{"id":7080,"date":"2023-01-18T09:06:51","date_gmt":"2023-01-18T14:06:51","guid":{"rendered":"http:\/\/chirblog.org\/?p=7080"},"modified":"2023-01-17T11:11:29","modified_gmt":"2023-01-17T16:11:29","slug":"can-esi-be-saved-review-of-policy-options-price-regulation","status":"publish","type":"post","link":"https:\/\/chirblog.org\/can-esi-be-saved-review-of-policy-options-price-regulation\/","title":{"rendered":"Can Employer-sponsored Insurance Be Saved? A Review of Policy Options: Price Regulation"},"content":{"rendered":"

By Linda J. Blumberg, Sabrina Corlette, Jack Hoadley<\/em><\/strong><\/p>\n

Employer-sponsored insurance (ESI) provides critical coverage for 160 million Americans. However, the adequacy of many of these plans is in decline, leaving many workers and their families with high out-of-pocket costs, relative to their income. Employers acting alone will not be able to reverse this decline. Policy change is needed, but assessing what policies will work is challenging. In this new series for CHIRblog, we assess proposed policy options designed to improve the affordability of ESI, the state of the evidence supporting or refuting the proposed policy change, and opportunities for adoption. In the <\/em>first<\/em><\/a> of the series, we reviewed the primary drivers of the erosion occurring in ESI and identified three recognized policy options to improve affordability: regulating prices, reducing anti-competitive behavior, and improving price transparency. This post, the second in our series, assesses the evidence for direct and indirect regulation of provider prices and options for policymakers.<\/em><\/p>\n

The issue of health care spending growth is multi-pronged: high and rising prices in a number of sectors are responsible. However, spending on hospital care makes up the largest single component of personal health care spending, an estimated<\/a> 39 percent of the total in 2023, compared to 24 percent for physician and clinical services and 10 percent for prescription drugs. National spending on hospital care is projected<\/a> to exceed $1.5 trillion in 2023, and is expected to grow by about 5.6 percent per year over the coming decade (a rate likely to significantly exceed general inflation). Much of this growth is driven by consolidation among hospitals and health systems, which then use<\/a> their size and local market power to demand higher prices from commercial payers.<\/p>\n

As a result, recent studies by the RAND Corporation and the Urban Institute indicate that, on average, private insurers and consumers pay hospital prices that are 224<\/a> to 240<\/a> percent of those paid by Medicare in the same hospitals for the same conditions. These prices vary widely across the country and across services, with insurers in some states paying over 300 percent of Medicare prices on average. Increasing investment in health care facilities by private equity<\/a> may be accelerating prices even faster.<\/p>\n

Policy Strategies to Decrease Provider Prices<\/h2>\n

Employers, on their own, have limited power to hold down provider prices, while the third-party payers that they hire to negotiate on their behalf have limited incentive<\/a> to do so. The Bipartisan Policy Center has issued a report<\/a> calling for public policy interventions to improve the affordability of ESI. The most effective policy, according to a Congressional Budget Office (CBO) report<\/a>, would be for the government to regulate the prices that hospital providers can charge. CBO notes: \u201cprice-cap policies could have the largest effects on prices. Depending on the design of the caps, adopting the most comprehensive set of price-cap policies\u2026would reduce prices either by a moderate amount (from more than 3 percent to 5 percent) or by a large amount (more than 5 percent) in the first 10 years\u2026.\u201d They then note that, in contrast, other policy proposals would reduce prices by either a small amount (in the case of policies to improve market competition) or a very small amount (in the case of policies to improve price transparency).<\/p>\n

Consistent with CBO\u2019s analysis, evidence from studies done by one of us and colleagues at the Urban Institute<\/a> show that capping provider payment rates for hospitals can generate significant savings system-wide. The potential savings are greatest when the caps apply not just to the nongroup (individually purchased) insurance market but also include ESI. For example, in one set of estimates, Urban analysts found that capping hospital payment rates paid by private insurers at 125 percent of Medicare levels would have led to health system savings of $107 billion in 2022, about one-third of the $331 billion in savings<\/a> estimated to come from a broader reform that would include limits on physician\/professional prices as well as those of prescription drugs.<\/p>\n

At the same time, there is some evidence<\/a> that hospitals become more efficient when Medicare prices are decreased, while spending is only modestly correlated<\/a> with clinical quality. These findings suggest that a bit of belt-tightening would not have the devastating consequences that hospital lobbyists often claim. Evidence<\/a> also shows that enrolling more people in Medicaid, which generally pays even lower rates than Medicare, has strengthened the financial status of hospitals. This is the case because, although payments from Medicaid are significantly lower than private insurer payments, they are high enough to help hospital finances relative to the limited funds available for covering the costs of caring for the uninsured.<\/p>\n

Direct government regulation of prices is far from politically easy. While hospital rate regulation was fairly common among states in the 1970s and 1980s, most eliminated these programs, in part due to a lack of political support<\/a>. Maryland is currently the only state that regulates hospital prices across all payers. However, Maryland\u2019s experience demonstrates that the impact of price regulation is highly dependent on how such policies are designed, implemented, and enforced. For example, although Maryland has been generally successful<\/a> at constraining hospital costs (commercial insurers pay on average 11 to 15 percent less<\/a> for inpatient services in Maryland than in other states), the state has had to adjust<\/a> its all-payer model over time to address hospitals\u2019 efforts to maximize revenue, such as by shifting of services to settings not subject to price regulation. Any effort to regulate prices would also need to include a mechanism to monitor the effect of price changes on vulnerable people, especially the low-income, those with serious health problems, and racial\/ethnic groups that have historically been discriminated against in the health care system.<\/p>\n

Given the political challenges, some state policymakers have looked to policies that do not set provider rates, but try to constrain provider prices indirectly. These policies include:<\/p>\n