Cost Containment and State Health Care Reform

NAIC Health Innovations Working GroupMarch 29, 2008

Isabel FriedenzohnDeputy Director, State Coverage Initiatives

State Coverage Initiatives (SCI )• An Initiative of The Robert Wood Johnson

Foundation• Direct technical assistance to states

– State specific help, research on state policy makers’ questions

– Convening state officials– Web site: http://statecoverage.net– Coverage Matrix– Publications

• Grant funding

State Coverage Initiatives

Health Care Costs – The Dilemma

• Per person spending expected to increase from $7,026 (’06) to $13,101 (’07)

• Projections that national health care spending will reach $4.3 trillion by 2017 (20% GDP)

Keehan, S., et al., ‘Health Spending Projections through 2017: The Baby-Boom Generation is Coming to Medicare,” Health Affairs Exclusive, February 26, 2008, W-145.

Percent of Median Family Income Required to Buy Family Health Insurance

8

18

0

2

4

6

8

10

12

14

16

18

1987 2004

Source: Calculations by Len Nichols, using KFF and AHRQ premium data, CPS income data.

Labor Market Realities Occupation Family premium/Median wage

Physician 7.3%

History professor 15.8%

Secretary 29.1%

Carpenter 24.2%

Cook 49.8%

.

Source: KFF premium and BLS wage data

Increases in Health Insurance Premiums Compared to Other Indicators, 1988-2007

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2007; KPMG Survey of Employer- Sponsored Health Benefits, 1993, 1996; The Health Insurance Association of America (HIAA), 1988, 1989, 1990; Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April), 1988-2007; Bureau of Labor Statistics, Seasonally Adjusted Data rom the Current Employment Statistics Survey, 1988-2007 (April to April).

Root Problems• Inappropriate and/or overutilization of medical care/

good new technologies• Regional variation in services and spending• Administrative inefficiency associated with

payer/provider/patient interface• Growing uninsured population• Insufficient preventive services• Patients’ lack of price sensitivity• Incentive mis-alignment• Under-application of current evidence base• Too small an evidence base• Poor lifestyle choices

Nichols, L. “Financing Health Reform: Share Responsibility IS the American Way.”, Financing Health Care Reform in New Jersey Forum, March 18, 2008.

HCFO Hot Topics on Health Care Costs.

Distribution of Health SpendingAdults Ages 18-64, 2001

Source: Employee Benefit Research Institute estimates from the 2001 Medical Expenditure Panel Survey.

$0

$10,000

$20,000

$30,000

$40,000

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Percent of Population

Ave

rage

Cos

t P

er P

erso

n

Average Cost = $2,454

or higher

20% of population that accounts for 80% of spending

More than 80% of Health Care Spending on Behalf of People with Chronic Conditions

1 Chronic

Condition,

21%

2 Chronic

Conditions,

18%

3 Chronic

Conditions,

16%

4 Chronic

Conditions,

12%

5+ Chronic

Conditions,

16%

O Chronic

Conditions,

17%

Thorpe, Kenneth E, PhD. What Accounts for the High and Rising Costs of Health Care? Slides presented at the State Coverage Initiatives National Meeting, Washington, DC, February 23-24, 2006

Challenges of Cost-Containment

• One person’s cost is another’s income

• System savings are not necessarily payer’s or state’s

• Cost-shifts have multiple participants and time horizons

Nichols, L. “Financing Health Reform: Share Responsibility IS the American Way.”, Financing Health Care Reform in New Jersey Forum, March 18, 2008.

Types of Possible Remedies (1)• Purchasing to Improve Quality/Patient Safety

– Pay for performance – Tiered networks– Strengthening primary care and care coordination

(medical homes)– Improve Efficiency (i.e., appropriate care settings)

• Purchasing Strategies to Reduce Costs– Pooled purchasing, rebates, etc

• Promoting Health and Disease Prevention– Wellness Programs– Disease Management– Reducing Obesity/Tobacco Use– Positive incentives for Health

• Producing and Using Better Information– Information Technology

• Evidence-Based Medicine

Commonwealth Foundation. Bending the Curve: Options for Achieving Savings and Improving Value in U.S. Health Spending. 2008

Types of Possible Remedies (2)

• Consumer-Related StrategiesChanges to Consumer Cost SharingConsumer Education (Performance Guides, Cost

Transparency) Consumer-Directed Health Care

• Supply ControlsRation Services, CON, professional supply,

technology diffusion

• Price ControlsPublic Program Payment Formulae

(Medicaid/Medicare)Use Buying Power of State (Medicaid/State

Employees)

State Efforts: Councils focus on Cost and Quality

• MA – Health Care Quality and Cost Council• WV – Interagency Health Council• ME – Maine Hospital Cost Commission• LA – Health Care Quality Forum• MD – Maryland Health Quality and Cost Council• OH - Office of Health Ohio • CO - Center for Improving Value in Health Care • OR – Oregon Quality Institute

State efforts: RI HEALTHpact• “wellness health benefit plans” for small

businesses (<50 employees)• Benefit design encourages wellness

programs• Insurers (2) required to offer• Premiums must be equal to more than

10% of average annual state wages.• Tiered provider networks

CA reform proposal: Cost Containment

– Requirement that employers establish Section 125 plans

– Individuals also able to make pre-tax contributions to HSAs

– Work with both providers and insurers to improve efficiency and reduce overall health care costs

– Implement health information technology (stipulates goal of achieving 100 percent electronic health data exchange in the next 10 years)

– Increases Medi-Cal reimbursement rates to reduce cost-shifting (‘hidden tax’ on private payers).

Prescription for Pennsylvania

Prescription for Pennsylvania is a set of integrated practical strategies for improving the health care of all Pennsylvanians,

making the health care system more efficient and containing its cost.

Source: Presentation by Ann S. Torregrossa, Deputy Director & Director of Policy GOHCR. NGA meeting on Benefit Design.March 26, 2008

Pennsylvania Proposed Reforms:Prescription for Pennsylvania

Rx for Affordability Rx for Access Rx for Quality

Cover All Pennsylvanians Health Care Workforce Hospital-Acquired Infections

Coverage for College Students and Young Adults

Removing Practice Barriers Quality Outcomes

Community Benefit Requirements

Cost-Effective Sites Pay for Performance

Uniform Admission Criteria Co-Occurring Disorders Chronic Care

Fair Billing and Collection Practices

Governor may consider individual mandate if

number of uninsured does not decline over next few

years

Health Disparities

Capital Expenditures Child Wellness

Small Group Insurance Reform

Adult Wellness

Transparency of Cost and Quality Data

Long Term Living

End of Life and Palliative Care

Source: Presentation by Ann S. Torregrossa, Deputy Director & Director of Policy GOHCR. Alliance for Health Reform Briefing, October 26, 2007

Pennsylvania: “Every day that passes without meaningful change increases the cost to our health care system.”

Inefficiencies Drive Cost in Pennsylvania's Health Care System

$965 Million

$1.7 Billion

$3.5 Billion

$1.4 Billion

0.000

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

1

Cost of the Uninsured

Health AcquiredInfections

Chronic CareHospitalizations

Readmissions andErrors

Lessons learned in state reform efforts

• Little success so far in addressing underlying cost of health care but a new focus on chronic care management holds potential

• Address access, systems improvement, cost containment simultaneously—concern about long-term sustainability of programs and improved population health

State Coverage Initiatives