Health reform has passed and it was supposed to change the world. But it has yet to take effective action on the biggest problem — the upward spiral of health costs! Raise your hand if you think there is a connection between insurers’ and providers’ lack of transparency on premiums and fees, and that upward spiral.
Health reform is trying to address transparency with its medical loss ratio requirement (that least 80 percent or 85 percent of the premium must pay for medical costs as opposed to administrative expenses); and its rule requiring insurers to justify premium hikes of 10 percent or higher.
Insurers say they need to keep fee schedules confidential because if arduously negotiated discounts become known to the world, all providers will demand some form of “most favored nation status,” and insurers’ business model would no longer work.
Insurer premiums are based on a complicated mix of claims history, expected medical claims and expenses, supply of medical services, hospital costs, doctors’ fees, overhead expenses, marketing, payroll and profits.
First off, let’s spread the blame a bit: providers are partly responsible for the problem. This report by the Government Accountabilty Office (GAO) illustrates the opacity of providers and insurers. The report states:
Several health care and legal factors may make it difficult for consumers to obtain price information for the health care services they receive, particularly estimates of what their complete costs will be. The health care factors include the difficulty of predicting health care services in advance, billing from multiple providers, and the variety of insurance benefit structures. For example, when GAO contacted physicians’ offices to obtain information on the price of a diabetes screening, several representatives said the patient needs to be seen by a physician before the physician could determine which screening tests the patient would need.
That said, health is not the only industry/sector with a transparency problem: what about construction … or government? Ever heard the ruse about laws being made like sausage?
Nevertheless as rates increase, employers and health consumers wonder why they pay more for health care every year. When they try to “shop around” or otherwise cut costs, insurers won’t divulge acquisition prices, negotiated fees, why premiums increased as much as they did, and what they do with their premium dollar. There are at least three scenarios where employers and consumers are being frustrated in their quest for more transparency:
- When a health insurer hikes its rate and a subscriber asks why; see AMA’s rating of health insurers on transparency.
- When a patient on a high-deductible plan tries to look at the fee schedule between an insurer and a hospital to figure out what service he or she should get; see this article describing how the lack of transparency is spoiling the promise of consumer driven health care.
- When an employer wants to know how much of the drug maker’s discount its PBM kept for itself and how much it passed on to its customers. see: state moves to repeal PBM transparency law.
Here’s some commentary from the extendhealth.com article
Trying to predict and calculate health care costs can be a fool’s errand. Adding to the complexity is the difficulty of knowing health care pricing before care is provided. This lack of price transparency complicates decisions for consumers and employers. To make it possible to evaluate plan benefits and choose a provider while including price as a factor, you must have both standard insurance benefit designs and a standard provider fee schedule. Neither of these is available in the non-Medicare insurance market today.
There seems something anti-competitive about the secrecy, as if insurers and providers want to avoid the light of transparency compelling them to tighten their belts. If underperforming or waste are never brought to light how can we do anything about them? How can employers control health costs if they’re not allowed to know what went into the increases?
We Are Allowed to Be Opaque
The transparency of insurer rates has emerged as a major issue between regulators and insurers in New York, The New York Times reports:
In the newest debate over rising premiums, regulators in New York have announced they intend to lift their current policy “shielding” data in premium rate applications and to make such information public. Insurers fire back they will seek a court injunction to keep the data secret.
Look at what George Pantos, Executive Director, Healthcare Performance Management Institute is saying:
Major health insurance companies seeking steep premium increases in New York have submitted memos to state officials to justify the higher rates. Now they are fighting to keep the memos from the public, saying they include trade secrets that competitors could use against them.
This public tiff raises an interesting contrast between self-funded and insured plans with respect to plan data transparency. Unlike insured plans, visibility of plan information — such as medical and Rx claims data — is the key to significant cost savings in self-insured plans.
While insurer reluctance to divulge “proprietary” information is understandable, this must be balanced against the critical need for payers and participants to know where health benefit dollars are going. In coming years, a new policy dialogue needs to take place, one that addresses the many ways that data transparency and technology can have a positive impact in health cost control-just as it is doing for many self-insured plans, Pantos says.