Editor’s Note: In a new toolkit prepared for the Robert Wood Johnson Foundation, summarized below, Manatt Health helps insurance regulators understand the wide range of transparency and competition strategies available to them, including new and evolving strategies. Strategies are grouped into five categories: helping consumers select a health benefit plan, enhancing transparency about the price of health services, enforcing antitrust laws and promoting competition, targeted strategies to control hospital and drug costs, and systemic efforts to control costs. For each category, the toolkit provides leading examples, best practices, drawbacks and limitations, and additional resources for those who want to dig deeper.
Click here to download a free copy of the full toolkit.
State insurance regulators play many roles in making health insurance more available and affordable to consumers. Two that stand out are enhancing transparency and promoting competition. Every state department of insurance (DOI) has a consumer complaint hotline and provides information to help consumers understand how health insurance works and what health insurance products are available in the local market. Transparency always has been part of the job, but in the fast-changing world of websites and apps that make information readily accessible in ways unforeseen even a decade ago, there is more need than ever to enhance the flow of accurate information, and there are more tools in the regulator’s toolkit to accomplish that goal.
Similarly, the role of DOIs in promoting competitive markets is becoming more complex. Much of traditional insurance regulation is designed to maintain a level playing field for fair competition, but healthcare inflation and market consolidation have spawned market conditions that put issues like antitrust enforcement and cost control front and center on the agendas of many insurance regulators.
Below are five categories of key transparency and competition strategies available to insurance regulators. The categories reflect a progression from basic transparency to targeted transparency to antitrust to other level-playing-field issues to targeted cost control strategies to systemic efforts to control costs and bend the cost curve.
1. Helping Consumers Select a Health Benefit Plan
The most consequential decision most consumers make is selecting a health benefit plan, since 85% to 90% of consumers access specific services in the context of having commercial health insurance or Medicaid or Medicare coverage. As the residual market for people not covered by their employers or a public program, the individual market rightly gets outsized attention as the market where consumer choice is most prominent. It also is the market where DOIs have their maximum authority to help consumers navigate their health insurance choices. Key strategies and tools in this category include:
- Consumer-friendly websites. The technology and available data for facilitating consumer choice is steadily improving, offering states unprecedented opportunities to continually upgrade their websites and related consumer education. The best plan search tools allow consumers to rank and sort plans in multiple ways and get “total cost of care” estimates based on their inputs. Cost estimators will take a leap forward as consumers gain the ability to download their health data into apps that allow for more refined cost projections.
- Provider directories and network adequacy. Provider availability is the most important consumer concern after price. DOIs are uniquely positioned to improve the quality of provider directories by requiring accurate and timely information in machine-readable formats that can be aggregated by states and third-party app developers and used for multiple purposes, including network adequacy.
- Formulary search and benefit design discrimination. Formulary search reveals which drugs are covered by a plan, but pricing is complicated and utilization management adds more complexity. States can help improve drug searches by requiring formularies to be more transparent and nondiscriminatory against drugs tied to high-cost health conditions.
- Federal vs. state exchange. Healthcare.gov has improved consumer choice in the 39 states that rely on this federal IT platform, but state-based exchanges (SBEs) offer more flexibility for states to enhance transparency and pursue innovative strategies not possible with Healthcare.gov. States that are currently dependent on the federal IT platform might benefit from deciding to run their own state exchanges.
2. Enhancing Transparency About the Price of Health Services
Once a consumer has selected a health benefit plan, the next step is enhanced transparency into the cost of actual health services. Healthcare prices are often displayed in generic transparency tools, such as a state-sponsored website that displays average prices for common services. The problem with these tools is that no one pays the average price. A few people may pay a higher list price, but most people pay a discounted price tied to their insurers—and they only pay a portion of that discounted price out of pocket, tied to their cost-sharing obligations under their benefit plans.
Given these facts, the more promising transparency strategies focus on price trends and, even more important, price variability for a targeted set of services. The 14 states that have All Payer Claims Databases (APCDs) are much better positioned to conduct such studies on price trends and variability, which is why another five states are in the process of developing APCDs. Key strategies and issues in this section include:
- Federal role in enhanced transparency. U.S. Department of Health and Human Services (HHS) Secretary Alex Azar has championed transparency, with strong initiatives that require hospitals to disclose their master charges and drug companies to disclose their list prices. This type of disclosure has value in encouraging consumers to choose lower-priced drugs and manufacturers to lower prices, resulting in reduced costs to the Medicaid and Medicare programs. It has been struck down by a lower federal court, however, though similar proposals are included in federal legislative proposals pending in Congress.
- APCDs and generic price disclosure. As APCDs become more common, states are well-positioned to develop websites that allow consumers to compare costs for common services. Recent trends include efforts to move beyond generic posting of average prices to more targeted studies of variations in discounted prices for hospital, drug and other leading cost drivers.
- Hospital pricing. States have struggled to find meaningful ways to make hospital pricing more transparent to consumers. They continue to face challenges in moving beyond master charges to the discounted prices that most consumers pay. Hospital pricing is anything but clear, and insurance regulators are well-positioned to help consumers sort out what charges apply to specific services and to advocate for new laws and regulations that ensure those charges are fair and reasonable.
- Drug pricing. Drug pricing transparency requires manufacturers, pharmacy benefit managers (PBMs) and others to expand public disclosures and report more information on drug pricing to the state. Drug pricing transparency strategies may be aimed at various parties, including manufacturers, PBMs, insurers, providers and state agencies.
- Cost driver reporting. Cost driver reporting highlights specific areas of health system cost growth to inform targeted policy and regulatory action. Data for cost driver reporting is typically collected from public and private payers through APCDs or targeted data calls, and may cover the full market or be limited to particular market segments, populations or services.
