qotd: Health insurers’ warped approach to competition

The Commonwealth Fund
June 24, 2015
How Insurers Competed in the Affordable Care Act's First Year
By Katherine Swartz, Mark Hall, Timothy S. Jost

Abstract

Prior to the Affordable Care Act (ACA), most states' individual health
insurance markets were dominated by one or two insurance carriers that
had little incentive to compete by providing efficient services.
Instead, they competed mainly by screening and selecting people based on
their risk of incurring high medical costs. One of the ACA's goals is to
encourage carriers to participate in the health insurance marketplaces
and to shift the focus from competing based on risk selection to
processes that increase consumer value, like improving efficiency of
services and quality of care. Focusing on six states — Arkansas,
California, Connecticut, Maryland, Montana, and Texas — this brief looks
at how carriers are competing in the new marketplaces, namely through
cost-sharing and composition of provider networks.

From the Conclusions

The ACA reforms will surely stimulate continuing adaptations by
carriers, providers, and policymakers, and we expect the competitive
strategies in the marketplaces to evolve as consumers and carriers gain
more experience with marketplace competition.

http://www.commonwealthfund.org/publications/issue-briefs/2015/jun/insurers-aca-first-year

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Comment by Don McCanne

What should the consumer expect from marketplace competition? Business
experts tell us that competition is the key to higher quality at lower
cost. So what has competition between private health insurance plans
brought us?

Based on international comparisons, our health care quality is mediocre
and our health care costs are by far the highest of all nations. The
insurers have been ineffective in improving either of those. Okay, but
what about the health plans themselves? Are we receiving high quality
insurance products at low prices?

Before the Affordable Care Act (ACA), insurers competed primarily on the
prices of their insurance premiums, and they still do. Before ACA, the
most effective method of keeping their premiums from increasing more
than they did was to exclude people from coverage who actually needed
health care. The most important purpose of insurance is to make health
care access affordable by diluting risk through insurance risk pools.
Yet the insurers instead excluded risk by attempting to insure only
those who could pass underwriting standards in the individual market, or
by pricing group plans out of the market if they experienced high health
care utilization.

A quality risk pooling program would be designed to ensure that everyone
receives essential health care, yet by excluding those who have the
greatest needs for care, the insurers abandoned any effort to ensure
quality in their insurance products.

As far as costs are concerned, health care costs continued to escalate
out of control, demonstrating that the insurers could not deliver on the
promise of lower costs either.

What has happened since ACA was implemented?

Although the act prohibits medical underwriting, the insurers are still
using devious methods to discourage individuals with greater heath care
needs from enrolling. As an example, drugs used for certain chronic
conditions are placed in upper tiers of drug coverage which require
greater coinsurance payments, pricing these products out of reach for
the patients, which deters them from joining the plan in the first
place. Plans also are still selectively marketed to healthier
populations. Professionals and institutions noted for providing care to
high needs patents are frequently left out of the insurers' networks,
chasing away patients who use these providers. Again, these efforts to
exclude those with needs confirm that the insurers are still marketing
low quality insurance products that fall short of the health care needs
of the community.

This new report from The Commonwealth Fund shows that the insurers are
using two innovations to improve their competitive positions in the
marketplace: cost sharing and narrow provider networks.

Cost sharing through deductibles, co-payments, coinsurance, and
exclusion of coverage erects financial barriers to care, reducing the
use of beneficial services and thus allowing the insurers' premiums to
be priced more competitively. An insurance product that is designed to
keep people away from care that they need is a low quality product.

Narrow provider networks reduce health care utilization by preventing
coverage of health care professionals and institutions that may be the
most appropriate for the patients' conditions, requiring them to turn to
lesser care or no care at all. Also, care may be made less accessible
simply by increasing the distances needed to travel to network providers
while excluding nearby providers from the networks. Again, insurance
products designed to impair access to appropriate health care providers
are low quality products.

Thus, with ACA, insurers are impairing quality through the use of the
barriers of cost sharing and narrow networks. And regarding costs, it
appears that they are again on an upward trajectory. Health care prices
have not been controlled. The only slowing has been due to a modest
reduction in the use of beneficial health care services caused by these
barriers that the insurers have erected. The insurers have failed again
on their promise of higher quality at lower cost.

What about the future? The Commonwealth Fund report states, "we expect
the competitive strategies in the marketplaces to evolve as consumers
and carriers gain more experience with marketplace competition." We know
what this means. The insurers will not be looking for ways to pay for
more beneficial health care services. They will be introducing more
innovations that prevent patients from getting the care that they need.
That's the way that the marketplace for health insurance products works.

Medicare doesn't work that way. Instead, efforts are made to include
everyone who is qualified and to include all health care professionals
and institutions. At the same time, payments are based on legitimate
costs and fair margins - a system that is less costly because of
administrative efficiencies.

If we really want higher quality at a lower cost, we need to improve
Medicare and expand it to cover everyone. The private insurance industry
certainly is never going deliver on quality and cost since they will do
better for themselves with their warped approach to competition.