The three legislative concepts discussed in this paper build on the Affordable Care Act and are consistent with, and enhance, President-elect Biden’s health care proposal as described in his campaign. These concepts also compliment the initiatives in the House Democratic Leadership health care proposal introduced last year. A centerpiece of both proposals is to expand access and make health care more affordable by increasing public subsidies in the ACA market. President-elect Biden’s proposal goes one step further by creating a new “public option.”
While increasing public subsidies certainly makes health care more affordable for consumers, it doesn’t actually reduce the total cost of care. The problem with this is twofold: it lets the delivery system off the hook for managing risk and producing outcomes, and it increases subsidies in the face of an unprecedented federal budget deficit and a national debt pushing $28 trillion. Without bending down the relentless upward trend in medical inflation, we will be unable to invest upstream in healthy pregnancies, nutrition, housing, safe communities, education and all the other things that are necessary to improve population health and address many of the racial and ethnic disparities in our society.
Incorporating these legislative concepts into President-elect Biden’s health care proposal and/or into the House Democratic Leadership proposal can help us achieve both universal coverage and reduce the total cost of care, thus freeing up resources to invest in the social determinants of health.
- Moves close to universal coverage
- Builds on the ACA and our current public-private financing structure
- Realigns incentives to make the delivery system accountable for cost, quality, and outcomes
- Preserves consumer choice by allowing current insurers to participate if they comply with the payment model in a restructured market
- Reduces the total cost of care through price negotiation, global budgets indexed to a sustainable growth rate, and provider accountability for quality and outcomes
- Frees up public resources to make strategic, long-term, effective investments in the social determinants of health and in eliminating racial, ethnic, and linguistic disparities in access, outcomes, quality of care, the experience of care
- Helps reduce the federal budget deficit and the national debt, and relieves the pressure on state general fund budgets
To understand the purpose of these amendments, let me offer a different way to look at the problem of cost and access and then go into more detail about universal coverage and reducing the total cost of care.
Currently, over 90 percent of Americans rely of some form of public subsidy to help them pay for the cost of their health care. The subsidies are paid either directly through Medicare, Medicaid, CHIP, the VA, Tricare, public employee health plans and the subsidies in the ACA market; or indirectly through the tax exclusion for employer-sponsored coverage (the numbers in the “subsidy map” below are pre-COVID).
For the purpose of this discussion, let’s view the health care system as three “pools” based on the nature of the subsidies involved. Pool 1 would include Medicaid/CHIP, the uninsured and the ACA market. Pool 2 would include Medicare. Both Pools 1 and 2 receive direct public subsidies (for simplicity I have not included the VA, Tricare or public employee health plans). Pool 3 includes the employer-sponsored small, medium, large group and self-insured markets and receives indirect public subsidies.
Pool 1 is where the coverage problem is most acute, primarily because of the cost of care. This is not to say that there are not legitimate challenges/problems in Pools 2 and 3, there are— but these are not primarily coverage problems. Everyone on Medicare has coverage—indeed, those over 65 are the only Americans who are actually “entitled” to publicly subsidized health care in our country. By the same token, and notwithstanding the rise in unemployment, the majority of Americans are still receiving coverage through their employer and, although premiums and deductibles continue to increase at an unsustainable pace, they too remain covered.
The high unemployment associated with the social distancing measures taken to slow the spread of COVID 19 are actually increasing the size of Pool 1 and reducing the size of Pool 3. Based on an HMA analysis, it is estimated that at a 14% unemployment level in Oregon (which is where we were in April 2020) 215,760 people would become eligible for Medicaid, 20,460 will move to the ACA exchanges and another 30,690 will remain uninsured.
Because Medicaid is entirely financed with public resources, and the ACA exchanges are heavily subsidized with public dollars, this amounts to a dramatic increase in the public sector role in financing health care. Over the course of just a few months, enrollment in “Pool 1” in Oregon could go from 1.46 million (34.9% of the population) to 1.73 million people (41.3% of the population). Furthermore, those most at risk are people without (or who have lost) employment-based coverage but earn more than 138 % of the federal poverty level so are not eligible for Medicaid, yet cannot afford the cost of a policy in the ACA market.
President-elect Biden’s health care proposal and the House Democratic Leadership proposal recognize this in the sense that they both focus on the ACA market—a part of “Pool 1.” A recent study conducted by the Oregon Health Authority documents that if even 80 percent of those who lack health coverage in Oregon made use of coverage for which they are currently eligible—the Oregon Health Plan (Medicaid) or the subsidies available through the ACA marketplace—the number of Oregonians who are uninsured would drop from almost 280,000 to 34,000 (from 6.5% to 0.08%). The top two reasons people give for not for not being covered are the high out-of-pocket cost of care and not knowing they are eligible.
Therefore, the most significant step we can take toward universal coverage is to make Medicaid and the ACA market more affordable — not just by increasing the public subsidies but by actually reducing the total cost of care by moving away from fee for service to a capitated model in which the delivery system is at risk for quality and outcomes. That is what these legislative concepts are intended to do.
