The Price of Good Health Is Expensive Indeed

For most of 2017, Congress, the administration, and the media have focused on insurance reform, largely driven by the very real pain of rising health insurance premiums and cost sharing. But this is the patient’s symptom not his disease. 

Certainly, we need to reform and replace the failures associated with the Affordable Care Act, but in our efforts to triage this most immediate challenge, we must not miss the larger, looming task of addressing the real, underlying healthcare cost drivers.

About six months ago, the Council for Affordable Health Coverage and our friends at American Action Forum started a conversation about how we might change the dialogue in Washington, D.C. from its current focus to something more fundamental. On November 1st and 2nd our organizations convened stakeholders from across the healthcare spectrum for a pointed conversation on how to do exactly that, which we dubbed “The Price of Good Health.”

We came away with a better understanding of the underlying cost trends, but we also challenged our speakers to go beyond complaints about the status quo and to bring creative solutions ripe for Congressional or administrative action. What we got were dozens of ideas to lower health costs. The big themes were:

• Better information;
• More coordination; and
• More and better incentives.

All the conference’s content (videos, PowerPoint, papers) is available here.

Below are some of the takeaways:

1.      Health costs are eating us alive.

• First, they are driving premiums, the source of consumer pain and political angst. If health costs were going down, we would be having a very different conversation about Obamacare, Medicaid, Medicare and single payer. HHS estimates average exchange premiums have doubled since 2010, and will increase another 37 percent in 2018.
• Second, costs are driving up deductibles and other shared payments to the point where some consumers have coverage, but may not be able to afford to use their insurance.
• Third, costs are driving down wages, particularly at the lowest end of the income distribution. As Syl Scheiber discussed at the conference, almost every income decile has lower take home pay now compared with 2010. Left unaddressed, workers will continue to trade disposable income for health premiums.
• Fourth, they are dramatically increasing the deficit and our debt, as CBO Director Keith Hall pointed out.

2.      Our current health spending efforts may be misplaced. We must address social determinants of health.

Mark Bertolini, CEO of Aetna, pointed out that of the $3+ trillion spent on care, almost one-third or $910 billion is wasted on ineffective measures that fail to demonstrably improve outcomes. Our health care spending is focused mostly on chronic illness, but we score very low on most measures of quality, including mortality. In addition, the health system is consumer hostile, confusing and expensive for individuals.

Much of our public spending is devoted to health care, but about 40 percent of our life expectancy is individual behavior, and another 30 percent is made up of genetics.

Bertolini argues that by focusing our resources there - on the social determinants of health – we can make a bigger impact. In order to make such a reality possible, we need more flexibility in Medicare and Medicaid managed care to allow insurers to focus resources on where they will have the greatest impact.

3.      A small portion of the population is responsible for most costs – medication adherence strategies can help.

In any given year, the healthiest half of the population consumes less than 3% of health care. Most spending goes towards the treatment of chronic conditions, such as heart failure or drug addiction. Patients with two or more chronic diseases account for 84% of health spending. Left untreated, chronic conditions multiply.

NIHCM Foundation analysis of data from the 2014 Medical Expenditure Panel Survey

Many patients under care for chronic conditions fail to take their medicines—a problem that could cost as much as $6 trillion over the next decade. Multiple solutions, including a new regulatory safe harbor to foster coordination across physicians, pharmacists, payers and manufacturers, would improve adherence and lower costs. Allowing Part D plans to access and use Parts A and B claims data for their enrollees would allow insurers to intervene when a medication is not working or is causing problems. CAHC has a whole campaign built around solving the adherence challenge called Prescriptions for a Healthy America. Learn more at www.adhereforhealth.org.

4.      Competition is a big challenge most are not paying attention to. Solutions abound, but political will is weak.

The relaxation of antitrust guidelines in 1992, 1994, 1996 and 2011—and court rulings based on now-disproven behavioral theories—has facilitated the breakneck consolidation in local health services markets. By 2016, 90% of metropolitan statistical areas had highly concentrated hospital markets, with weak or nonexistent price competition. In general, prices are higher, and costs are much greater in markets with less competitive pressures.

