In this month’s Journal of the American Medical Association, Dr. James C. Robinson, makes an interesting twist on the cost-shifting argument that I need to grapple with.
Ultimately, the insurers are required to make a take-it-or-leave-it offer to physicians, limiting MA payment rates to the TM level regardless of the clinicians’ consolidation and potential bargaining leverage. Some physicians accept those rates and some do not. The facts on the ground say that enough clinicians accept TM rates for MA patients to ensure the growth of the MA program….
How long can this go on? How long will the employers who purchase commercial insurance be willing to pay the high premiums that derive, in part, from high physician payment rates that subsidize MA? The natives already are restless. Employers are shifting an ever-increasing fraction of insurance costs to their employees through deductibles and other forms of cost sharing. Some are dropping coverage for dependents and retirees. A few are dropping health insurance altogether.
Medicare Advantage is growing, implicitly subsidized by commercial insurance.
As I understand the argument being made, physicians are log-rolling their fee schedules with insurers. They take low rates on government programs (Medicare, Medicare Advantage, Medicaid and CHIP) while charging high rates for the private programs. In this story, they are effectively managing the average blended rate instead of the individual program rates. And the average blended rate means private premium payers pay a lot more to bump up the average rates so that doctors participate in anything and everything.
I have a lot of problems with the cost shifting story. Austin Frakt has gone over the theoretical and pragmatic issues with it frequently. Fundamentally, if we believe that doctors and hospitals are usually behave as if they profit seeking entities, they are seeking the best set of prices that they can.
They will prioritize higher paying patients than lower paying patients which is why Medicaid tends to have narrower networks than Medicare or commercial plans. They will make extra hours available to higher paying patients than lower paying patients as they have the choice between an extra hour of clinic time versus working on their short game or playing catch with their kids.
But even more fundamentally, this analysis assumes that all insurers are multi-line carriers.
That is false. And this provides us with a testing opportunity. There are a number of insurers that are in government programs only and don’t have a commercial arm. There are a number of insurers that only offer policies in the commercial space and have no government programs.
If we are to assume that the story being told in JAMA by Dr. Robinson is right, we would expect the insurers that only have government programs would be paying higher rates for their government programs than the insurers who offer both government and commercial products. Conversely we would see carriers that offer only private, commercial products would get better rates from hospitals and doctors than carriers who offer both government and commercial products. The commercial only carriers would then have a significant premium advantage, all else being equal, which would drive the mixed-product carriers out of business or to the margins.
In this story, we should be seeing large national carriers that only offer commercial plans and large national carriers that only offer government programs. We should not be seeing Aetna, United Healthcare, Cigna, all of the Blues, and most of the larger regional carriers offering products with significant market share in both the commercial and government program spaces. Yet that is what we see.
Multi-line carriers, like the ones that we see in today’s health insurance market, make sense if we assume that the evidence of minimal cost shifting is strong and persuasive. In this scenario, insurers gain good pricing due to market power and providers gain good pricing because of their market power. There is minimal cost-shifting and thus minimal subsidization even though there is significant market segmentation and pricing discrimination.