First-of-its-kind report outlines 5 ways WA can save on health care

Aug. 2—Washington lawmakers received a new report Thursday that identifies five ways to make health care more affordable, after the state has watched medical costs jump over the last decade.

The report, published by the Office of the Insurance Commissioner, aims to address affordability in different, at times bold, ways — from reducing premiums for patients to slowing increases in hospital costs. It's the first time a report of this kind has been presented to the state Legislature, one that includes and analyzes Washington-specific health care data in order to lay out how each policy option might be implemented, the office said.

"We've made great strides in getting people access to health coverage in Washington state, but it's simply not enough," state Insurance Commissioner Mike Kreidler said in a Thursday statement. "Too many people have insurance they can't afford to use either because the deductibles are too high or medical costs are growing faster than inflation."

The report is the response to a 2023 order from the Legislature to figure out how specific health policies from other states might affect costs for those in Washington. The OIC submitted the first part of the request in December, a preliminary report that laid out what the state's landscape of health care looks like.

In response to the same legislative request, the state Attorney General's Office also submitted a separate preliminary report in December that detailed antitrust law and policy options related to health care merger and acquisition oversight.

In the OIC's December paper, experts pointed out that state employees and businesses experienced double-digit health care cost increases between 2010 and 2020, including a 49% increase in average premiums and doubling costs of some individual health plans.

The report attributed those rising costs largely to the increased consolidation within the market — for example, eight multihospital systems provide more than 65% of staffed, licensed beds in the state. At the same time, health insurers are becoming increasingly integrated with other sectors of the health care industry, the report said, evident in the emergence of massive companies like United Healthcare, a national health insurance company that owns pharmacy benefit managers, like Optum, which have merged with local provider groups, like The Polyclinic in Seattle.

Meanwhile, a new statewide survey from Fair Health Prices Washington found more than half of Washingtonians did not get the medical care they needed in 2023 because of cost.

"These results confirm what we've long known. Washingtonians can't afford their health care," Jim Freeburg, executive director of Patient Coalition of Washington, said in a statement after the survey results were released Thursday.

Six in 10 survey respondents also said they "do not believe the health care industry can be trusted" to regulate costs, and that elected officials need to step in.

State health insurance experts have spent the past year analyzing claims and spending data to measure how certain policy ideas would directly affect Washingtonians, and which ones. A few, if implemented by state lawmakers in certain ways, could radically change the state's health care market, said Jane Beyer, senior health policy adviser at the OIC. All would likely improve affordability, according to the report.

"Some of these ideas have been talked about before but now we have specific data to help policymakers make meaningful decisions," Kreidler said in the statement. "It's clear from this report that we can make a difference and start tackling the underlying costs of health care that we've been battling for too long."

The five policies laid out in the report include:

* Establishing a reinsurance program, which is kind of like insurance for insurers, Beyer said. The program, which exists in 17 other states, helps reduce uncertainty for insurers by having state and federal dollars pay some or all high-cost claims, ultimately reducing premiums for members. OIC's plan estimates a 10% reduction in premiums for between 292,000 to 344,700 Washingtonians, depending on the type of reinsurance program the state could set up.

* Increasing the minimum medical loss ratio, a figure set by the Affordable Care Act that requires health insurers to spend a minimum amount of premium dollars to improve the quality of health care services. Ratios are currently set at 80% to 85%, depending on the market, but OIC pitched raising it to 88% across the board. This would reduce premiums for 1.5 million to 1.6 million Washingtonians enrolled in certain health plans, by about 0.9% to 2.5%.

* Using reference-based pricing to tie the prices set for health care services to defined pricing levels the Legislature would likely decide. This would potentially allow lawmakers to choose what percent of Medicaid rates to set other rates for services at. A reference-based pricing system could result in 3% to 19% savings in state health care spending, according to the report.

* Introducing hospital global budgeting, which incentivizes hospitals to be more efficient, rather than incentivizing patient volume, by paying hospitals a fixed amount for the cost of care for all patients in a given year. It would be complicated to implement, but aims to lower cost growth for the entire state, Beyer said.

