Mass. health care cost growth exceeds benchmark under 2012 law

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Written by Matt Murphy

STATE HOUSE — Spending on health care in Massachusetts climbed to $54 billion in 2014, according to a new report, significantly outpacing both state economic growth and the benchmark set under the state’s 2012 cost containment law as enrollment and cost growth at MassHealth exploded.

With health care costs putting pressure on not only the state budget but businesses looking to locate, expand and hire in Massachusetts, policy leaders on Beacon Hill have sought to rein in spending by setting annual cost growth goals and pushing the market to develop alternative delivery and payment models.

After posting a modest 2.4 percent growth rate in 2013, the Center for Health Information and Analysis found that in 2014 spending climbed 4.8 percent, driven in part by higher pharmaceutical costs and a sharp spike in Medicaid enrollment. The Health Policy Commission last year set the annual benchmark at 3.6 percent, but CHIA’s findings show that spending grew at a faster clip than the benchmark and both inflation and national per capita health care spending projections.

The spending information, reported by CHIA in its new annual health care system report being released Wednesday, showed that while costs in the commercial market grew 2.9 percent overall, spending at MassHealth escalated by 19 percent and enrollment grew by 23 percent.

The enrollment increase, according to CHIA, can be attributed to the expansion of Medicaid under the Affordable Care Act and the inability of the state to properly determine eligibility because of technology woes at the Connector. Both helped drive a $2.4 billion increase in spending at the agency.

Spending among commercial payers grew more slowly than MassHealth, but it still accelerated from 2013 when costs grew only 1.2 percent.

“It is cause for concern that we’ve exceeded the benchmark. There are clearly a number of one-time factors that play into this that will help us think about what we do in response,” said CHIA Executive Director Aron Boros. Asked whether the numbers reflected a blip on the map or a trend, Boros said, “It was just such a chaotic year for MassHealth it’s hard to draw any clear analytic conclusions.”

Armed with the new report, the Health Policy Commission will holds its annual cost trends hearing in October to further explore the drivers behind the spending growth. HPC, like CHIA, was created by the 2012 cost-containment law.

HPC Chairman Dr. Stuart Altman said in a statement that he found “mixed news” in the report.

“On the positive side, the quality of Massachusetts providers is high, the number of patients whose care was paid for using new value-based payment methods in the commercial market is increasing, and the state continues to experience low rates of growth in Medicare and private health care spending,” Altman said. “However, even with these positive trends the burden of health care spending on employers and consumers alike is increasing, with reported growth in consumer out-of-pocket costs and employer health insurance premiums.”

The troubles at the Connector and their impact on the MassHealth budget have been well-documented, but state health officials say there are signs that the instability of the Medicaid population is beginning to stabilize.

CHIA reported that enrollment has dropped 15 percent between December 2014 and March 2015 as members have been moved off of temporary coverage into either private or partially subsidized insurance through the Connector. The eligibility redetermination process, re-started under Gov. Charlie Baker’s administration, has also cleared over 205,000 people off the rolls who no longer qualified.

“To curb growing costs at MassHealth and in our health care system, Governor Baker is addressing the inherited problems at the Health Connector and continues to implement the redetermination process, ensuring the long term sustainability of MassHealth to provide care for the Commonwealth’s most vulnerable,” Baker spokesman Billy Pitman said in a statement.

After his team projected 16 percent budget growth at MassHealth in fiscal 2015 if left unchecked, the state budget signed by Gov. Baker in July included a number of provisions aimed at reducing spending to limit actual growth to just 6 percent.

Eric Linzer, vice president at the Massachusetts Association of Health Plans, noted that while prescription costs at MassHealth rose faster than in the commercial market, including for patients in Medicaid managed care organizations (MCOs), overall MCO spending on a per member basis grew by just 2 percent.

“The MCOs did a really good job keeping their costs under control and staying under the benchmark,” Linzer said.

Linzer also pointed to data showing that only 6 cents of every premium dollar paid by consumers to plans went to administrative costs, down slightly from 2013.

A growing number of consumers are also gravitating to high-deductible and tiered-network plans, according to CHIA, leading to a 4.9 percent uptick in member cost-sharing. Enrollment in high-deductible plans now accounts for 19 percent of the commercial market, and 16 percent are enrolled in tiered networks that can limit a patient’s choice of provider in exchange for lower premiums.

While CHIA interpreted the trend as indicative of growing interest among employers to contain costs by shifting costs to employees, Linzer said, “It’s really about consumer choice.”

Boros also acknowledged that the risk of higher out-of-pocket expenses can lead patients to be more price-conscious when choosing a provider, helping to lower overall spending in the system.

The Massachusetts Hospital Association said some enrollment growth in MassHealth had been planned for in state budgets and carried significant federal reimbursements, helping to extend affordable coverage to more residents.

Hospitals also showed some progress in the CHIA report in their efforts to reduce readmissions for preventable in-patient treatment that has often been pointed to as one reason for high health care costs. Hospital readmissions declined slightly from 15.9 percent to 15 percent in 2013, the most recently available data.

“Massachusetts hospitals have been on the forefront of payment and delivery reform both aimed at bending the cost curve while maintaining quality and access.  Part of maintaining access to affordable health coverage was the Medicaid expansion under the Affordable Care Act,” the association said in a statement.

Six commercial insurers, including Tufts, Health New England and Neighborhood Health Plan, reported increases in total expenditures that exceeded the benchmark, while the state’s two largest insurers – Blue Cross Blue Shield of Massachusetts and Harvard Pilgrim Health Care, posted below benchmark growth.

Boros said the initial measurements will be “refined” next year and could change. For instance, last year’s report found anticipated expenditures at Blue Cross Blue Shield that would have exceeded the benchmark, but actually came in below after the numbers were finalized.

Recent data from the Division of Insurance showed that base rates for 300,000 people in Massachusetts who will renew their policies next January are set to climb by 6.3 percent on average and that information has also sparked discussion of whether the recent slow growth is coming to an end.

Boros said one possible explanation for the spike is that insurers incorrectly set premiums too low to cover actual expenses and overhead for the year, causing a market correction.

Global payments continue to be the predominant form of alternative payment models being used across the state to experiment with containing cost by moving away from a fee-for-service system. The report found that in the commercial market 38 percent of members’ care was covered by alternative payments methods, up from 34 percent.

Copyright State House News Service