Can We Slow Down the Runaway Health Care Train?

Health care costs are consuming 18% of GDP and growing at a pace faster than the overall economy. If that continues, health costs could crowd out other high priority programs in education, defense, research, and public safety. Each of us has a stake in assuring that health care funds are spent where they do the most good and we certainly do not want to pay health care contributions any larger than necessary.

In the run up to passage of the Affordable Care Act (ACA), the Centers for Medicare and Medicaid Services (CMS) worked on two major initiatives. One initiative focused on value-based healthcare. The other initiative focused on setting health insurance premiums at a level that was affordable for lower income and sicker patients. At the same time, Congress insisted on a very broad range of coverages. That made the average cost rather high.

Keeping young, healthy patients in the national insurance pool was a challenge, because at a high average insurance price, younger people were willing to risk going without health insurance. Without a surplus from healthy patients paying high average rates, the insurance plans could not afford the costlier treatments needed by older and sicker patients. The plan would run at a deficit. To increase plan income, Congress decided to make participation mandatory.

While the Supreme Court affirmed that mandatory participation was a tax, shortly after 2016, Congress repealed the mandatory participation requirement. That undermined the financial balance of healthy and sick patients that ACA depended on. That caused ACA to become financially unsteady. Without a Congress willing to restore mandatory participation, CMS has looked for other ways to make universal health insurance workable.

One tool for improving people’s health and reducing health care cost is value-based healthcare. This value tactic requires that physicians use treatments proven in medical studies to be effective for the patient’s condition. The use of other treatments causes the physician to be penalized. With that as a cornerstone on standards of practice, CMS went further in using physician payments technologies to motivate cost containment.

Separate from the ACA insurance plan, CMS adopted a model for approximately 60 million Medicare patients that included risk adjustment factors to pay treatment plans for the “risk” of high treatment costs for enrolled beneficiaries with serious or chronic conditions. CMS’s risk-based payments are in lieu of levying an average amount for each Medicare or Medicare Advantage beneficiary.

Treatment provider organizations recruit patients with varying degrees of illness. An individual patient may have one or more chronic conditions that incur a higher than average treatment cost over a year.

CMS will provide a higher payment for each chronic high cost condition the patient has. That is to say, diabetes may be put at condition classification that is 130% of the cost of a patient without diabetes. If the total cost of care for the providers’ patients exceeds the CMS payment for all its patients, the provider will operate at a loss. If the provider receives more from CMS than it pays in costs for treatment, the provider operates at a profit. Under the CMS plan, CMS will keep 50% of the profit and subsidize 50% of the loss. Gradually, CMS is reducing the level of risk sharing to 40% – and probably lower in the future. Some risk adjustments factors can change the risk class and experience could lead CMS to increase the risk sharing for diabetes patients to 145%.

It remains unclear whether CMS’s strategies will rein in the cost of health care, or whether through a combination of poor management, expensive new pharmaceuticals, and new devices, we will face a higher proportion of our GDP devoted to health care. At least some of the tactics used by CMS seem to make sense, but time will tell.

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