What does the health reform law do to try to control costs?

The recently passed healthcare reform law will help provide health insurance to an estimated 34 million uninsured Americans.

But can the law, the Patient Protection and Affordable Care Act, also slow the growth of overall healthcare spending, which now accounts for 17.8 percent of the nation’s gross domestic product (GDP) and is predicted to rise to 21.0 percent of GDP by 2019?

An analysis released today by the Robert Wood Johnson Foundation and the Urban Institute concludes that cost containment “is likely to be the most difficult challenge facing health reform” and that it remains to be seen whether stronger measures will need to be adopted to bring healthcare spending under control.

In the report, Stephen Zuckerman, a senior fellow in Health Policy at the Urban Institute, concludes that it is “reasonable” to expect that the combination of cost-containment provisions in the legislation will cover the extra cost of providing coverage to the uninsured, but whether the measures will be able to slow the overall cost of healthcare in the U.S. is uncertain.

About half the cost of covering the the uninsured will be financed by reducing government payments to Medicare Advantage plans and to many Medicare providers.

These measures, Zuckerman says, not only help offset the cost of expanding coverage but also help extends Medicare’s solvency.

But because there was no “clear consensus” among lawmakers on how best to contain costs, Zuckerman writes, the law contains several different cost-containment provisions, including:

• Health insurance exchanges where insurance companies would have to compete for business on the basis of price and service.

• An excise tax on high-cost “Cadillac” plans

• Reforms in delivery and payment systems

• Medicare payment cuts

• Prevention and wellness programs

• Efforts to reduce waste and abuse

• An Independent Payment and Advisory Board

Here’s how they will work:

Health Insurance Exchanges:

Health Insurance Exchanges are essentially markets where individuals and businesses can go to comparison shop for health plans, thus pooling their purchasing power and forcing insurers to compete on the basis of price and service.

Zuckerman concludes, if the the exchanges function as intended, they will force insurers cut costs, not by avoiding high-cost patients, but by negotiating better deals with health providers, eliminating waste, and lowering administrative overhead.

Excise Tax on high-cost plans:

This measure would levy a 40 percent excise tax on high-cost health “Cadillac” plans–those with premiums above $10,200 and family premiums above $27,500.

This would create an incentive for employers to offer less generous benefits and likely raise deductibles and co-payments for their employees, which in turn would induce them to use fewer services and be more willing to join lower-cost plans, such as those that limit provider choice, Zuckerman says.

Delivery system and payment reforms:

One provision, for example, encourages the formation of accountable care organizations in which primary care providers, specialists and hospitals team up to provide high-quality care at lower costs with a portion of the savings being shared by the organization and its members.

Medicare payment cuts:

Under these provisions, for example, Medicare payments would rise more slowly forcing providers to become more efficient and lower the cost of care.

If private health plans followed a similar program, Zuckerman says, it could lead to lower health costs overall. But, he adds, there’s the risk that providers with enough market clout could offset the Medicare costs by charging private plans more.

“If private payers cannot control payments to strong providers,” writes Zuckerman, “it could suggest a need for a strong public plan that would negotiate prices more aggressively or for explicit all-payer rate regulations that would determine what private plans would pay providers.”

Prevention and wellness:

Among these provisions is  a change in Medicare so that an annual wellness visit is added to the guaranteed visit and an lifting of co-payments for preventive care that has been shown to be effective.

Qualified private plans are also required to cover without cost-sharing preventive services of proven benefit, under the new law. Zuckerman thinks the Congressional Budget Office has underestimated the potential benefits of these measures.

Reduce waste, fraud, and abuse:

Efforts to fight fraud in Medicare and Medicaid, for example, saves $1.75 for each $1 invested. Savings could be considerable if aggressive efforts to fight waste, fraud and abuse lead “substantial change in provider behavior and service patterns,” Zuckerman writes.

Independent Payment Advisory Board (IPAB):

The healthcare reform law creates an independent expert board to oversee healthcare costs.

If Medicare costs grow faster than an average of the consumer price index and the Medical Care consumer price index, beginning in 2015 IPAB is to recommend specific Medicare spending cuts that the Department of Health and Human Services must implement, unless Congress comes up with equally effective alternatives.

The IPAB’s recommendations are also expected to influence what private plans pay.

“Barring other legislative actions, IPAB could be one of the most important cost-containment provisions in the law and have a direct impact on government and spending and deficits,” Zuckerman says.

But its effect on the nation’s overall health bill, will be “limited if there is not a serious effort to control private spending at the same time,” he writes.

To learn more:

• Read Zuckerman’s report: What are the provisions in the new law for containing costs and how effective will they be?
• Visit the Urban Institute Health Policy Center’s website: www.urban.org/health_policy/
• Visit the Robert Wood Johnson Foundation website: www.rwjf.org

Tags: Health Insurance, Healthcare Reform, Insurance, Medicare

Category: Health Insurance, Healthcare Reform, Medicare, News