Think Tank

Should California Follow Mass. Cost-Control Example?

Massachusetts established a new law this month designed to rein in health care costs.

Considered by many as the second legislative step in health care reform, the law is supposed to allow health spending to grow no faster than the state economy over the next five years. After 2017, health spending would slow to half a percentage point below the economy’s growth rate for five years.

Massachusetts state officials predict the law, which includes other cost-saving provisions, could save their state as much as $200 billion over the next 15 years.

The law establishes a commission to monitor spending and require that health care providers and insurers justify increases above target rates. The commission can require insurers and providers to submit a plan to bring spending back in line. The commission can impose fines up to $500,000.

A proposed “luxury tax” on high-priced medical providers included in earlier versions of the bill was removed in the final draft.

We asked legislators, state officials, trade associations and consumer advocates: Should California be thinking about a similar law?

We got responses from:

California Should Avoid Experimental Measures

While California health policy leaders have been working at breakneck speed to implement the Affordable Care Act, little attention has been paid to the growing problem of rising health care costs.

Earlier this summer, Massachusetts policymakers enacted dramatic new legislation to control health care spending because, while coverage and access increased, costs were spiraling out of control following the passage of the state’s health reform law.

But, California is not Massachusetts.

Massachusetts officials were far down the path in implementing their health reform law and did not address health care costs from the outset.

Massachusetts implemented rate regulation that falsely held down premiums while the underlying health care costs continued to escalate.

Let’s make the right policy choices for California so the success of health reform is not threatened by skyrocketing health care costs.

First, we should seek to avoid the necessity of having to test out experimental approaches to hold down spending, as they are doing in Massachusetts.

Instead of controlling provider rates, plans, providers and the government should work together to reduce health care costs.

Let’s reduce the cost shift — when providers shift losses from underpayment for public health coverage onto private insurance — by ensuring the government pays providers enough to cover their costs for treating Medi-Cal beneficiaries. Right now, California ranks worst in the nation in Medicaid provider payments.

Let’s expand upon the success of California’s managed care and payment models in private and public programs. California was the birthplace of managed care and has diminished the use of fee-for-service health care that is rampant across the nation, but we can do more. 

Let’s be mindful when considering legislation that drives up health care costs for everyone. While a new mandate for coverage may be popular, can policyholders ultimately bear increasing costs? Affordability is directly tied to the achievement of universal coverage. If coverage costs too much, not enough people will buy it.

We will be closely watching to see if Massachusetts’ efforts to curb rising health care costs work, but in the meantime, policymakers in California can work to avoid the need to take such measures.

California Should Consider Features of Massachusetts Law

You’ve got to hand it to Massachusetts for tackling the health care cost control conundrum. Whether or not their 349-page law gets it exactly right, it is a valiant attempt.

While the marketplace, sheer scale and demographics of California are vastly different from Massachusetts, the basic problem is the same: Ever-rising health care costs are unsustainable. The multifaceted bill reflects the fact that there is no silver-bullet solution to corralling these costs. But California should consider some features of the bill, including:

  • A health policy commission to coordinate strategies, set spending targets and monitor progress. A key feature of the Massachusetts commission is that nine of its 11 members must be “public members.” Such appointments, free of connection to the medical industry, are critical. California’s fragmented regulatory scheme, an accident of history, would benefit from a more unified approach. 
  • A number of steps to promote public and community health, including reducing disparities. A strong public effort to ensure focus on getting and staying healthy, rather than solely curing illness, is essential to cutting health care spending. California’s been a model on tobacco education, healthy eating and nutritional labeling, and community-based efforts are under way to foster healthy environments. But more can always be done on prevention.
  • Promoting new payment methods and “patient-centered” care. Coordinated care and bundled payment pilots are under way in California. We need to test them to ensure they truly serve patients well by improving health outcomes and reducing costs, without exacerbating market concentration problems. “Shared decision making” and culturally and linguistically competent patient education by community health workers are elements our exchange is already embracing, and they should be encouraged on a wider basis.
  • Improving patient safety to save money and save lives. The Massachusetts law includes features to improve patient safety, such as allowing the commission to tie ACO payment incentives to reducing avoidable readmissions and adverse events. More can be done in California along these lines, especially to ensure publicly available data, the sine qua non for safety improvement.
  • Requiring shared savings for consumers since systemic savings do not necessarily mean cost reductions for consumers. The Massachusetts law allows the commission, in developing ACO standards, to establish mechanisms for health insurance purchasers to share savings with patients. Whether through rebates, the rate setting process, or otherwise, the principle is a sound one.
  • Market impact studies. Getting the attorney general, or other relevant authority, to assess and address market concentration problems that result in higher health care costs could be useful in California as well.

Controlling health care costs is not sexy stuff, and it is politically charged. But California, like the rest of the nation, needs to attend to it, while ensuring quality and access, if we want to realize the promise of health reform.

Massachusetts Law Just a Start

Having provided the prototype for the Affordable Care Act, Massachusetts has just embarked on what has been called Phase II: a wide-ranging plan to curb the rise in health care costs, hoping to save $200 billion over the next 15 years.

Should California follow suit?

In one sense, the answer is absolutely yes. We can’t neglect rising health care costs. Even with the ACA, affordability will remain an issue for many Californians, including middle class families who don’t quite qualify for a subsidy but still will struggle with the cost of coverage.

But the Massachusetts law is less a cost-cutting program and more of an the outline of one, with crucial details still to be filled in. Those details will make a huge difference.

The law has some clearly positive elements, such as a prevention and wellness trust fund paid for by a surcharge on insurers. We know that prevention works in reducing overall health care costs. Since public health funding continues to decline in most states, this is a good step. The law even has language providing community grants for Massachussetts’ most vulnerable communities and requiring the Department of Public Health to study best practices for workplace wellness programs before establishing such programs and promoting them to businesses.

There is understandable concern that the surcharge will just be passed on to consumers, but Massachusetts already has health insurance rate regulation — something California unfortunately lacks — and in recent years it has used this authority to stop unreasonable increases. Massachusetts has the means to protect consumers; it just needs to use it.

The law includes potentially significant consumer protections, allowing the Department of Insurance to better regulate provider networks, providing mechanisms for consumers to compare cost and quality, and establishing a commission to oversee, monitor and reduce the cost of prescription drugs. Another body will study — and then aim to reduce — the practice of defensive medicine and medical overutilization.

The devil will truly be in the implementation details, and in the composition of these oversight bodies. If any of this was simple, it would have been done already.

A lot of the law focuses on oversight and regulation of accountable care organizations in order to better coordinate care. A big open question is how well safety-net providers will be able to compete or adopt ACO capabilities. In California, chronically low Medi-Cal payment rates could be an obstacle to such a program.

Massachusetts has done us all a favor by taking a first stab at this. But it’s just a start.