Tag Archive: managed competition

Conservative tack on market-based reforms comes with high degree of political risk

Conservative economic ideology on reforming America’s health care system is that being a market — albeit an “unbelievably complex” one as President Donald Trump told governors gathered at the White House Monday — market-based reforms are the best and most appropriate remedy to achieve lower costs and better value care and outcomes. These goals are also central to the Patient Protection and Affordable Care Act. The law took a decidedly interventionist approach to making the health care market work on both the payer and provider sides, particularly with regard to individual medical plans. In an effort to save the market from collapse, the Affordable Care Act recast the marketplace rules based on a principle coined by healthcare economist Alain Enthoven called managed competition. Under managed competition, the rules of the game are designed to strengthen the sell and buy sides of the market and force sellers to play under market rules designed to reduce market manipulation and level the playing field. Creating state health benefit exchanges and subsidizing purchasers are intended to create a more robust market where plan issuers have to compete on value for a larger pool of buyers than might otherwise exist without the new rules. Those rules also required all plans to offer a core set of benefits to ensure a minimum level of value while leaving plans to offer five different levels of generosity, i.e. how much plan members must pay out of pocket before reaching statutory out of pocket maximums.

Central to market-based reforms is enhancing competition among sellers. The big question in the very complex, multi-siloed market of health care is to what extent competition is possible. Market competition isn’t a black or white, yes or no issue. Rather, competition is a matter of degree. Economists define a perfectly competitive market as one in which there are many sellers and buyers on relatively equal footing with real time access to information about the products or services offered and their price and value. Few if any markets are perfectly competitive. Using that standard, health care is far from a perfectly competitive market, especially so since most consumers don’t directly deal with their medical care providers as beneficiaries and members, respectively, of government and commercial medical plans that do so on their behalf. So far in fact that it is questionable that it can be reformed into a truly competitive market. Cost barriers to entry to new players are high, driving both payers and providers to consolidate, further eroding competition by reducing the number of sellers.

Because competition hasn’t effectively controlled the cost of health care, stakeholders are instead left to attempt to shift rising costs and blame for them to other stakeholders. Or reduce demand for health care by providing disincentives for utilization by forcing consumers to share more of the cost. Under the Affordable Care Act, that has taken the form of higher deductibles. Problem is those higher deductibles have not come with the customary tradeoff of significantly lower premiums. Premium rates have gone up along with the deductibles. That has led consumers and particularly those who purchase individual plans without subsidies to view their plans as “useless,” offering little or no value. That sentiment proved corrosive to the Affordable Care Act since they naturally felt ripped off. They were more than happy to vote for candidates in the November elections committed to scrapping a law they saw as giving them a lousy deal.

Today’s Los Angeles Times reports on political downside of shifting more costs onto consumers as a theoretical means of boosting competition to lower medical utilization and with it, demand stoking rising costs. Doing so runs the risk of irritating consumers even more, who will then take their anger out on their federal representatives in the upcoming midterm elections. Excerpts from The Times story:

Those are politically risky ideas, said Robert Blendon, an authority on public attitudes about healthcare at Harvard University. “Skin in the game has been never popular,” he said. “It may be an economist’s dream. But it’s never been something people say they want.”

“We believe in a patient-centered system, where individuals have the freedom to buy what they want and not what the government makes them buy,” (House Speaker) Ryan told reporters at the Capitol recently. “It’s really, really important to have choice and competition in healthcare because choice and competition lowers cost and increases quality.”

If Ryan were talking about another market like furniture or automobiles where consumers deal directly with sellers and make calm and rational purchasing decisions free of the anxiety that accompanies often painful, highly stressful medical issues, his vision of putting more power in the hands of buyers might be doable. That along with the reality that consumers are tied to government and commercial medical care plans that negotiate and set the terms and conditions of their medical care makes Ryan’s goal a very tall order.

