Insurers Make use of Medicare’s Leverage

Costs are increasingly being directly placed on consumers as insurers are shifting costs in the form of premiums, deductibles, and out-of-pocket expenses. In addition to increasing cost sharing, consumers are also experiencing narrower networks as a means for insurers to control cost. As these approaches may be an effective way for insurers to control cost and take on less financial risk, these very approaches are also creating an increasingly unaffordable market for many consumers. 

A recent study sought to explore how the prices insurers pay physicians for services impact premiums. Prices for a selected 20 physician services and 4 emergency services were used to compare between Medicare Advantage and commercial plans. In- and out-of-network prices of services for Medicare Advantage and commercial plans were compared to estimated amounts paid for Medicare fee-for-service (FFS). These 24 selected services accounted for 24% of spending on physicians’ services in commercial plans and 33% of spending in Medicare Advantage plans. 

 The study determined that out-of-network prices for commercial plans were much higher than Medicare Advantage plans. Prices in the commercial plans were also found to be higher than FFS despite product type. Limits placed on Medicare Advantage in-network prices seemingly served a significant role in providing negotiation for out-of-network prices; therefore, creating lower out-of-network prices as compared to commercial plans. The lack of these limitations on prices for a commercial plan restricted its ability to negotiate with health care providers. This ultimately resulted in consumers seeing higher premiums within those commercial plans. 

Although the Affordable Care Act attempted to improve access to care, it failed to regulate cost to consumers in the commercial markets. As insurance companies continue to shift cost to consumers through increasing premiums and out-of pocket costs, insurance will increasingly be unaffordable to many. It is owed to the consumer to continue to have adequate access at a price that does not create substantial financial burdens. In order to provide greater protection for consumers, consideration should be taken to develop policies that lend themselves to increased ability to negotiate prices within commercial health insurance plans. 

Abstract

The prices that insurers pay physicians ultimately affect beneficiaries’ health insurance premiums. Using 2014 claims data from three major insurers, we analyzed the prices insurers paid in their Medicare Advantage (MA) and commercial plans for 20 physician services, in and out of network, and compared those prices with estimated amounts that Medicare’s fee-for-service (FFS) program would pay for the same service. MA prices paid by those insurers were close to Medicare FFS prices, varied minimally, and were similar in and out of network. In contrast, commercial prices paid by the same insurers were substantially higher than FFS, varied widely, and were up to three times higher out of network than in network. Those results suggest that insurers can use statutory limits on out-of-network charges in MA to negotiate lower in-network prices in those plans. In contrast, without those limits on out-of-network prices, in-network prices in commercial plans are much higher.

PMID: 29936886

Pelech, DM. Med Care Res Rev. 2018 Jun 1. epub.