accountable care states: the future of health care cost control

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Accountable Care States

The Future of Health Care Cost Control

September 2014
http://www.americanprogress.org/http://www.americanprogress.org/


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Accountable Care StatesThe Future of Health Care Cost Control

By Ezekiel Emanuel, Topher Spiro, Maura Calsyn, Carter Price, Stuart Altman,

Scott Armstrong, John Colmers, David Cutler, Francois de Brantes, Paul Egerman,Bob Kocher, Peter Orszag, Meredith Rosenthal, John Selig, Joshua Sharfstein,

Andrew Stern, and Neera Tanden

August 2014


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1 Introduction and summary

2 Why do we need more health care cost control?

5 State innovation models

10 The Accountable Care States model

17 Conclusion

18 About the authors

20 Acknowledgements

21 Endnotes

Contents


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1 Center for American Progress | Accountable Care States

Introduction and summary

Over he pas ew years, he growh in healh care coss has slowed dramaically.

Bu because he reasons or his are unclear, i is likely ha addiional policies will

be needed o keep growh down. Wihou acion, healh care spending will coninue

o crowd ou oher vial spending in household and governmen budges.

Given he curren poliical gridlock, i is unlikely ha he ederal governmen will ake

he lead on reorms o conrol healh care coss sysem-wide. Saes mus hereore

play a leadership role, wih he ederal governmen empowering and incenivizinghem o ac. We propose ha he ederal governmen should implemen a model

ha gives saes he opion o become Accounable Care Saesmeaning ha

hey are accounable or healh care coss, he qualiy o care, and access o care

wih sizable financial rewards or keeping overall coss low. Tis model would conrol

coss across he sysem raher han shif coss rom public programs o he privae

secor or o consumers.

Te Accounable Care Saes model offers he poenial or subsanial savings in

healh care spending. I only abou hal o he saeshose ha expanded heir

Medicaid programs in 2014, or exampleop o become Accounable Care Saes,

he poenial savings in oal healh care spending would exceed $1.7 rillion over

he firs 10 years o implemenaion. O ha amoun, he ederal governmen would

save more han $350 billion. Te financial incenives or saes o paricipae and

succeed would also be powerul: 21 saes would earn more han $1 billion, 33 saes

would earn more han $500 million, and 44 saes would earn more han $200

million. By 2025, he average savings or an individual wih privae healh insurance

would exceed $1,000 and grow over ime.


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Why do we need more health care

cost control?

Naional healh care spending per capiaafer adjusing or inflaionhas grown

less han 2 percen per year since 2007, and raes over he pas ew years are he lowes

on record.1While oal healh care spending acceleraed in lae 2013 and early 2014,

i is unclear o wha exen he acceleraion simply reflecs an increase in he number

o insured people or wheher coss per insured person are also acceleraing. Tere

remains considerable debae abou he acors ha have caused he slowdown and

wheher i will coninue.

Tere is no doub ha he Grea Recession was an imporan acor. As a resul o

job losses, enrollmen in privae healh insurance has declined by more han 9 million

people since 2007.2Saes wih budge shoralls reduced Medicaid paymens and

benefis subsanially.3Wih lower incomes, enrollees in privae insurance had less

money o spend on healh care.4

Several sudies use hisorical daa o deermine he relaionship beween economic

growh and healh care spending growh. Tese sudies esimae ha he economic

downurn explains anywhere rom 37 percen o more han wo-hirds o he slow-

down in healh care spending.5However, his mehodology has serious limiaions:

I is highly sensiive o assumpions abou he iming o he effec o economic

growh on healh care spending growh. Anoher recen sudy compares privae

healh care spending in geographic areas where he severiy o he recen economic

downurn varied, esimaing ha he downurn explains abou 70 percen o he

slowdown in privae healh care spending.6

Sill, mos expers believe ha he economy is no he only acor a work or wo

reasons. Firs, he slowdown began beore he Grea Recession. Second, he

economic downurn canno explain he slowdown in Medicare spending. Becausehe vas majoriy o Medicare beneficiaries have supplemenal coverage or cos-

sharing, financial losses did no reduce heir use o healh care.7


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In addiion o he economy, anoher imporan acor is he long-erm rend o

rising cos-sharingor ou-o-pocke coss paid by consumers such as deducibles,

copaymens, and coinsuranceha discourage he use o healh care. Since 2006,

he number o workers who have a deducible has risen sharply, he average

deducible amoun has nearly doubled, and 20 percen o covered workers are now

enrolled in high-deducible plans.8

Coinsurance or hospial admissions andcopaymens or physician visis have also risen sharply.9According o one analysis,

rising cos-sharing explains 20 percen o he slowdown in healh care spending,

alhough oher expers have concluded ha his acor is even more imporan.10

Te use o new echnologieswhich hisorically drove cos growhhas also

moderaed. For many surgical procedures involving medical devices, as well as

imaging wih MRIs and C scans, raes o use declined during he lae 2000s.11

Addiionally, because a large number o high-volume, high-cos drugs los paen

proecion, cheaper generic drugs accoun or an increasing share o prescripions. 12

However, some expers who are surveying he echnology pipeline predic ha a surgein new surgical procedures, medical devices, and specialy drugs is on he horizon.13

Te Affordable Care Ac, or ACA, also conribued o he slowdown. Te law

reduced Medicare paymens o medical providers and Medicare Advanage plans.

