Salem Chamber of CommerceJohn A. Kitzhaber, M.D.

October 9, 2017

Thank you for opportunity to join you today. I was asked to provide an overview of health care, health policy and health politics both here in Oregon and nationally, with an emphasis on how it relates to business. Let me start by saying that most of the controversy and conflict around health care has to do with cost — the cost on individuals, the public sector and private sector employers. And this is not a new problem. In 1974, in an address to Congress, President Nixon said: “For the average family, it is clear that without adequate insurance, even normal care can be a financial burden while a catastrophic illness can mean catastrophic debt.” Three decades later, the problem was getting worse.

Between 2000 and 2008 the cost of family premiums for those with employer-sponsored group insurance had increased ninety seven percent, while out-of-pocket expenses had increased one hundred seven percent. The number of workers with deductibles over $1,000 had increased from ten percent in 2000 to eighteen percent in 2008—thirty five percent for those working for small firms. Nearly a third of all Americans reported facing a serious problem paying for health care and health insurance; and the inability to pay a medical bill was the second leading cause of personal bankruptcy. This was the situation that prompted the passage of the Affordable Care Act in 2010.

I point this out because it is important to recognize that this problem existed before the Affordable Care Act was passed in 2010. The ACA did not cause the problem, but it also did not resolve it. What this legislation did do was to significantly increase the number of people who had health insurance coverage. It did this in three ways. First, it expanded access to public insurance (in this case Medicaid) to everyone with an income up to 138% of the federal poverty level. Second, it expanded access to private commercial insurance with an

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individual and employer mandate; and premium subsidies for those purchasing insurance through the exchange. The employer mandate applies to business with more than 50 full time employees. Finally, the ACA precluded insurers from denying coverage because of preexisting conditions.

In other words, the major focus on this legislation was to make health insurance more affordable; which is not the same as making health care more affordable. This is an important distinction, because it is the cost of health care that drives up the cost of insurance in the first place. Likewise, efforts to repeal and replace Obamacare do not address the underlying cost issue either … and cost is the elephant in the room. So, what I want to focus on today is how we might move beyond the partisan debate that has gripped congress for seven years and create the path to a real solution.

The impact of the rising cost of health care on business and business competitiveness is widespread, but generally more burdensome for smaller businesses. For example, between 2004 and 2015 almost all businesses with 1000 or more employees offered health insurance coverage. However, there was a ten percent reduction in the number of businesses with 25 to 99 employers offering health insurance coverage. This reduction in coverage was twenty-six percent for businesses with 10-24 employees; and thirty-six percent for companies employing fewer than to people.

There is a reason for this. Last year the average cost of employer-sponsored coverage was $6,435 for and individual and $18,142 for a family. The cost of employee health benefits averages $2.70 an hour, which is on top of recent legislation to increase the minimum wage. Businesses respond to increased health care cost primarily by shifting cost to their employees by either increasing copayments and deductibles or simply deciding not to offer health insurance at all. In addition, some larger employers, subject to the mandate, increase the number of part time workers, since the mandate does not apply to those working less that 30 hours a week.

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The rising cost of health care affects the public sector as well. The cost of Medicaid—which was significant expanded under the ACA—is expected to grow 6-7% annually through 2025. This is one of the reasons that the Republican efforts to repeal and replace the ACA have been focused on shifting much of this cost burden to the states. States, in turn, shift costs to individuals by reducing enrollment. The operative word here is cost shift. Whether costs are shifted by private sector employers or by legislative action, shifting cost does not reduce cost.

And the dark secret of the U.S. health care system is that people who cannot afford care can still go to the emergency department where federal law requires that they be seen and treated. So, we end up paying to treat strokes in the hospital rather than managing blood pressure in the community; or denying affordable access to prenatal care, then paying tens of thousands of dollars to resuscitate 500-gram infants in the neonatal intensive care unit. This makes no sense economically or as a social policy because these uncompensated costs are shifted back to employers who, in turn, pass them on to individual consumers through premiums and deductibles so high that, for all practical purposes they are uninsured—perpetuating the cycle.

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My point is that we are arguing about the wrong thing. We are arguing about who pays the bill, rather than why the bill is so high in the first place. And when the bill—the total cost of care— is simply unaffordable, it this is a very unproductive argument. Until we can refocus this debate from how to make insurance more affordable to how to make health care more affordable, a solution will continue to elude and divide us.

