A Portfolio Strategy For Affordable Coverage: Disaggregating Problems, Aggregating Solutions

America has entered into a renewed debate about health care policy, and already that debate has become fractious, highly charged, and analytically messy. But behind the rhetoric are serious problems in our health care sector that need to be addressed — and prime among them are the rising costs of employer-sponsored insurance (which covers about 175 million Americans) and Affordable Care Act marketplace plans (which cover another 12 million).

Improving the affordability of coverage will be challenging. It will require that analysts, policymakers, and stakeholders identify and disaggregate the forces and factors that are propelling costs — and then that we devise, secure, and implement a portfolio of strategies to moderate a wide range of cost drivers.

Some background: Premiums for employer-sponsored insurance are increasing this year about six times as fast as inflation (more than 6 percent, by most estimates, compared to just over 1 percent). That rate of acceleration is imposing increasing burdens and strains on employer and family budgets. What is more, in the past five years deductibles have surged more than 60 percent — which means that insured people are, directly and indirectly, paying more for decreasing amounts of coverage.

And as a practical matter, sharply higher deductibles impede access to care. According to the most recent Survey of Household Economics and Decisionmaking issued by the Board of Governors of the Federal Reserve System, 24 percent of Americans with health insurance reported that in the past 12 months they had to forego needed medical treatment because they could not afford it.

The trends in Affordable Care Act (ACA) marketplace premiums are even steeper. According to one recent analysis, the national weighted average premium increase for marketplace plans in 2017 is 24.7 percent. For enrollees above 200 percent of the poverty line, who receive much less generous subsidies than those with lower incomes, increases in this range are startling and onerous — and may lead many current enrollees to drop coverage.

In this context, it is heartening that the political world is turning to a vigorous debate about how to make health coverage more affordable. What is less heartening is the tendency for some political leaders and advocates to oversimplify their analyses of the problems — and then to oversimplify their recommendations for reform.

From some quarters, we are hearing now that if only we took one or two steps—for example, giving insurers more latitude to sell plans across state lines or, in the ACA context, eliminating constraints on premiums for older enrollees—our affordability problems would be solved or at least dramatically eased.

If only it were that easy! The American health care sector is enormous—larger than the economies of all but four nations—and it is enormously complicated. How could we imagine that one or two policy changes, however meritorious, could transform the sector's cost performance?

Instead, we will need to accept and act on complexity. We will need to recognize that the forces and factors that drive up the costs of coverage are many and varied — and that the initiatives required to improve cost performance will also be many and varied. Rather than placing all our bets on one theory of the case, we should be assembling and pursuing a balanced, diversified, and comprehensive portfolio of strategies.

Disaggregating Problems: Specifying a Health Care Cost Chain

To identify and disaggregate the cost drivers that could be addressed in such a portfolio, we can think in terms of a health care cost chain, defined here as a series of stages at which increments of costs are added to the production of health care and coverage. (As many readers will recognize, this construct bears a familial resemblance to the value chain analysis used by business strategists.)

Health care cost chains could be developed to analyze, in varying levels of detail, the stages at which costs are added in particular organizational settings, and for specific services or products, in the health care sector. For our current purposes, let us consider, broadly delineated, a health care cost chain for employer-sponsored insurance. That cost chain could be said to include the following sequence of categories that contribute to the generation and accumulation of costs:

1. Factors that increase the demand for care (e.g., social determinants, behaviors, and environmental characteristics)
2. The costs of inputs (e.g., hospital care, physician and clinical services, and prescription drugs)
3. Delivery system coordination and efficiency
4. The structure and competitive dynamics of markets for health care services
5. The structure and competitive dynamics of markets for health insurance
6. Incentives for employers and employees
7. Cost-sharing practices and patterns

Aggregating Solutions: Developing A Portfolio Strategy

With this predicate, we would make five observations:

1. The very act of disaggregating the problems and issue sets that are contributing to the rising costs of employer-sponsored coverage underscores the utility of separately analyzing the cost drivers in each category. For example, if we know that the costs of coverage reflect the costs of inputs, such as hospital services, and sub-optimal coordination of care, doesn't it make sense to identify, quantify, and understand the factors that are at work in both categories? If costs are being generated in and across all the stages of this cost chain—and they clearly are—then it stands to reason that policy analysts and policymakers should attempt to attend to all of them. At each stage of the chain, what forces and circumstances are generating cost increases? What are the potential points of leverage?

2. The fact that the cost chain represents a sequence of stages—at which increments are added to the base of costs carried forward from previous stages—underscores the importance of analyses (and policy interventions) that reach back into earlier stages of that chain. If costs are going to be carried forward, let's not fall into the trap of just focusing only on the stages that seem most proximate to the ultimate costs of coverage. We should want to identify opportunities to affect the increments of costs before they are built up and built in.
3. Having disaggregated and analyzed the problem sets, we can then generate options for addressing the cost drivers in each category. Taken together, these options would constitute a menu of potential changes in policy and practice. This highlights the cumulative value of individual analyses that propose ways to moderate cost drivers at particular stages in a cost chain.
4. An aggregation of policy options across the stages of the cost chain has a greater potential to bend the cost curve for coverage than a strategy targeted at just one or two stages. Policymaking is by its nature probabilistic. We can increase the probability of success in this context by aggregating solutions — by pursuing a portfolio of strategies designed to slow the rate of increase in costs at every stage of the cost chain.

5. We should acknowledge that policymaking, in this realm as in others, is of course not an entirely rational process. Politics, timing, the availability of resources, and leadership, among other factors, shape and bound what is possible. We should aim for a portfolio strategy that is as comprehensive and effective as circumstances permit.

A closing thought: As we debate how best to make health coverage more affordable, let's remember that the stakes are high. Tens of millions of Americans will go without needed health care this year not because they are not insured, but despite the fact that they are.

from Health Affairs BlogHealth Affairs Blog http://ift.tt/2gnD5zl