Cost Archives

Affordable Care Act funding: An analysis of grant programs under health care reform

This brief examines grant programs funded by the Affordable Care Act (ACA), how funds have been distributed to states and local organizations, and the effects of budget sequestration on future ACA funding.

The ACA aims to expand health insurance coverage and introduce health care delivery reforms that improve quality and lower costs. The ACA is designed to reduce the number of uninsured Americans by expanding eligibility for Medicaid and offering tax credits for the purchase of private insurance. Beginning in 2014, the ACA expanded coverage through Medicaid expansion (in states that approved expansion), tax credits for individuals and families to purchase private insurance, and small business tax credits. In addition, the ACA makes investments to expand access to care, implement broad private insurance reforms, and enhance the public health infrastructure.

Many of these reforms and investments are paid for through direct spending included in the law. Specifically, the ACA included much of the funding necessary for creating the state-based health insurance exchanges (also known as marketplaces) as well as the federally-facilitated exchanges, growing the health care workforce, expanding community health centers and several other initiatives.

he ACA includes both discretionary and mandatory spending to fund its programs, but many ACA initiatives (see Appendix 1, page 13) are funded through mandatory spending that does not require further Congressional approval. In total, the ACA included approximately $105
billion in mandatory spending from fiscal years 2010 through 2019, including $40.2 billion to fund the Children’s Health Insurance Program (CHIP) for two years (FY 2014-FY2015). By the end of fiscal year 2013, the U.S. Department of Health and Human Services (HHS) had awarded nearly $15.1 billion in grants under the ACA. Most grant programs under the ACA have been funded through mandatory spending.

READ THE BRIEF

Impact of benefit design on cost, use, and health: Literature review

Many employers use cost-sharing in their health insurance benefit designs as a means to reduce costs and, for some designs, encourage improved enrollee health behaviors. This paper summarizes the literature on the impact that three commonly used benefit designs have on cost, use of services, and health status:

High-deductible health plans, which include consumer-directed health plans;
Value-based insurance design; and
Tiered pharmaceutical benefits

Overall, the research concludes that increased cost-sharing can significantly reduce costs for employers—often at the expense of increasing out-of-pocket costs for enrollees—but has not shown an adverse effect on health for the average enrollee. However, across-the-board cost-sharing reduces the use of both highly effective and less effective treatments and has been shown to adversely affect those who are sicker and have lower incomes. A more nuanced approach to cost-sharing benefit designs through value-based insurance design can improve adherence to evidence-based treatment, though the long-term impact on cost and health is inconclusive.

Some overarching conclusions emerge from the literature. These are:

HDHPs reduce costs but they present problems for low-income people and/or those who have chronic conditions. Those problems can be mitigated by an adequately funded HSA/HRA and better education about preventive cost-sharing exemptions.
V-BID can improve medication adherence, but there has not been much research to show that it can have a positive impact on health status and cost savings. Additionally, there is considerable administrative and political complexity for groups that want to move in the direction of increasing cost-sharing for low-value procedures, which could help offset costs.
Tiered pharmaceutical benefit designs reduce costs without significantly adversely affecting the use of health services, but medication adherence rates may decrease for important medications if a generic option is not available or copayments increase across all tiers.

With regard to both HDHPs and tiered pharmaceutical benefit designs, health plans and purchasers may want to take a V-BID approach to reduce some of the negative outcomes seen in these plans. Specifically, while the ACA requires coverage of preventive services with no cost-sharing, purchasers could consider reducing or eliminating cost-sharing for other evidence-based, high-value services within HDHPs. Similarly, health plans/purchasers may want to con

READ THE BRIEF

An introduction to health care payment reform: Research foundations, implementation, operational strengths and challenges

Policymakers across the country are currently engaged in discussions on how to improve the way that health care providers are paid for the services they deliver. These discussions involve how to shift payment systems away from traditional fee for services and toward rewarding providers that achieve excellent outcomes and deliver value to their patients. While both private and public payers are implementing significant changes, much of the focus of payment reform is on pilot programs and demonstrations in the Affordable Care Act (ACA), such as accountable care organizations (ACOs), value-based purchasing, and bundled payments.

Bundled payments, which focus on all the procedures involved in a single medical episode rather than considering these items individually, are now receiving serious attention as a way to improve quality at lower costs under the new Medicare Bundled Payment for Care Program, authorized by the ACA. In contrast, many other payers are moving forward with payment reform strategies, such as ACOs and value-based purchasing, which emphasize provider performance at the population level.

This paper takes a close look at these two broad types of payment strategies, including, their research foundations, how they have been implemented in the past, and their operational strengths and challenges. Due to the variation of health care delivery systems, not all payment strategies are appropriate for every medical condition. Appendix Figures 1 and 2 summarize the characteristics of different strategies and how they may be targeted to different types of medical episodes.

