Containing Health Costs and Improving Efficiency: An Analysis of State Options
Updated/ material added April 2015
Project Purpose and Scope
The cost of health and health care in the United States for years has been a highly visible topic of discussion for consumers, employers, state and federal policymakers and the media. This NCSL project researched and compiled a series of briefs aimed at a broad audience, providing options and examples of successful and experimental efforts to control health costs.
NCSL Issue briefs are distributed to legislators and legislative staff interested in health, fiscal, budget, revenue and related issues across the country. NCSL is making the information accessible on its Web site and maintains and updates an easy-to-read table of cost containment strategies. The 16-part report series was published by mid-2012; however the project continues with web updates, and technical assistance presentations.
An August 21, 2014 major health costs session [details below] was held at NCSL's Legislative Summit in Minneapolis. NCSL staff also have assisted individual states as requested, with an online archive of speaker presentations.
Download: "Health Cost Containment and Efficiencies": Complete Brief Series
(Includes Introduction and 16 Briefs, 74 pages)
State Legislatures Magazine - A 2012 Health Cost Series was published in the June and the July-August issues. The articles include summaries of five additional cost containment topics. An online Health Cost Containment supplement provides more detail and sources for the two articles, Health Costs: Improving the Bottom Line and Health Costs: Great Ideas for Cutting Costs.
Download or print briefs below:
One of the most frequent health-related questions legislators ask NCSL is, "What can we do that works to control health costs?" In Colorado, health expenditures (including federal funds) currently account for more than 25% of the state budget; among all states, the figure is 32%, often making state government the largest health care purchaser. With health costs rising by two to three times the Consumer Price Index, it is difficult for states to simply maintain the programs they have, let alone undertake strategies to cover additional uninsured populations. Understandably, there is high demand for good information about what legislatures can do to control costs. Issues of cost containment have become particularly relevant in recent months as federal health reform has become a priority and as deepening state budget deficits are forcing legislators to decrease state spending wherever possible. Unfortunately, there is no one place to go for concise, state-specific, evidence-based information provided by credible sources.
This project's goal was to produce concise, evidence-based analyses for up to 25 state cost containment strategies. The ultimate aim of the project is to ensure that state legislators and other stakeholders have access to quality information regarding cost containment strategies. The project will do in-depth research on selected state strategies to uncover and analyze the evidence base regarding their effectiveness. Project staff will consult with key Colorado legislators, legislative and executive branch staff and other state cost containment experts in Colorado and across the country.
Project staff will also review the findings and recommendations of the Colorado Blue Ribbon Commission for Health Care Reform related to health cost containment and efficiency issues, existing work by the Colorado Health Care Task Force, priorities identified by The Colorado Health Foundation and the Rose Community Foundation and federal health reform changes that will affect the topics selected for focus by the project.
The project will produce a series of four page briefs (one for each cost containment strategy) that will do the following:
Describe the strategy and its target (e.g.., overuse of services, fraud, etc.);
Provide examples of state and other implementation and experience, where available;
Describe provisions of the federal health reform law of 2010 that may relate to the approach;
Indicate evidence of its effectiveness (including cost savings and the cost of the intervention; whether the evidence may apply to only specific circumstances; where controlling costs in one area may lead to higher costs in another area; and other positive or negative effects, such as provider participation levels);
Best sources of information on the topic;
Colorado-specific information, contained in a separate supplement.
Federal Health Reform
Several cost containment approaches are included in the federal Patient Protection and Affordable Care Act (ACA), signed into law in March 2010. Some federal provisions build upon programs already used by some states. Other sections of the law provide new options, challenges and grant opportunities for states that choose to create a new policy or program in future years. These examples are described in each brief where applicable. For reference to the ACA content from each brief, visit State Health Cost Containment and Federal Health Reforms.
NCSL National Presentations
National meeting session: NCSL Legislative Summit, Minneapolis, Minn., Thursday, Aug. 21, 2014
- States Cracking the Code on Health Costs.
State-run public employee health programs, new insurance and payment initiatives and health exchanges provide varied opportunities for innovation and experimentation to tame health costs. Hear what’s new and what’s working, including bundled or “global” payments, consumer-oriented managed and accountable care models and price transparency.
Featuring: Speaker Bios Online
- 2013: Taming Health Care Costs: New Solutions, New Challenges – held at NCSL Legislative Summit in Atlanta, August 14, 2013.
America spends, on average, nearly $9,000 per person on health care each year. The cost to the nation is $2.8 trillion—almost 18 percent of total GDP. How can we keep people healthy and budgets affordable, while improving care and coverage as well as combating waste and abuse? Learn about the latest payment reforms and coverage plans and how to balance the benefits of future advances with our ability to pay for them.