Streamline Section 1115 and 1332 waiver process to expand access, reduce cost trend, maintain quality, and invest in community health. In other words, facilitate the adoption by other states of a Medicaid model with the same contours as what we have had in place in Oregon now for eight years.
Since 2012, 0regon has been using a capitated model, called a Coordinated Care Organization (or CCO) to provide care to the 1.3 million people in our Medicaid program. CCOs operates within a global budget that can grow at no more than 3.4% per member per year and must meet rigorous metrics around quality, outcome, and patient satisfaction, as well as putting in place quality improvement plana focused on eliminating racial, ethnic, and linguistic. Between 2012 and 2017, the state successfully operated within the 3.4% growth cap, enrolled over 385,000 more people under the ACA expansion, all the CCOs met the outcome and quality metrics stipulated under the waiver, and invested tens of millions of dollars back into their communities.
Over this period, the state also realized a cumulative total funds savings of over $1 billion; a delta which (pre-COVID) was projected to reach $8.6 billion in savings over a decade. These savings that accrue from reducing the total cost of care, give us room in the budget to make long term, effective investments in the social determinants of health — especially in chronically under-resourced communities, where people of color are disproportionally represented.
This model is particularly relevant today because governors of both parties are facing enormous pressure on their general funds from both reduced tax revenue and the increase in Medicaid. They need a way to reduce the Medicaid cost trend line—while maintaining access, quality, and benefits. Furthermore, this model is particularly helpful to rural hospitals, many of which are struggling due to the decline in utilization we have witnessed this year.
Move the ACA individual market from its current fee for service payment model to capitation and risk-based contracts within a global budget indexed to a sustainable growth rate — and/or facilitate the ability of states to do so.
Unlike every other health care program that is directly subsidized with taxpayer dollars (including Medicaid, Medicare, the VA, and Tricare) the ACA market has no uniform fee schedule. It is a wide-open fee-for-service payment model with no constraints on the total cost of care, with fees routinely 00 to 400% higher than Medicaid rates. This means that a provider delivering care to someone earning 138% of the FPL will get paid the Medicaid FFS rate, but will receive three or four times as much for treating someone earning 140% of the FPL, in the ACA individual market.
That is simply indefensible, especially in this fiscal environment and given the fact that the ACA is heavily subsidized with public dollars. Furthermore, the risk is held largely by the payers, not by the delivery system, and as costs go up, the liability falls on taxpayers who are funding the subsidies—and the national debt grows larger, further undermining the social investments needed to improve population health and address racial and ethnic disparities.
Use this restructured ACA market as the “public option”— and/or facilitate the ability of states to do so.
In the past month alone, there have been two major articles in highly respected publications — one in Health Affairs (November 16) and the other in the Milbank Quarterly (December 8) — recommending a risk-adjusted, capitated public option. The ACA market is already established and, if the second legislative concept is adopted, would be moved to a capitated, risk-based model within a global budget indexed to a sustainable growth rate. Using Medicare as the public option is more problematic. It is a much larger market (60 million on the way to 78 million) and, although Original Medicare has a fee schedule, it remains a pure fee-for-service model.
- This approach would move us toward universal coverage by reducing the total cost of care in Pool 1, thus making both Medicaid and the ACA market more affordable, as well as fiscally sustainable.
- This approach maintains choice — commercial health plans would not be prohibited from participating but would have to comply with the payment model in this restructured market.
- Incentives would ensure that risk is not held at the plan level—with the cost being managed through denials and prior authorization—but rather that the risk flows downstream to the providers with the appropriate alignment of incentives to manage cost and quality.
- A new, equitable risk-sharing arrangement will be developed between payers and providers to ensure that they share equitably in both upside and downside risk, with payers assuming primary responsibility for true insurance risk (e.g. high-cost patients, out of area care, etc.) and providers assuming primary responsibility for utilization risk.
- If, as a second step, incentives were created to move Original Medicare from its current fee for service payment model to capitation and risk-based contracts within a global budget based on (1) a uniform fee schedule; and, (2) moderately well-managed utilization assumptions, and (3) a value-based benefit design (Medicare Advantage would be one example) we would have well over half the population in some form of managed care model linked to quality and outcome measures and a sustainable growth rate.
- The combined public purchasing power made up of “Pool 1” and “Pool 2” could be used to negotiate the fee schedule used in calculating the capitation rate and to negotiate prices for services not in the capitation rate—in particular, high cost/specialty drugs.
- Under this arrangement, cost-shifting to pools 1 and 2 (primarily publicly financed) would be dramatically reduced. It is likely that cost-shifting in Pool 3 would increase, creating a powerful incentive for both employers and employees to become more engaged purchasers and demand that the delivery system begins to assume risk and accountability for cost, quality, and outcomes.
Other relevant resources: