Commentary
The Expense of Health Care Explained: What Americans Need to Know
Oct 8, 2024
Benefits and Affordability
Photo by Montri Uaroon/Getty Images
For those with health insurance, benefits determine not only what services are covered, but also how much is paid—both by patients, out of their own pockets, and by payers (employer sponsors or public payers, such as Medicare or Medicaid). Designing those benefits involves a delicate balance that takes into account demand for particular services and providers, the availability of those providers, the local prices for services, and federal and state policies that regulate coverage. With the cost of health care services and insurance increasing year-over-year, policymakers and stakeholders are keenly interested in novel approaches to benefit design that align incentives for access to high-value care—care that improves health with cost containment.
The experts at RAND Health Care have a long history of examining the design of health care benefits and its effect on the use of health care services, health outcomes, and costs. Since fielding the seminal Health Insurance Experiment study, our health economists, statisticians, policy analysts, and other researchers have evaluated the impact of federal and state efforts to improve benefit design. To do so, they have used a range of methods, including modeling the effects of health insurance reforms with COMPARE and other models; primary data collection through interviews, focus groups, and surveys of stakeholders; and secondary data collection from sources like Medicare Advantage plan bids and encounter data, as well as Medicare Part D Event Data, fee-for-service (FFS) claims, quality ratings, and beneficiary risk scores.
Highlights
Assessing the Affordable Care Act and Alternatives
Since its enactment in 2010, the Affordable Care Act (ACA) has been the primary mechanism of U.S. health care policy focused on achieving near-universal coverage at affordable costs. Its Marketplaces have become the main alternative to employer coverage for adults under 65 who do not qualify for Medicaid. During the course of debates, court challenges, and modifications to the ACA, RAND has used its COMPARE microsimulation model to evaluate the effects of the ACA by estimating the number of people insured under different scenarios and to project how other proposed reforms such as single payer approaches, a public option, and the 10-Plan could affect the household costs. RAND has also looked at state initiatives, such reinsurance programs (in Alaska, Minnesota, and Oregon), an effort to reform the individual coverage market in Minnesota, and a proposal to expand insurance coverage to undocumented immigrants in Connecticut.
Evaluating Medicare Innovations
The Centers for Medicare & Medicaid Services (CMS) pays for a substantial amount of health care for patients across the United States. In its role as payer, CMS tests new strategies to deliver care while saving taxpayer dollars through model tests that take place over multiple years, such as the Medicare Advantage Value-Based Insurance Design Model, the Million Hearts Cardiovascular Disease Risk Reduction Model and the Part D Senior Savings Model. With the health of millions of people and billions of dollars at stake, accurately and fairly measuring the effectiveness of these approaches is critically important. RAND brings its nonpartisan lens to evaluating these and other model tests, integrating state-of-the-art quantitative and qualitative methods to help CMS and other stakeholders understand the models’ effects on Medicare and Medicaid beneficiaries, insurers, CMS, providers, and related third parties.
Estimating the Effects of State-Based Programs
State governments shoulder significant health care costs for populations within their boundaries. RAND has evaluated the effects of new, state-based programs aimed at reducing health care costs and improving care quality for Medicaid enrollees and uninsured individuals. For the state of California, for example, RAND evaluated the California Global Payment Program, which provided funding to improve access to primary care and preventive services for uninsured populations. For New York, RAND conducted multiple evaluations of the state’s Medicaid redesign efforts through 1115 Waivers and their cost implications. These included studies of the Managed Long-Term Care program, a program to support self-directed care (to help some Medicaid beneficiaries purchase items and services to help their health recovery and stability), and Health and Recovery Plans (for people with significant behavioral health needs, including addiction), among others.
Improving the Accuracy of Payments to Physicians
In 2015, CMS tried to uncouple Medicare payments for surgeries and post-operative visits, based on concerns that the bundled payments were too generous. Congress, however, stopped this action and required CMS to collect and analyze data on post-operative visits to improve payment accuracy. In a series of studies that responded to this requirement, RAND found that most of the post-operative visits included in Medicare surgical payment are not provided to patients—meaning that Medicare has been overpaying surgeons (by an estimated $2.6B in 2019). Medicare drew from these RAND reports in nearly all of its annual Physician Fee Schedule rules over the past decade and, in its calendar year 2025 Proposed Rule, proposed changes based on RAND’s findings. Because changes to Medicare payments must be budget-neutral, reducing surgical payments to reflect the services that surgeons actually provide would increase revenue for other (likely primary care) practitioners. More accurate surgical payments would also lower financial barriers to care for some Medicare enrollees.