Moreover, here is evidence ha reducions in Medicare paymens had a spillover

effec on privae insurance.14Because he law reduced Medicare paymens o

hospials wih high readmissions, he readmission rae has dropped rom 19 percen

o abou 17.5 percen, avoiding 130,000 readmissions.15Reducing hese prevenable

readmissions, as well as hospial-acquired condiions, lowers coss while improving

he qualiy o care.

Perhaps mos imporanly, i is possible ha he Affordable Care Ac creaed an

expecaion o cos-conrol reorms ha changed medical providers behavior. In

oher words, providers may have become more cos-efficien in anicipaion o

reorms o he paymen and delivery sysem. As evidence o his effec, providers

have sharply curailed heir invesmen in echnologies and aciliies ha could drive

up coss.16o he exen ha his effec is real, providers may rever o business as

usual unless anicipaed reorms soon become realiy.

Several o hese acors had a one-ime effec on he level o healh care spending

and canno be expeced o coninue o moderae he growh o spending over he

long erm. For example, cos-sharing in privae insurance canno increase indefiniely,

and he rae o generic subsiuion or brand-name drugs canno go much higher.

Moreover, some acors ha have slowed cos growhsuch as rising cos-sharing

may have he undesirable side effec o reducing access o necessary care.


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Analyss generally projec ha cos growh will increase over he nex ew decades

bu a a slower rae han beore he slowdown. Growh in healh care spending per

capia is sill projeced o exceed growh in he economy by 1.15 percenage poins

o 1.6 percenage poins.17Even i he Grea Recession and is afermah explain

less han hal o he slowdown, once he economy improvesand he effec o

rising cos-sharing maxes oucos growh can be expeced o rise appreciably.

Even a a slower rae o cos growh, he projeced rend is unsusainable or wo

reasons. Firs, cos growh ha exceeds wage growh will dampen real income,

as i has in he pas.18Second, cos growh ha exceeds economic growh will

evenually require much higher axes or deep reducions in oher governmen

spending, crowding ou vial invesmens in educaion and inrasrucure. Under

he Congressional Budge Offices long-erm projecions, he ollowing will occur

by 2035, even i coss per capia grow no aser han he economy:19

Medicare spending as a share o he economy will increase 30 percen.

oal ederal healh care spending as a share o he economy will increase

37 percen.

Because our aging populaion accouns or 39 percen o projeced growh in ederal

healh care spending, coss per beneficiary would need o grow more slowly han

he economy o sabilize his spending as a share o he economy.20

Imporanly, growh rends and causes vary by payer. While growh in privae

spending is srongly associaed wih economic growh, increased Medicare

spending is no.21For privae spending, he slowdown was driven by he Grea

Recession and rising cos-sharingone-ime or undesirable effecs ha did no

benefi consumers. Policymakers mus hereore address his componen o

naional healh care spending.

For Medicare spending, he slowdown had more promising effecs bu remains

unexplained. o he exen ha medical providers changed heir behavior in

anicipaion o reorms o he paymen and delivery sysem, policymakers mus

coninue o send srong signals o providers ha hese reorms will ake roo.While paymen and delivery sysem reorm in Medicare and Medicaid would

have a spillover effec on privae insurance,22policymakers mus ocus on ways

o ampliy his effec. Reorms ha ocus on one payer alone will no send srong

and consisen signals o providers.


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State innovation models

Because healh care issues have become so polarized, i is unlikely ha he ederal

governmen will lead reorms o conrol sysem-wide coss. Many Republicans

propose reorms ha aim o reduce coss by reducing he amoun o insurance

coverage. A he same ime, many Democras do no recognize he need or greaer

cos conrol beyond he Affordable Care Acs reorms.

Saes, however, are well-suied o play a leadership role on cos conrol or wo

reasons. Firs, hey have a wide variey o ools and policy levers a heir disposalo conrol coss and improve he qualiy o care. (see Sae cos-conrol ools ex

box) Second, because healh care delivery varies locally, saes can ailor models o

heir unique needs.

State health care programs and regulations can affect health care

spending by influencing the supply of services, the demand for services,the behavior of medical providers and consumers, the bargaining power

of purchasers, or the degree of market competition. Here are some of

the areas in which states can control health care costs:

Medicaid and Childrens Health Insurance programs

State employee plans

State-run health insurance exchanges

Premium rate review

Provider network adequacy regulations

Provider regulations

Regulation of the supply of medical facilities

Scope of practice laws

Physician licensing

Medical malpractice laws

Price and quality transparency initiatives

Administrative requirements

Contractual rules between health plans and medical provider

State antitrust laws

Public health programs

State cost-control tools


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Several saes are already aking he lead in adoping innovaive reorms, as he

ollowing case sudies illusrae.

