Can Health Care Reform Rein in Costs?

One of the main goals of health care reform — lowering the cost of care — was a major focal point last week at a policy forum in San Francisco hosted by the New America Foundation.

“There are a huge set of provisions in [the national health reform law] that are already working to make coverage more affordable,” Herb Schultz, regional director of the U.S. Department of Health and Human Services, said. “The truth is, it’s not a 2014 thing,” Schultz said. “There are a heck of a lot of things happening in 2010 and 2011.”

Schultz pointed to the recent enactment of provisions to extend dependent health care coverage to age 26, and the elimination of pre-existing conditions as a basis for denying coverage to children under 19. In the past, taxpayers generally paid for treating those uninsured people, he said, rather than insurers.

Paul Markovich, chief operating officer for Blue Shield of California, said that insuring everyone is actually a positive for both insurers and the public at large.

“Getting people covered is a big step forward in addressing the underlying cost issue,” he said. “One of the dynamics we face all the time, when physicians are treating people who are uninsured or underinsured, they lose money treating those people. And to make up for those losses, they negotiate higher rates with us, and that means higher premiums for people who are insured.”

That means policyholders end up sharing the cost of uninsured patients, he said. “And that is not a sustainable system,” Markovich said. “We need to bring people into a pool, and that does take a major step toward solving the problem.”

Regulating premium rate increases is up to the states, Schultz said, and California’s agencies don’t have much authority to do that. It’s a problem faced by states all across the country, he said, one that the federal government is trying to address.

“Forty-six states have received $1 million apiece [in federal funding] to make sure health care increases are justified,” he said.

“But California has never really had approval over rate review,” he said. “What are the cost drivers that increase premiums year after year? it would be really good to know.”

The one other big cost-regulator, Schultz said, is imposition of the medical-loss ratio.

“The law basically says, if you’re an insurer you are limited on the administrative profit you can make — so 80 or 85 cents on the dollar must be spent on medical care and the rest on administration and profit.”

The specific standards have not yet been set, he said. “But there will be a standard.” Starting in 2011, insurers need to report the amount they spend on administration and health care costs — as well as the level of profit they make.

“And in 2012, if insurers have, say, an 18% profit instead of 15, then consumers will get rebates based on amounts the plans went over,” Schultz said. “It’s an important cost-containing measure, but also a quality measure, to make sure consumers get the best bang for their buck in health care.”