Unfortunately, the federal debate continues to be focused on who should get a public subsidy to help them pay for their health care and how much that subsidy should. It has little to do with trying to reduce the underlying cost of the health care system itself. And cost is the elephant in the room because health care is the only economic sector that produces goods and services that most of its customers cannot afford, yet all of who will eventually need– often literally as a matter of life and death. The only way an economic "market" works under these circumstances is if the cost of care is heavily subsidized which is why, for the past fifty years the health care debate has been focused not on the cost of care; but on who pays the bill; on figuring out how to pay for that subsidy either through public or private insurance.

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That is at the heart of the debate that has been raging in congress. Both Republicans and Democrats agree that the cost of health care exceeds what most people can afford. They also agree that, since health care is so expensive, almost everyone needs a "third party” to help them pay their medical bills. This can come in the form of either public insurance (in this case Medicaid) or private commercial insurance. Finally, there is agreement that many low-income people not eligible for Medicaid still need a public subsidy to afford commercial insurance.

That leaves three major points of contention. The first involves the income eligibility level for adults on Medicaid, which the ACA set at 138 percent of the federal poverty level, while the House Republican proposal moved this down to 133 percent. The second point of contention involves the public subsidy needed by those not eligible for Medicaid but who still cannot afford the cost of a commercial insurance policy. The ACA offers this help through gradually declining premium subsidies for insurance policies purchased on the exchange; while the Republican proposal favors a market-oriented approach using refundable tax credits—but this is still another form of public subsidy. The third point of disagreement has to do with how much of the cost of Medicaid should be paid by the federal government and how much should be paid by the states. Although this argument has to do with cost, it is not focused on system cost—that is, the cost of the goods and services being purchased—but simply on who pays the bill when it comes due: states or the federal government.

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The problem with this whole debate—which is an extension of the debate we have been having for the last fifty years—is that arguing about who should be eligible for a public subsidy; whether it should be delivered by the government or through the market; or how much the states should pay to foot the bill, will not make health care more affordable. And unless we can begin to address the total cost of medical care itself, we can never resolve this divisive issue. And that brings us back to Oregon where we have had some direct experience in addressing the total cost of care.

Let’s go back to January 2011. Oregon was in the depths of the Great Recession with high unemployment and a $3 billion budget deficit—over $1.2 billion of which was in the Medicaid program. It was clear that if we continuing to cover all those eligible for the Oregon Health Plan in the absence of any replacement revenue providers would face a thirty-nine percent cut in provider reimbursement.

Through a combination of benefit changes, administrative efficiencies and front-end loading the resources we did have into the first year of Oregon’s two-year biennial budget; we reduced the size of the reimbursement cut from thirty-nine percent to eleven percent. But this still left a $240 million general fund

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budget shortfall in the second year of the biennium (with the federal match a $600 million hole).

We proposed to fill this hole with the savings we would realize from transforming the care model for the Medicaid program to get more value for each dollar spent. The result was a proposal to the federal government asking for permission to use a new care model —Coordinated Care Organizations—to deliver care to those on the Oregon Health Plan. The Obama administration agreed, providing a one-time five-year investment of $1.9 billion in exchange for a commitment from Oregon to reduce the Medicaid cost trend from 5.4% to 3.4% by the end of the second year of the waiver with no reduction in benefit or eligibility; and to meet rigorous quality and outcome metrics.

It is worth noting that the bill that created the CCOs passed the House—at the time evenly divided between Republicans and Democrats—by a vote of 53 to 7. It wasn’t bitter and it wasn’t partisan. It is a reminder that with leadership and commitment it is possible to resolve difficult public policy challenges without tearing ourselves or our state apart.

Now, at the end of five years, all sixteen CCOs are operating within the constraints of their growth cap and are meeting the outcome and quality metrics stipulated under the waiver. And because state revenue has been growing at about four percent, while the Medicaid growth rate is at 3.4% we have realized a net total fund cumulative savings of $1.7B, over the first five year 1115 waiver period and a projected savings of $8.6B over ten years.

Now, let’s compare Oregon’s CCO model to the Better Heath Reconciliation Act (BCRA), which was the Senate Republican approach to repealing and replacing the ACA. One of the main goals of both the House and Senate legislation was to reduce the cost of Medicaid to the federal government—which is not the same as reducing the total cost of the care being delivered through the Medicaid program. It was simply about who pays the bill when it comes due and the politics simply shift costs to the

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states, to employers and providers and, ultimately, to individuals who cannot afford it.

This proposal sought to roll back the Medicaid expansion by reducing the federal match rate from 90% down to the rate states had prior to the passage of the ACA (63% in Oregon’s case); and to impose a per capita growth cap on Medicaid spending. This would have resulted in an enormous cost shift to states. According to the Congressional Budget Office the national impact of this proposal would have lowered the Medicaid trend line by $160 billion by 2026 with a projected ten-year cumulative reduction in federal Medicaid spending of $772 billion.