Arkansas

Under he Arkansas Healh Care Paymen Improvemen Iniiaive, muliple payers

provide he same paymen incenives based on an episode o care, or a bundle o

services, raher han reaing each service separaely.23Te variey o payers ha are

paricipaing include Medicaid, privae insurers, and some sel-insured employers,

such as Wal-Mar. Currenly, here are 12 episodes o care in he program, including

upper respiraory inecion, oal hip and knee replacemen, congesive hear ailure,

and atenion defici hyperaciviy disorder, or ADHD. Te goal is o implemen

episodes or up o 40 percen o spending over he nex ew years.24

Medical providers are sill paid a ee or each service. Payers designae a PrincipalAccounable Provider, or PAP, ha is he main decision maker or mos care and can

coordinae oher providers during an episode. Payers rack qualiy and coss across

all episodes during a ime period. I he PAP keeps he average cos below a arge

and mees qualiy sandards, hen i can keep a share o he savings. Bu i he average

cos exceeds he arge, hen he PAP mus pay back a share o he excess coss.

Arkansas is also implemening paien-cenered, primary care medical homes or

public and privae payers. Medical homes receive exra monhly paymens o

coordinae care or paiens. I a medical home keeps coss below is own hisorical

rend and below a argeand mees qualiy sandardshen i can keep a share o

he savings. Te majoriy o Arkansans will have access o a medical home by 2016.25

Based on curren projecions, Arkansas will save abou $560 million or Medicaid,

$310 million or Medicare, and $365 million or privae insurers over hree years.26

Maryland

Te Ceners or Medicare & Medicaid Services, or CMS, approved Marylands reormo is all-payer sysem or hospials in January. Under his sysem, an independen

agency ses paymen raes or boh public and privae payers.27Te recen reorm

limis he growh in oal hospial spending per capia o he long-erm rend in sae

economic growh per capia.


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o mee his goal, hospials will ace financial consequences i hey provide an

excessive volume o services. Maryland has also se aggressive arges or improve-

mens in hospial readmissions, qualiy measures, and hospial-acquired condiions.

Hospials will be a risk o losing increasing amouns o revenue i hey do no

make progress oward hese arges.

In uure years, Maryland inends o propose an approach o limi he growh in

oal healh care spending per capia.28

Massachusetts

Massachusets enaced legislaion o conrol healh care coss in 2012.29Te reorm

se a global arge ha limis he growh in oal healh care spending o growh in

he sae economy and is adjused o remove flucuaions due o business cycles.

A new commission enorces his arge: Medical providers wih excessive cos growhmus file and implemen a perormance improvemen plan and could be fined up

o $500,000 or ailure o comply.

Te sae Medicaid program, he sae employee healh insurance program, and oher

sae-unded programs mus ransiion o new paymen models. Te sae Medicaid

program mus use new paymen models, such as paymens or a bundle o services,

or a leas 80 percen o beneficiaries by July 2015.30In he privae insurance marke,

insurers mus offer iered nework plans ha reduce cos-sharing or enrollees who

choose high-value medical providers.

Medical providers mus repor regularly on financial perormance, marke share,

cos rends, and qualiy measures. Te new commission will conduc a Cos and

Marke Impac Review o changes in he healh care indusry, such as consolidaions

or mergers, ha could increase coss or reduce qualiy or access. Te commission

can reer hese changes o he atorney general or urher invesigaion.

Massachusets is also a naional model o healh care price ransparency.31Is reorm

requires insurers o provide consumers wih binding esimaes o heir ou-o-pocke

coss or specific procedures. In addiion, medical providers mus disclose priceinormaion o paiens and a public websie will provide daa on he relaive coss

o differen providers.


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Oregon

Oregon has commited o reduce he growh in Medicaid spending per capia by

2 percenage poins relaive o he naional growh rae by he end o 2014, while

mainaining qualiy and access.32I he sae does no mee he cos growh arge

or i qualiy or access significanly decline, hen he ederal governmen will reducesome o he exra unding ha i has agreed o provide.

Under he reorm, he sae Medicaid program makes fixed paymens o Coordinaed

Care Organizaions, or CCOscommuniy-based organizaions governed by

medical providers and consumerso provide medical, behavioral, denal, and

oher services o beneficiaries. Tese paymens are se o grow a a fixed rae o

2 percenage poins below he naional growh rae. Te sae wihholds a porion

o he paymens so ha i can make some addiional paymens o CCOs wih high

perormance on qualiy and access.

Preliminary daa rom 2011 o 2013 indicae ha CCOs reduced emergency

deparmen visis by 13 percen, as well as hospial admissions or congesive hear

ailure, chronic obsrucive pulmonary disease, and adul ashma.33

In he uure, Oregon has commited o expanding he CCO model o Medicare,

sae employee healh plans, and healh insurance exchange plans.34

Medicares State Innovation Models Initiative

Te Affordable Care Ac creaed he Cener or Medicare & Medicaid Innovaion,

or CMMI, o es and expand paymen reorms.35One o CMMIs iniiaives is he

Sae Innovaion Models, or SIM, Iniiaive, which provides grans o saes or

paymen reorms ha are adoped by muliple payers.36Currenly, six saes are

esing reorms, including Arkansas and Oregon. Te larges gran is $45 million

over hree and a hal years or abou $13 million per year. 37In May, CMMI announced

a second round o grans, which could range rom $20 million o $100 million over

our years or $5 million o $20 million per year.38

Te SIM Iniiaive is promising, bu aces our limiaions. Firs, he financial rewards

or saes are no srong enough. Wih litle ederal money a sake, saes do no

have enough incenive or leverage o exer pressure on sakeholders; several saes

repor ha medical providers and privae payers resis even paricipaing in reorm


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discussions.39Second, he iniiaive ocuses on paymen reorm, bu saes have many

oher policy levers. (see Sae cos-conrol ools ex box) Tird, he ederal

governmen provides sar-up grans bu does no reward resuls or provide direc

incenives o reduce ederal healh care spending. Fourh, he paricipaion o

Medicarehe single larges payerin his iniiaive has been minimal.

