Beyond Insurance: Health Costs - Part III: State Innovations, Wellness and Coordinated Care

This is the third in my series of looking into the cost measures of the current health reform legislation.  The entire series, as its title - Beyond Insurance - indicates, is an attempt to move beyond simply the health insurance cost savings.  Not all cost savings are quantifiable to a definite number of course - most aren't.  But this series attempts to provide a look at where the potentials for savings are in our vast $2.5 trillion health care system.

Today's part of the series will focus on state innovations and pilot (demonstration) projects focused on wellness and coordinated care and the savings potential those provisions of health reform entail.


States can enact programs for the poor as soon as the premium tax credits start:
Sec. 1331. State flexibility to establish basic health programs for low-income individuals not eligible for Medicaid. Allows States to contract, through a competitive process that includes negotiation of premiums, cost-sharing, and benefits, with standard health plans for individuals who are not eligible for Medicaid or other affordable coverage and have income below 200 percent of the Federal Poverty Level [...] Requires the Secretary to transfer to participating States 85 percent of the tax credits and cost-sharing reductions [...]
For the most needy, this means that their states can step up and negotiate a better deal.  By transferring 85% of the tax credits for such a program rather than 100%, the bill builds in at least a 15% saving in the health care costs for those enrolled in such a system.  If the states are able to negotiate an even better deal, they get to keep the extra money for other things they might want to do.  This creates an incentive and a win-win for cost savings.

Subsequently, beginning in 2017 (and we all wish it were earlier), it provides states with a waiver from all the requirements of an exchange, provided a state comes up with a plan to provide coverage that is at least as comprehensive and affordable.
Sec. 1332. Waiver for State innovation. Beginning in 2017, allows States to apply for a waiver for up to 5 years of requirements [...] Requires the Secretary to provide to a State the aggregate amount of tax credits and cost-sharing reductions.
In other words, beginning in 2017, states can take a lump sum of money instead of individual premium assistance and set up their own program to cover their residents.  This could be a single-payer system like those under consideration now in California and Pennsylvania, or another system - such as the one implemented now in Vermont, where the state invests money to cover residents in may different ways, and the states would have extra money from the federal government to fund it.

One should note that if a state goes the single payer route, thanks to ERISA requirements, they will likely have to enact such a system only for those who do not receive insurance through their employer.  That is, unless ERISA waivers are provided in future law.  A state-based single payer system for those who are unable to otherwise obtain insurance subsidized by the federal government will save costs, and if those can be demonstrated to save costs, will spread.


If you have read my previous articles in this series, you will notice that wellness is emerging as a theme for cost control - as well it should.  One of the worst cost factors in our health care system is that we have a disease care system, not a wellness preservation system.  This bill gives us a fighting start at this by providing incentives
Sec. 2705. [...] Permits employers to vary insurance premiums by as much as 30 percent for employee participation in certain health promotion and disease prevention programs. Authorizes a 10-State demonstration to apply such a program in the individual market.
These are incentives for wellness.  Participate in a wellness program, regular screenings, etc. and lower your premiums.  But much more than that, participation in wellness programs are likely to reduce the risk of chronic disease development, and thus the need for expensive treatment.  There's more incentives for them in the bill, including for people who use Community Health Centers:
Sec. 4206. Demonstration project concerning individualized wellness plan. This pilot program provides at-risk populations who utilize community health centers with a comprehensive risk-factor assessment and an individualized wellness plan designed to reduce risk factors for preventable conditions.
In addition, Section 4306 appropriates $25 million for the childhood obesity project.  But hang on a minute.  Does wellness really work in reducing cost, or is it just me spouting a bunch of talking points?  Funny you should ask.  An employer-based plan just like this was tested in Capital Metro of Austin, Texas.  What did they find?  According to the study, published by the Centers for Disease Control,
Participants in the wellness program reported improvements in physical activity, healthy food consumption, weight loss, and blood pressure. Capital Metro’s total health care costs increased by progressively smaller rates from 2003 to 2006 and then decreased from 2006 to 2007. Absenteeism has decreased by approximately 25% since the implementation of the program, and the overall return on the investment was calculated to be 2.43.
Pretty impressive, huh?  But look at that last part again - not only did it result in cost savings in health care, better health resulted in more work hours.  What does that mean?  On a national level, it means an increase in the national gross domestic product.  So, if you can design a system that simultaneously decreases health costs and increases the GDP, you are shrinking health care costs as a percentage of the overall economy even faster.  I think it's fair to say it'd be hard to find a better win-win.  And I'm not the only one.  Here's what the American Academy of Family Physicians have to say about this, citing another study:
The report points out that lower obesity rates alone could "reduce cases of illness by 14.8 million in 2023, which cuts $60 billion from the national treatment bill and improves GDP by $254 billion." Interestingly, the report finds that a "parallel calculation for smoking alone suggests that lower tobacco use is responsible for 9.4 million fewer illnesses in 2023, along with $31 billion less in treatment costs and $79 billion in added productivity."
What if we were able to multiply efforts like that in Austin on a nationwide scale?  Health reform incentivizes the building blocks of just such a system.  The evidence is overwhelming that wellness is a proven cost saver and productivity builder, and because the two are done simultaneously, the drop in health cost as a portion of GDP would be even faster.