 


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

New Washington regime seeks to move from managed competition to more unfettered health care markets

Republicans take the reins of the federal government next month and are generally expected to repeal or at least revamp the Patient Protection and Affordable Care Act to harness market forces and competition to achieve the triple aim of better health care outcomes and patient satisfaction while lowering costs. Instead of the managed competition of the Affordable Care Act that put in place rules on the sell and buy sides of the health insurance market to promote competition and established government run markets for small group and individual coverage, the incoming Trump administration and new Congress will favor less managed competition with fewer market rules and constraints.

Achieving such a market environment is an enormous challenge given the heavily siloed health care system, with each silo having its own complex microeconomics. Cast as a market, health care has the essential element of many sellers and many consumers. Buyers ultimately drive the economics of all markets and determine their long term viability. But consumers generally don’t deal directly with health care providers given the large role of public and commercial health plans and employers. For the most part, people don’t plan to use health care, only doing so when accident or illness strikes. That precludes time for deliberate, considered comparison of providers and costs to determine the best value. Instead, consumers must deal with difficult to decipher bills filled with multiple, incremental charges after they consume health care services.

True market competition cannot function ex post facto transaction without some intermediary to negotiate terms and conditions on behalf of consumers. It remains to be seen how the new administration and Congress will finesse the complex microeconomics of health care as they seek to harness competitive forces to lower costs without resorting to even more extensive reforms than under the Affordable Care Act.

 


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

California exchange models managed competition in individual, small group health insurance markets

At the other end of the policy spectrum, the exchange serves as an “active purchaser” of health insurance on behalf of its clients, the individual consumers. In effect, the exchange seeks to move insurance from a let-the-buyer-beware retail market to a two-stage wholesale and retail market. The first (wholesale) stage uses supply chain management tools developed by corporate buyers of other services, while the second (retail) stage encourages consumers to select from a more narrow range of pre-contracted offerings.

Source: Whither Health Insurance Exchanges Under The Affordable Care Act? Active Purchasing Versus Passive Marketplaces

This article co authored by UC Berkeley School of Public Health economist James C. Robinson, the executive director of California’s health benefit exchange, Peter Lee, and exchange policy staffer Zachary Goldman effectively argues California exchange’s active purchaser role vis health plan issuers embodies the concept of managed competition in health insurance described in this January 1993 Health Affairs article by Alain C. Enthoven:

A sponsor (either an employer, a governmental entity, or a purchasing cooperative), acting on behalf of a large group of subscribers, structures and adjusts the market to overcome attempts by insurers to avoid price competition. The sponsor establishes rules of equity, selects participating plans, manages the enrollment process, creates price-elastic demand, and manages risk selection.

As the authors note, the Patient Protection and Affordable Care Act creates basic standards for health plans in terms of defining required covered services, actuarial value and annual out of pocket maximums. But to realize the full benefit of managed competition, they appear to assert that health benefit exchanges must function as demanding and exacting wholesale purchasers of health plans in order to achieve maximum comparable selection and value for their retail customers. By aggregating purchasing power for insurance buyers, the exchanges help balance out market power between buyers and health plan issuers in a market that due to high entry and operating costs tends to be oligopolistic.

 


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

For some areas, Affordable Care Act’s goal of enhanced competition proves elusive

The individual and small group insurance market reforms of the Patient Protection and Affordable Care Act are based on a principle known as managed competition. As the term implies, managed competition attempts to bolster market competition by imposing market rules governing what is sold in a given market segment and under what conditions. (The role of managed competition in health care was first described in the late 1970s by economist Alain Enthoven).

The Affordable Care Act’s brand of managed competition is designed to improve choice and value for individuals and small employers when it comes to buying health plans. For insurers, the reforms are also aimed at restoring functionality to these insurance market segments by enhancing the risk spreading function of insurance by mandating they lump together individuals and small employers, respectively, into single statewide risk pools.

The Affordable Care Act gives health plan issuers — including those of multi-state plans created under the law aimed at boosting plan competition and choice — the option to determine whether to offer plans in a given state rating region and at what price. It also doesn’t affect the number of health care providers in a given region, which can vary widely across the United States and particularly between urban and rural areas. Consequently, the Affordable Care Act’s goal to enhance competition and value in individual and small group health coverage can be difficult to achieve in some areas of the nation as Jordan Rau of Kaiser Health News reports. Click here for Rau’s piece published in The Washington Post.