Te effeciveness o he SIM Iniiaive will hereore be limied. A bolder approach

has he poenial o spark sae innovaions, as exemplified in he case sudies above,

across he counry.


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The Accountable Care States model

Te ederal governmen should empower and incenivize saes o ake he lead in

implemening innovaive cos-conrol models. Te ederal governmen should

allow saes o become Accounable Care Saes ha are accounable or he

growh in healh care coss, as well as he qualiy o care. Under his model,

Accounable Care Saes would share ederal savings, preven cos-shifing o

consumers, implemen paymen reorms, ease adminisraive burdens, and rack

daa on coss and qualiy o care.

Share federal savings

Accounable Care Saes would agree o limi he growh in oal healh care

spending per capiaincluding spending by boh public and privae payerso a

arge linked o he saes economic growh per capia. o remove flucuaions in

economic growh due o business cycles, he arge would be linked o economic

growh over he long erm or wha growh would be assuming ull employmen,

known as poenial economic growh. I saes successully mee his cos arge,

hen hey would receive a share o he ederal governmens savings on paymens

hrough Medicare, Medicaid, Affordable Care Ac subsidies, and oher ederal

healh care programs.

o be eligible or hese shared savings, Accounable Care Saes mus also mee

arges or he qualiy o care and access o care. In addiion, saes mus have a

balanced, broad-based approach, reducing he growh rae or public spending and

privae spending by a leas 1 percenage poin each. Raher han solely ocusing

on public programsor shifing subsanial coss rom public programs o privae

insurancesaes should adop reorms ha reduce coss across he sysem.

Accounable Care Saes would have o mee one o wo cos arges. I saes limi

healh care spending o economic growh plus 0.5 percenage poins, hen hey

would be eligible o keep 25 percen o he ederal savings. I saes limi healh care


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spending even urher o he rae o economic growh, hen hey would be eligible

o keep 50 percen o he ederal savings. In addiion, i saes agree in advance o

reurn any o heir excess ederal spending o he ederal governmen, hen heir

share o any ederal savings would increase by 25 percenage poins. For his purpose,

excess ederal spending would be he amoun ha exceeds economic growh plus

1 percenage poin. By acceping greaer accounabiliy or excess cos growh,saes would have he poenial o earn greaer rewards.

Accounable Care Saes would have wo opions or receiving heir share o he

ederal savings. Tey could receive he savings in he year afer he savings accrue,

or hey could receive he savings projeced over hree years upron. Bu under he

later opion, saes would have o pay back his ronloaded savings i hey do no

mee heir arges.

Te ederal governmen would measure he ederal savings each year by comparing a

saes acual growh rae in ederal spending per enrollee o one o hese baselines:

Te saes growh rae in ederal spending per enrollee over he pas five years,

adjused o remove flucuaions due o business cycles

A blend o he saes growh rae and he naional growh rae

Saes wih growh raes ha are already below he naional growh rae would

benefi rom he blended baseline.

Te ederal savings would be adjused o exclude savings ha resul rom medical

providers paricipaion in Medicare demonsraions or rom Medicare incenive

paymens. Growh raes would also be adjused o accoun or spending growh due

o acors unrelaed o cos-conrol reorms, such as he expansion o coverage under

he Affordable Care Ac, including a Medicaid expansion; demographic changes;

naural disasers; or regional disease oubreaks. Te Governmen Accounabiliy

Office, or GAO, would ceriy measuremens o savings and adjusmens.

Prevent cost-shifting to consumers

As a general rule, Accounable Care Saes would no be able o credi any savings

oward heir arges ha resul rom policies ha simply shif coss o consumers.

Te Affordable Care Ac esablished essenial healh benefis, minimum coverage

levels, and limis on ou-o-pocke cossall o which curb increases in consumers


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ou-o-pocke coss.40In addiion, saes would be limied in heir abiliy o mee

heir arges by shifing spending rom payers o consumers because oal healh

care spending would include ou-o-pocke spending by consumers.

However, Accounable Care Saes would be able o coun savings rom iered or

limied provider neworks. While plans wih limied neworks exclude high-cosmedical providers, plans wih iered neworks reduce cos-sharing or enrollees who

choose high-value providers. o ensure ha consumers reain meaningul access

o providers, saes would no be credied wih such savings unless he neworks

mee minimum sandards or adequae healh care access. Saes would also be

able o coun savings rom increasing cos-sharing or low-value servicessuch as

emergency deparmen visis or non-emergencies and brand-name drugs when

generic drugs are availableconsisen wih consumer proecions under Medicaid.

