A recent Colorado Springs Gazette article about the health insurance exchange development process includes a mention of Colorado’s AARP chapter being unhappy that neither the exchange board nor the exchange’s legislative oversight committee has the power to negotiate with health insurance carriers to reduce health insurance premiums. At first glance, that sounds like a legitimate complaint, and one might wonder if it would be in the public’s best interest to have the health insurance exchange committees be able to negotiate prices with the carriers.
But I have to wonder, would it really do any good? Or would it just end up being a “negotiation” in name only?
Health insurance prices keep climbing, and people keep increasing their deductibles and out-of-pocket exposure in order to keep their premiums affordable (we raised our family’s HSA-qualified plan’s deductible to $7000 earlier this year, in order to lower our premiums, and many of our clients are opting for higher deductibles too). But although health insurance premiums are the most obvious target, they’re really just a symptom of the real problem, which is the rising cost of healthcare and the increasing utilization of healthcare.
Much of the focus during the last few years of “healthcare reform” has actually been on health insurance reform. This is unfortunate, because there are many other aspects of our healthcare system that are badly in need of reform. The health insurance industry isn’t as profitable as people tend to think, and the bulk of our premium dollars are spent on medical claims. It’s true that health insurance premiums increase each year, but the Colorado Division of Insurance has an extensive process that they use to make sure that the rate increases are justified. And despite that comprehensive review process to make sure that there are no errors or unjustified rate increases, the premiums continue to increase. Because the cost of healthcare continues to increase.
The MLR rules that went into effect at the beginning of 2011 require health insurance carriers to spend at least 80 cents of every premium dollar on medical claims (85 cents for group plans that cover at least 50 people). Many carriers were already at or near that level anyway, but the implementation of that rule has guaranteed that most of our premiums are being spent on medical care. I contend that the rest of the healthcare industry could also use similar guidelines in order to keep costs in check.
How would it help to have health insurance exchange boards negotiating with health insurance carriers to try to lower premiums – without addressing the root problem, which is the ever-increasing cost of healthcare? If the carriers were to agree to lower premiums, they would have to cut back on how much they spend in claims, since that’s where most of the premium dollars go (you can only trim admin costs so much). That would mean either cutting back on benefits or paying providers less money for the work they do. Neither of those options are just between the carriers and the exchange board. Cutting back on benefits directly impacts the insureds, and cutting back on reimbursements directly impacts providers. Either way, it’s not something that can be realistically “negotiated” between health insurance carriers and health insurance exchange boards. The other major players in the healthcare industry (Pharma, hospitals, doctors, device makers, etc.) have to get involved too.
Much of the focus of the healthcare reform rhetoric has been on health insurance (availability, premiums, etc.), and some important issues have been addressed in the process. But we cannot continue to focus primarily on the cost of health insurance (or try to artificially lower it) without reducing the cost of healthcare.