CWA HEALTH CARE REFORM UPDATE: Cost Control Provisions

According to the OECD the United States spent $8,500 per person on health care in 2011, more than any other developed nation in their survey and 1.5 times the 2nd highest country. Despite spending more than any other country, US citizens do not get the best health outcomes. The World Health Organization ranked the US health care system 37th in the world in terms of population health.

The goal of the Affordable Care Act is to simultaneously improve health and lower costs by pairing expanded access to health insurance with reforms aimed at getting better quality for our health care dollars. Below are 6 of the main ways the bill controls the growth in spending, drawing on many different theories about the cause of high costs. Many of these provisions haven’t gone into effect yet but there’s evidence that the bill is already working.

1. Health Insurance Exchanges - Starting in 2014, the uninsured will have access to subsidies that will help them buy coverage on new health insurance marketplaces, called Exchanges. These marketplaces will be designed to make it easy for customers to compare prices between insurance companies online, over the phone, or in person with professional “navigators.” Under this theory, health care costs are expensive due to the lack of competition. Giving customers the ability to comparison shop will lower prices, similar to the way that Travelocity or Expedia help airline customers pay less.
2. Excise Tax on High Cost Health Plans - Beginning in 2018, employer sponsored health care plans that cost above a certain threshold will be subject to a new tax. The theory behind this provision is that the tax will give employers an incentive to spend less on health care coverage for their workers (which is currently not subject to income or payroll taxes) and move that compensation into wage or other benefits. CWA does not endorse this provision and is seeking to mitigate the effect of this new tax on our members.
3. Independent Payment Advisory Board (IPAB) - Beginning in 2014, if Medicare annual cost increases exceeds certain levels (CPI before 2017, GDP + 1% after 2017) the IPAB will be required to create a proposal outlining savings and spending reductions for the program. This proposal will become law unless Congress passes an alternative bill that achieves the same savings. This provision is based on the theory that increases in Medicare spending are difficult to control due to the political power of doctors and beneficiaries in the program. Putting default spending cuts in place when costs rise will make it easier to control spending on this program.
4. Health Care Co-ops - During the passage of the Affordable Care Act, many groups (including CWA) fought for a “public option” government-run health plan to compete on the exchanges against private insurance companies. Our theory was that a public plan could provide cheaper coverage because it wouldn’t have to earn profits for shareholders. The plan would also provide increased competition for private insurers, keeping their prices low. The public option did not survive but the final bill included subsidized federal loans to start-up new health plans called “Consumer Operated and Oriented Plans" (CO-OPs). These will be non-profit insurance organizations that will provide competition for the for-profit insurance companies on the new state-based exchanges. 22 of these plans will launch in 2014.
5. Improving Incentives for Doctors - Another theory says that the way we pay doctors for care leads to high costs and poor outcomes. Often doctors are paid for each procedure they perform or illness they treat without consideration for the overall health of the patient. Doctors do not have an incentive to forego unnecessary treatments or take steps to prevent future illnesses. The ACA includes new models for paying doctors that address these issues.
   1. New Organizations - Health reform includes funding to help promote and spread new types of doctor organizations that will emphasize primary care and overall health.
      1. Accountable Care Organizations (ACOs) are groups of doctors that will be paid as a group based on the quality and cost of care they provide under Medicare. They will be eligible to receive a portion of the savings they create if they hit quality targets.
      2. Patient-centered Medical Homes (PCMH) and Community Health Centers are other new types of organizations that will receive additional funding under the ACA. These organizations put an emphasis on preventive care which means less money spent on costly diseases that could have been cheaply prevented or managed.
   2. Reformed Payments - In 2013 Medicare began to offer hospitals new payment incentives to improve outcomes for patients. Hospitals with high preventable readmission rates (this includes patients who come back due to infection, improper follow-up treatment, and other issues caused by fragmented care) will see reductions in the payments they receive.
6. Waste, Fraud and Abuse - The ACA includes new funding to investigate potential fraud and abuse under Medicaid and Medicare. The ACA also give these programs the ability to perform more thorough oversight of providers and to impose harsher penalties.