private drug companies to try and jumpstart a number of these therapies. And some will have a big price tag. We have seen a couple of them come on the market recently, but I think there is also a huge upside to saving lives and curing diseases which earlier had been impervious to drug treatment.
 
So there is a lot going on right now in health space. And at least I am told by a lot of the providers that the amount of transformation in the health industry is more significant than anything that they have ever seen in their lifetimes, whether it is a provider looking at his or her own personal practice or hospitals looking at ways to deliver care. Or community health workers who are reenergized by the notion that we are really going to try to keep people healthier in the first place, and align financial incentives with health and not just wait until we get to acute care.
 
And I would say that the data will inform a lot of the policy decisions going forward. And again, we will end with where I started, where the work that you are able to do with not only an analysis of trends and issues, but looking and forecasting into the future, will be more important than it has ever been, because we are on a new horizon. There is a new terrain here, and I think it will have a significant impact on not only government budgets, but certainly business profitability, personal budgets, and overall, the health and well-being of the American population.
 
So again, thank you for having me here today. And thank you for the work you do each and every day.