Will Impact GIC & Municipal Insurance Plans

AUGUST 3, 2012: As the formal 2011-2012 Legislative Session drew to a close on Tuesday, House and Senate negotiators completed work on a long anticipated bill aimed at curbing the rise in health care costs over the next 15-years. The bill, which now awaits the approval of Governor Deval Patrick, is estimated to save Massachusetts citizens some $200 billion over fifteen years.

At its core, the new law places a cap or “benchmark” on future healthcare cost increases by healthcare providers, beginning in 2013. Generally, the percentage increase in healthcare provider costs cannot exceed the growth in the state’s economy over the next five years. Beginning in 2018 through 2022, healthcare costs must be at least 0.5% less than general economic growth, and after that date, revert back to no more than the level of economic growth.

If providers fail to meet the benchmarks and spending continues to increase at a rate above the state’s economic growth, the state may issue fines up to $500,000.

The new law also carves out a much larger role for state government in overseeing new healthcare payment processes and helping to lower costs. For instance, a new semi-independent Health Policy Commission, governed by an 11-member board of government officials and healthcare experts, will be created. Also, a new agency known as the Center for Health Information and Analysis (CHIA), will be created to collect and analyze payment data.

The heart of the bill is a focus on changing the manner in which healthcare is delivered and paid for within Massachusetts. As we have reported in the past, one major focus is to encourage the creation of Accountable Care Organizations (ACOs) that are designed to reduce healthcare costs through a more efficient system of treating patients and billing for those services.

ACOs move away from the traditional fee-for-service payment model and replace it with what are known as alternative payment methods, such as bundled payments where doctors may receive bonuses if a patient’s health improves.

While the 349-page bill makes countless highly technical changes to the state’s healthcare laws, our Association’s initial focus is on what the impact will be on the state’s Group Insurance Commission (GIC) and municipal plans.

Initially, it is the GIC – as a state agency – that will be required to participate in certain aspects of the new law. Specifically, the GIC must begin to transition its enrollees into ACOs beginning in 2013. At present, the GIC does not offer any insurance plans that include ACOs. However, Blue Cross Blue Shield’s HMO Blue is one example of an existing plan, available at the municipal level, that functions as an ACO. See July 2012 Voice for a detailed review of BCBS payment reform efforts.

The new law will also require the GIC and other state-run entities, that purchase prescription drugs, to work together in a joint purchasing group geared toward reducing overall drug costs. Given the size of a state-run purchasing group, it is conceivable that drug costs could be significantly lowered. At present, prescription drug costs make up 10% of the GIC’s nearly $1.5 billion dollar budget.

However, it is the overall impact on long-term health care costs that most interests Association officials. Until the passage of this bill, the state’s healthcare costs under the GIC were estimated to increase annually at 8% for the coming five years, with a reduction to 5% in 2018. Under the new reform law, rates can only increase at the rate of economic growth, which has been averaging 3.6% in recent years – less than half the rate of growth of current healthcare spending.

“Controlling the future rate of growth and brining it in line with the state’s overall economic growth will have a significant impact on the long range projections for retiree healthcare liability required under GASB,” says Shawn Duhamel, our Association’s designee on the Special Commission on Retiree Healthcare. “This new law should have an immediate impact on the projections of future costs and dramatically reduce the liability.”

“Our Association has long argued that the only meaningful solution to reducing healthcare costs was to reform the system at the provider level, in other words with the doctors, hospitals and insurance companies. Otherwise, all you’re doing is cost shifting onto retirees and those employees who get sick or injured and have to utilize their insurance,” says Association President Ralph White. “The Legislature and Governor have taken the next big step in healthcare here. We’ll be watching closely and reporting back to our members once more is known.”

We are continuing to analyze the new law and its ramifications. The following is a brief summary of the more relevant aspects of the new reform law that might be of interest to public retirees and employees.

Payment Reform Summary.pdf29.19 KB