- Health Costs: Payment Reforms - NCSL Fall Forum, Phoenix, Arizona, December 10, 2010. [Summary Page]
- Taming Health Costs: States Making a Difference- NCSL Legislative Summit, Louisville, Kentucky, Tuesday, July 27, 2010.
- Containing Health Costs and Improving Efficiency: State Options- NCSL Fall Forum, San Diego, California, December 11, 2009.
- Cost Containment in Medicaid - North Carolina, September 2010.
Additional Health Costs Resources
- New Videos: Containing High Health Care Costs and Caring for High-Need Patients from the Commonwealth Fund (Aug. 26, 2014)
- "State Employee Health Plan Spending" by Pew Charitable Trusts, State Health Care Spending Projects, Washington, D.C.(PDF, Aug. 2014)
- Blueprint for Bundled Payments: Strategies for Payors and Providers-This report "provides perspectives on payment bundling, including definitions of key elements, advice for payors and providers, and examples of the payment model at work in one organization." Report available for purchase via Healthcare Information Network, Jan. 2014.
- Cracking the Code on Health Care Costs: A Report by the State Health Care Cost Containment Commission - This report, released January 2014, analyzes the forces driving rising healthcare costs in the United States, potential state responses to these issues, and outlines seven recommendations to contain healthcare costs. The Miller Center, University of Virginia.
- Cracking the Code on Health Care Costs: Preview. Remarkable powers reside at the state level to reduce health costs and improve quality. It's a fact that's lost in much of the debate over health care, but given thoughtful focus in a new op-ed article in U.S. News and World Report (9/20/2013), authored by former Governors Michael Leavitt (UT) and Bill Ritter (CO). As co-chairs of the Miller Center's State Health Care Cost Containment Commission, Leavitt and Ritter present five ways states can lower health costs and put their economies in a stronger position. The piece was a preview of the commission's report, which was released three months later.
- A Bipartisan Rx for Patient-Centered Care and System-Wide Cost Containment. In April 2013, leaders of the Bipartisan Policy Center’s Health and Economic Policy Projects produced a series of recommendations. Building on that report, in June 2014 the Delivery System Reform Initiative held an update session, co-chaired by former Senate Majority Leaders Tom Daschle (D-SD) and Bill Frist (R-TN), was joined by former Congressional Budget Office (CBO) Director Alice Rivlin and former Ways and Means Health Subcommittee Chair, Congressman Jim McCrery (R-LA).
2011 Health Care Cost and Utilization Report - The Report: tracks changes in health care prices, utilization, and spending on people younger than 65 covered by employer-sponsored private health insurance (ESI). HCCI found that average dollars spent on health care services for that population climbed 4.6 percent in 2011, reaching $4,547 per person. This was well above the 3.8 percent growth rate observed in 2010. Published by Health Care Cost Institute, Sept. 2012. Download full PDF | Press Release
State Activity Highlights:
Colorado Health Cost Commission
The Colorado Commission on Affordable Health Care was created by Senate Bill 187, sponsored by Senator Irene Aguilar, and is tasked with looking at the growing healthcare costs in Colorado for the next three years. Through its analysis of a wide variety of healthcare costs, the commission must make recommendations to the legislature. The commission is compiled of 12 commissioners and 5 non-voting members, all with a range of healthcare backgrounds. The first convening on August 22, 2014 involved logistics for the future, such as deciding when to meet, who will organize the group, how to hire staff, when to hold meetings, how to launch a website, and how much money to spend. Bill Lindsay was elected interim chair of the commission. Lindsay chaired the earlier 2007-2008 Colorado Blue Ribbon Commission for Health Care Reform. The next meeting of the Cost Commission is set for Sept. 22, 2014.
> Article: "Colorado commission on reducing health costs faces difficult task" - The Denver Post, 8/22/2014
Massachusetts 2012 State Cost Reform Law
The Massachusetts legislature passed a bill, signed into law August 6, 2012, to limit the growth of health care costs. The "Act improving the quality of health care and reducing costs through increased transparency, efficiency and innovation," S.2400 is available in full text and as a four-page summary. The new law allows health spending to grow no faster than the state’s economy through 2017, defined as the state’s gross state product (GSP). For five years after that, spending would slow further, to half a percentage point below the growth of the economy, although leaders would have the power under certain circumstances to soften that target. The bill also includes provisions to encourage a shift to paying hospitals and doctors for overall patient care rather than for every test and treatment.
"Without creating large new bureaucracies or using heavy-handed, one-size-fits-all regulations, we will be encouraging the marketplace to continue to move to payments based on value to patients rather than volume of care," Senator Richard T. Moore, a lead sponsor said. “We are ushering in the end of the fee-for-service care system in Massachusetts in favor of better care, at lower cost,” Governor Duval Patrick said at the signing ceremony at the State House. Authors calculated that this law will result in savings of up to $200 billion over the next 15 years.
