Starting on the Path to a High Performance Health System: Analysis of Health System Reform Provisions of Reform Bills in the House of Representatives and Senate

December 4, 2009

Updated: January 7, 2010
Authors: Karen Davis, Ph.D., Stuart Guterman, Sara R. Collins, Ph.D., Kristof Stremikis, M.P.P., Sheila Rustgi, and Rachel Nuzum, M.P.H.
Editor: Martha Hostetter and Chris Hollander

Feature

Compare Health Reform BillsOpen our interactive tables for side-by-side comparisons of the system reforms and insurance coverage provisions in the congressional health reform bills—including President Obama's proposal and the reconciliation bill.

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Overview

Note: A video of a Jan. 8 Alliance for Health Reform/Commonwealth Fund briefing on health insurance exchanges is available at: http://www.cspan.org/

This report analyzes the health reform bill passed by the U.S. House of Representatives and the reform provisions under consideration in the Senate that would affect providers’ financial incentives, the organization and delivery of health care services, investment in prevention and population health, and the capacity to achieve the best health care and health outcomes for all. The bills represent a pragmatic approach to closing the gaps in insurance coverage by: building on a mix of employer coverage, other private plans, and a public plan in a health insurance exchange, or exchanges; strengthening Medicare; and expanding Medicaid. Even under current estimates, 18 million to 23 million people will remain uninsured, however, and many others will still face financial barriers to obtaining needed care or hardship in paying premiums or medical bills.

Executive Summary

To achieve a high performance health system, health reform must go beyond ensuring affordable coverage to addressing health system changes that will improve Americans’ health outcomes and the quality of health care, increase efficiency, and slow the growth in total health system costs. This report analyzes how the health reform bills passed by the U.S. House of Representatives and the Senate would affect providers' financial incentives, the organization and delivery of health care services, investment in prevention and population health, and the capacity to achieve the best health care and health outcomes for all.

Congress has fashioned health reform plans that will fundamentally change our present course of rising costs and increasing numbers of uninsured and underinsured people. The bills represent a pragmatic approach to closing the gaps in insurance coverage by: building on a mix of employer coverage and other private plans in a health insurance exchange, or exchanges; strengthening Medicare; and expanding Medicaid. Most of the ideas that have been advanced by policymakers and health care opinion leaders to deal with rising costs are reflected in the bills (Exhibit ES-1). Starting on the Path

Key Provisions Targeting Costs and Quality

Following are the key changes that the House and Senate bills would make to help ensure long-run cost containment and improve the quality of health care.

1. Changing the Insurance Market
Both the House and Senate bills would establish a health insurance exchange, or exchanges, with a choice of plans; rules to shift insurers from competing for healthier enrollees to competing on value; and greater transparency. While the Congressional Budget Office (CBO) does not credit savings that would be generated from increased competition among plans, it estimates that the insurance exchange would lower administrative overhead by four to five percentage points. In the authors' view, the House provisions for the insurance exchange would be effective over the long term in mitigating the rise in premiums and costs to employers and households. These provisions include: creation of an 85 percent medical-loss ratio standard (80 percent in the Senate for individual and small-group insurance plans, and 85 percent for large-group plans); standardized benefit tiers to facilitate comparison of plan premiums; review of plan premiums by the Secretary of Health and Human Services (HHS), who would have the authority to reject plans with excessive increases (or those with unjustified premium increases prior to implementation of reform in the Senate); and repeal of the health insurance companies’ exemption from antitrust regulation. These positive effects would grow if the exchange is gradually opened to larger firms (an option after the year 2015 in the House bill, and after 2017 in the Senate bill). According to a recent Commonwealth Fund survey of health care opinion leaders, support for establishment of a health insurance exchange is overwhelming (92%).

