Health Care Savings Model - Baseline vs Reformed
Vermont Legislative Joint Fiscal Office

Reform Model
A model for exploring health spending and savings under reform for the Joint Fiscal Office
Base
Spending
Change from
Previous Year
Projected
Spending

$ Savings

% Savings
2011 $5279 $5279 $0 0.00%
2012 $5573 5.58% $5573 $0 0.00%
2013 $5958 6.90% $5958 $0 0.00%
2014 $6471 8.61% $6310 -$161 -2.49%
2015 $6939 7.24% $6577 -$363 -5.23%
2016 $7469 7.63% $6858 -$611 -8.18%
2017 $8015 7.31% $7107 -$909 -11.34%
2018 $8601 7.31% $7338 -$1263 -14.68%
2019 $9278 7.88% $7591 -$1687 -18.18%
2020 $10029 8.09% $7842 -$2187 -21.81%
$73612 $66432 -$7180 -9.75%
Date range instructions
The time period allows you to explore how savings “phase in.” For example, it may take several years for changes that affect provider administrative costs to be fully implemented. For each source of savings, set the first and last years of the period during which you expect the savings to develop. This model, unlike the Act 48 report, assumes that savings will develop at a constant rate during the specified time period. For example, if you assume ultimate payer administrative savings of $200 million, and that those savings will occur during the period 2017-2020, spending will be reduced by $50 million in each of those four years.
Payer Administration – These are savings that accrue to payers (Medicare, Medicaid, Blue Cross, MVP, etc.) when the claims process is simplified. In 2015, we estimate that total payer administration will be about $700 million. Over the past 15 years, payer administrative costs have risen about 10% per year. In the report, we estimated payer admin savings of between $196 and $327 million, during the period 2015-2019.
-$400 million
-$400


Provider Administration – These are the savings that accrue to providers (hospitals, physicians, nursing homes, etc.) when the claims process is simplified. This is a more difficult figure to estimate than payer administration because not all provider administration is associated with the claims process. We estimate that about 12% of physician and other professional revenue and about 6% fog hospital revenue are spent on claims submission and collection, or about $300 million in 2015. In the report, we estimated provider administrative savings of between $160 and $320 million during the period 2015-2019. See the instructions for an explanation of how savings over time can exceed single-year spending.
-$400 million
-$400


Fraud – The FBI estimates that between 3% and 10% of all health care spending is a result of fraud. This would equate to between $200 and $700 million in 2015. We estimate savings of between $77 and $215 million during the period 2014-2018. The lower estimate assumes a 3% fraud rate in Vermont and that this can be reduced by 30%. The higher rate assumes a 5% fraud rate and a 50% reduction.
-$300 million
-$300


Clinical Reforms – This includes a wide range of activities, from payment reform to changes in insurance benefits. We estimate that all of these interventions when combined could reduce the rate of spending growth by from a low of 0.75% to a high of 3% during the period 2015-2020.
-3.00%
-3.00%


Investments – This is the money that will have to be spent to implement the reformed system, primarily information technology. Our estimates ranged from $50 million to $150 million between 2014 and 2018.
$150 million
$150


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Instructions for web-based health care expenditure model

This model allows you to explore how different types of savings can affect the trajectory of health care spending in Vermont. It is based on the “Act 48 report.” That report can be found at: http://www.leg.state.vt.us/jfo/healthcare_act48.aspx

The model starts with a baseline – an estimate of future health care spending in Vermont in the absence of any new state policies (but recognizing the impact of federal reform efforts).

Savings are taken against this baseline using the sliders below. There are two types of savings – base and trend. Base savings occur when a fixed amount of money is removed from spending, without affecting the underlying rate of growth in future years. In this model, payer administrative costs, provider administrative costs, and fraud are taken as base savings.

Trend savings occur when the underlying rate of growth is reduced. In this model, clinical changes (which include payment reform, changes in the care process, and improvements in the general health of the population) are treated as a trend savings.

Each source of savings is driven by two parameters – the ultimate level of savings and the time period during which the savings will develop. The time period allows you to explore how savings “phase in.” For example, it may take several years for changes that affect provider administrative costs to be fully implemented. The savings amount that you provide is the total savings across the time period. Because these savings can take several years to occur, it is possible that the total will exceed the amount currently spent in a single year.

This model, unlike the Act 48 report, assumes that savings will develop at a constant rate during the specified time period. For example, if you assume ultimate payer administrative savings of $200 million, and that those savings will occur during the period 2017-2020, spending will be reduced by $50 million in each of those four years. Note that the effect of prior year reductions continues into the present and future.

IMPORTANT NOTE: Results from this model will not agree exactly with those in the Act 48 report. This is because of the assumption that savings occur evenly throughout the period – a necessary simplification. Users wishing to duplicate the results in the report should request the full model from JFO.