News: "Patrick signs health cost bill" - article by Boston Globe, 8/7/2012
> Lessons From Massachusetts For Payment Reform And Cost Control - read article in Health Affairs online September 18, 2012.
Dollars spent on health care are dollars not available for other uses. Understanding the rate at which costs are growing—and the growth rate the economy can bear—is important for the financial health of any state. The report, “State Models for Health Care Cost Measurement: A Policy and Operational Framework,” looks at total cost of care measurement activities in four states (Maryland, Massachusetts, Oregon and Vermont) , their rates of increase over time, and the policy priorities in each state that are driving the activity. It examines the questions these states had to ask in determining total cost of care measurement—where data comes from, what to count, how to count—and how they answered them. This report was prepared at the request of the states doing this work so that they could document and compare each other’s approach. The pioneering strategies to limit the rate of health care cost growth—and to measure each state's performance—merit the attention of other states, policymakers, and observers. [Read the Report] published by Milbank Memorial Fund, April 8, 2015
In the News:
"Paying 'til It Hurts: Health Care's Road to Ruin. There are ways to lower costs. Is there the political will.?" New York Times, Dec. 22, 2013.
- "As Hospital Prices Soar, a Stitch Tops $500." New York Times, Dec. 2, 2013. "Hospital pricing is often convoluted, and hospital charges represent about a third of the total United States health care bill."
- The Soaring Cost of a Single Breath: Competition is Supposed to Moderate Prescription Prices. N.Y. Times; written by Elisabeth Rosenthal and published on Oct. 13, 2013.
- The $2.7 Trillion Medical Bill: Colonoscopies Explain Why U.S. Leads the World in Health Expenditures,” a recent colonoscopy in United States cost $6,385. “In many other developed countries, a basic colonoscopy costs just a few hundred dollars and certainly well under $1,000. That chasm in price helps explain why the United States is far and away the world leader in medical spending, even though numerous studies have concluded that Americans do not get better care.” Written by Elisabeth Rosenthal; published June 1, 2013.
- Accountable Care Organizations: In this Washington Post article, “Hospital chains keep getting bigger,” the reporter notes over 100 hospital mergers and acquisitions in the past year alone. “While health policy experts have increasingly worried about a wave of hospital consolidation, the hospitals’ trade association wanted to make the case that growing integration of hospital practices is a positive trend – one with the potential to drive prices down, rather than up.” Published June 3, 2013.
- HSA’s: “Study Finds Fewer Office Visits, Prescriptions, with CDHP”- According to new research by the nonpartisan Employee Benefit Research Institute. Published June 3, 2013.
- Finance: In the article, “ The Cost and Quality Conundrum of American End-of-Life Care,” researchers estimate “that more than 25 percent of Medicare spending goes towards the five percent of beneficiaries who die each year. This results in spending for decedents (persons who are in their last year of life) that is six times greater than the cost for a survivor. End-of-life care continues to be characterized by aggressive medical intervention and runaway costs. Like so many other problems plaguing the financing and quality of health care in America, the end-of-life dilemma is rooted in Medicare’s fee-for-service payment structure.” Written by Helen Adamopoulos and published on June 3rd, 2013.
- Medical Malpractice: “More than Money and Lawsuits Drive Overtesting: Study”- “Despite reports that financial incentives and fear of lawsuits lead doctors to order too many heart tests, a new study of U.S. Veterans Affairs (VA) doctors suggests overtesting may be the result of more fundamental issues.” Written by Andrew M. Seaman and published on June 11th, 2013.
- Pharmaceuticals: “Wiser Pill Use Could Cut Costs”- Published in the Denver Post, June 20, 2013. “ Were doctors and patients to use prescription drugs more wisely, they could save the U.S. health care system at least $213 billion a year, by reducing medication overuse, underuse, and other flaws in care that cause complications and longer, more-expensive treatments, researchers conclude.”
- Administration offers consumers a detailed look at hospital charges. On May 8, 2013 Health and Human Services (HHS) Secretary Kathleen Sebelius announced a three-part initiative that for the first time gives consumers detailed information on what hospitals charge. New data released show significant variation across the country and within communities in what hospitals charge for common inpatient services. “Currently, consumers don’t know what a hospital is charging them or their insurance company for a given procedure, like a knee replacement, or how much of a price difference there is at different hospitals, even within the same city,” Secretary Sebelius said. “This data and new data centers will help fill that gap.” The data posted as of May 8 on CMS’s website include information comparing the charges for services that may be provided during the 100 most common Medicare inpatient stays. Hospitals determine what they will charge for items and services provided to patients and these “charges” are the amount the hospital generally bills for an item or service. Read: News Release 5/8/13 | View the new hospital costs data.