Key findings include:

While a variety of payment reform strategies are garnering significant attention, there is little long-term evidence of their ability to reduce the growth of health care costs while improving the quality of care.
Bundled payments have shown limited success but may be best suited to controlling cost variation for certain types of acute care episodes. It is largely unclear how successful bundled payments can be outside of highly integrated health systems, and the administrative complexity of these bundled payments has caused delays in their wide-scale implementation.
Population-based payment models may be a potential way to reduce variation in health care utilization across populations, but further evidence of their effectiveness is necessary.
- Shared savings programs have the ability to improve quality of care but may not able to reduce costs unless they also involve shared risk.
- Global payment programs may be able to reduce costs in the short run but further evidence is needed to prove that their effects are durable.
- Pay for Performance programs have been adopted widely but with significant variation in the details of their implementation. Evidence of their effectiveness is not strong but the flexibility of P4P and its ability to be implemented incrementally maintain its popularity.
- Though results data are limited, emerging value-based payment models (such as the Blue Cross Blue Shield of Michigan OSC strategy) have promise with regard to both cost savings and quality and can build on the findings from the shared savings and pay-for-performance programs.
Past experience shows that payers and providers must be prepared for the administrative and technical challenges of implementing payment reform models.
The payment strategies that demonstrate the most impact on both cost and quality are those that have been implemented within tight, managed care networks with patient assignment or in highly integrated provider delivery systems. Outside of these structures, there is little evidence of payment systems that achieve a significant impact on cost or quality.
To the extent that fee-for-service reimbursement remains the predominant form of payment, the best payment strategies are likely to be a combination of several of the above approaches with constant refinement to mitigate the noted challenges and maximize effectiveness.

READ THE BRIEF

Employee cost-sharing for health insurance in Michigan and the United States

This brief reports on trends in health insurance premiums and cost-sharing among private-sector employers in Michigan and the United States from 2002 to 2012, and provides a focused look at high-deductible health plans by employer size.

From 2002 through 2012, average total premiums in the United States increased by approximately 80 percent. While employer cost-control efforts in the 1990s could be characterized as a shift toward managed care, the first decade of the 2000s may be better characterized as a shift of costs to employees.

The strategies that employers have used to shift costs to employees differed by employer size. Small employers (those with fewer than 50 employees) widely adopted high-deductible health plans between 2009 and 2012, whereas larger employers (50 or more employees) relied more on increasing the employees’ share of premiums as the primary form of cost containment. Recent trends indicate, however, that large firms may also be moving toward high-deductible plans.

The total cost of insurance premiums rose dramatically from 2002 to 2012 in Michigan and throughout the United States. At the same time, employee cost-sharing grew at an even faster rate, largely as a result of small employers offering HDHPs. The lower premiums associated with HDHPs may make insurance more affordable for employers, but requires employees to shoulder a large proportion of total health care costs. Trends suggest that enrollment in HDHPs will continue to grow, underscoring the importance of understanding whether HDHPs increase the affordability of health care or simply shift more costs to consumers.

READ THE BRIEF

Suggested Citation: Hemmings, Brandon and Udow-Phillips, Marianne. Employee Cost-Sharing for Health Insurance in Michigan. Cover Michigan 2013. September 2013. Center for Healthcare Research & Transformation. Ann Arbor, MI.

Health care cost drivers: Chronic disease, comorbidity, and health risk factors in the U.S. and Michigan

In the wake of national health reform, health systems, health plans, providers, and policy makers will be discussing what can be done to contain health care costs — within the provisions of reform or beyond them. For that discussion, it will be important to understand that health care spending is not distributed evenly across the population—or by condition. In fact, just five percent of the U.S. population—those with the most complex and extensive medical conditions—accounts for almost half (49 percent) of total U.S. health care spending, and 20 percent of the population accounts for 80 percent of total spending.

Chronic conditions are the leading cause of death and disability in the U.S., and treating patients with comorbid chronic conditions costs up to seven times as much as treating patients who have only one chronic condition. Modifiable health risk factors, such as cigarette smoking and overweight/obesity, are responsible for much of the illness, healthcare utilization, and subsequent costs related to chronic disease.

In our January 2010 issue brief, The Cost Burden of Disease, we presented the most common reasons for hospitalizations, the most expensive conditions, and gender differences between men and women with respect to the top ten diagnoses. In this issue brief, we focus on costs and risk factors relating to selected chronic conditions, comorbidities, and health risk factors of cigarette smoking and overweight/obesity.

As we collectively seek ways to address the crisis of rising costs—as part of overall health reform or through regional, state, or local approaches—we must understand the factors that drive health care costs and where opportunities exist to affect those drivers. This issue brief, and our issue briefs on overall costs and the cost burden of disease, are part of a larger report on health care costs, designed to stimulate thinking and further analysis about opportunities for change in health policy, medical practice—even personal health choices—that could lead to more effective and efficient health care spending.