Implement payment reform across payers

o be eligible or shared savings, Accounable Care Saes mus ransiion o new

paymen models ha are coordinaed across public and privae payers. As an

alernaive o paying a ee or each servicewhich encourages medical providers

o increase he number o serviceshese new paymen models pay a fixed amoun

or care coordinaion hrough primary care medical homes; or a bundle o services,

known as bundled paymens; or o an Accounable Care Organizaion or all o

he care a paien needs.

Accounable Care Saes would need o phase in new paymen models so ha an

increasing percenage o paymens by all payers are made using hese new models:

Year 2: 20 percen

Year 3: 30 percen

Year 4: 40 percen

Year 5: 50 percen

As he single larges payer, he paricipaion o Medicare is key o healh sysem

ransormaion. For medical providers o change how hey operae, a large porion

o heir revenue mus be affeced. Alignmen across payers can also help counerac

he marke power o providers.


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Accounable Care Saes would be encouraged o propose models ha include

Medicare, much like how saes ake he lead on demonsraion programs o inegrae

care or dual eligible populaions.41Medicare would be required o paricipae in

he ollowing sae paymen models:

Models ha CMS has approved or he saes Medicaid program, o he degreeeasible. In Arkansas, or insance, Medicare would be required o use he same

bundles as he sae Medicaid program.

Models ha have been esed and proven o reduce coss and improve he

qualiy o care, as judged by he CMS Office o he Acuary. For insance, saes

could implemen he Acue Care Episode programs bundled paymens or

cardiac and orhopedic procedures across payers.

Models ha CMMI is currenly esing or some providers, unless resuls show

ha he models reduce he qualiy o care.

Models ha implemen some orm o all-payer rae seting, under which

paymen raes o providers would be he same or more similar or all payers, ha

does no increase Medicare spending when combined wih oher reorms.

Ease administrative costs and burdens

Saes ofen lack adminisraive capaciy o design and implemen major reorms.

o deray adminisraive and implemenaion coss, Accounable Care Saes would

receive eiher an enhanced Federal Maching Assisance Percenage under Medicaid

or unding rom CMMI.

Te ederal governmen would sandardize and sreamline a process or saes ha

are ineresed in becoming Accounable Care Saes. CMS would creae a new

Office o Accounable Care Saes o review and approve a single applicaion or

waivers o Medicaid, paymen and delivery sysem reorms o Medicare, and

changes o sae-run healh insurance exchanges. Tis office would be similar in

uncion o he Medicare-Medicaid Coordinaion Office creaed under heAffordable Care Ac o coordinae Medicare and Medicaid demonsraions and

simpliy processes.42In addiion, CMS would publish Accounable Care Sae

emplaes wih sandard condiions such as hose discussed above o remove any

guesswork or inconsisencies rom he process.


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Track cost and qual ity data

Accounable Care Saes would need o rack cos and qualiy daa o measure

heir perormance agains arges. Tese daa would also inorm he public and

policymakers abou he drivers o healh care coss and shine a spoligh on payers

and medical providers ha need o improve.

o be eligible or shared savings, Accounable Care Saes mus esablish all-payer

claims daabasescombining daa rom Medicare, Medicaid, and privae payers

wihin wo years. Te daabases would include daa on uilizaion o services and

paymens by provider and payer bu no personal inormaion. Te ederal govern-

men would provide Medicare and Medicaid daa and he saes healh insurance

exchangewheher ederal or sae-runwould provide daa rom exchange plans.

Te ederal governmen would provide sar-up unding or he daabases.

Wihin wo years, each Accounable Care Sae would also need o sandardizequaliy measures and reporing requiremens across is payers. Currenly, medical

providers ace an assormen o qualiy measures, which resuls in an adminisraive

burden and inconsisen signals and incenives.

Potential health care savings

Te Accounable Care Saes model has he poenial o yield subsanial healh care

savings o saes, he ederal governmen, businesses, and households. We esimaed

he impac o his model primarily using Congressional Budge Office, or CBO, daa

on projeced healh care spending. (see Mehodology ex box) Our esimaes

are highly conservaive because we assume a modes ake-up rae among saes.

I only abou hal o he saesor example, hose ha expanded heir Medicaid

programs in 2014op o become Accounable Care Saes, he poenial savings

in oal healh care spending would exceed $1.7 rillion over he firs 10 years o

implemenaion. O ha amoun, he ederal governmen would save more han

$350 billion. Tis amoun o ederal savings would be ne o shared savings paymens

ha he ederal governmen would make o paricipaing saes.

Tese shared savings paymens would be subsanial, creaing powerul incenives

or saes o paricipae and succeed. able 1 displays each saes poenial share o

ederal savings. Over he firs 10 years o implemenaion, 21 saes would earn


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more han $1 billion, 33 saes would earn more han $500 million, and 44 saes

would earn more han $200 million. Because hese amouns would be in addiion

o savings in sae Medicaid spending, he poenial financial gain o saes would

be much larger.

TABLE 1

Potential state shares of federal savings, 20182027

StateSavings

(millions of dollars)

Alabama $840

Alaska $160

Arizona $1,050

Arkansas $500

California $5,910

Colorado $790

Connecticut $780

Delaware $190

District of Columbia $240

Florida $3,610

Georgia $1,550

Hawaii $230

Idaho $240

Illinois $2,160

Indiana $1,230Iowa $530

Kansas $500

Kentucky $820

Louisiana $850

Maine $300

Maryland $1,070

Massachusetts $1,600

Michigan $1,820

Minnesota $1,030Mississippi $550

Missouri $1,200

Source: Authors calculations based on data from the Congressional Budget Office and Centers for Medicare & Medicaid Services.See Methodology text box for details.

