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«CHAPTER 7 Balancing Private and Public Roles in Health Care H ealth care is one of the largest and fastest growing sectors of the U.S. economy, ...»

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Comparative Effectiveness For many types of medical conditions, a patient may have a choice between at least two diagnostic methods and/or treatments that have different benefits and risks. Selecting the most appropriate course of care relies on having current information about the effectiveness of each option, given a patient’s characteristics. Comparative effectiveness research studies are rigorous evaluations that compare the performance of various diagnostic and treatment options for specific medical conditions and sets of patients. By using

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comparative effectiveness research findings, providers can help patients select the most clinically appropriate course of treatment. Advocates of comparative effectiveness research also suggest that widespread use of research findings may help to reduce some of the geographic variation in utilization and spending that exists in the United States.

The number of comparative effectiveness studies has increased in recent decades, and provides the potential to improve the quality of care delivered to patients. A recent Federally-sponsored comparative effectiveness initiative is the Agency for Healthcare Research and Quality’s Effective Health Care Program. Created as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, this program funds the creation of new research, synthesizes current research on the benefits and risks of alternative medical interventions, and translates these findings into useful formats that can be easily accessed by health care providers and patients.

Price and Quality Information Transparency When individuals shop for many goods or services, often they can access information on prices and quality using readily available sources. With this information, they can compare alternatives and then select the one of highest value. Unfortunately, the same information is not readily available for health-related goods and services. Having information on prices and provider quality may be important as people consider which physicians or hospitals to select for care and what impact this might have on their out-of-pocket costs (such as copayments or coinsurance) and their potential health outcomes.

To illustrate, suppose a couple learns that they are expecting their first child and that their physician has admitting privileges at the two hospitals in their community. Wanting to make an informed decision about which hospital they should use for the birth, this couple would benefit from being able to look on their insurer’s web site to find information about the price that each hospital charges for different types of deliveries. With this information, they could assess how much it will likely cost them out of pocket for a normal delivery, given their insurance coverage. Additionally, the couple would be able to find information on each hospital’s web site about the quality of its maternity services, including the volume of deliveries during the past year, the proportion of deliveries that were performed by Cesarean section, and whether there is a neonatal intensive care unit at the facility.

One challenge in health care is that there are actually two types of prices:

list prices and transaction prices. List prices, which are also called charges, are well-documented and are found in all standardized information that hospitals and physicians submit when seeking payment for services. However, list prices are often not relevant because most payers, whether private insurers, Medicare, or Medicaid, pay much less than the list price. The payment 204 | Economic Report of the President that is actually made by the insurer to the provider is called a transaction price. Unfortunately, this information is more difficult to access because it is insurer-specific and providers may be sensitive about having negotiated rates available in the public domain.

In the past 20 years there have been tremendous advances in the development of objective measures of clinical quality for chronic diseases, acute care, preventive care, and long-term care. Improvements in health care quality measurement as well as better information systems are making it easier to evaluate provider performance and generate information that is relevant and timely for providers and individuals. Increasing the transparency of information about health care quality can motivate providers to improve the care that they deliver, and it can help consumers to make more informed decisions regarding their provider choices. A key priority for the Administration has been public reporting of price and quality information. In addition to advocating for greater transparency across the entire health care system, the Federal Government and the Centers for Medicare and Medicaid Services, in particular, have developed Hospital Compare, Nursing Home Compare, and the Medicare Prescription Drug Plan Finder, which are comprehensive, web-based resources providing quality and pricing information.

Pay-for-Performance Pay-for-performance refers to purchasing practices aimed at improving the value of health care services that are provided to patients, where value depends on both quality and cost. Private insurers, as well as Medicare and Medicaid, are using pay-for-performance programs that provide doctors and hospitals with financial incentives to meet certain performance measures for quality and efficiency or to show quality improvement. Researchers in the private and public sectors are conducting numerous evaluations of pay-for-performance programs to assess whether these programs affect provider behavior and improve the quality of care that patients receive.

One such evaluation includes the Premier Hospital Quality Incentive Demonstration Project, which started in 2003. In this Medicare demonstration, hospitals receive bonus payments based on their performance on five medical conditions, including acute myocardial infarction (heart attack), coronary artery bypass graft, pneumonia, heart failure, and hip/knee replacement. Improvements in quality of care during the first 3 years of the demonstration have saved the lives of an estimated 2,500 acute myocardial infarction patients, based on an analysis of mortality rates at participating hospitals. Additionally, more than 1.1 million patients treated in the five clinical areas at participating hospitals have received approximately 300,000 additional services or recommendations that align with evidencebased clinical quality measures, such as smoking cessation advice, discharge instructions, and pneumococcal vaccination.

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Using Market-Based Approaches to Improve Access to Health Insurance The financial burden of health care costs can be extensive, particularly for those who have a serious health episode, such as cancer or a trauma-related injury. In the United States, about 80 percent of medical care expenditures each year are generated by about 20 percent of the population. Health insurance provides individuals with financial protection against costs associated with medical treatment, giving them access to needed and valuable care that otherwise might not be affordable. This section provides an overview of current health insurance coverage patterns and discusses key Administration initiatives to promote market-based approaches and new types of insurance benefit designs to provide individuals with greater flexibility as they choose coverage that best meets their needs.

