In November, three federal agencies led by the Department of Health and Human Services (HHS) proposed a regulation requiring health insurers to disclose several different aspects of their business to their customers and to third parties.
There are seven pieces of information content elements the insurer “must disclose, upon request, to a participant, beneficiary, or enrollee (or his or her authorized representative) for a covered [health] item or service.” They are:
Estimated cost-sharing liability, or the expected deductible, co-payment, or coinsurance payment expected of the plan participant for a covered item or service. (Plan participants include people in individual plans and people in family or other-than-self plans.)
Accumulated amounts, or the amount a plan participant has spent during a plan year toward reaching their deductible or out-of-pocket maximum.
Negotiated rates, or the amount insurers agree to pay providers for covered items or services when they negotiate in-network contracts.
Out-of-network allowed amount, or the maximum amount an insurer will pay an out-of-network provider for a covered item or service.
Items and services content list, or a line-item list of items and services that an insurer paid for as part of a bundled payment arrangement.
Notices of prerequisites to coverage, or requirements that an insurer disclose to a participant when “certain requirements relating to medical management techniques for covered items and services that must be satisfied before a plan or issuer will cover the item or service.”
Disclosure notices, which include notifying the participant that they may be billed separately by providers, that their actual charges may differ from estimates provided, that their estimated cost-sharing liability is not a guarantee of coverage, and “other disclaimers that the plan or issuer determines appropriate.”
Two of these items (negotiated rates and out-of-network allowed amounts) also need to be disclosed in a public format, a move that could actually lead to higher prices for consumers (more on that below).
It is not unreasonable for people with health insurance to expect much of the above information from their health insurers. If a person is receiving an elective item and/or service, and arranging to receive that item and/or service days or weeks ahead of time, then insurers should be able to provide a good-faith estimate of the person’s cost-sharing liability as quickly and accurately as possible (#1). That person should also be able to know how much they have contributed to a deductible or out-of-pocket maximum for the year (#2). They should also know any important disclosures or prerequisites that may impact the provision of care (items #6 and #7 above).
More importantly, many health insurers already disclose this information, because consumers have made clear they value price transparency and because it benefits insurers to have cost-conscious customers shopping for the best value for their care. According to America’s Health Insurance Plans (AHIP), the trade association representing health insurers (which has expressed concerns with the proposed HHS rule):
“Today, health insurance providers already offer tools and services that ensure the people they serve have personalized, actionable information to help them make the best health decisions for them and their family. These tools include: Cost estimator tools, Prescription drug cost tools, Online provider directories, Telehealth services. Further, they are available at patients’ fingertips through: Mobile apps, Secure member portals, 24/7 customer service lines.”
However, an overly prescriptive federal government regulation that forces insurers to move too fast or do too much with these price transparency tools could put more costs on these companies than they have planned for. These costs could, in turn, be passed on to customers, who pay higher premiums or have higher cost-sharing liabilities as a result. A government-set timeline for bringing these tools to market could also make insurers publish flawed or incomplete applications, which could frustrate their customers even more in the process.
As mentioned above, more concerning than a potentially rushed process is forced public disclosure of negotiated rates and historical allowed amount data (items #3 and #4 above). While it makes sense to provide consumers with more information, this would go much further by requiring the public disclosure of upstream, business-to-business transactions. It would open the books on the private, often intense negotiations between insurers and providers over the latter’s efforts to be included in networks and the former’s agreements on what to pay. Forced public disclosure of these rates goes beyond ensuring patients have access to important cost-sharing information, could lead to higher prices in the short run, and could open the door to further government interference in a private market in the long run.
Health expert Craig Garthwaite explained in a Forbes piece last year why disclosing negotiated prices between private parties can actually lead to higher prices in certain scenarios. Garthwaite noted there needs to be three conditions for such “tacit” price collusion to occur (emphases ours):
“Well, first we need a small number of firms. As the number of firms increases, the benefits of cheating by incrementally lowering prices exceed the benefits of cooperating by keeping prices at the same level as your competitors.”
“Second, you need there to be little threat of entry into the market by someone from outside of the market. Without barriers to entry, another firm attracted by the high profits would enter and compete for market share for cutting prices.”
“Finally, you need some way for firms to monitor and verify the prices of competitors to make sure no one is cheating. If firms shared their prices with each other, that would make a good case for formal collusion. However, gas stations on [Martha’s Vineyard] island (like all gas stations) publicly post their prices and thus can monitor each other’s activities without ever talking.”
Consider each condition in turn:
There are a small number of firms in the health insurance market, whether one considers the individual market, the small group market, or the large group market. The 2018 Herfindahl–Hirschman Index (HHI) for each market was, respectively, 4,997, 4,642, and 4,469, according to the Kaiser Family Foundation (KFF). For reference, the Department of Justice and the Federal Trade Commission (FTC) generally consider any market “in which the HHI is in excess of 2,500 points to be highly concentrated.” Only three insurers have at least five percent share in the individual and small group markets, and only four have at least five percent share in the large group market.
There is little threat of entry into the market, and data suggest the threat is diminishing as time passes. The Affordable Care Act (ACA) introduced a significant set of new requirements and regulations for insurers. Whether or not that is related to market concentration, the HHIs in the individual, small group, and large group markets increased 28 percent, 23 percent, and seven percent from 2011 to 2018, according to KFF. In 2017, the number of insurers with greater than five percent market share in the individual insurance market dropped from four to three, and the same drop occurred in 2018 for the small group market.
This regulation, if made final by HHS, would give these market-dominant firms some way to monitor and verify the prices of competitors, and specifically the prices insurers charge providers for being included in-network. While information about premiums, deductibles, and coinsurance/copayments insurers charge are relatively easy for market competitors to obtain in the current environment (especially in the individual market), the spread versus what insurers pay out to providers remains unknown. Disclosing these negotiated rates to the public could have unforeseen consequences, such as tacit price collusion or a coordinated effort by providers to drive a harder bargain with the insurers that pay out the least. This could have the unintended effect of raising costs for insurers, which really means raising costs for any customer with private health insurance.
Despite our concerns with the mandated disclosure of negotiated rates, there is one part of this proposed rule to applaud: allowing insurers to “take credit for ‘shared savings’ payments in their medical loss ratio (MLR) calculations.” These programs, which convince plan participants to shop for the lowest-cost health items or services by allowing them to share in some of the insurer’s cost savings, empower Americans to become more savvy health consumers but have struggled to catch on. Allowing insurers to include these payments in the 80 percent MLR ratio they must hit under the ACA could encourage more insurers to adopt these programs and advertise them to customers.
Overall, price transparency is an important aspect of health spending for both insurers and their customers. Mandating disclosure of negotiated rates, though, could upend any progress on bending the cost curve of health care, with higher prices landing on the very Americans HHS is trying to help. The administration should proceed with caution, and remove mandated disclosure of negotiated rates from their final rule.