Now, let’s compare that approach to reducing the cost of Medicaid to the one pursued by Oregon's Coordinated Care Organizations. Because we agreed to reduce the Medicaid cost trend by two percentage points between 2012 and 2-17, and realized a $1.8 billion cumulative total fund savings; a delta which is expected to produce $8.6 billion in cumulative savings over ten years.

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These charts look very similar but they are actually very different. Chart 1 reflects a reduction in Medicaid spending under BCRA from simply cutting payment to states, which will result in a dramatic reduction in enrollment. Chart 2 reflects cost savings to the state and federal governments from reducing the average Medicaid trend rate through implementing a new care model without reducing enrollment or benefits and while meeting rigorous outcome and quality metrics.

The point is that if the objective is to reduce the cost of Medicaid, there are two ways to do it. One approach—the one being pursued by Congressional Republicans—is simply focused on shifting cost to states and individuals with no regard for the human consequences. The other approach—the one reflected in the Oregon CCO model—actually reduces the total cost of care within a clear policy around access, quality and outcome, all of which were maintained while lowering the Medicaid cost trend.

If every state followed Oregon's lead and reduced the Medicaid trend rate by 2% by managing the total cost of care in the same way we have done, the cumulative ten-year total fund savings would be between $400-500 billion. That is clearly in the ballpark of what the Republican bill is projected to save—but without bankrupting state budgets, shifting cost to employers and doing violence to millions of Americans.

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In Oregon, we accomplished the transformation of our Medicaid care model through the CCOs only by putting pressure on the delivery system. One of the reasons it's so hard to "reform" the health care system is because we keep paying for it. As long as we continue to fund the status quo there is no incentive to change it. However, as part of the waiver that allowed us to implement the CCO care model, we agreed to a total cost of care growth cap of 3.4 % per member per month. The CCOs were left to figure out how to live within that cap while meeting quality, outcome and patient satisfaction metrics. Their success was due in large part to the pressure put on the delivery system by the growth cap.

The challenge is to change the focus of the health care debate from trying to make health insurance more affordable to directly addressing the total cost of care and trying to extend the care model reflected in Oregon’s CCOs to the private commercial market.

Oregon’s experience over the past five years with CCOs demonstrates that there is a lot of room within what we are currently spending to drive down the total cost of care without sacrificing access, quality or outcomes. We are not talking about reducing the amount we are currently spending on health care but rather reducing the rate of growth to a sustainable level so that, over time, it will begin to reduce the national debt or, in the case of Oregon, help make the delivery system fiscally sustainable the state and for private sector employers; and to open up a delta of savings that could be reinvested in other areas like public education and the social determinants of health.

The recent stu dy by the Network for Regional Healthcare Improvement (NRHI) offers some insight into the magnitude of the potential savings. As you know, NRHI is a national organization of local groups—including the Oregon Quality Health Care Corporation—working to improve health care. The report analyzed cost and utilization across five regional commercial markets (Oregon, Utah, Maryland, St. Louis and Minnesota) and aggregated data from seven Oregon health

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plans, which include one-third of commercially insured Oregonians.

The report shows that Oregon’s health care utilization is lower than in the other regions but our average prices are the highest (17% above the regional average). If the two regions with the highest cost per participant (Oregon and Minnesota) were to reduce spending as little as 2.5% ($9 per member per month) employers would save $200 million per year.

Think of the impact that would have on business competitiveness and the ability to provide good health care to your employees. Even if we captured only a portion of those savings, it would be a huge boost for the businesses, a huge benefit for Oregonians. To realize that however we must change both the focus and the tone of the debate.

This is not a Republican issue and is not a democratic issue. There is no partisan solution. Only one that recognizes that we are all in this together, that we all share the same brief moment of life, and that we all need and deserve timely access to quality effective care.

You know, during the many years I practiced as an emergency room doctor, I can’t remember a single instance when I checked someone’s party registration before treating them; or noticed whether Democrats bleed differently than Republicans; or found that cardiovascular disease or cancer respected partisanship and political ideology. In this divided nation of ours, the one thing that we indisputably hold in common—and that should draw us together—is our shared mortality. All of us will grow older, all of us will, at some point, need medical care to help maintain our health. All of us cling to life and to the lives of our loved ones.

Let's remember that – and hold in our hearts – as we move forward and try to craft a solution that works for all of us; as Oregonians and as fellow human beings.

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