Health & Human Services

How States Can Take the Lead on Containing Health Costs

A commission of former governors and health industry executives is calling on states to lower the cost and improve the quality of health care.
by | January 9, 2014
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A commission of former governors and health industry executives are calling on states to take greater advantage of their market clout and regulatory power to lower the cost of health care.

The commission, organized by the University of Virginia’s Miller Center, offers specific recommendations around making prices and quality more transparent for the public; creating cheaper, better coordinated health insurance options for large public employee workforces and Medicaid patients; and taking regulatory action around issues like malpractice laws and the scope of practice for professionals such as nurses. The commission was co-chaired by former Utah Gov. Mike Leavitt, who also served as secretary of health and human services under President George W. Bush, and former Colorado Gov. Bill Ritter.

Leavitt argued the complexity of the health care market and the influence states command over it make it important for states to lead in the reforms brought on by the Affordable Care Act. A single national policy will always fall short, Leavitt said. In the case of the new health law, that’s evidenced by the administration’s willingness to grant flexibility to states that want to use Medicaid expansion money to purchase private insurance for those qualified, he said.

“This... report is not just aimed at states,” Leavitt said. “It’s aimed at the administration and states, saying that the formula here is, if you’re going to have national standards you’ve got to have neighborhood solutions.”

The recommendations were based on the assumption that Obamacare and its often-polarizing policies will remain, but the group didn't endorse Medicaid expansion or creating an individual state insurance exchange for selling private plans. Commission members mostly brushed aside questions of politics, saying the report details plenty of policies that are politically feasible and that all states will advance at their own paces.  

 Some key recommendations include:

1. Collect detailed data on health spending and make it publicly available

Only 10 states have what are called all-payer claims databases in operation, and many of these don’t yet have access to data from private insurers.  States need to pass legislation and appropriate funding to allow for this type of collection, which is expensive and isn’t yet widely available in formats accessible by the public. “Big data isn’t cheap,” said David Newman, executive director of the Health Care Cost Institute, which is positioning itself as another option for states because it’s already collecting data from commercial insurers. “Collecting all this data and making it available is costly.” Massachusetts spent $4 million on its data-collection effort, Maine is spending $1 per resident and Arkansas put out a request for proposal valued at $2 million, Newman said, adding that Colorado is the only state he’s aware of that has a user-friendly web site to access the data.

Data allows policymakers to evaluate and rank the payers in the system—both public and private insurers—and for the public to make informed decisions. It also allows them to reward the best medical providers in the system and get a better understanding of public health needs.

2. Work toward coordinated care and away from fee-for-service payment

Government is often the largest single employer in a state. State governments also pay about 43 percent of the total costs of Medicaid, spending $191 billion in 2013, according to the commission’s report. That gives a lot of negotiating power with managed care and other collaborative-care organizations that accept a set rate for a patient and receive a share of any unspent portion. By contrast, most doctors get a fee for every procedure they perform, a practice economists link to health inflation.

Some 74 percent of Medicaid enrollees are already enrolled in some type of managed-care plan, but states should insist upon quality measures and deeper levels of cooperation between doctors, the report argues. That would make managed care more like the accountable-care arrangements that are returning millions in savings each year. Going beyond Medicaid, Massachusetts passed a cost-containment law in 2012 that extends payment reform to private insurers and providers as well through incentives.

At the same time, governments should move toward managed care for their own employees. The report notes that Wisconsin’s Department of Employee Trust Funds purchases health care for more than 250,000 government employees and 115,000 retirees mostly through managed care organizations that are ranked according to health-quality outcomes.

The report also recommends states take advantage of their influence over the types of plans offered in new online health exchanges. States should aim for wide participation at first but should slowly focus on pushing consumers toward top-performing plans and creating bonuses for the best performers by using a portion of user fees charged to plans on the exchange.

3. Regulatory Reform

The commission also says states should eliminate regulations that inhibit competition and restrict medical professionals. For example, many states have banned contracts between insurers and medical providers that confer “most favored nation” status—essentially guaranteeing that a particular insurer, often the largest in the state, will always receive the lowest rate. Another law on the books in 22 states equally reimburses all providers that comply with an insurer’s terms and conditions regardless of whether they’re in that insurer’s network, which undermines the goals of managed-care organizations that bind all providers to specific goals.

The report also recommends states take further action to reduce the cost of malpractice insurance and expand the number of services that can be legally performed by nurses and other non-physicians. Last spring, as state legislative sessions were fully underway, there were 178 scope-of-practice bills proposed in 38 states and the District of Columbia, according to the National Conference of State Legislatures.

The commission’s full report is here.

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