Innovation Office Aims to Reduce Medical Costs

The most prominent elements of the Patient Protection and Affordable Care Act concerned insurance reforms.  Limits were placed on what carriers could (join exchanges come 2014) and, more significantly, could not do (term off children dependents under the age of 26, apply pre-existing condition limits on children under 18, rescission restrictions, etc.). Less well known are the cost containment features in the health care reform legislation. One reason is that most of these elements are in the form of studies, creation or expansion of commissions, pilot projects and the like.

Supporters of the reform bill would argue that the creation of exchanges will lower costs as will the PPACA’s requirement that carriers spend a specified percentage of premiums on claims and health quality, in essence limiting the amount of premium dollars that can be spent on overhead and profits. Whether exchanges will lower costs or simply add the cost of another layer of bureaucracy on coverage remains to be seen. And I have severe doubts the medical loss ratio requirements will result in lower premiums. Even if successful, these measures will bend the premium cost curve. But the real driver of premiums is the cost of medical care. So long increases in for the cost of services and products from doctors, hospitals, pharmaceutical  and other health care providers increases are substantially greater than general inflation, premiums are going to rise – and rise substantially – to keep pace. And given the nature of deductible leveraging and other factors only an actuary can love (and few people can explain) premiums will likely increase faster than medical inflation.

So if the cost of health care, and consequently the cost of health insurance, is to restrained, those studies, commissions and pilot programs better lead somewhere. One goal of these efforts is to shift payment from a fee-for-service model to a system that rewards providers for improving health. In his book “Health Care Reform Now!, Kaiser CEO George Halverson points out the clear correlation between paying doctors for providing services and those doctors providing more services. The same point was driven home by Dr. Atul Gawande who wrote an article for The New Yorker back in 2009.

Addressing ways to change this dynamic will be one of the causes taken up by the Center for Medicare and Medicaid Innovation Office, an office created by the PPACA.  of Health Care Innovation all the more interesting. The experiment rewards preventive care and coordination among providers rather than simply the volume of treatment delivered to Medicare patients. Eight states are in the program, including Maine. The cost for the demonstration project in that state comes to roughly $26 million over three years. The other states are Vermont, Rhode Island, New York, Pennsylvania, north Caroline, Michigan and Minnesota. Eventually nearly one million Medicare beneficiaries will be covered under the program. Supporters of the new model, which is referred to as the “patient-centered medical home” claim it will help reduce hospitalizations and medical complications, two major factors behind skyrocketing medical cost.

At this stage, this is only an experiment. Whether it works to cut overall costs without reducing quality won’t be known for a few years. But it is nice to know that the new health care reform law is driving some efforts to live up to the “affordable care” portion of its name.

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