 


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Market forces marshal as start of exchange marketplace draws nearer

The rest of this year and next will reveal in greater detail how competing market forces under the Patient Protection and Affordable Care Act (PPACA) play out in the individual and small group market segments.  Health plans are making their opening gambit by warning in a Wall Street Journal story published this week that premiums will rise in response to new market rules that take effect in January 2014 requiring them to offer specified categories of benefits and use community-based rating instead of medical underwriting.

The PPACA’s managed competition scheme for these market segments will create countervailing downward pressure in addition to the reinsurance and risk adjustment mechanisms mentioned in the WSJ story to offset pressure for higher rates to account for taking on higher risk populations under community rating.  That scheme is based on concentrating much of the market in state health benefit exchanges that will aggregate the purchasing power of individuals and small businesses, spurred along in the individual segment with generous income tax subsidies for those with adjusted gross incomes at 400 percent and lower of the federal poverty level.  Small employers won’t get these subsidies (enhanced income tax credits will be available for very small, low wage employers) but would be able to pool their market power into one large purchasing entity, the exchanges’ Small Business Health Options Program (SHOP).

The test of that aggregated market power will begin over the next few months in about a half dozen states where the exchanges have opted to actively screen and select which plans can participate in their individual and SHOP marketplaces.  Of these, the most illustrative market is the nation’s largest health insurance market — California — where that state’s exchange, Covered California, has established standardized benefit designs and cost sharing levels for plans it will offer.  Covered California is utilizing a competitive bidding and negotiation process based on these standard designs that provides incentive to plans to moderate premiums.

Also part of the PPACA managed competition model and designed to boost competition to exert downward pressure on premiums are the large Multi-State Plans administered by the federal Office of Personnel Management.  Multi-State Plans will also be sold on the state exchange marketplaces, initially available in 60 percent of the states once introduced.  The PPACA mandates at least two Multi-State Plans be offered in each state exchange and be available in all state exchanges by 2017.  Plus the PPACA allows cooperative health plans owned and operated by consumers to compete in the exchange marketplaces with investor-owned commercial health plans.

 


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Insurers form health benefit exchanges to compete with government-operated exchanges

I recently came across this interesting article published at the website of the American Medical Association discussing how large insurers are forming their own insurance exchanges to compete with state run exchanges.  State/regional health benefit exchanges are a critical component of the Patient Protection and Affordable Care Act (PPACA).  They are intended to aggregate purchasing power for individuals and small employers by providing them a single marketplace to purchase coverage from a variety of insurers and managed care plans.  The policy goal as stated in the PPACA is to increase consumer choice and competition among payers.

But perhaps an unforeseen consequence is that competition would entail payers competing not just against each other in government-operated exchanges but also directly against the exchanges themselves.  According to the amednews.com article, motivating payers is the desire to retain a degree of control and independence from state-run exchanges:

Large insurers have invested in private exchange start-ups with the idea that they can offer a better insurance marketplace for employers and workers than a public exchange, keeping private plans dominant in the commercial market.

Moreover, the article continues, payers believe they can do a better job at attracting individuals and small businesses with their own exchanges.  Rob Panepinto, managing director for the Client Practice and Exchange Solutions at Connextions, tells amednews.com that “government is not a good marketer.”  In California, however, the California Health Benefit Exchange is gearing up in the apparent hope to prove that assessment wrong.  The Sacramento Bee this week reported the Golden State’s HBEX tapped Ogilvy Public Relations to begin creating a marketing and public outreach and education strategy.

Looking back to the Clinton administration’s unsuccessful reform proposal of 1993-94, the emerging market dynamic of competing public and private exchanges wouldn’t likely have occurred.  The Clinton reform plan would have created government run regional purchasing alliances that would have controlled the entire universe of payer and provider markets with both payers and providers competing within the alliances under the reform plan’s “managed competition” principle.

 


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

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