States experimenting with health cost programs

SALEM, Ore. (AP) — Oregon health officials are concentrating on coordinating services and preventing hospital stays. New Jersey medical centers are rewarding doctors who can save money without jeopardizing patient care. And Massachusetts is expanding the role of physician assistants and nurse practitioners.

As states work on implementing the complex federal health care reforms, some have begun tackling an issue that has vexed employers, individuals and governments at all levels for years — the rapidly rising costs of health care.

The success of models that are beginning to emerge across the country ultimately will determine whether the federal Patient Protection and Affordable Care Act (PPACA) can make good on its name.

It’s too early to tell what will work and what won’t, but states, insurers and medical groups are experimenting with a variety of programs to contain costs without undermining care. These test runs come as millions of new patients will gain eligibility for health insurance under the federal law, putting additional pressure on the system.

“Look at any of the long-term projections for the federal budget or for state budgets,” said Alan Weil, executive director of the National Academy for State Health Policy. “If we don’t bring down health care costs, we’re either going to be paying a whole lot more in taxes or we’re going to stop spending money on other things we care about.”

PPACA is expected to extend coverage to many of the roughly 50 million Americans who lack insurance by expanding Medicaid, the state-federal health care program for low-income people, and requiring most others to purchase insurance or pay a fine.

Often overlooked are the law’s efforts to stabilize constantly rising costs.

U.S. health care spending reached $2.7 trillion in 2011, or $8,700 per person, according to the Centers for Medicare and Medicaid Services (CMS). The agency says those numbers are climbing and predicts spending will reach $14,000 per person by 2021.

The higher costs mean higher premiums for businesses, which are passing on more of those expenses to their employees, and for individuals, who are seeing a rise in out-of-pocket costs.

In the Portland area, spiking costs have forced Steve Ferree to reduce the benefits he offers his 32 employees at the Mr. Rooter Plumbing franchise he owns.

“We feel bad about it,” he said. “We do provide good insurance, and we want to make sure we take care of folks, so that’s a tough decision to make.”

Premiums for employee-only coverage have spiked 65 percent since 2006, Ferree said, and employee and spouse plans rose 90 percent. Workers cover a quarter of the premium.

The struggles of business owners such as Ferree illustrate the difficulty of finding solutions, even in a state that has been held out as a potential national model for savings.

The recession provided what is expected to be a temporary reprieve, with health care costs slowing to 3.9 percent annually between 2009 and 2011, the slowest growth rate since the government began keeping track in 1960, according to CMS data. Over the preceding 18 years, per capita health care costs grew an average of 6.5 percent a year.

Yet despite the recent slowdown, health care costs continue growing faster than both wages and the economy as a whole, accounting for an ever-larger share of spending for employers and workers alike. It now accounts for nearly 18 percent of U.S. economic activity, up from 5 percent in 1960.

Annual premiums for employer-sponsored family coverage jumped nearly 4 percent this year, and single coverage rose almost 5 percent, according to a report released last week by the nonprofit Kaiser Family Foundation. The foundation expects prices will begin rising faster as the economy improves.

Economists say soaring health care costs are driven primarily by industry consolidation and expensive new medical technologies and prescription drugs.

PPACA’s cost-containment section reduces Medicare reimbursements to providers and requires commercial insurance companies to issue refunds if more than 20 percent of their revenue goes to profits, salaries and overhead. Hospitals will face penalties when patients develop conditions while in their care.

The federal law also promotes “accountable care organizations” within Medicare, which are charged with improving coordination to reduce wasteful spending.

But much of the experimentation on reducing costs is driven by state governments and private businesses.

Oregon has tried to tackle rising costs by focusing on Medicaid, which serves 550,000 people in the state and is expected to grow by 200,000 under PPACA’s Medicaid expansion that starts next year.