* Meeting the state Health Care Cost Transparency Board's health care cost growth benchmarks, which were established in 2021 and dictate the target percentage of increases in health care costs. Per state law, the board must analyze factors that contribute to those increases and identify providers and payers that aren't meeting those targets.

While researchers believe these five policies can considerably help drive down costs for medical care, they're also quick to point out the potential challenges involved with implementing each one.

Reinsurance programs, for example, generally promote financial sustainability and predictability in the individual and small group markets, the report says, but would cost the state from $42 million to $294 million, depending on the market ($42 million to $84 million for an individual market and $147 million to $294 million for a small group market), to fund. In addition, these programs would most benefit a much smaller population — and leave out those with self-funded and large group plans, as well as Medicaid or Medicare members — than some of the other policies put forward.

Upping the ACA's medical loss ratio, meanwhile, wouldn't cost the state as much and would push health insurers to spend more on improving services, but would also result in much smaller premium reductions.

While these two policies could have considerable impacts on savings for some Washingtonians, others in the report go further, like establishing a reference-based pricing system.

There are two ways to introduce a reference-based pricing system, said Nico Janssen, an OIC senior health policy analyst who worked on the report. One is to regulate insurers, while the other is to regulate health care providers.

"It's actually a really big difference, because that gets to the size of the overall health insurance market in Washington," Janssen said.

It would be easier for the Legislature to require insurers to keep reimbursement rates under a certain standard because there are fewer insurers, the report says. But if the Legislature were to regulate the price a provider could charge per service, all providers in the state could potentially be impacted, Janssen said.

This would mean up to 4.3 million Washingtonians could see differences in costs of care, not only including those with large-group, small-group and individual insurance plans, which the OIC regulates, but also those with self-funded plans, like state employees and those with Boeing, Microsoft or other large employer plans.

"That would be the battle royale in the Legislature," Beyer said. "What percentage of Medicare should you choose, and should you vary it?"

The hospital global budgeting idea, which would likely involve almost every hospital in the state, also hits a larger audience.

The only state that's currently using the tricky system is Maryland, which reported $1.4 billion in Medicare savings and a 4% decline in hospital expenses between 2014 and 2018 while operating under a global budget, the report says.

State analysts estimate Washington would see similar savings — including up to a 7.1% decrease in hospital costs — if it were to implement a type of global budgeting policy between 2026 and 2029.

The idea is to "shift away" from the practice of increasing revenue by increasing hospitals' volume of services, as is the case with traditional fee-for-service reimbursement systems in place among many hospitals, the report says. Instead, hospitals would adopt measures that control costs and incentivize efficiency.

Beyer acknowledged that if implemented, hospitals must prioritize patient outcomes as well, rather than cutting necessary services that might be costly to hospitals, like labor & delivery units.

Each idea generally attempts to find ways to achieve the targets the state's Health Care Cost Transparency Board established when it comes to controlling cost increases. By 2026, the state's health care costs should grow by 2.6%, compared to 3% in 2024 and 2025.

But without enforcement efforts, the report says, the benchmarks are "not expected to lower health care expenditures or drive significant change in provider or health insurer practices." Because of that, the report suggests strengthening enforcement, and requiring providers and insurers to meet benchmarks or else receive performance improvement plans or face fines or other penalties.

The Washington State Hospital Association, which has pushed back on OIC's health care affordability findings in the past, had concerns with some of the recommended policies that appeared to "only reduce payments to hospitals and do nothing to reduce the underlying cost to provide health care services."

"Any policy proposals about health care affordability must put access to care at the center," Cassie Sauer, WSHA president and CEO, said in a statement. "On initial review, the report does not appear to focus on Washingtonians' access to care. We share the goal of ensuring health care affordability but not at the expense of the stability of our health care system."

Filled with complex and specific data analyses, the 133-page report is intended to inform policymakers and "address the persistent and growing challenges of health care affordability," the paper says.

"It all goes back to the impact on individuals," Beyer said, referencing those with unpaid medical bills or who might delay care because it's too expensive, but also small businesses who struggle to support their employees with good insurance plans. "That's why this matters."

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