Lowering Out-of-Pocket Health Costs Isn't Easy. States Have Tried.

Congress is promising to tackle them this year. Can it succeed where states haven't?
by | August 5, 2019 AT 4:00 AM
U.S. Sen. Bill Cassidy shows a chart during a congressional hearing.
U.S. Sen. Bill Cassidy displaying a chart during a congressional hearing about the high cost of prescription drugs. (AP/Susan Walsh)

Congress has promised to tackle high consumer health-care costs this year. It's one of the few issues where lawmakers on both sides of the aisle find common ground.

The Lower Health Care Costs Act, introduced in June, is an almost 200-page piece of legislation that seeks to prevent surprise medical bills, lower prescription drug prices and force hospitals to be more transparent about what they bill insurance companies.

But there are already signs of potential failure.

Despite early momentum, Congressional leaders postponed a vote on the measure until after August recess. The pharmaceutical industry as well as hospital and provider groups have started to lobby against the legislation, meeting with President Trump in July to make their case.

Although the Affordable Care Act led to more people having health insurance, many Americans still struggle with out-of-pocket costs, especially ones they weren't expecting. Meanwhile, health care is taking up an ever-growing size of state budgets. Governors and lawmakers try to tackle this issue almost every legislative session, but few have succeeded in a meaningful way.

“It’s usually a third of state budgets. States have every reason to try and control health-care costs. And yet, everybody struggles to,” says Josh Shaferstein, vice dean of Johns Hopkins University's Office of Public Health Practice and Training, and a former health secretary for the state of Maryland.

 

Battling the Health-Care Industry

The first and usually biggest hurdle is private interest groups who see reforms as a threat to their livelihood.

“There are a lot of stakeholders that have vested interest and lobbyists on the ground that will fight tooth and nail, whether it's doctors and nurses groups or insurance companies. They are perhaps moreso willing to fight at the state level,” says Sabrina Corlette, research professor at Georgetown University’s Center on Health Insurance Reforms.

She points to a bill introduced in Colorado this year that would have capped payments to hospitals in order to lower premiums. After pushback from hospital groups, lawmakers amended the legislation -- which was signed into law -- so that hospitals will be paid the same but will have to pay back a portion of their revenue to help lower premiums. 

In Washington state, which passed a first-in-the-nation "public option" bill this year, lawmakers rewrote the original legislation after doctor and hospital groups fought a provision that would have set the same cap on provider payments as Medicare. The final legislation reflected a compromise for insurers to pay providers 160 percent of Medicare rates.

At least eight other states discussed or introduced public option bills this year, but they failed to gain traction.

In Delaware -- a state that ranks third in health-care spending but 31st in health outcomes -- Gov. John Carney signed an executive order in November that outlines eight goals the state will work toward to curb the growth in health spending. But Kara Odom Walker, the state's health secretary, concedes that they weren’t able to convince stakeholders to enact new penalties or regulations.

“Being a small state makes it a lot harder to do things that might be unpopular. Any conversation that includes words like ‘penalty’ or ‘payment cap’ is like a bomb going off,” she says.

The health-care industry is one of the biggest in the country. That gives it a lot of leverage.

“The health systems are often the largest employers in town. The governor says they want to slow health-care spending growth, and the hospital group will say, ‘that means losing jobs,’” says Robert Mechanic, executive director of the Health Industry Forum.

But as Congress tries to lower out-of-pocket costs, they have an asset that states don't: better data. Corlette says states often lack impartial numbers on potential policies, hurting their ability to assess and defend legislation.

“It’s very hard for your average state legislator to pierce the veil,” Corlette says. “There’s an imbalance of info for legislators to really tackle the problem. They don’t have a Congressional Budget Office.”

 

One Person's Savings Are Another's Costs

Many compare efforts to control health-care costs to a game of whack-a-mole. A state might successfully regulate spending in one area only to see costs skyrocket in another.

“You might be able to cut rates in Medicaid, but then rates will pop up in private insurance. The standard toolkit for states is fraught with political danger,” says Shaferstein.

“Health care is so complex, and there are so many different players. It’s really hard to get your arm around the whole bundle,” says Mechanic.

For instance, Medicare lowered the limit for how long older patients can stay in hospitals. But there’s some evidence that the Medicare savings became extra costs for nursing homes because hospitals started providing fewer services for elderly patients altogether.

 

State Legislation

When it comes to controlling drug prices, states haven't made much progress. They have made more headway regulating surprise medical bills.

Half the states have passed surprise billing laws. Only nine of them, though, included "comprehensive protections" that apply to all insurance plans, according to the Commonwealth Fund.

While states have struggled to actually lower drug prices, like Congress plans to do, they have passed laws to make them more transparent and to clamp down on pharmacy benefit managers -- middlemen who negotiate drug benefits for plans.

Five states have enacted laws that require drug companies to notify them if they will significantly raise the price of a drug, and at least a dozen have restricted the power that a pharmacy benefit manager can have, like requiring them to register with the state.

 

Solutions That Have Worked

There are some success stories and lessons learned that Congress could use to lower health-care spending in general.

"States should be thinking of more global solutions because you kind of have to go big. Oftentimes people are looking to save $1 to $2 million a year, but that’s not going to make much of a difference,” says Shafterstein.

Only a couple of states have "gone big" in this sense.

Massachusetts passed what became the framework for the federal Affordable Care Act in 2006, known as "RomneyCare," which requires residents to have health insurance. Health-care spending has since slowed in recent years. Mechanic credits that to the law's requirements for private health entities to publicly justify price hikes and high spending.

In Maryland, it has taken decades to get health-care spending under control. The state has had an all-payer system for hospitals since the 1970s, meaning they get a fixed sum every month rather than bill insurers for every claim. While that system -- which is only used by one other state, Vermont -- curbed hospital spending per patient, hospital spending overall grew at a slightly higher rate than the national average.

So in 2014, Maryland forced hospitals to limit their spending to 0.5 percent less than the national growth rate. It has largely been deemed a success, with a report commissioned by the federal Centers for Medicare and Medicaid Services finding that "Maryland hospitals were able to operate within their global budgets without adverse effects on their financial status."

On a less global scale, states have been able to drive down premiums by implementing reinsurance programs, meaning the government pays for the most expensive patients, taking that bill off insurance companies' plate.

But reinsurance is like slapping a band-aid on a much larger wound.

“Recent state efforts on reinsurance have worked, but they aren’t really getting at the overall cost of coverage,” says Kevin Lucia, research professor at Georgetown University’s Health Policy Institute.

 

This appears in the Health newsletter. Subscribe for free.

 

*CORRECTION: A previous version of this named Delaware Gov. Jay Carney. His name is John.