Healthcare cost growth is a factor of both utilization and price. The wide variance in service utilization, particularly for post-acute services, is a significant factor in differentiating high-cost from low-cost markets for Medicare. For the commercial population, however, the primary factor is price variation. The presence of this factor both between markets and within them means there are expensive and low-cost hospitals even in relatively “low-cost” healthcare markets.
For the past decade, most employers’ primary efforts to control cost have relied on shifting costs to employees through benefit design in the form of higher cost sharing. During this time, deductibles at the point of care have significantly increased. The Kaiser Family Foundation notes that, in 2018, the average deductible across all insurance products was $1,350 (up from $433 in 2008).
The theory driving this trend was that it would transform passive patients into active consumers of healthcare services. It was assumed that when employees needed healthcare, they would become price-conscious shoppers and discriminating consumers, actively questioning the necessity of recommended services. More progressive employers realized the limits of cost shifting early on and attempted to augment this strategy to better address the specific components of healthcare cost growth, namely unwarranted price variation and unnecessary utilization.
To reduce unwarranted price variation, some employers (or their health plans) provided access to the prices of services, via “transparency tools” to help their employees shop for the best deal on services. When these tools have been used, they have been impactful. Prices paid by one health plan for advanced imaging services were 14% lower for patients who conducted a price search using a transparency tool. However, only 1% of plan members who received an advanced imaging service conducted a price search.
This situation is common. Another health plan offered a transparency tool to 94% of its members, only to see it used by fewer than 4% of the members. And even if health plans could develop benefit designs and educational materials that activate consumers, this strategy has limited effectiveness. A study by the Health Care Cost Institute estimates that, in 2011, fewer than 7% of total healthcare spending was paid by consumers for “shoppable” services.
Alternative payment models (APMs) have been deployed in some commercial health plan products to reduce unnecessary utilization. About 20 percent of large employers are experimenting with high-value networks and ACOs. Arrangements such as Advocate Health Care’s shared savings contract with Blue Cross Blue Shield of Illinois and Banner Health Network’s Aetna Whole Health ACO are sparking increased interest from employers, having reduced spending relative to the insurance companies’ PPO populations by 6% and 11.5%, respectively. More than half of respondents to the National Business Group on Health’s annual survey anticipate implementing a value-based network or ACO in “the next few years.”
Although these models hold promise, many employers find them difficult to implement, because they require a level of scale and sophistication beyond the reach of small businesses, which employ half of the private-sector workforce. Further, these models often require the use of narrow networks to be effective, a step many employers and employees — particularly in the public sector — are unwilling to take.
For example, the state of Oregon implemented coordinated care organizations (CCOs) for its Medicaid population with the intent of transitioning state employees into them. The CCOs have been offered as an option to state employees, but they have not been mandated as a full replacement for broader network products because of pushback from state employee unions.
Meanwhile, APMs such as ACOs have seen limited deployment, so it is not surprising that a recent HFMA study has found these models have yet to “bend the cost curve” at the market level.
It’s also not surprising, given employers’ cost-control strategies, that the average family premium for HDHPs and PPOs increased between 2008 and 2018 by about 84% and 55%, respectively. Although these strategies have been effective in constraining costs (compared with the 1980s and 1990s), they haven’t been effective enough. Over the same 10 years, health insurance premiums increased three to four times faster than inflation, depending on the type of coverage.
It is precisely such pressures on state budgets and states’ inability to effectively control healthcare costs for their employees that have caused states like Montana and North Carolina to consider more drastic measures.