Monthly Archive: July 2016

Economic pressures of ACA individual insurance market reforms tear at fabric of provider networks

The Patient Protection and Affordable Care Act’s reforms of the individual health insurance market removed tools health plan issuers historically utilized to control costs such as medical underwriting, unlimited annual cost sharing and lifetime limits. That has left health plan issuers one main tool: using the market power represented by their plan memberships to negotiate lower reimbursement rates with providers while maintaining quality of care. Those providers who don’t play along can find themselves left out of provider networks. That naturally functions to narrow plan networks.

The Affordable Care Act permits the standardization of benefits within metal tier actuarial value rating levels. California’s health benefit exchange, Covered California, has opted to standardize benefits to facilitate consumer comparisons of plan benefits and costs. The exchange has also chosen to actively negotiate with health plan issuers and affirmatively select which plans will be included among its qualified health plans (QHP) for a given plan year. In a state as large as California, that gives the exchange real negotiating power given the number of covered lives it can potentially bring to the table. Plan issuers that want on the exchange must reach an accommodation with Covered California on premium rates and providers as well as their own providers — while at the same time convincing regulators their plans offer a sufficient selection of providers.

Striking that balance since the Affordable Care Act reforms began to be felt in 2013 was never easy and could be getting a lot tougher. Something eventually has to give to resolve the economic tension. When a complex system like America’s private health care market is placed under stress, stress fractures first appear at its weakest links and components. Particularly given that the Affordable Care Act has welded shut most of the escape hatches. In this case, it appears to be a rent in the fabric of the provider network, described by the journal Health Affairs (and reported here by The Los Angeles Times). The issue of plan members having difficulty connecting the providers has caught the attention of regulators. (See this recent, in depth Health Affairs policy brief for a detailed discussion. As it should since if the fray grows into a larger tear, it could prove fatal to the Affordable Care Act’s individual insurance market reforms.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email or call 530-295-1473. 

“Health care arms race:” Payers, providers scale up to boost negotiating power

Last year, the head of California’s health benefit exchange and a health economist opined that consolidation among health plan issuers offsets the urge to merge that’s also taking occurring among health care providers. A rough balance of market power between payers and providers will benefit buyers of health insurance, argued Peter V. Lee, executive director of Covered California and Victor R. Fuchs, emeritus professor of health economics at Stanford University. The enhanced market power of bigger plan issuers would exert pricing pressure to hold down provider fees, they asserted.

The primary rationale of the Lee/Fuchs position is the Patient Protection and Affordable Care Act’s requirement that individual and small group health plan issuers must devote at least 80 cents of every premium dollar to paying providers (85 cents for large group plans) and care quality improvements. That will force health plans to find ways to hold down health care costs since they are statutorily limited in terms of what they can keep for themselves, Lee and Fuchs contend.

The U.S. Department of Justice holds a far different view. It filed legal challenges last week to block proposed mergers of Anthem and Cigna and Aetna and Humana on antitrust grounds, contending the resulting market consolidation would harm market competition. Meanwhile, The Sacramento Bee editorialized that while it sympathizes with insurers looking for negotiating leverage to counter a similar consolidation among providers, it is concerned about the prospect of a “health care arms race” that would create megaliths on both the payer and provider sides, giving them enormous market power.

The rationale for preserving competition is to hold down prices consumers pay. Fewer sellers in a given market means consumers have less to choose from, lessening the deterrent to charge more since higher prices could mean consumers going to a competitor that charges less. The problem however as the health care market tends toward oligopoly (few sellers, many buyers), it offers a natural advantage to sellers. In an oligopolistic market, it’s not in any one seller’s interest to significantly undercut the other guy since competitors, like them, are big by definition and have staying power. They can ride out a competitor’s lower pricing and know that unless the competition has some unfair cost advantage, they can offer significant price discounts for only so long before they lose money or go out of business. Notably, health plans are amplifying the oligopoly effect on the provider side. As health plan networks narrow, consumers have fewer and fewer providers from which to choose.

Back to the Lee/Fuchs argument on the Affordable Care Act’s minimum loss ratio rule serving a forcing function to keep the lid on rising health care costs. In the first post on this blog in February 2010, Veteran Sacramento-based journalist and policy wonk Daniel Weintraub pointed out that it won’t necessarily result in lower premium rates for consumers. If health plan issuers devote 80 or 85 percent of premium dollars to care and care improvements as required under the Affordable Care Act, any increase in overall health care costs still gets proportionally passed on to consumers as the size of the overall health care cost pie grows. Similarly, so does the pot of premium dollars representing the 15 or 20 percent health plan issuers set aside to cover overhead and profit as underlying health care costs continue to ratchet upward.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email or call 530-295-1473. 

Paying cash and negotiating price: Will it reduce the cost of health care and coverage?

Many of us now have high-deductible health insurance plans, which makes us “cash-pay” patients until we meet our deductibles. According to a Health Affairs health policy brief, high deductible plans are now much more prevalent in both individual and group markets.The higher the deductible, the lower the monthly premium. If you have a high deductible plan and don’t consume much medical care, you are most likely a cash pay patient. You might even avoid medical care because of the out of pocket cost. I know I have.I talked with a friend yesterday who has a $9,000 deductible. She has a torn meniscus. She is avoiding the surgery because she isn’t even close to hitting her plan’s deductible. I suggested she try asking for a “cash pay” price from her surgeon and the hospital or surgery center where her procedure would be performed. Negotiating cash pay prices for medical treatment has become a common practice. Often a cash-pay price for medical care can be much less than what you’d have to pay if you haven’t met your deductible.

Source: How cash-pay patients can beat high-deductible plans

The strategy of paying cash for medical care to get a better price originally appeared in The Los Angeles Times and is getting legs elsewhere such as here. That’s the way it was back in the 1950s and 1960s where people had “major medical” insurance that covered only large and unexpected medical care needs such as auto accidents and heart attacks. Everything else was paid on a cash basis.

Going forward, it bears watching to see if this gains momentum among those covered by high deductible plans. If it does, it could create downward pricing pressure on non-emergency medical procedures including primary care visits that aren’t preventative care and thus subject to out of pocket cost sharing.

Ditto high deductible plan rates. If more people pay providers directly rather than engaging in the paperwork exercise with their health plans for care falling well below their annual deductible, that reduces the administrative burden on the issuers of high deductible plans. As well as providers willing to negotiate a cash price knowing they’ll get paid sooner with less paperwork.

There’s an added bonus for high deductible plan members. At one time, having a high deductible plan meant a broader choice of providers. No longer the case with today’s narrow networks. Paying cash can potentially substantially widen the provider network to any provider willing to accept cash as payment in full for services.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email or call 530-295-1473. 

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