StateSavings

(millions of dollars)

Montana $180

Nebraska $340

Nevada $430

New Hampshire $260

New Jersey $1,620

New Mexico $370

New York $4,160

North Carolina $1,720

North Dakota $140

Ohio $2,280

Oklahoma $640

Oregon $710

Pennsylvania $2,580

Rhode Island $230

South Carolina $810

South Dakota $150

Tennessee $1,200

Texas $4,050

Utah $430

Vermont $110

Virginia $1,250

Washington $1,160

West Virginia $380

Wisconsin $1,090

Wyoming $80

Total $56,120


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Consumers would also reap savings rom lower premiums and ou-o-pocke coss.

By 2025, he average savings or an individual wih privae healh insurance would

exceed $1,000 and grow over ime.

To estimate the impact of the Accountable Care States model, we assumed that the

model would not be fully implemented in half of the states until 2018. We also assumed

that participating states would choose to maximize their shared savings with a cost

target equal to the growth in gross domestic product, or GDP.

To construct a baseline of federal health care spending, we used CBO projections of

Medicare spending, Medicaid spending, and Affordable Care Act subsidies through

2024, extending the trends through 2027.43To estimate the national savings in federal

health care spending, we used CBO estimates of the amount by which the growth ratefor each program exceeds GDP growth, known as excess cost growth.44

Because CBO does not project private health care spending, we used private spending

data from the National Health Expenditure Accounts, or NHEA, maintained by the

Office of the Actuary at CMS, isolating data on premiums and out-of-pocket costs.45

National savings in private health care spending is the difference between the NHEA

projection and what private spending would be if it grew at the rate of the Accountable

Care States cost target instead. This savings estimate, divided by the NHEA projection

of the number of enrollees in private health insurance,46is the average savings for an

individual with private insurance.

To derive the savings for each state, we allocated national savings to states based on

each states portion of national health care spending, as measured by the NHEA.47To

apportion Medicaid savings between the federal government and a state, we applied

the Affordable Care Acts enhanced matching rate to Medicaid spending resulting from

the ACA and the states regular Federal Matching Assistance Percentage, or FMAP, to

the rest of Medicaid spending.48

Methodology


20/26


Conclusion

Many powerul sakeholders have a vesed ineres in driving up he cos o healh

care. Te incenives or policymakers o ake acion mus be srongso srong

ha inacion is almos no an opion. Only saes have he policy levers and he

poliical will o lead reorm, and only he ederal governmen can provide srong

enough incenives. Te Accounable Care Saes modelwhich combines hese

sae and ederal elemenshereore represens our bes hope or susainable

healh care spending in he coming years.


21/26


About the authors

Ezekiel Emanuelis a Senior Fellow a he Cener or American Progress.

Topher Spirois he Vice Presiden or Healh Policy a he Cener.

Maura Calsynis he Direcor o Healh Policy a he Cener.

Carter Priceis a Senior Mahemaician a he Washingon Cener or

Equiable Growh.

Stuart Altmanis he chairman o he Massachusets Healh Policy Commission. He

is also he Sol C. Chaikin proessor o naional healh policy a Brandeis Universiy.

Scott Armstrongis he presiden and chie execuive officer o Group Healh

Cooperaive. He is also a member o he Medicare Paymen Advisory Commission.

John Colmersis he chairman o he Maryland Healh Cos Services Review

Commission. He is also he vice presiden o Healh Care ransormaion and

Sraegic Planning a Johns Hopkins Medicine.

David Cutleris a Senior Fellow a he Cener or American Progress.

Francois de Brantesis he execuive direcor o he Healh Care Incenives

Improvemen Insiue.

Paul Egermanis a co-ounder o IDX and eScripion.

Bob Kocheris a parner a Venrock. Previously, he was he special assisan o he

presiden or Healhcare and Economic Policy a he Naional Economic Council.

Peter Orszagis he vice chairman o corporae and invesmen banking a Ciigroup.

Previously, he was he direcor o he Office o Managemen and Budge under

Presiden Barack Obama.

Meredith Rosenthalis a proessor o healh economics and policy a he Harvard

School o Public Healh.

John Seligis he direcor o he Arkansas Deparmen o Human Services.


22/26


Joshua Sharfsteinis he secreary o healh and menal hygiene a he Maryland

Deparmen o Healh and Menal Hygiene.

Andrew Sternis he Ronald O. Perelman senior ellow a Columbia Universiy.

Previously, he was he presiden o he Service Employees Inernaional Union,

or SEIU.

Neera Tandenis he Presiden o he Cener or American Progress.


23/26


Acknowledgements

Te Cener or American Progress hanks he Peer G. Peerson Foundaion or

heir suppor o our healh policy programs and o his repor. Te views and

opinions expressed in his repor are hose o Cener or American Progress and

he auhors and do no necessarily reflec he posiion o he Peer G. PeersonFoundaion. Te Cener or American Progress produces independen research

and policy ideas driven by soluions ha we believe will creae a more equiable

and jus world.


