Will Health Care Reform Keep its Cost Reducing Promise?

The February issue of Health Affairs journal is full of good articles about the potential impact of health care reform. In a series of posts, we will be focusing in on three specific pieces covering small companies using health insurance exchanges to provide employees with coverage, how large companies may end up using exchanges to provide employee coverage over the long term, and how some of the key provisions of the law might impact overall health care costs.

Today, we will focus on the last topic -- health care costs. One of the key goals of health care reform is to "bend the cost curve" downward over time by increasing efficiency in the health care system, shifting the focus toward outcomes and patient health rather than fee for service, and extending coverage to the previously uninsured. We will focus on provisions that provide coverage for the previously uninsured who otherwise may have been categorized as indigent care, the costs of which are built into the system. The higher indigent care costs are, the more those costs are passed along to other payers through higher rates.

By expanding Medicaid coverage, the thinking goes, the previously uninsured will have greater access to ongoing and preventive care, which is much less expensive than emergency room and inpatient care. Of course, this sounds good in theory, but how will it play out in practice?

A new study conducted by researchers at the University of California-Irvine (UCI) starts to answer part of this question by comparing health care costs over time for the newly insured. "In a case study involving low-income people enrolled in a community-based health insurance program, we found that use of primary care increased but use of emergency services fell, and over time total healthcare costs declined," says David Neumark, a professor of economics and director of UCI’s Center for Economics & Public Policy study.

The study focused on patients enrolled in a community-based primary care program at Virginia Commonwealth University Medical Center. The study tracked emergency room, inpatient, outpatient, and primary-care service utilization of 26,000 previously uninsured Richmond residents between 2000 and 2007 whose household incomes fell 200% below the federal poverty level. Qualified enrollees were granted health insurance and assigned a primary-care provider for one year. The researchers chose this population because its demographics reflect the population that will be affected by the expansion of Medicaid benefits authorized by health care reform in 2014.

Now, to the results: The study found that these newly insured patients had 1.60 primary care visits per year in year three, up from 1.06 per year in year one. Over the same time, emergency room visits fell from 1.02 per year in year one to 0.74 in year three. Given the excessive cost of emergency room care compared to primary care in a physician’s office, this is a positive result.

Most importantly, these changes led to declines in cost per inpatient and outpatient visits and length of inpatient stays. Overall, these changes led to these newly insured individuals reducing their total healthcare costs from $8,899 per enrollee per year in year one to $4,569 in year three. This, in turn, had a positive impact on overall costs per enrollee per year for all participants in the plan with at least one year of enrollment. Those overall costs declined from $7,604 to $4,726.

The caveat here, of course, is that these cost reductions require time to take hold. Expanding Medicaid coverage and subsidizing health insurance through the exchanges will not reduce system-wide health care costs right away, but this result does show some promise.