Obamacare’s Most Popular “Patient Protection” is Why Patients Can’t Get Paid for Saving the System Money
Last Monday, I posed the rhetorical question “Why Can’t Patients Get Paid for Saving the System Money?” and gave some examples, such as Medicare’s competitive bidding for durable medical equipment and incentives offered by Medicare Advantage plans, demonstrating how rules inhibit patients’ ability to participate more fully in forming prices and controlling costs. The primary reason for such rules is to compensate for Obamacare’s most popular provision: Prohibition against medical underwriting, so that sick and healthy patients of the same age pay the same premiums.
Health Savings Accounts, Flexible Spending Arrangements and Health Reimbursement Arrangements are powerful tools to engage patients in managing healthcare costs. However, as structured today, they are very blunt. Once a patient hits his deductible, he becomes immune to further costs. This is the primary reason why hospitals’ costs and prices are so hard to control.
The California Employees Retirement System (CALPERS), in collaboration with WellPoint, Inc., introduced reference pricing for knee and hip replacement surgery. This meant that the employer would pay a fixed fee — and no more — to have the operations done at high-quality, low-priced facilities. Employees who wanted to go to higher-priced facilities paid the difference. As a result, high-priced facilities cut their rates by one third.
This started back in 2008. So, you would think that, by now, WellPoint would have introduced reference pricing for hip and knee replacements to all its corporate clients across the United States. No such luck. As a result of Obamacare, the U.S. Department of Labor (DOL) is threatening to regulate this practice:
Reference pricing aims to encourage plans to negotiate cost effective treatments with high quality providers at reduced costs. At the same time, the Departments are concerned that such a pricing structure may be a subterfuge for the imposition of otherwise prohibited limitations on coverage, without ensuring access to quality care and an adequate network of providers.
Needless to say, hospitals would love to regulate reference pricing out of existence. So, it is understandable that insurers and employers are gun-shy about expanding it. The key phrase in the DOL’s statement is “access to quality care and an adequate network of providers.”
The DOL is hyper-sensitive to this because Obamacare’s prohibition of medical underwriting motivates insurers to attract the healthy and deter the sick from applying for coverage. The easiest way to do this is through the price system. After all, if an insurer can design benefits such that some beneficiaries can pay lower prices for services but others are motivated to pay higher prices because they need highly specialized providers, is a pretty good proxy for charging sicker beneficiaries higher premiums than healthy ones.
Another frequent suspect is corporate wellness programs, which have a spotty record at containing medical costs. Nevertheless, according to a recent Wall Street Journal article, these programs continue to grow rapidly. The state of Maryland has just announced fines that will reach up to $450 per person for public employees who do not participate in its wellness program. CVS Health, Inc. charges employees who fail to complete annual health-risk assessments $600 more for health coverage.
Because such policies also look like charging sick beneficiaries more for coverage than healthy ones, government agencies audit them carefully. The Equal Employment Opportunity Commission recently sought a court order to stop Honeywell, Inc., from imposing surcharges on employees who don’t participate in its wellness program. A federal judge just rejected the EEOC’s request.
As long as the government forbids insurers from medically underwriting beneficiaries, it will also impose rules that inhibit the price system from functioning the way it should. As a result, patients cannot fulfill their potential to cut costs by responding sensitively to prices. Reformers who reject medical underwriting but enthuse about price transparency and deregulated health insurance neglect this internal contradiction.
Medical underwriting is politically touchy. NCPA’s Heath Policy Blog has discussed a number of approaches to permitting it while protecting sick patients. Our favorite is health-status insurance (also known as “insurance against becoming uninsurable”). Another, second best, solution is risk adjustment, wherein insurers which enroll more heathy people subsidize insurers which enroll more sick people. However, risk adjustment in Medicare still needs improvement; and Obamacare’s version comprises more of a bailout of health insurers than protection for sick people.