24/26


Endnotes

1 Council of Economic Advisers, 2014 Economic Report ofthe President(Executive Office of the President, 2014),p. 151, available athttp://www.whitehouse.gov/sites/default/files/docs/full_2014_economic_report_of_the_president.pdf.

2 Anne B. Martin and others, National Health Spendingin 2012: Rate of Health Spending Growth RemainedLow for the Fourth Consecutive Year, Health Affairs33(1) (2014): 6777, available at http://content.healthaf-fairs.org/content/33/1/67.abstract.

3 Amitabh Chandra, Jonathan Holmes, and JonathanSkinner, Is This Time Different? The Slowdown inHealthcare Spending (Cambridge: National Bureau ofEconomic Research, 2013), p. 17, available at http://www.nber.org/papers/w19700.pdf.

4 David M. Cutler and Nikhil R. Sahni, If Slow Rate OfHealth Care Spending Growth Persists, ProjectionsMay Be Off By $770 Billion, Health Affairs32 (5) (2013):841851, available athttp://content.healthaffairs.org/content/32/5/841.abstract;see also endnote 10.

5 Cutler and Sahni, If Slow Rate Of Health Care Spending

Growth Persists, Projections May Be Off By $770 Billion,pp. 841850; The Henry J. Kaiser Family Foundation,Assessing the Effects of the Economy on the RecentSlowdown in Health Spending (2013), available athttp://kff.org/health-costs/issue-brief/assessing-the-effects-of-the-economy-on-the-recent-slowdown-in-health-spending-2/; Louise Sheiner, Perspectives onHealth Care Spending Growth (Washington: EngelbergCenter for Health Care Reform at the BrookingsInstitution, 2014), available athttp://www.brookings.edu/~/media/events/2014/04/11%20health%20care%20spending/perspectives_health_care_spend-ing_growth_sheiner.pdf.

6 David Dranove, Craig Garthwaite, and Christopher Ody,Health Spending Slowdown Is Mostly Due to Econom-ic Factors, Not Structural Change In The Health CareSector, Health Affairs33 (8) (2014): 13991406, availableat http://content.healthaffairs.org/content/33/8/1399.

abstract?related-urls=yes&legid=healthaff;33/8/1399.

7 Michael Levine and Melinda Buntin, Why Has Growthin Spending for Fee-For-Service Medicare Slowed?Working Paper 6 (Congressional Budget Office, 2013),available at http://www.appam.org/assets/1/7/Why_Has_Growth_in_Spending_for_Fee_for_Service_Medi-care_Slowed.pdf.

8 The Henry J. Kaiser Family Foundation, 2013 EmployerHealth Benefits Survey (2013), Exhibits 7.2, 7.7, and8.4, available athttp://kff.org/private-insurance/report/2013-employer-health-benefits/.

9 Ibid., Exhibits 7.22, 7.29, and 7.30.

10 Alexander J. Ryu and others, The Slowdown In HealthCare Spending In 200911 Reflected Factors Other

Than The Weak Economy And Thus May Persist, Health

Affairs32 (5) (2013): 835840, available at http://content.healthaffairs.org/content/32/5/835.abstract;Council of Economic Advisers, 2014Economic Report ofthe President, p. 160.

11 Chandra, Holmes, and Skinner, Is This Time Different?The Slowdown in Healthcare Spending, Table 2, p. 39;Cutler and Sahni, If Slow Rate Of H ealth Care SpendingGrowth Persists, Projections May Be Off By $770 Billion,p. 845.

12 Ibid.

13 Chandra, Holmes, and Skinner, Is This Time Different?The Slowdown in Healthcare Spending, pp. 2426.

14 Ibid., p. 9.

15 Council of Economic Advisers, 2014 Economic Report ofthe President, p. 165.

16 Levine and Buntin, Why Has Growth in Spending forFee-For-Service Medicare Slowed?, p. 38; Council ofEconomic Advisers, 2014 Economic Report of the President,p. 156, fn 3.

17 Chandra, Holmes, and Skinner, Is This Time Different?The Slowdown in Healthcare Spending, p. 4; The HenryJ. Kaiser Family Foundation, Assessing the Effects of theEconomy on the Recent Slowdown in Health Spending.

18 David I. Auerbach and Arthur L. Kellermann, A DecadeOf Health Care Cost Growth Has Wiped Out RealIncome Gains For An Average US Family, Health Affairs30 (9) (2011): 16301636, available athttp://content.healthaffairs.org/content/30/9/1630.abstract.

19 Congressional Budget Office, The 2014 Long-TermBudget Outlook (2014), Supplemental Data, availableat http://www.cbo.gov/sites/default/files/cbofiles/attachments/45471-Long-TermBudgetOutlook_7-29.pdf.

20 Ibid., p. 23.

21 Chandra, Holmes, and Skinner, Is This Time Different?The Slowdown in Healthcare Spending, p. 11.

22 Council of Economic Advisers, 2014 Economic Report ofthe President, p. 170.

23 Health Care Payment Improveme nt Initiative, Home,available at http://www.paymentinitiative.org/Pages/default.aspx(last accessed April 2014).

24 John Selig, interview with author, Washington, D.C.,

April 17, 2014.

