State’s Public Health Programs Excel at Cost Control, Study Shows

Premiums for health insurance purchased by private businesses went up considerably faster than premiums for publicly purchased insurance over the past 10 years in California, according to a study released last week.

Premiums paid by private businesses increased by 138% between 1999 and 2008 while Medi-Cal premiums for family enrollees increased by 23% and Healthy Families premiums by 38%, according to the study from UC-Berkeley’s School of Public Health.

Medi-Cal is California’s Medicaid program, and Healthy Families is its Children’s Health Insurance Program.

Richard Kronick, UC-San Diego professor and author of the study “Understanding the Slow Growth in Medi-Cal and Healthy Families Premiums,” is quick to point out that a straight comparison of private and public sector premium increases “is not an apples-to-apples comparison.”

“There are differences in the capitated managed care systems vs. fee-for-service, there are differences in patient makeup — Healthy Families is all children and Medi-Cal is mostly children — and there are differences in the starting points in 1999,” Kronick said.

“But even with all that taken into consideration, the public sector expenditures going up so much more slowly than the private sector is extraordinary,” Kronick said. “The Medi-Cal and Healthy Families programs in California rank among the few health care programs nationwide that have been successful in controlling health expenditure growth.”

10% Annual Increase Compared With 2.3% and 3.6%

The research — funded by the California Program on Access to Care, part of UC-Berkeley’s School of Public Health — examined health premiums for several companies — including Anthem Blue Cross, Health Net and Kaiser Permanente — that contract with both public and private purchasers.

Key findings from the study show:

• California’s private sector premiums increased by an average of 10.1% per year;
• Medi-Cal premiums increased by an average of only 2.3% per year; and
• Healthy Families premiums increased by an average of 3.6% per year.

“Mainstream and local-initiative health plans have been willing to accept the state’s very low rates of premium increase largely because health plans have been able to contract with the physicians and hospitals who serve Medi-Cal or Healthy Families enrollees at very low rates of increase in payment,” said Kronick.

However, Kronick warns that the states’ proposed rate caps and cuts to Medi-Cal and Healthy Families could harm California’s publicly funded managed care programs.

“Anthem Blue Cross, Health Net and Blue Shield recently dropped out of Medi-Cal and Healthy Families in some counties due to premium cuts that started in the 2008-2009 budget cycle,” said Kronick.  “The state is likely to continue to lose managed care capacity, and to harm quality and access, if it does not pay health plans at reasonable rates.”

The CPAC study comes on the heels of a Lewin Group report showing that Medicaid managed care programs nationwide improve patient outcomes and reduce states’ health care costs.

“Any efforts to overhaul the current health care system must include a discussion about controlling costs,” CPAC Director Gil Ojeda said in a prepared statement.  “This new CPAC study enhances the dialogue around cost control.”

Fodder for Public Plan Debate

The new research arrives as Congress and the Obama Administration are contemplating whether to include a publicly-run health insurance plan in the reform package.

Kronick said findings in his research could be used to argue both sides of the issue.

“If anything, the findings here may suggest you don’t need a public plan to control costs,” Kronick said. “Blue Cross and Health Net contracted through Medi-Cal and Healthy Families are private plans that public plan advocates are railing against. It is potentially possible, as Healthy Families and managed Medi-Cal have shown, to keep costs down even when contracting with private insurers. It matters a lot how you manage these private plans,” Kronick said.

On the other side of the debate, however, Kronick said his recent research also indicates there may be value in a publicly run plan.

“In two counties, Los Angeles and San Francisco, you have publicly run programs — L.A. Care and Healthy San Francisco — that are generating part of the competitive constraint to keep costs down. It’s clear that’s a good thing about having a public plan,” Kronick said.

Kronick said his research did not give a clear indication of whether a publicly run national insurance program would help.

“It’s not a clean, easy question. It’s not just my research that doesn’t provide a clean, clear response. The whole debate is unclear,” Kronick said.

More Uninsured on the Way?

Whatever shape a reformed national health system might take, it probably can’t arrive too soon.

In a separate study released last month, Kronick and his UC-San Diego colleague Todd Gilmer predicted the United States could have seven million more uninsured by 2010, bringing the total to about 52 million.

The recession, rising health care costs and sluggish growth in personal incomes will add at least 6.9 million non-elderly Americans to the ranks of the uninsured by 2010, Gilmer and Kronick outline in their study “Hard Times and Health Insurance: How Many Americans Will Be Uninsured By 2010?”