Private Health Insurance The private market for health insurance is really two markets—one for employer groups and another for individuals. Currently, 165 million Americans under 65 years of age obtain their coverage through an employer source, either as a worker or a dependent of a worker, and approximately 17 million non-elderly individuals purchase coverage in the individual market.

In the United States, employer provision of health insurance is voluntary, and while 99 percent of large firms (those with 200 or more workers) offer coverage to their workers as a benefit, a smaller percentage of small firms do. In 2008, 62 percent of small firms (those with 3–199 workers) offered their workers health insurance, down from 68 percent in 2000. Two main factors cause small firms to be less likely to offer health insurance as a fringe benefit relative to large firms. First, small firms may have difficulty pooling risk effectively. Very small groups, in particular, may be less able to absorb the financial shock of a high-cost, low-probability medical problem by one or more of their employees, which may result in higher premiums for a specific amount of coverage, as well as larger rate increases over time. Second, there are human resources costs for firms when they shop for insurance, coordinate enrollment with employees, and integrate employee contributions toward the premium with payroll. If the per-worker administrative costs of insurance are higher for small firms, they may be less likely to offer coverage.

For individuals who are not offered health insurance through an employer, the individual market is an alternative way to acquire coverage. Many who purchase insurance in this market use it as a bridge between jobs that provide employer-sponsored insurance or between employer-sponsored coverage and 206 | Economic Report of the President Medicare. For others, including the self-employed, coverage purchased in the individual market may need to serve their needs over the long term.

There are several different types of health insurance plans available in the private market, including health maintenance organizations, preferred provider organizations, and point-of-service plans. In addition to traditional managed care plans, a new generation of insurance benefit designs, called consumer-directed health plans, is emerging. Consumer-directed health plans typically have three basic features: a high deductible, which is the dollar amount that has to be paid before an insurer covers any medical expenses; an associated account that can be funded with pre-tax dollars and can be used to pay for out-of-pocket medical expenses; and tools to help enrollees make decisions about their medical care treatment options. The two most prevalent forms of consumer-directed health plans are Health Reimbursement Arrangements, which are offered by employers, and Health Savings Accounts, which are offered in both the employer group and individual markets. See Box 7-1 for information about Health Savings Accounts.

Box 7-1: Health Savings Accounts: Innovation in Benefit Design

Health Savings Accounts (HSAs) were signed into law by the President in 2003 as part of the Medicare Prescription Drug, Improvement, and Modernization Act. HSAs are tax-advantaged savings accounts to which individuals can contribute funds that they can then use to pay for qualified medical expenses. HSAs are used in conjunction with High-Deductible Health Plans that meet specific criteria. In particular, these plans must have a minimum deductible of $1,150 for single coverage and $2,300 for family coverage in 2009, an annual out-of-pocket limit of no more than $5,800 for individuals and $11,600 for families in 2009, and catastrophic coverage in case an individual or family exceeds the out-of-pocket limit as a result of a serious medical episode. Health plans that meet these criteria are referred to as HSA-compatible or HSA-eligible plans.

HSAs are available in both the employer group and individual markets. When offered in an employer setting, both an employer and employee can contribute money to the account, up to specific limits ($3,000 for individuals and $5,950 for families in 2009). Also, employees whose health plans meet the deductible and out-of-pocket limit criteria described above can open an HSA on their own if their employer does not open an account for them. Unused balances may be rolled over from year to year and accumulate interest, thus allowing individuals to build up savings that can be used to cover future medical expenses.

Additionally, HSAs are portable, which means that individuals are able to continued on the next page

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Box 7-1 — continued keep any unspent funds in the account when they change employment or exit the labor force.

Enrollment in HSA-compatible health plans has been growing steadily each year. In 2006, over 6.8 million employees and dependents were enrolled in High-Deductible Health Plans, and over 30 percent of these enrollees were in small firms. As of January 2008, approximately

1.5 million consumers had purchased HSA-compatible plans in the individual market. HSAs in combination with a High-Deductible Health Plan are playing an increasingly important role in the individual market, providing an option that is more affordable, on average, than other traditional types of health plans.

HSAs and High-Deductible Health Plans are designed to encourage more consumer control over health care decision making, but concerns have arisen about the impact that these plans may have on policyholders’ care-seeking behavior. In particular, some believe that the deductible may lead individuals to forgo or delay getting care such as preventive screenings (for example, mammograms). To mitigate this concern, most insurers now provide some coverage before the insured person meets his or her deductible. Research that analyzes the impact of HSAs and High-Deductible Health Plans on medical care utilization and expenditures is mixed. In coming years, as these plans gain market share, research may help to clarify the full effect of this type of benefit design on care-seeking behavior and costs.

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