Rising Cost of Health Care and the Effect on Health Premiums
Washington, DC – AHIP President and CEO Karen Ignagni today addressed the rising cost of health care and the effect on health premiums before the Senate Committee on Health, Education, Labor and Pensions. Below are excerpts from her written testimony:
“Our community is strongly committed to the successful implementation of the ‘Patient Protection and Affordable Care Act’ (PPACA), and we already have begun taking important steps to lay the foundation of a health care system that rewards value, not volume. Health plans are pioneering new initiatives for improving patient care, enhancing quality, and helping enrollees receive the highest possible value for their health care dollars.”
“Health insurance plans are committed to engaging physicians, hospitals, and other health care professionals in the design and implementation of payment reforms. Our members also are working with various stakeholders to make performance measurement more consistent. We urge the committee and policymakers to assess these efforts and consider building upon the PPACA initiatives to ensure a system-wide approach to delivery reform.”
“When the cost of health care services increases, the cost of providing health benefits also rises. The federal government’s data on national health expenditures indicate that over the past 20 years (1989-2009) health benefit costs have increased by an average of 7.2 percent annually and premium increases likewise have averaged 7.1 percent annually. This trend clearly demonstrates the importance of addressing underlying medical costs through measures that achieve system-wide cost containment.”
“As we examine issues surrounding health insurance premiums and medical costs, it is important to look at recent history, particularly the decade of the 1990s when premium growth was well below historical trend and stable for several years, contributing toward economic growth and growth in coverage. We know from this experience that health plans can hold down premiums when they are able to use care management tools to reward the delivery of high quality, appropriate and efficient care.”
“In today’s health care system, we face new challenges – most notably, rapid increases in the unit price of medical services – that are contributing to higher health care costs. In fact, according to the 2008 National Health Expenditures (NHE) report issued in January 2010, price increases constituted two-thirds of the year-over-year increase in health spending. Specifically, of the 4.6 percent annual increase in personal health expenditures reported in 2008, price accounted for 3.1 percentage points, while 1.5 percentage points was driven by non-price factors. The NHE report also indicated that for 2008, health insurance premiums increased at 3.1 percent, approximately one-third below the increase in total health spending.”
“In the face of these exploding costs, our members are deploying the next generation of medical management tools to promote a high-value health care system, including:
- Targeting disease management services to enrollees who stand to benefit the most from pro-active interventions;
- Working with primary care physicians to expand patient-centered medical homes that promote care coordination and accountability for clinical outcomes;
- Providing incentives to promote the use of decision-support tools and health information technology;
- Providing quality improvement reports for physicians to monitor their progress in managing disease;
- Offering personalized risk assessments and wellness programs;
- Encouraging electronic prescribing and consumer safety alerts;
- Providing peer-to-peer comparisons to demonstrate the appropriate use of health care services across specialists and manage the use of high-cost imaging services.”
“Many of the quality programs and innovative initiatives being implemented in various markets across the country by the private sector would improve the delivery of care and patient outcomes in a more timely and efficient manner if public programs were part of the local initiatives. Expanding these programs to encompass the full health care system – both public and private payers – is an important step toward identifying gaps in care, pursuing opportunities for improvement, and evaluating innovations so adoption can occur more broadly.”
“The debate leading up to passage of health care reform ultimately became framed as a need for insurance market reform and greater regulation of health plans, creating legislation disproportionately focused on health plans, which make up only 4 percent of national health expenditures, and doing little to address the underlying drivers of health care costs, which have a substantial affect on premium increases.”
“Massachusetts and California provide high profile examples of a public discussion about insurance rates entirely delinked from an examination of the factors driving these rates. In the case of Massachusetts, a comprehensive and in-depth report from Attorney General Martha Coakley recently reported two findings: that the market leverage of providers was leading to higher prices, without any noticeable difference in quality; and that increases in the price of health care services had caused most of the increase in health care costs – not utilization.”
“Capping premium increases without looking at the underlying components is similar to capping the prices auto makers can charge consumers, while allowing the steel, rubber, and technology manufacturers to charge the auto makers whatever they want. This will lead to financial instability throughout the system. What has occurred in Massachusetts is a politicization of processes related to premium review and approval, creating benchmarks for review that do not reflect the underlying cost drivers.”
“The new health care reform law recognizes that states properly serve as the primary regulators for health plan activities, subject to new and consistent federal standards impacting a wide range of activities, including annual rate review.”
“The real question, therefore, is not whether additional legislation is needed to further address the operation of 4 percent of the health care sector as a percentage of total spending, but whether policymakers will now broaden their focus to address sectors accounting for the remaining 96 percent of our health care system.”
“To succeed on a long-term basis, health reform ultimately must include bolder steps to achieve system-wide cost containment. We believe this can be achieved with a more comprehensive effort to reduce the rate of increase in costs, better alignment of public and private sector payment reform efforts, and broader medical malpractice reform. Perhaps most important, we believe that efforts to reduce costs are complementary to our nation’s effort to improve quality as policymakers attempt to drive greater value in the delivery of care. Focusing only on premiums and not the components that are driving premiums makes little sense.”
“Our members remain strongly committed to working with the committee to ensure the successful implementation of the new health reform law, while also working to slow the growth of underlying medical costs to make health insurance more affordable.”
The full written testimony can be found at: http://bit.ly/d7jHAg.
