In a recent JAMA Network Open paper, Gul et al used a commercial database to examine the prices academic medical centers (the Dukes, UPMCs and Hopkinsb etc of the world ) charge for give common urological surgical procedures. They looked at the results by four payer categories: private insurance, Medicare, Medicaid and cash.
The big finding is that there are huge variations in what hospitals charge by payer type. Typically the descending rank order goes Commercial-Cash-Medicare-Medicaid. A key thing to note is that charged price is not the same as received cash from the payer. Many insurance contracts have a clause that states the insurer will pay the lesser of the billed amount or the contracted allowed amount. That clause encourages big charge amounts to avoid expensive to the hospital mistakes.
Table 3 from the paper is below. I think this table illustrates some of the challenges of the weak public options that are currently being bandied about:
The theory of change for the public options is that most ACA insurers are paying hospitals and physicians near commercial rates. A public option that requires payment rates below commercial but above Medicare rates would lead to lower gross premiums and a substantial reduction in federal premium tax credits/subsidies. That creates a wedge that can be used, via a 1332 Waiver, for other state priorities. This sounds elegant.
The problem is that not every insurer in the ACA market pays commercial or near commercial rates. A large class of ACA insurers are national and regional Medicaid managed entities like Centene and Molina whose contracts for the ACA market are typically Medicare plus a bit. I know Medicare plus 25% or Medicare plus 40% is not an unusual number for some non-Medicaid managed care entities that are competing against Medicaid entities in the ACA. At those price levels, the cheaper insurers in a market are already well below the price point that the weak public options mandate.
And once there are plans that are well below the price targets, the logic of a public option becomes a wee bit squirrelly beyond it is something that is doing something.
Fake Irishman
So the next question is how does this vary on a state level? Are their states with sky high rates without discount plans negotiating Medicare +40 rates in the marketplace? There even a weak public option might be useful.
Fake Irishman
And one more:
Can a “weak” public option in states with discount insurance options on the exchanges at least serve as some sort of ceiling on charges and perhaps become a ratchet over time if subsequent legislatures are able to drop the public option rates a few percentage points relative to Medicare each time they revisit the legislation? It might not appear like a big deal for a while, but over time could reduce costs significantly by narrowing the potential gap between Medicare and commercial rates.
Lobo
Would a state law negotiating a ceiling on rates, e.g., avg(com + Medicare) , help?
Another Scott
I think I see an easy solution.
Pay Medicaid rates + a few percent.
Easy, peasy.
Do I win?? :-)
I also wonder if the Commercial cases of paying less than the highest Medicare rates is in a 1-sigma tail or a 5-sigma tail. Maybe the Commercial payment for a particular procedure drops if they make it up with a higher charge elsewhere? (Somebody has to pay for the Commercial hookers and blow that Medicare isn’t providing, right?) Do they make it up on volume??
Thanks.
Cheers,
Scott.
itstrue
Hi. First off, I love your analysis here. This is the sort of thing that gets me going (at least professionally speaking). To me, for health care costs, there are essentially three broad option types: 1. Sit back and let rising deductibles do the talking. 2. Institute administrative pricing and/or global budgeting, or 3. Remake the market’s rules of the road.
Getting at #3, I read about an idea on hospital pricing a while ago that made some sense to me (here’s a link: washingtonmonthly.com/2013/12/26/common-health-carriers/). It’s the notion of treating hospitals like public utilities, where they’d be considered “common carriers” in a legal sense. The implication is that they could charge what they want, but it’s got to be the same charge for all payers of the same class, just like freight lines or power companies are required to do under a body of law with a pedigree stretching back to the Magna Carta. As common carriers, there would be commercial going rates for various hospitals in a market, and insurers would pick among them. The intent is to take away the negotiating advantage of being a Goliath provider against a bunch of David insurance companies with their own dubious incentives. Coupled with some real antitrust that breaks up these massive and growing health systems, common carrier could do a lot. In any case, you could do a lot simply from a regulatory standpoint to create a utility-model market system out of the existing arrangements.
Common carrier would only work in a competitive provider environment, and there are probably a number of knock-on effects I haven’t thought through, but I thought it was a good enough idea to at least discuss. Heck, the common carrier principle could pave the way for straight-up administrative pricing in instances where a functioning market doesn’t exist– just like my gas bill.
Personally, I think we’d be much better off with a simpler, fairer all-payer or single payer arrangement, but 218-51-1-5, as you say. Seems to me that if we’re going to rely on markets to drive down costs, this is a good line of inquiry to pursue with a number of policy knobs to turn.
Two rabbits
An insurance question,not related to the post…
I went on Medicare last year. My long time employer offered a retiree benefit of health insurance using Humana Medicare Advantage. I spent considerable time researching options before the decision, but very late I found out that if I didn’t take Humana, they would also stop paying for my spouses coverage (a few years younger). So $$$
At about the same time I first heard rumors that if you were on an Advantage plan, you couldn’t freely move back to Medigap plans. Didn’t dig into that deeply, since I felt forced to take offered Humana advantage plan. Researched it more in November after reading the negative opinions on the Medicare sign up posting here.
just wondering if the rules about switching apply to me?