2. Offering a Public Plan
The House bill would offer a public health plan in the insurance exchange. The HHS secretary would be charged with negotiating provider payment rates and authorized to use an array of proven value-based purchasing payment methods. Providers participating in Medicare would be assumed to participate in the public health insurance plan unless they opt out. CBO estimates that the public plan will have lower administrative costs than private plans but also will attract sicker individuals, with the net effect that its premium will be slightly higher than those for private plans. The CBO estimates that nearly all of the 6 million people who enroll in the public plan (of the nearly 30 million covered through the exchange) would be people who are currently uninsured and who would be eligible for premium subsidies.

The Senate bill does not include a public plan, but calls for the Office of Personnel Management, which administers the Federal Employees Health Benefits Program, to develop at least two multi-state plan offerings, at least one of which would be nonprofit. Both the House and the Senate bills include provisions for nonprofit consumer cooperative health plans. The CBO estimated that neither the multi-state plan option under the Senate bill nor the nonprofit health insurance cooperative would have much of an effect on either coverage or costs. CBO estimates that the cooperatives would have difficulty competing in most state markets dominated by one or two large carriers.

There is great uncertainty over the long-term effectiveness of the public plan option. Initially, health care providers that treat the uninsured are likely to participate, even at payment rates well below commercial rates because most of those newly covered would be low-income patients for whom safety-net providers now receive little or
no payment.

A Commonwealth Fund study found that a health reform proposal that includes a robust public health insurance plan—with provider payment tied to Medicare and open to all employers and individuals—could save $3 trillion in total health expenditures over the period 2010–2020. The same proposal, but with an intermediate public plan having rates between commercial providers’ and Medicare's, was estimated to save $2 trillion. A proposal with no public plan but with Medicare reforms only, meanwhile, saved an estimated $1.2 trillion. Depending on how effective the HHS secretary is in negotiating rates and lowering administrative costs, the public plan could put significant pressure on private insurers to slow the growth in premiums for employers and workers over time as the exchange is opened to larger firms. Three-fourths of surveyed health care opinion leaders support inclusion of a public health insurance option in the exchange.

3. Instituting Provider Payment Reform
The House and Senate bills would establish a Center for Medicare and Medicaid Innovation with broad authority for the HHS secretary to test innovative payment methods for medical homes that provide patient-centered coordinated care, for accountable care organizations that assume responsibility for quality and cost across the continuum of patient care, and for bundled hospital acute and post-acute care. The Senate bill also would implement a national, voluntary shared savings program for accountable care organizations. The secretary would have broad authority to sustain and spread effective payment methods.

The House bill calls for two studies to be conducted by the Institute of Medicine. The secretary would be authorized to implement the recommendations of one study, on geographic adjustment factors in Medicare payment. The secretary also would be authorized to implement the recommendations of the second study, on geographic variation in health spending and promotion of high-value health care in Medicare, unless Congress votes to disapprove it. Nearly all health care opinion leaders (97%) in the Commonwealth Fund survey support reforming provider payment to promote quality
and efficiency.

4. Adjusting Payment for Productivity Improvement
The hospital industry agreed to slow increases in Medicare payment rates in recognition of the increased revenue realized through covering more uninsured Americans and the potential for significant ongoing productivity improvements. Slowing in Medicare payment rates for all health care providers (other than physicians, whose payments are considered separately) yields $150 billion to $180 billion federal budget savings over 2010–19, according to CBO, and establishes the principle that rising expenditures cannot continue at projected rates.

5. Controlling Spending Growth
The Senate bill would establish an Independent Payment Advisory Board within the executive branch that has significant authority to identify areas of waste and additional federal budget savings. The board would first review physician and home health services; hospitals would be exempt initially. Congress would be required to make an up-or-down vote on its annual recommendations. CBO estimates the board would generate $28 billion in savings over 2010–19, mostly in the out-years. Three-fourths of health care opinion leaders (75%) support creation of an independent advisory council that has the authority to make decisions within parameters established by Congress and subject to review by the president and Congress.