insurance premiums

“Medicare-for-All” Understood as Lower Premiums for Me?

Proposals for Medicare-for-All, or more accurately, universal health coverage, are being introduced by both Congress and state legislatures at a rapid pace (see this useful interactive tool, The Many Varieties of Universal Coverage from The Commonwealth Fund). While policy types argue over how such a plan would be funded and how to set reimbursement rates for providers, and Wall Street frets about what single payer health coverage would do to health insurance companies, state legislators and regular people seem to have a different perspective. In my many conversations with people across the country about the idea of “Medicare-for-All,” I have found it striking how often people say they favor such an approach because they want lower health insurance premiums.

I think we may have a language problem. When health policy people hear “Medicare-for-All”, they think “change the health care delivery and insurance infrastructure from employer contributions to taxpayer contributions,” but maybe when regular people say “Medicare-for-All”, they mean “please find a way to lower my premiums”. The Kaiser Family Foundation Health Tracking Poll conducted in early January hints at the importance of lower premiums as a reason to support “Medicare-for-All” type proposals. As shown in the figure below, nearly 50% of people polled strongly favored proposals that allow people between 50 and 64 years of age to buy in to Medicare, or allow people to buy in to Medicaid, or create a plan like Medicare that is available to anyone. Getting insurance from a single government plan is strongly favored by only 34% of respondents.

These “buy-in” proposals may be gaining in popularity as people lose access to employer-sponsored insurance. Here is the math: “if the coverage rate for employer-sponsored insurance was the same in 2017 as it was in 1999 (67.3%), almost 24 million (or 23.8 million) additional people would be covered through an employer plan in 2017.”

It’s easy to understand why people would focus on lower health care premiums; rising premiums are having a big impact on household incomes. As fewer people are receiving health insurance through their employer, they are also being exposed to higher costs for health care premiums. We pulled recent information on employer and worker contributions for health insurance, the average national premium for a person earning just over 400% of FPL ($49,000) to buy a health plan on the ACA Exchange at various ages, and Medicare premiums. We then created a rough comparison chart of what premiums an individual might have to pay for health insurance based on how they accessed coverage. Below is what we found:

Notably, the average annual premium for employer-sponsored coverage of an individual was about $6,900 last year. But employees usually paid just 18% of that amount. For people who may have been covered by their employer for years, and then have to buy insurance in the ACA Exchange, the loss of that employer-sponsored contribution to their health insurance coverage could be quite a shock.

It’s a catchy phrase and easy to hashtag in social media, but is the appeal of Medicare-for-All driven largely by the hope that a person’s premiums will be lower? Is Medicare-for-All the best or only way to achieve lower premiums? As with all policy issues, we should probably start with the key question, “what problem are we trying to solve” and then go from there, always checking to see that we are, in fact, addressing the problem we are trying to solve with a workable solution.

Insurer Bargaining Power: Markets With High Insurer Concentration and High Provider Concentration Show Decreased Hospital, Physician Fees – Health Affairs Study

By M2|2017-12-14T02:47:07+00:00December 13th, 2017|Health care spending, Hospitals, Insurance, Out-of-pocket spending, Uncategorized|

**Insurer Bargaining Power: Markets With High Insurer Concentration and High Provider Concentration Show Decreased Hospital, Physician Fees – Health Affairs Study**

In a recently published study in Health Affairs, the authors set out to determine whether insurers had the bargaining power to reduce prices for hospital admissions and physician visits (among five types of physicians).

The results confirm what the authors, had anticipated – that insurer bargaining power is strongest in markets with both high provider concentration and high insurer concentration.

The authors found that in markets where both insurers and providers were highly concentrated, insurers were able to reduce hospital admissions prices by 5%, and were able to reduce physician visit prices as well – e.g., cardiologist, radiologist and hematologist/oncologist visit prices were reduced by 4%, 7%, and 19%, respectively.

However, the study did not find evidence of insurer bargaining power on prices of visits to primary care physicians or orthopedists. This lack of effect is “likely because prices for those specialties are not far out of line, so it’s very hard for payers to negotiate from a price that is not far out of competitive range,” according to comments made by study one of the study’s authors, Richard Scheffler, University of California, Berkeley, in a Medscape Medical News article (Scheffler co-authored the study with fellow UC-Berkeley health economist Daniel Arnold).

Conversely, the authors found that insurer bargaining power in markets with low provider concentration was not significant, because providers in those markets are already near the competitive level, thus leaving very little room for downward negotiation of prices.

The study examined the association between provider and insurer market concentration and provider prices, calculated from the Health Care Cost Institute’s medical claims database, from 2010 to 2014. Measures of market concentration were computed using the Herfindahl-Hirschman Index (HHI), a common measure of market competitiveness used in the Horizontal Merger Guidelines of the Department of Justice (DOJ) and Federal Trade Commission (FTC).

The authors note the rapid pace of consolidation of hospitals; from 1998 to 2015, there were over 1,400 hospital mergers in the U.S., 40% of which occurred between 2010 and 2015. Similarly, physician markets are also becoming concentrated “at an accelerated pace, with primary care physicians making the move from smaller to larger group practices faster than specialists.”

“The increased consolidation of provider (hospital and physician) markets and health insurance markets has garnered significant attention and led to calls for policy action to maintain and enhance the competitiveness of health care markets,” they note.

“Our results…suggest that insurers can bargain the prices down in highly concentrated provider markets,” the authors conclude.

However, “what is missing is a market mechanism that will pass these reduced prices on to consumers in the form of lower insurance premiums,” the authors note.

“Given the extreme concentration of the health insurer market, it is hard to imagine that many markets will be contestable and that competition will work to reduce premiums. Significant premium increases and the profits of the health insurance industry in recent years suggest that little if any of the benefits of insurer bargaining power are being passed along to consumers,” Scheffler and Arnold say. Nonetheless, “in the ACA Marketplaces, there is evidence that active-purchaser states are able to keep premiums down and stabilize their markets,” they note.

Overall, aside from insurers in some of the Affordable Care Act exchanges, insurers “are making a huge amount of money,” Scheffler says in the Medscape article. With market concentration, “medicine doesn’t improve, the quality doesn’t get any better, consumers don’t benefit, but the insurance companies’ stock prices go up.”

Thus, “it would seem to be only a matter of time before further intervention in and regulation of the health insurance market by state and federal legislatures, as well as private market innovation will accelerate.”

In the Medscape article, Scheffler proposes three potential avenues for change: First, the Federal Trade Commission should get more involved in investigating the pricing practices of highly concentrated markets. Second, states should more aggressively regulate premiums that insurance companies charge and ensure that savings are passed on to consumers. Third, large companies could bypass insurers and self-insure.

Hoping for increased competition in the insurance market is unlikely to be a fruitful option here, in light of increasing consolidation; as the authors rightly point out, other measures will be needed in order to bring relief to consumers. In particular, states should follow the lead of those that have moved to more aggressively regulate insurance premiums and ensure that savings resulting from increased bargaining power are passed on to consumers. Sky-high premiums continue to burden consumers; it’s time to hold insurers’ feet to the fire and make sure consumers aren’t the only ones still paying inflated prices.