Controlling Costs: Marketplace Reforms

The Health Security plan controls rising costs and improves the quality of health care by enlisting the power of a competitive market and empowering consumers to make choices that suit their needs.

Reform reduces administrative costs and frees up resources to improve quality and access for all Americans. The Health Security plan:

Enforceable Cap: The Back-Stop For Cost Containment

While ample evidence demonstrates that competition and increased efficiency control costs, the Health Security plan builds in a back-up measure to control health care costs: an enforceable cap.

The cap is met through capping the growth in insurance premiums paid by individuals and businesses to cover the guaranteed benefits. The Health Security plan guarantees comprehensive benefits and limits the rate of growth in premiums paid by employers and consumers for these benefits. By the end of the decade, insurance premiums are held to the rate of inflation.

Those limits are reasonable and achievable, given reforms that enhance competition in the health insurance market, simplify the system and reduce administrative costs, expand consumer choice and strengthen the negotiating power of employers and consumers through health alliances.

The projected rage of growth in federal and state spending for Medicaid is similarly limited, with coverage for Medicaid recipients provided through regional alliances. Specific reforms hold Medicare to comparable, but slightly higher, limits.

Health insurance premiums pay for coverage in the new system, just as health insurance premiums pay for coverage today. The Health Security plan limits how fast the cost of those premiums increase.

Alliance premium targets are based on the current level of health care spending in each area. They, therefore, vary substantially from alliance to alliance. The National Health Board appoints a commission to explore methods to reduce these variations over time.

In each regional health alliance, health plans bid each year to provide the guaranteed benefits, and alliances negotiate with them over premium levels. Premiums vary from plan to plan.

If the average premium across all plans is less than the alliance's premium target -- that is, if premiums, on average, are increasing consistent with inflation -- then no enforcement is triggered.

If the average premium across all plans exceeds the alliance's premium target, the premium, the cap prevents premiums from rising beyond the target. In that case, plans whose proposed premium increases exceed the allowed rate of growth are required to accept lower premiums. The plan must adjust its payment rates to providers or accept lower profits to make up the difference.

Corporate Alliances

Large employers that form corporate alliances are expected to comply with the same limits on premium increases as regional alliances. If premiums in a corporate alliance exceed the allowed rate of growth during two of any three years, the Department of Labor may require the corporation to purchase coverage through regional alliances.