ECONOMIC REPORT OF THE PRESIDENT

covered under ACO contracts at the beginning of 2016, up from virtually
none as recently as 2011 (Muhlestein and McClellan 2016). Looking across
all types of APMs, a recent survey of private insurers estimated that approximately
one in four claims dollars paid by private insurers flowed through an
APM during calendar year 2015 (HCPLAN 2016).
The Administration has also taken a range of steps to directly
overcome the collective action problem described above by facilitating collaboration
across payers in developing innovative payment models. The
Administration created the Health Care Payment Learning and Action
Network in 2015, a forum in which providers and payers can share best
practices on how to design and deploy new payment methods. Similarly, in
partnership with the members of the Core Quality Measure Collaborative,
a group that includes representatives of payers, providers, and consumers,
CMS released agreed-upon quality measures for six major medical specialties
as well as for ACO and medical home models in early 2016. CMMI has
also directly included private payers in many of its model tests. For example,
the medical home interventions being tested through the Comprehensive
Primary Care initiatives is being implemented in parallel by CMS and other
payers in each of the test markets, and the all-payer models now being tested
in Maryland and Vermont involve multiple payers by definition.
These steps to facilitate collaboration across payers may have benefits
in addition to resolving a collective action problem. Notably, these efforts
have the potential to reduce the administrative costs to providers of participating
in APMs. Reducing administrative costs is valuable in their own
right, but may also facilitate more rapid diffusion of these models. Aligning
incentives across payers may also make APMs more effective by ensuring
that providers do not face conflicting incentives from different payers.
In addition to the collective action problem discussed above, the
tax treatment of employer-sponsored health insurance coverage has been
a second important barrier to the adoption of better payment methods in
the private sector. In particular, employees pay income and payroll taxes
on compensation provided in the form of wages and salaries, but not on
compensation provided in the form of health care benefits. As discussed
earlier in this chapter, this treatment means that the Federal Government
provides an implicit subsidy of around 35 cents on the dollar to compensation
provided in the form of health benefits that it does not provide to other
forms of compensation.
As also discussed earlier in this chapter, this subsidy plays a useful role
in helping make coverage affordable for many families, but it also distorts
employers’ incentives. Because the Federal Government subsidizes each
additional dollar of health benefits, employers have a strong incentive to
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