As states work on implementing the complex federal health care reforms, some have begun tackling an issue that has vexed employers, individuals and governments at all levels for years — the rapidly rising costs of health care. The success of models that are beginning to emerge across the country will ultimately determine whether the Affordable Care Act can make good on its name.
It’s too early to tell what will work and what won’t, but states, insurers and medical groups are experimenting with a variety of programs to contain costs without undermining care. These test runs come as millions of new patients will gain eligibility for health insurance under the federal law, putting additional pressure on the system.
“Look at any of the long-term projections for the federal budget or for state budgets,” said Alan Weil, executive director of the National Academy for State Health Policy. “If we don’t bring down health care costs, we’re either going to be paying a whole lot more in taxes or we’re going to stop spending money on other things we care about.”
The Affordable Care Act is expected to extend coverage to many of the roughly 50 million Americans who lack insurance by expanding Medicaid, the state-federal health care program for low-income people, and requiring most others to purchase insurance or pay a fine.
Often overlooked are the law’s efforts to stabilize constantly rising costs.
U.S. health care spending reached $2.7 trillion in 2011, or $8,700 per person, according to the Centers for Medicare and Medicaid Services. The agency says those numbers are climbing and predicts spending will reach $14,000 per person by 2021.
The higher costs mean higher premiums for businesses, which are passing on more of those expenses to their employees, and for individuals, who are seeing a rise in out-of-pocket costs.
In the Portland area, spiking costs have forced Steve Ferree to reduce the benefits he offers his 32 employees at the Mr. Rooter Plumbing franchise he owns.
“We feel bad about it,” he said. “We do provide good insurance, and we want to make sure we take care of folks, so that’s a tough decision to make.”
Premiums for employee-only coverage have spiked 65 percent since 2006, Ferree said, and employee and spouse plans rose 90 percent. Workers cover a quarter of the premium.
The struggles of business owners such as Ferree illustrate the difficulty of finding solutions, even in a state that has been held out as a potential national model for savings.
The recession provided what is expected to be a temporary reprieve, with health care costs slowing to 3.9 percent annually between 2009 and 2011, the slowest growth rate since the government began keeping track in 1960, according to data from the Centers for Medicare and Medicaid Services. Over the preceding 18 years, per capita health care costs grew an average of 6.5 percent a year.
Yet despite the recent slowdown, health care costs continue growing faster than both wages and the economy as a whole, accounting for an ever-larger share of spending for employers and workers alike. It now accounts for nearly 18 percent of U.S. economic activity, up from 5 percent in 1960.
Annual premiums for employer-sponsored family coverage jumped nearly 4 percent this year, and single coverage rose almost 5 percent, according to a report released last week by the nonprofit Kaiser Family Foundation. The foundation expects prices will begin rising faster as the economy improves.
Economists say soaring health care costs are driven primarily by industry consolidation and expensive new medical technologies and prescription drugs.
The Affordable Care Act’s cost-containment section reduces Medicare reimbursements to providers and requires commercial insurance companies to issue refunds if more than 20 percent of their revenue goes to profits, salaries and overhead. Hospitals will face penalties when patients develop conditions while in their care.
The federal law also promotes “accountable care organizations” within Medicare, which are charged with improving coordination to reduce wasteful spending.
But much of the experimentation on reducing costs is driven by state governments and private businesses.
Oregon has tried to tackle rising costs by focusing on Medicaid, which serves 550,000 people in the state and is expected to grow by 200,000 under the Affordable Care Act’s Medicaid expansion that starts next year.
Gov. John Kitzhaber spearheaded last year a new model of delivering services under Medicaid. His initiative led to a state law that set up “coordinated care organizations,” which attempt to integrate mental, physical and dental care as they improve the way chronic conditions are managed. These organizations are required to manage their costs within a fixed rate of growth.
Some coordinated care groups are hiring staff to work intensely with Medicaid patients who frequently visit the emergency room.
“We try to deal with the medical part. But everything they go through, we have to take into account, because if you don’t have money to pay your bills, you’re going to have stress” that complicates medical problems, said Ruby Ibarra, a community health specialist for Multnomah County, which is part of a coordinated care organization in the Portland area.
Elsewhere in the state, Trillium Community Health Plan in Eugene has a program starting this month that gives up to $200 in prepaid debit cards to pregnant mothers who quit smoking.
Oregon’s law also has led to the rapid expansion of “health homes,” supporting a system of primary care that calls for clinics to stay open longer and offer same-day appointments.
The health home model has been successful at improving preventive care in Enterprise, Ore., a town of 2,000 in the remote northeastern corner of the state.
“You don’t feel like you’re just pushing papers around here. You really feel like you have an important part to play in improving people’s health,” said Dr. Elizabeth Powers, one of four physicians at Winding Waters Clinic in Enterprise, an early adopter of the health home model.
The clinic serves all patients, including those with Medicaid, Medicare and private insurance. The federal Affordable Care Act also encourages wider adoption of the health home model.
In New Jersey, hospitals have reported success with a Medicare program that paid doctors who saved money for hospitals. Officials said it contributed to lower costs and shorter hospital stays without increasing mortality or readmission rates because doctors began considering the costs of their orders.
The experiment, known as “gainsharing,” is expanding this year to more hospitals, including some outside New Jersey.
In Massachusetts, the first state to enact comprehensive health care reforms, lawmakers supported last year a goal of restraining the rise in health care costs to a level no greater than the state’s overall growth rate. To accomplish this, legislators passed a multi-tiered state law that expands the role of physician assistants and nurse practitioners to act as primary care providers, making it easier for patients to access care outside the emergency room.
The law also requires providers to disclose more information to consumers about costs and quality and allows the state to review proposed consolidations to assess the effect on those factors.
The Massachusetts regulations provide money to accelerate electronic record-keeping and create tax credits for businesses that adopt wellness programs to combat preventable chronic diseases.
Cost-containment efforts are not confined to states that have embraced President Barack Obama’s health care reforms.
Many Southern states are transitioning their Medicaid patients into managed-care programs, which receive a fixed amount of money for each patient, regardless of their costs. Some insurance companies are thinning their networks of doctors to funnel patients to lower-cost options.
South Carolina, for example, is targeting elective early births, trying to keep newborn babies out of the expensive neonatal intensive care unit. The state also trained 18 community health workers who are in clinics that see a large number of Medicaid patients.
There are substantial challenges to copying these experiments nationally. Adopting a technology system to keep medical records electronically, for example, entails substantial upfront costs, as does hiring staff to coordinate patient care. At the same time, providers have to be careful to avoid skimping on needed care to save money.
Most of the experiments are too new to produce reliable data about their success, but health policy experts warn that the rapid rise in costs is unsustainable.
“It has to end eventually,” said Larry Levitt, senior vice president of the Kaiser Family Foundation, “because we can’t have an economy driven entirely by health care.”