Newtown, CT – September 6, 2013
In a few weeks the new health insurance exchanges will open for business and we shouldn't underestimate the importance of that event. Apart from finally providing all who reside in the US with an option to buy a standard policy, the exchanges also offer some hope of greater market discipline in the years to come. The process of buying health insurance today is often opaque and the multitude of policies, brokers and options make comparisons difficult and the choices suspect at best. Many have benefited from this opacity, and won't in the future. That's a good thing. Further, the lack of real market competition for health insurance has, to an extent, contributed to the lack of innovation by insurers to control the ever-rising price of health care services. If the path of least resistance is simply to pass the buck, then most will take it and, in fact, have taken it. However, in an insurance marketplace, insurers will have to do better if they want to maintain or even grow their market share. Most of them need that market share in order to negotiate favorable discounts from health care providers and thus win over self-insured customers. At least they do (or seem to) in the current discounted FFS payment system. And while the news on expected premiums in the exchanges are increasingly encouraging, a brief released this week by the Center for Studying Health System Change gives us reason to doubt they will stay that way without other, equally fundamental, market reforms.
What this means to you – Ever since Alain Enthoven and others expounded the virtues of health insurance competition, we've been waiting for natural experiments at a large scale to test the validity of that strategy. We will now have such an opportunity, and many of us remain skeptical that it will bear the promised fruits. That's because competition for insurance is very different from competition for health care services. The former is about coverage, while the latter is about the value of services delivered. If there is no underlying change in the value of services, then it's unlikely that the projected trend rates by the actuaries in one insurance company will vary significantly from that of the others. Further, the discount game has been ineffective at controlling costs for several decades because providers have been smart enough to consolidate in order to shift the balance of market power in their favor. In a market in which the only unit of negotiation is a percent discount off list price, controlling the supply is the best way to control the altitude of the prices on the list. The HSC brief brings further proof to that argument in showing that in certain communities, the dominant provider is getting 100% more than others for the exact same service, even when there is a dominant insurer. We submit therefore that without simultaneously introducing comprehensive price and quality transparency, the hope of insurance market competition as a driver of premium decreases is just that…hope. Some states are advancing on both fronts and more have to follow so that this important event be not relegated to the dustbin of history.