Last Friday, President Trump was sworn into office. As that happened, people involved in health care and health policy began preparing for the many changes President Trump has proposed to make. First and foremost, the president has directed the Congress to confirm new leadership and to repeal and replace the Affordable Care Act (ACA).
As the tides change, one question I’ve been hearing a lot is, “What will the new leadership do to lower health care costs?” I think this is a really interesting and important question. And, before I get started, I think it is a good idea to clarify what we mean by costs. Often policymakers think in terms of costs of the whole system – and the costs that health care payers (employers and governments) pay. But, people mostly think in terms of what health care costs them – through premiums and out-of-pocket payments. Let’s start with the system perspective.
What did the ACA do to control overall health care spending?
A criticism of the ACA has been that it did not do enough to reduce costs – even as it largely delivered on the promise to expand access. But, defenders of the ACA returned that criticism with arguments that several policies could reduce health care cost growth and enhance efficiency:
•The significant financial support and regulatory flexibility for the Center for Medicare and Medicaid Innovation (CMMI)
•The Cadillac Tax, a tax on high-cost health plans that was expected to bring in $32 billion in revenue from 2010 to 20191
•The Independent Payment Advisory Board (IPAB), an independent group to rein in costs if Medicare spending exceeds targets in any particular year
The latter two policies were never given the opportunity to go into effect, but CMMI has succeeded in launching many ambitious programs designed to improve the efficiency of the delivery system, has engaged many health care organizations and leaders, and has touched many parts of the country. Some of the programs have shown savings and others have been more mixed – with some participants succeeding in saving money and others not. Moreover, many stakeholders, including the nominee for the Secretary of the US Department of Health and Human Services (HHS), Tom Price, have said that the mandatory nature of some of the demonstrations overreaches CMMI’s authority.
In addition, the Obama Administration did make progress in the area of transparency, releasing unprecedented detail on health care spending at the physician and provider level. In theory, this would help address costs if individuals or purchasers used the information to avoid inefficient providers. The federal government also continued to pursue fraud through the Health Care Fraud and Abuse Control Program, collecting more than $1.9 billion in fiscal year 2015.2
The rate of growth in overall health care spending per person did slow down during the first few years of the ACA, growing an average of 3.9 percent from 2009 to 2013, but many economists credit the recession with that.3,4 Spending growth is increasing again and so are health care premiums – premiums that employers pay and premiums in the exchanges.5
What policies might control overall health care spending?
Past legislative proposals offered by Republican leaders and conservative think tanks offer a number of clues for the policies we might see under debate. I think some of the more interesting ones are:
•Health savings accounts paired with transparency tools that give individuals the incentive to shop for lower-cost services and to weigh carefully the value of procedures and therapies.
•Incentives paired with programs that reward healthy choices, such as quitting smoking, eating right, and exercising.
•Programs that stimulate more competition among providers and health plans. Premium support, for example, could be structured to give financial incentives to individuals to steer them toward Medicare Advantage plans or to stay in the fee-for-service system, whichever delivers a lower bid to cover the same set of Medicare benefits. Expanded use of biosimilars also has the potential to reduce spending on specialty drugs, even if not to the same degree as we’ve seen with generic medications.
Incentives can be powerful and if paired with good information that allows individuals to act and choose wisely, these can further the goal of reducing overall health care spending. Too much exposure to costs without enough information to support good choices can lead to self-rationing (both needed and unneeded services), however.
Let’s switch to the other perspective.
Most consumers think in terms of what they pay for health care, not what we are spending as a society.
As new proposals surface, it will be important to understand whether a given policy would really save money or if it instead would just shift costs from one stakeholder to another (for example consumers and hospitals). It would also be important to continue making progress in engaging individuals to make good decisions about their health and health care. These include using tools that provide information about lower cost alternatives and that encourage them to make healthy choices. Of course lower cost alternatives and choices need to be available for these ideas to work.
The bottom line is that I do not see the problem of rising health care costs going away immediately. So, the president’s first 100 days might be spent doing a thoughtful assessment of where progress has been made towards reducing health care costs and in accelerating progress towards transparency. These two concepts are essential for some of the ACA replacement policies to work. Moreover, the public is watching: purchasers and individuals alike see health care costs as a critical issue as the administration sets its agenda for the first 100 days.
1 CBO, “H.R. 4872, the Reconciliation Act of 2010,” March 20, 2010
2 The Department of Health and Human Services and The Department of Justice, Health Care Fraud and Abuse Control Program Annual Report for Fiscal Year 2015, February 2016
3 Urban Institute, “The Widespread Slowdown in Health Spending Growth, April 2015
4 Michael Chernew, Health Affairs, “Interpreting New Data On Health Care Spending Growth,” December 2, 2015
5 Bob Herman, Modern Healthcare, “Healthcare spending growth rate rises again in 2015,” July 13, 2016