A few more demonstration projects center around coordinated care:
  • Section 2403 extends the "money follows the person" long term care demonstration project to reduce institutionalization of persons who need assistance with living.  In Part II of this series, I demonstrated that such steps help with cost.
  • Sections 2704 and 2705 authorize a projects to bundle payments for coordinated physician and hospital services under Medicaid and to allow states to transition from a fee-for-service model.
  • Section 3024 authorizes a pilot project for Medicare beneficiaries to have coordinated physician and nurse practitioner-lead primary care teams to deliver care at home and reduce expenditures.
So here's the question: when one does need medical care and/or long term care, is coordinated care any less expensive?  We know it's a good thing for the improvement on the quality of life - and that should be reason enough to support them.  But do they serve the purpose of this series?  Do those actually reduce cost?  Well, the National Labor College and Kaiser Permanente certainly concur that it does.  So does the Dean of the School of Public Health at UC Berkeley:
[Dean] Shortell estimates that in Medicare alone the cost savings from voluntary ACOs [accountable care organizations] (providers are not required to participate) over 10 years would be $5.3 billion.
But are there solid examples to back up this type of savings?  Yes, there are:
The PCMH [patient centered medical home] model has been successful in a number of places, including Community Care of North Carolina, which involves 1,300 community-based practice sites and approximately 4,500 primary care clinicians throughout the state. The program has generated a total savings to Medicaid and the State Children's Health Insurance Program of between $135 and $400 million, in large part by decreasing patient hospitalizations for asthma 40 percent and ER visits 11 percent.
Yet, the adoption of these types of care management processes (CMPs) are embarrassingly low.
Only 22 percent of practices used all six CMPs for patients with diabetes; 10 percent did for patients with asthma or congestive heart failure; and 4 percent did for patients with depression.
What all this shows us is that there are plenty of room for improvement on the cost front of our health care system - particularly as it relates to wellness and coordinated care.  The cost benefits come along with - not at the expense of - benefits to individual health.  Any health care bill that hopes to bring long term health care costs under control must provides incentives to begin to shift our system towards those goals.  And this legislation takes some great first steps towards providing those incentives.

One of the things I want my reader to understand about this series is that it was not broken down to what now looks to be a four-part series (the next and last in this series is to come soon) because each thing presented in each part of the series work separately on cost control.  The breaking down was done in order to allow for presentation and absorbing of information in continuity.  The whole bill needs to be taken not as incongruous chunks but as it was meant - a comprehensive piece of reform.

Like what you read? Chip in, keep us going.

No Stuapk deal in health bill. Jane Hamsher punked.

Ezra Klein slaps down Dylan Ratigan: "For the vast majority, insurance gets LESS expensive"