25 Centers for Medicare & Medicaid Services, Fact Sheet:State Innovation Models Initiative, available at http://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-Sheets/2013-Fact-Sheets-Items/2013-02-21.html(last accessed August 2014).

26 John Selig, interview with author, Washington, D.C.,April 17, 2014.

27 Rahul Rajkumar and others, Marylands All-PayerApproach to Delivery-System Reform, New EnglandJournal of Medicine370 (6) (2014): 493495, available athttp://www.nejm.org/doi/full/10.1056/NEJMp1314868;Centers for Medicare & Medicaid Ser vices, Fact sheets:Maryland All-Payer Model to Deliver Better Careand Lower Costs, available athttp://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2014-

Fact-sheets-items/2014-01-10.html(last accessedAugust 2014); Maryland Health Services Cost ReviewCommission, Maryland All-Payer Model Agreement,available at http://www.hscrc.state.md.us/documents/md-maphs/stkh/MD-All-Payer-Model-Agreement-%28executed%29.pdf (last accessed April 2014).

28 Centers for Medicare & Medicaid Services, Fact Sheet:Maryland All-Payer Model to Deliver Better Care andLower Costs.
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29 Commonwealth of Massachusetts, An Act improvingthe quality of health care and reducing costs throughincreased transparency, efficiency and innovation,S.2400 (August 6, 2012).

30 National Governors Association, State InnovationModels: State Snapshots, p. 3, available athttp://state-policyoptions.nga.org/sites/default/files/policyarticles/pdf/State%20Innovation%20Model%20State%20Snap-shots%20-%20FINAL.pdf(last accessed April 2014).

31 Maura Calsyn, Shining Light on Health Care Prices:

Steps to Increase Transparency (Washington: Centerfor American Progress, 2014), p. 9, available at http://www.americanprogress.org/issues/healthcare/report/2014/04/03/87059/shining-light-on-health-care-prices/.

32 Oregon Health Policy Board, Oregons MedicaidDemonstration, available athttp://www.oregon.gov/oha/OHPB/Pages/health-reform/cms-waiver.aspx(lastaccessed April 2014).

33 Oregon Health Authority, Oregons Health SystemTransformation: Quarterly Progress Report (2014),available at http://www.oregon.gov/oha/Metrics/Documents/report-february-2014.pdf.

34 Centers for Medicare & Medicaid Services, Fact Sheet:State Innovation Models Initiative.

35 The Patient Protection and Affordable Care Act, Public

Law 111148, 111th Cong., 2 sess. (March 23, 2010),Section 3021.

36 Centers for Medicare & Medicaid Services, Fact Sheet:State Innovation Models Initiative.

37 Centers for Medicare & Medicaid Services, StateInnovation Models In itiative: Model Testing AwardsRound One, available at http://innovation.cms.gov/initiatives/state-innovations-model-testing/ (lastaccessed August 2014).

38 Centers for Medicare and Medicaid Services, StateInnovation Models: Round Two of Funding for Designand Test Assistance (2014), available at http://innovation.cms.gov/Files/x/StateInnovationRdTwoFOA.pdf; Centers for Medicare & Medicaid Services, StateInnovation Models Initiative: Frequently AskedQuestions, available athttp://innovation.cms.gov/

initiatives/State-Innovations/State-Innovation-Models-Initiative-Frequently-Asked-Questions.html(last accessedAugust 2014).

39 Sharon Silow-Carrol and JoAnn Lamphere, StateInnovation Models: Early Experiences and Challenges ofan Initiative to Advance Broad Health System Reform(New York: The Commonwealth Fund, 2013), p. 3,available at http://www.commonwealthfund.org/~/media/files/publications/issue-brief/2013/sep/1706_silowcarroll_state_innovation_models_ib1.pdf.

40 The Patient Protection and Affordable Care Act, PublicLaw 111148, Section 1302.

41 Centers for Medicare & Medicaid Services, Letter

to State Medicaid Directors Re: Financial Models toSupport State Efforts to I ntegrate Care for Medicare-Medicaid Enrollees, July 8, 2011.

42 The Patient Protection and Affordable Care Act, PublicLaw 111148, Section 2602(c).

43 Congressional Budget Office, Updated Estimates ofthe Effects of the In surance Coverage Provisions of theAffordable Care Act (2014), available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/45231-ACA_Estimates.pdf; Congressional Budget Office, TheBudget and Economic Outlook: 2014 to 2024 (2014),available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/45010-Outlook2014_Feb.pdf.

44 Congressional Budget Office, The 2014 Long-TermBudget Outlook, p. 3839 and Supplemental Data.

45 Centers for Medicare & Medicaid Services, NationalHealth Expenditure Projections 20122022 (2013),

Table 16, available at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2012.pdf.

46 Ibid., Table 17.

47 Centers for Medicare & Medicaid Services, HealthExpenditures by State of Provider, 1980 2009,available at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/prov-tables.pdf(last accessed August 2014).

48 The Henry J. Kaiser Family Foundation, FederalMedical Assistance Percentage (FMAP) for Medicaidand Multiplier, available at http://kff.org/medicaid/

state-indicator/federal-matching-rate-and-multiplier/(last accessed August 2014).
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