As in other industries, a central motive for consolidation is pricing power. The prices charged to private patients are determined through annual negotiations between insurers and myriad providers in thousands of local markets. Insurers’ ability to hold down prices depends on their ability to exclude high-cost providers. Concentration gives high-cost providers the ability to exclude low paying insurers. This, in turn, drives costs.

But how do we get the toothpaste back in the tube, so to speak? Should Congress spend billions to authorize a new round of trust busting? Maybe. Other solutions we unearthed include:

• In highly concentrated markets, require out-of-network prices to be benchmarked to an average of all private sector rates in the state. The benchmark could be set at an average of in-network rates.
• Require site neutral payments and cost sharing for similar services in all federal programs. MedPAC has identified dozens of services where payments could be reduced. Increase payments to community based providers
• Promote entry of new competitors by restricting noncompetitive contracts, such as certificates of need in highly concentrated areas.
• Likewise, Congress could authorize the FTC to go after noncompetitive behavior and contracts, such as preventing or discouraging private payers from directing or incentivizing patients to choose certain providers, exclusive contracts with physicians, hospitals, or other providers that prevent or discourage those providers from contracting with private payers outside the network, or restricting a private payer’s ability to make available to its enrollees cost, quality, efficiency, and performance information.
• Recognize the unlevel playing field created by 340B drug pricing by making the program transparent and directed to indigent patients and charitable care.

But the number one solution to drive competition in our highly uncompetitive health markets? Transparency. Senator Bill Cassidy (R-LA) indicated at the event he is working on legislation to promote transparency, and we are now working with him.

We believe better tools for consumers, and better data to power those tools, will help drive consumer choices in ways that will generate competition. CAHC has a campaign on this as well, called the Clear Choices Campaign (www.clearchoices.com).

5.      Regulatory Reform is proceeding rapidly, and represents a huge opportunity to lower costs.

The conference was held on the first day of the Trump administration’s inaugural open enrollment season. Estimates show plan premiums will rise on average by 37 percent, another double-digit increase. Clearly, the law is not working as intended.

Acting HHS Secretary Eric Hargan announced that HHS is committed to creating more flexibility for individuals, plans and states to help create additional choices and competition that lower costs. HHS has introduced the 2019 Notice of Benefit and Payment Parameters, which creates additional flexibility on benefit design and options to choose where to buy coverage. We expect more rules proposing more flexibility, including a little noticed executive order calling for less consolidation and more competition in health markets.

6.      Lowering drug costs means getting the market more involved.

One panel focused on the politically hot topic of rising costs for new technologies, including prescription drugs. CAHC supports more competition through faster approval of more generics and more branded drugs. It is true that more products create more completion that leads to lower prices and costs for consumers. CAHC also supports value based payment arrangements for drugs. This will help get at the one percent of drugs that make up one third of drug costs. Specialty drugs are currently about 28 percent of health spending and could account for more than 50 percent within the next few years. Value based payment arrangements, particularly those targeted towards specialty pharmacies and that include physicians, insurers and pharmacists should be rapidly tested and deployed. CAHC estimates such changes could save up to $71 billion annually when fully implemented.

7.      Policymakers Need to Hear from Us on the Urgency of Containing Health Care Costs

Unfortunately, decision makers in D.C. aren’t feeling the heat, nor do they yet understand that lowering premiums long term will require a focus on lowering health costs. Together, we can deliver that message forcefully. 

To change this, CAHC is cataloging and developing the ideas we heard at the conference (our papers, the conference videos and all the presentations are available here.). We will translate what we heard into actionable solutions and then advocate for their adoption.

While there are no politically easy ways to curb medical inflation, the alternative is even less palatable. We support long-term policies that will rein in the growth of health costs to meet that of general wage growth, so that working Americans can again afford their health coverage. Policy makers must shift their focus from fiddling with the margins of health care reform to directly addressing the factors leading to unsustainable cost growth. If they are unable to do so, costs will continue to rise much faster than wages, making coverage less and less affordable for working Americans while cultivating greater economic turmoil and political instability

CAHC is excited to carry the banner, but we need an army to make our message heard oud and clear. We encourage those who agree to join us in our efforts to make health coverage more affordable for all Americans.

Learn how you can take part and become a CAHC member at CAHC.net.