Cost Containment with or without Health Care Reform John Bertko, FSA Adjunct Staff, RAND February 10, 2010

2 Cost Containment Components Health Insurance Exchanges with... –Standardized benefits (same Actuarial Values) and Guaranteed Issue –Transparent premiums Using rate bands and Adjusted Community Rating? Or Standard “underwriting authority” Risk adjustment –Potential results Reduce sales/marketing admin costs (5-15%) Pressure on insurer margins (1-5% reduction) Incentive for new delivery systems (???)

3 Cost Containment Components Accountable Care Organizations (ACOs) –Single global budget for all ACO providers –More care coordination, better use of resources –Improved population health –Possible results Short term % savings Longer term -- another 5-10% (but a lot of work)

4 Cost Containment Components Independent Medicare Commission –Quicker changes in Medicare administered prices: more accurate, better incentives –Less “interference” –Seems less likely now –Results -- if only all MedPAC recommendations implemented, then savings of $25-50 Billion/year

5 Cost Containment Components Excise tax on “Cadillac” benefit plans –Relatively low amount of revenue is raised –High pressure on employers and unions to convert to lower cost plans More cost-sharing More efficient HMOs, “Narrow” Networks –More pressure on insurers to create efficient products –Could result in very uneven geographic results

6 Cost Containment Components Payment Reform –Bundling Used today for transplant networks CMS tried successfully with a CABG demo Too few appropriate conditions to control much spending –Medical Home payments Good evidence for higher quality care Probably leads to higher (not lower) spending