Final Health Bill Gets an A- on Costs

HARTFORD, March 22 – The final health reform bill unveiled on Thursday earned an A- from the consumer group ConnPIRG for its cost-containment provisions.

“The reforms in this bill are game-changers which significantly increase America’s ability to rein in skyrocketing health care costs.  Passing this bill will mean more affordable coverage for families, lower costs for business, and significantly reduced federal deficits,” said Jenn Hatch, an Associate at ConnPIRG.

Last year, ConnPIRG gave the Senate health reform bill a B+, but improvements in the final language bumped the grade up to an A-.

“Despite enormous opposition from health industry lobbies, this is a strong bill that will help lower health care costs,” Hatch said.  “When the House votes on Sunday, we urge the Members to pass reform.”

See below for ConnPIRG’s detailed analysis of the key cost-saving provisions of the final reform bill.


To arrive at its grades, the health policy experts at ConnPIRG evaluated the bill to determine if it delivers what Americans want and need most from health reform: lower health care costs.

The grades are based on how well the bill addresses key causes of skyrocketing health care costs: skewed incentives that discourage high-quality, cost-effective care, the lack of unbiased research about which drugs or treatments work better, uncompetitive insurance markets, and high administrative costs.

SUMMARY: Health Bill Report Card (Overall grade: A-)


Fixing Skewed Payment Incentives

Studying What Works Best

Increasing Competition in the Insurance Market

Taming High Administrative Costs



The final health care bill, incorporating both the Senate health reform bill and the amendments announced March 18th, earns an A- for its all-around cost containment provisions.  While the original Senate health reform bill received a B+, the improvements in the final package brought the grade up to an A-.  The latest Congressional Budget Office estimates show that the bill will lower federal deficits by over $130 billion over the next ten years, and over $1 trillion in the decade following.  Only the lack of a strong, cost-saving public option prevents the bill from getting an A.

Grade Explanations:

Fixing Skewed Incentives:  A

America’s cost and quality problems start with the payment system that Medicare and many private health insurance companies use. Under this system, known as “fee-for service,” health care providers receive payment for each visit with a patient, each test ordered, and each procedure performed. 

Payment is based solely on the quantity and complexity of care that the patient receives, regardless of how effective that care actually is or how well it is delivered. This payment structure penalizes those providers or hospitals who focus on disease prevention and treatment protocols which identify medical problems before they become acute. It also fails to encourage coordination of care between providers. At the same time, fee-for-service rewards hospitals and doctors who rely on a higher complexity and quantity of tests and treatments, with no connection to quality of care, or patient satisfaction or outcomes.

Worse, the minutiae of Medicare payment policy are set directly by Congress.  Over the years, well-heeled industry lobbies have used their clout and powerful friends to stop most real payment reforms to the fee-for-service system. Even pilot programs meant to incubate more efficient delivery of care cannot be expanded without congressional action.

The final bill’s aggressive payment reforms include value-based purchasing, bundled payments and physician feedback programs reward quality, well-coordinated care that delivers results rather than paying solely based on the number of tests and procedures.  Pilot programs that successfully improve quality and hold down costs can be expanded nationally, without further action from Congress.  Beefed up fraud, waste, and abuse protections will further reduce the incentives for inefficiency in Medicare.
Finally, the Independent Payment Advisory Board included in the bill would help insulate policy decisions about payment and pharmaceutical and insurer subsidies within Medicare from special interest politics, thereby preserving Medicare for present and future beneficiaries.  It will study and present recommendations on private sector health spending, not just Medicare, to drive savings across the entire health care system. 

All told, the bill incorporates very strong policies for fixing broken incentives, earning an A.

Studying What Works Best:  B+ 

Our current health care system fails to give health care providers and patients the information needed to determine the best course of treatment. Only half of medical interventions are supported by adequate evidence of clinical effectiveness. For certain diseases which have an established, evidence-based treatment, studies show that patients receive the recommended care only 54% of the time.  Even when evidence exists and an established course of treatment is available, clinical guidelines can fail to account for differing effects of the same treatment on different populations, such as children or minorities. These gaps lead to the waste of precious health care dollars on care that is unnecessary and doesn’t work.  They also undermine a family doctor’s or other care-giving professional’s ability to give American families the care on which they depend.

The bill establishes a permanent home and funding stream for comparative effectiveness research, ensuring that doctors can rely on the best science in helping patients make their care decisions, not the latest propaganda from an industry sales representative. While a strong start, the bill’s conflict of interest requirements on board members overseeing the research studies could be stronger, leaving the grade for this category a B+.

Increasing Competition in the Insurance Market: B-

A recent American Medical Association survey found that 94% of insurance marketplaces met the federal Department of Justice definition of “highly concentrated.”  That means that consumers in these markets were not getting the affordability and quality that a functioning, competitive market can provide.  When the dominant insurers in the market increase prices or skimp on coverage, consumers have few places to go for a better deal.

The best remedy to this problem is to offer to consumers the choice of a public, government-sponsored health insurance plan alongside private plans. The negotiating power of a large, nationwide plan would allow the public plan to leverage significant savings. Further, it would employ the cost-saving, quality-improving policies discussed in the rest of this report card. By offering a low cost alternative to private insurance, private insurers would have to innovate to bring their own costs down and so compete with the public plan. 

The lack of a public option in the final bill prevents it from earning an A in this category.  However, the bill is not without some measures to increase competition.  States would have the option to develop an alternative health reform plan, potentially including their own, state-level public options, provided they contained cost, extended coverage, and did not add to the federal deficit.  States also can open their health insurance exchanges over time to all employers, including large ones, and consumers in every state will have the opportunity to choose plans like those which the Federal Employees Health Benefit Program provides to members of Congress. 
Last, a set of changes in the bill released yesterday reduce the grace period enjoyed by so-called “grandfathered” plans – existing insurance plans that for a time would not have to incorporate the new consumer protections included in the reform bill.  These changes will help leveling the playing field between all insurance options, fostering fairer competition. 

These improvements are enough to pull the grade up to a B- for choice and competition.

Taming High Administrative Costs:  A

The health care system is far behind virtually every other American industry in integrating productivity-enhancing information technology systems. Electronic storage and sharing of clinical, administrative and financial health information not can only streamline administration – they also can assist doctors in providing better care.

In our fractured, Balkanized health care system, however, administrative inefficiencies abound. In addition to paper records and a lack of modern information technology, doctors are required to use an array of different forms, codes, and billing procedures. These systems are different for each insurer, and often reliant on paper records. As a result, some doctors can spend up to 45 minutes on paperwork for every hour of care they provide. 

To make matters worse, insurers in many states are not required to devote any fixed portion of the premium dollars consumers pay to medical care. As a result, insurers have less incentive to rein in unnecessarily large spending on inefficient administrative practices and untold layers of red tape.

The bill includes administrative simplification programs, helping to put the country on a path to lower-cost, standardized administrative transactions, processes and forms. These new programs mesh well with the health information technology programs passed earlier this year in the American Recovery and Reinvestment Act.

Additionally, the bill establishes insurer efficiency standards that require 85% of premium dollars to be spent on care, not administrative overhead and executive compensation, for group plans.  For individual plans, the standard would be 80%.  Inefficient insurers would have to offer their customers a refund.

The final bill earns an A on taming administrative costs.

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