Fwd: qotd: Price competition in establishing provider networks - a very weak tool

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From: Don McCanne <don@mccanne.org>
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Subject: qotd: Price competition in establishing provider networks - a
very weak tool
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The New York Times
May 12, 2014
More Insured, but the Choices Are Narrowing
By Reed Abelson

In the midst of all the turmoil in health care these days, one thing is
becoming clear: No matter what kind of health plan consumers choose,
they will find fewer doctors and hospitals in their network — or pay
much more for the privilege of going to any provider they want.

These so-called narrow networks, featuring limited groups of providers,
have made a big entrance on the newly created state insurance exchanges,
where they are a common feature in many of the plans. While the sizes of
the networks vary considerably, many plans now exclude at least some
large hospitals or doctors' groups. Smaller networks are also becoming
more common in health care coverage offered by employers and in private
Medicare Advantage plans.

Insurers, ranging from national behemoths like WellPoint, UnitedHealth
and Aetna to much smaller local carriers, are fully embracing the idea,
saying narrower networks are essential to controlling costs and managing
care.

"We have to break people away from the choice habit that everyone has,"
said Marcus Merz, the chief executive of PreferredOne, an insurer in
Golden Valley, Minn., that is owned by two health systems and a
physician group.

Nonetheless, for people who are directly picking plans in the open
markets, insurers say price is turning out to be critical. People "are
weighing affordability and breadth of network," said Karen Ignagni, the
chief executive of America's Health Insurance Plans, an industry trade
group. "What we're finding is individuals are experiencing a preference
for affordability," she said.

http://www.nytimes.com/2014/05/13/business/more-insured-but-the-choices-are-narrowing.html?hp&_r=0

****

The Washington Post
November 26, 2009
White House defends cost-containment efforts in health-care reform bills
By Shailagh Murray

Critics of the Democratic bills point to cost control as a chief
deficiency. Karen Ignagni, president of America's Health Insurance
Plans, said the Senate bill includes only "pilot programs and timid
steps" to reform the health-care delivery system, "given the scope of
the cost challenge the nation faces."

Unless lawmakers institute changes across the entire system, Ignagni
said in a statement Wednesday, "Health costs will continue to weigh down
the economy and place a crushing burden on employers and families."

http://www.washingtonpost.com/wp-dyn/content/article/2009/11/25/AR2009112503474.html

****


Comment by Don McCanne

During the health reform process, AHIP health insurance lobbyist Karen
Ignagni stated repeatedly that health insurance is not going to be
affordable unless lawmakers do something to control health care costs.
So is health care cost containment a function of the government or a
function of private insurers? Let see how this is playing out.

According to Ignagni, in 2009 the Senate bill - the Affordable Care Act
- contained only timid steps to control costs. It was clear that the
government was not going to play any major role in controlling costs -
certainly not in regulating health care prices, as they do quite
successfully in most other wealthy nations.

The public sector uses administered prices. The private sector depends
more on price competition within the marketplace. Because the government
did not act, the insurance industry has to depend on private market
approaches, even though Kenneth Arrow had shown long ago that market
dynamics do not work in health care.

In markets, price competition is an important tool. But in health care,
only at the margin can price shopping be effective. The private insurers
have been inserted as our price shopping intermediaries. They force
hospitals and physicians to compete on price, and they then exclude from
their plans those that fall short of the lowest bids. Even though they
claim that they select their networks based on quality, it is the lower
prices that allow them to keep their insurance premiums competitive.

This process is not new. Establishing plan networks with contracted
payment rates was the most important innovation during the managed care
revolution. That did slow temporarily the rate of increase in health
care costs. What is new is that the plans are trying to drive much
harder bargains with providers that want to be part of their now
narrower networks. In response, hospitals and physicians are now
consolidating in order to be "must have" providers that insurers need
for their networks. Of course, that weakens the negotiating position of
the insurers. So we are seeing a loss of choice of health care
professionals and institutions in exchange for only very modest
reductions in health insurance premiums.

More recently, Karen Ignagni is claiming that consumers are choosing
"affordability" (lower premiums) over "breadth of network" (greater
choice of providers). According to the industry, it is the patients who
elect to go the cheap - a classic example of blaming the victim. Most
people buying insurance are relatively healthy but are concerned about
the very high premiums, so they will choose plans with lower premiums,
often not even knowing which providers are in the networks. But that
does not mean that they would prefer to give up access to physicians and
hospitals whom they trust and where they believe that they could get the
best care.

Thus we can have distorted price competition in the dysfunctional health
care marketplace with the self-serving insurers functioning quite
ineffectively as our price shopping intermediaries as they take away our
choices in health care, or we can have a single government entity that
uses administered pricing in a system that allows us free choices in
health care and makes it affordable for all through progressive public
funding. Price competition in establishing provider networks is a very
weak tool to contain costs, and losing choices in health care is too
great of a price to pay.

We do not have to choose between affordability and breadth of network.
We can make health care affordable for all of us while getting rid of
the insurers and their restrictive networks, that is if we're willing to
quit playing the victim role.