- A TIME magazine cover article, "Bitter Pill: Why Medical Bills are Killing Us", provides a provocative, detailed examination of pricing and profits in health care. Sections: 1) Routine Care, Unforgettable Bills; 2) Medical Technology's Perverse Economics; 3) Catastrophic Illness - And the Bills to Match; 4) When Taxpayers Pick Up the Tab. Authored by Steven Brill in the March 4, 2013 edition.
- Survey of Charges Billed by Out-of-Network Providers: A Hidden Threat to Affordability. This new report released by the America's Health Insurance Plans (AHIP), in January 2013, finds that "health plans and their members routinely receive bills from physicians that are 10 to 20, or sometimes nearly 100 times higher than Medicare would allow."
- "The Cost of Obamacare's Coverage Provisions." "The Congressional Budget Office (CBO) estimated Tuesday that the “ObamaCare” provisions to expand health insurance coverage will cost about $1.165 trillion over the next ten years, after taking into consideration $455 billion worth of penalty payments, taxes, and other effects on tax revenue and outlays. This chart doesn't’t take into account Medicare savings (potentially hundreds of billions of dollars) and the like, only how much the coverage provisions will cost. While the net cost of the coverage provisions remains the same as the prior CBO report, there have been revisions in regards to how many people will be covered over the next ten years. After the new revisions, CBO estimates about 12 million more people will be covered by Medicaid and 26 million more by those who buy insurance in the new exchanges. Seven million people will lose their employer-based insurance as businesses prefer to pay a fine than their employees' health insurance, but overall, 27 million more people will be insured over the next ten years." Published by TIME, Alex Rogers, author, Feb. 5, 2013;
- > The February 2013 CBO report is online: The Budget and Economic Outlook: Fiscal Years 2013 to 2023
- According to the New York Times article, Study of U.S. Health Care System Finds Both Waste and Opportunity to Improve, "the American medical system squanders 30 cents of every dollar spent on health care, according to new calculations by the respected Institute of Medicine. But in all that waste and misuse, policy experts and economists see a significant opportunity — a way to curb runaway health spending, to improve medical outcomes and even to put the economy on sounder footing." Written by Annie Lowrie and published Sept.11, 2012.
- Healthcare costs for American families in 2012 exceed $20,000 for the first time - The annual Milliman Medical Index (MMI) measures the total cost of healthcare for a typical family of four covered by a preferred provider organization (PPO) plan. The 2012 MMI cost is $20,728, an increase of $1,335, or 6.9% over 2011. The rate of increase is not as high as in the past, but the total dollar increase was still a record. This is the first year the average cost of healthcare for the typical American family of four has surpassed $20,000 (Published 5/15/2012).
- A nationwide poll released June 11, 2012 confirmed that high health costs, as well as the ability to keep health insurance, are significant worries for the public. When asked about their level of worry on a number of health-related and other economic concerns, nearly two-thirds (64%) of the public says they are “very worried” or “somewhat worried” about having to pay more for health care and health insurance, ranking roughly as high as other top public worries such as prices rising faster than income (69%) and not having enough money for retirement (65%), and ahead of such concerns as being unable to pay the rent or mortgage (40%) and losing a job (35%). The results are according to recent polling by the Kaiser Family Foundation, conducted in mid-May.
- Let's (Not) Get Physicals -For decades, scientific research has shown that annual physical exams — and many of the screening tests that routinely accompany them — are in many ways pointless or (worse) dangerous, because they can lead to unneeded procedures. The last few years have produced a steady stream of new evidence against the utility of popular tests. New York Times, June 3, 2012.
- A Formula for Cutting Health Costs - Alaska Natives teach doctors and patients in the rest of the world. New York Times Editorial, July 22, 2012.
NCSL Project Advisory Group:
The project had an Advisory Group comprised of Health Committee officers and other key legislators recommended by Colorado leadership to help guide the project, identify strategies of particular interest and ensure the briefing papers meet their needs.
Project Staff: are based at the NCSL Health Program, Denver, Colorado.
Project leaders: Richard Cauchi, Program Director; Martha King, Group Director; Barbara Yondorf, Health Consultant.
Additional project research and support provided by: Ashley Noble (Research Analyst, 2013-present), Kara Nett Hinkley (Policy Associate, 2012-2013), Holly Valverde (2013), Katie Mason (Policy Associate), Ashley DePaulis (Policy Associate), Andrew Thangasamy (Research Assistant, 2009), Niaira Posniak (Research Analyst, 2009-2010), Leann Steltzer (Editor) and Alise Garcia (Senior Staff Assistant).
NCSL appreciates the support in 2009-2011 from The Colorado Health Foundation and the Rose Community Foundation (Denver) for this project.