Health insurers need to stop being wimps, study finds
Health insurers don’t have a great reputation. Some even think they’re evil. Others say they’re heartless. But the real problem, according to a new paper in the journal Health Affairs, might be that when insurers sit across the negotiating table from hospitals and other providers, they turn into wimps..
The study, lead by the Urban Institute’s Bob Berenson, looked at health cost trends in a 12 large cities, interviewing hospital and health plan leaders in each area. Everywhere they looked, Berenson and his colleagues saw consolidation. Small physician practices were joining large physician practices, and large physician practices being bought up by hospitals. And this is giving them an edge over insurers.
A large hospital can make itself a “must-have” for a health insurer’s network and demand higher reimbursements, while an insurer might decide it can live without the smaller hospital down the street.
For their part, health insurance plans aren’t putting much downward pressure on those prices. In discussing interviews with insurers and hospital administrators, Berenson describes insurers as seemingly “resigned” to the fact that hospitals will demand higher payments for their services.
“According to both plan and provider representatives we interviewed,” the researchers write, “health plans have not recently been aggressive in negotiations with powerful providers....Terms such as truce and detente were used to describe the current state of relations between health plans and powerful hospitals. As a respondent from a must-have hospital said, Blue Cross Blue Shield is ‘such a big player and we are such a big player—we have to come to terms.’”
Why aren’t health insurers more aggressive negotiators? For one, there’s the risk of losing a must-have hospital that won’t contract with a health plan that expects to pay less for hospital services. “There is a dynamic in the market that makes it impossible for a private payer to change anything,” one interviewee tells Berenson. “Employers would not support plans in showdowns against hospital systems.”
When hospitals increase rates, the fallout for the health plan is not necessarily negative. Much of the increase can get passed on to insurance subscribers as a hike in premiums. Employers could potentially ditch an insurance plan over premium spikes, but if no insurer is bargaining rates down, there are few alternatives.
The Affordable Care Act could help push prices down by requiring additional review for any premium increases over 10 percent. The rule could give health plan an incentive to demand lower prices from hospitals, if only to dodge additional regulatory scrutiny.
Berenson is skeptical that the law’s provision will be enough to drive down costs. He makes the case for more government intervention in rate-setting with a system like Maryland’s, where the state decides how much hospitals can charge. In Massachusetts, the state’s payment reform law could also move the state in that direction.