READ THE BRIEF

Suggested citation: Ehrlich, Emily; Kofke-Egger, Heather, Udow-Phillips, Marianne. Health Care Cost Drivers: Chronic Disease, Comorbidity, and Health Risk Factors in the U.S. and Michigan. August 2010. Center for Healthcare Research & Transformation. Ann Arbor, MI.

[Revised with minor corrections, including re-numbered figures, on September 24, 2010.]

Cover Michigan 2010: The state of health care coverage in Michigan

Cover Michigan 2010 is CHRT’s annual report of health care coverage in the U.S. and Michigan, including data on the uninsured, publicly and privately insured, premiums and cost-sharing, the health care safety net and, new for this year, health reform (also available separately in the CHRT Issue Brief, Impact of Health Reform on Coverage in Michigan).

Cover Michigan 2010 presents the most recent comparative data available for the U.S. and Michigan: 2008 data for the U.S. and 2007/2008 two-year pooled data for the state. Michigan data are pooled to ensure an adequate sample size; some demographic data are reported as three-year pooled averages. Where possible, more recent data are included.

The report and the Cover Michigan Survey 2010 (released in March 2010) both reveal continued upward trends in areas of concern from our 2009 report: more people lacking insurance, more employers dropping coverage, higher costs for those who have insurance, and a growing strain on the health care safety net.

Important trends noted in Cover Michigan 2010 include:

The numbers of uninsured and publicly insured in our state have been growing. More than 3.8 million Michigan citizens were either uninsured or covered by a public program (Medicare, Medicaid, military)—almost 39 percent of the state’s population;
Despite the growth in public coverage, many of the poor did not have coverage at all: 37 percent of those with incomes below the poverty line did not have coverage in 2007/2008;
While Michigan still has a higher percentage of those with private coverage than most states (ranking ninth highest), businesses in Michigan have been dropping coverage at a faster rate than the U.S. overall and the percent of Michigan’s population with private coverage was 4.5 percent lower in 2007/2008 than it was in 2003/2004;
Average Michigan family premiums continue to be less than the U.S. average, at $11,321 compared to $12,298— making Michigan the ninth lowest state in average family premiums in 2008;
Reflecting the increase in the number of uninsured in the state and the increase in copayments and deductibles faced by those with insurance, uncompensated care in hospitals increased in 2008 to $2 billion, a 94 percent increase since 2004;
“Safety net” providers in Michigan are critically important for many of those most in need, but these providers are challenged to meet demand for their services. Also, Michigan has fewer such providers than many other states: Michigan ranked 31st in the nation for the number of federally qualified health center sites per 10,000 uninsured.

We predict these 2008 trends will continue in the 2009 data. If anything, given the dramatic economic events of 2009, they will likely reflect even steeper changes in the same directions. There is no question the trends evident in this report depict both the reasons health reform was a major national policy issue in 2009 and some of the challenges it will face.

READ THE BRIEF

Health care spending by country, state, and payer

Experts on all sides of the health reform debate agree that the current rate of growth in health care spending is unsustainable and ultimately damaging to the country’s economy and health system alike. Patients experience this stress in a more personal way, through rising out-of-pocket costs or by struggling to get the care they need.

Most agree that measures to control health care costs are essential to health reform if we are to have a financially sustainable health care system. There is less agreement, however, on how to accomplish this while maintaining—not to speak of improving—quality, access, and consumer satisfaction.

To enact reforms that have a positive impact on health care costs, we must first understand how and where we are spending our health care dollars today. This issue brief provides an overview of health care spending in the U.S., comparing U.S. spending to the rest of the world, Michigan spending to other U.S. states, and spending by payer (Medicare, Medicaid, and commercial).

The U.S. spends more on health care than any other country in the world as a percentage of gross domestic product (GDP). In 2004 (the most recent year for which comparative data are available) the percent of GDP spent on health care in the U.S. was 15.2 percent, 33 percent higher than the next highest spending country (Switzerland).

As a state, Michigan spent 13.5 percent of gross state product (GSP) on personal health care in 2004, similar to the national average
of 13.3 percent. In 2004, personal health care spending in the U.S. $1.6 trillion; Michigan spent $49.6 billion on personal health care in 2004. At $5,058, Michigan ranks 36th in the country on per capita spending on health care – lower than the national average of $5,283.

READ THE BRIEF

Suggested citation: Kofke-Egger, Heather; Ehrlich, Emily; Udow-Phillips, Marianne. Health Care Spending by Country, State, and Payer. December 2009. Center for Healthcare Research & Transformation. Ann Arbor, MI.

Publications