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    Health Care Spending Growth: Can We Avoid Fiscal Armageddon? by Michael Chernew

    Both private and public payers have experienced a persistent rise in health care spending that has exceeded income growth. The issue now transcends the health care system because health care spending growth threatens the fiscal health of the nation. This paper examines the causes and consequences of health care spending growth. It notes that the determinants of spending growth may differ from the determinants of high spending at a point in time. Specifically, the evidence overwhelmingly suggests that the primary driver of inflation-adjusted, per capita spending growth over the past decades (and thus premium growth) has been the diffusion of new medical technology.

    The paper argues that while new technology has provided significant clinical benefit, we can no longer afford the persistent gap between health spending and income growth. In simple terms, if the economy is growing 2%, we cannot afford persistent health care spending growth of 4%. Growth in public spending is particularly important. If not abated, high public spending will require either substantially higher taxes or debt, both of which could lead to fiscal Armageddon. Growth in private spending also threatens economic well-being by forcing more resources toward health care and away from other sectors. For example, since the cost of employer-based coverage is always borne by employees (directly or indirectly), salary increases and health care cost increases cannot continue on together.

    To avoid economic disaster, payers will be forced to have a greater resolve in the future. Specifically, because neither public nor private payers will be able to finance growing health care spending, the coming decade will likely experience significant changes in health care financing. Consumers may be asked to pay more out of pocket when they seek care and both public and private payers will put increasing pressure on payment rates. Furthermore, payment rates to providers are likely to rise more slowly than in the past, likely by less than inflation, and a new form of payment that bundles reimbursement across providers and services will be implemented.

    All stakeholders, particularly health care providers, will need to adapt to the pressure. Ideally, this will lead to more efficient care delivery that will require a partnership among major stakeholders to develop systems of managing population health in ways that promote affordable, high-quality outcomes.

    Lack Of Access Due To Costs Remains A Problem For Some In Massachusetts Despite The State’s Health Reforms, by Cheryl R. Clark, Jane Soukup, Usha Govindarajulu, Heather E. Riden, Dora A. Tovar, and Paula A. Johnson

    Did the Massachusetts health reforms, which provided near-universal insurance coverage, also address problems of unmet need resulting from the cost of care and of inadequate preventive care for diverse patient groups? We found that nearly a quarter of adults who were in fair or poor health reported being unable to see a doctor because of cost during the implementation of the reforms. We also found that state residents earning less than $25,000 per year were much less likely than higher earners to receive screening for cardiovascular disease and cancer. The state needs to implement new strategies to build on the promise of universal coverage and address specific needs of vulnerable populations, such as limiting out-of-pocket spending for this group. Also, more data are needed on the social determinants of health to identify specific barriers related to cost and access for vulnerable groups that general insurance reforms may not address.

    Nearly Half Of Families In High-Deductible Health Plans Whose Members Have Chronic Conditions Face Substantial Financial Burden, by Alison A. Galbraith, Dennis Ross-Degnan, Stephen B. Soumerai, Meredith B. Rosenthal, Charlene Gay, and Tracy A. Lieu

    High-deductible health plans—typically with deductibles of at least $1,000 per individual and $2,000 per family—require greater enrollee cost sharing than traditional plans. But they also may provide more affordable premiums and may be the lowest-cost, or only, coverage option for many families with members who are chronically ill. We surveyed families with chronic conditions in high-deductible plans and families in traditional plans to compare health care–related financial burden—such as experiencing difficulty paying medical or basic bills or having to set up payment plans. Almost half (48 percent) of the families with chronic conditions in high-deductible plans reported health care–related financial burden, compared to 21 percent of families in traditional plans. Almost twice as many lower-income families in high-deductible plans spent more than 3 percent of income on health care expenses as lower-income families in traditional plans (53 percent versus 29 percent). As health reform efforts advance, policy makers must consider how to modify high-deductible plans to reduce the financial burden for families with chronic conditions.

    Medicare Advantage: Comparison of Plan Bids to Fee-for-Service Spending by Plan and Market Characteristics, by the GAO

    Overall, MA plans projected that they could cover their costs for providing Medicare’s standard benefits for about 98 percent of the amount that would be spent under the FFS program. HMOs were the only MA plan type that, in aggregate, submitted bids below FFS spending levels in their service areas. […] Only MA plans with the majority of their enrollment in the highest FFS spending areas had, in aggregate, bids below FFS spending. […] Nearly all of the MA plans we studied operated in areas where three dominant MAOs accounted for over half of the MA enrollment. When other factors are held constant, predicted bids relative to FFS spending are higher for plans with service areas where MAO market concentration is greater.

    Exclusive contracts in health insurance, by Ilya Rahkovsky

    Competition between insurance companies for employees of a firm often increases the prices and reduces the availability of high-quality health plans offered to employees. An insurance company can reduce competition by signing an exclusive contract, which guarantees that the company is the only insurance provider. The study assesses whether exclusive contracts can alleviate the negative consequences of competition. Using the nation-wide survey of employers, I find that exclusive insurers charged 39-42% less for a unit of insurance quality than non-exclusive insurers. Furthermore, I find that the pattern of insurance quality dispersion is consistent with the exclusive insurers offering more high quality plans.

    The Effect of Medicaid Expansions on the Health Insurance Coverage of Pregnant Women: An Analysis Using Deliveries, by Dhaval M. Dave, Sandra L. Decker, Robert Kaestner, Kosali Ilayperuma Simon

    Using data from the National Hospital Discharge Survey, this paper analyzes the effect of Medicaid eligibility expansions from 1985 to 1996 on the health insurance coverage of women giving birth. We find that the eligibility expansions reduced the proportion of pregnant women who were uninsured by approximately 10%, although the magnitude of this decrease is sensitive to specification. The decrease in the proportion of uninsured pregnant women came at the expense of a substantial reduction in private insurance coverage (crowd-out) of at least 55%. Substantial crowd-out and the relatively small change in the proportion uninsured suggest that Medicaid eligibility expansions may have had small effects on infant and maternal health.

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