- Data exchange. New federal rules to promote interoperability and empower consumers to control their own health data have the potential to transform the healthcare marketplace and open up new possibilities for transparency.
3. Enforcing Antitrust Laws and Promoting Competition
Antitrust enforcement is a critical tool for preserving competitive markets. All DOIs have oversight responsibilities when a merger would change control of a domestic insurer, and many DOIs have actively reviewed the recent spate of high-profile horizontal and vertical mergers involving the five largest national for-profit insurers. Some DOIs have shown increasing concern about hospital mergers that, where successful, can give rise to insurer mergers in response.
Regulators are taking a second look at the market impacts of laws that restrict competition, and some states have prohibited payer and provider contracting practices where they have anticompetitive impact. Complicating factors include that insurance regulators have limited leverage over provider consolidation, and the impact of most contracting practices depends heavily on market-specific conditions. Key issues and strategies in this category include:
- Horizontal mergers. DOIs typically prefer more competitors over fewer and often play an active role in antitrust cases, especially those involving domestic insurers, that reduce competition. At the same time, there are other regulators in the mix, including the U.S. Department of Justice, which played the lead role in rejecting the high-profile Aetna-Humana and Anthem-Cigna mergers. DOIs also share authority with state attorneys general, and may not have any legal authority if the merger does not involve regulated insurance entities.
- Vertical mergers. Vertical mergers are more likely to pass muster under antitrust laws, as evidenced by the fact that four of the largest five national insurers are vertically integrated with their PBMs. In heavily consolidated health insurance markets, there may be more reasons than ever for closely examining vertical mergers.
- Anticompetitive laws. There are increasing calls to roll back laws that may have outlived their usefulness such as certificate of need (CON), Certificate of Public Advantage (COPA), certain aspects of anti-kickback laws, and site-specific payment policies. Other laws clearly serve important purposes but should be carefully balanced to avoid becoming barriers to competition. These include scope of practice and licensure laws, as well as overly burdensome network adequacy rules and quality reporting requirements. The Trump administration also considers some aspects of the Affordable Care Act (ACA) to be anticompetitive.
- Payer and provider contracting. Some states have banned the most egregious forms of anticompetitive contracting, including most favored nation clauses (MFNs), gag clauses and all-products clauses. States also have broader concerns with anti-tiering and anti-steering contract terms, although a few states have enacted any willing provider laws. In addition, the Pennsylvania attorney general is currently seeking to impose any willing insurer requirements on two large insurers, each with its own integrated health system.
4. Targeted Strategies to Control Hospital and Drug Costs
As healthcare prices continue to skyrocket, states are increasingly crafting strategies that move beyond transparency to take direct aim at cost control. Both federal and state officials have offered a wide range of ideas for controlling drug prices. States are increasingly exploring reference pricing tied to Medicare or Medicaid reimbursement rates as a way to control hospital prices and limit variations. More broadly, states generally have allowed and even encouraged insurers to use narrow or value networks, particularly in the individual market, to give insurers more leverage over provider price increases. Key strategies and tools in this category include:
- Reference pricing for shopping. CalPERS and other large purchasers have had success with setting prices for particular services, such as knee surgery, where there are wide price variations and reasonable potential for consumer shopping.
- Reference pricing to control hospital costs. A few states have experimented with using Medicare rates as a benchmark for setting hospital reimbursement rates for state employee health plans. In addition, some states have looked at more expansive uses of Medicare-based reimbursement rates to reduce variations among hospitals and reduce rates.
- Purchasing alliances and other efforts to control drug prices. The most common strategy for controlling drug prices at the state level has been forming purchasing alliances to gain more negotiating leverage. Some advocates have called for Medicare to negotiate prices at the federal level. Federal and state policymakers have proposed a torrent of bills to control drug prices—from reference pricing based on international prices to drug importation to caps on price increases. At the state level, many proposals envision a regulatory role for DOIs that may be outside the typical insurance domain but is designed to leverage the insurance regulator’s familiarity with formularies and other pricing policies.
- Tiered and narrow networks. Insurers have long used pricing tiers in drug formularies to incent consumers to purchase generics and other lower-priced drugs. This strategy is becoming more popular with provider networks as well, including narrow networks that exclude high-priced facilities. One state has required insurers to offer at least one tiered or narrow network product with a mandatory price discount.
5. Systemic Efforts to Control Costs
With systemic cost control unlikely to advance at the federal level before the 2020 election, states are considering various models for taking action at the state level. Examples include a Maryland hospital rate-setting program to equalize reimbursements across public programs and commercial insurance in hospital reimbursement; a Massachusetts cost benchmarking approach that has been used both to constrain spending and to scrutinize consolidations; and most recently, a Washington law to leverage state purchasing power to design a public option with Medicare-based reimbursement rates to offer a more affordable individual market product. Key strategies and tools in this category include:
- Rate setting for hospitals. Maryland’s Health Services Cost Review Commission has been setting rates for Maryland hospitals since the 1970s, and recently transitioned from a per-unit of service model to a global budget model. Other states adopted similar models in the 1970s, but Maryland’s model is the only one to survive and adapt to the new payment reform focus on global budgeting. Pennsylvania has adopted a similar model for rural hospitals, but the challenges of rate-setting across public programs and commercial markets remain formidable.
- Cost benchmarking for insurers and providers. Massachusetts enacted a sweeping cost control program in 2012 that relies on a combination of data reporting, public hearings and state reviews to hold payers and providers to a state-defined benchmark for annual healthcare spending. The program has been successful at holding spending below a 3.4% annual increase benchmark, which was recently lowered to 3.1%. Other states, including Delaware, Oregon and Rhode Island, are pursuing similar benchmarking strategies.
- Public options and Medicaid buy-ins. Washington enacted legislation in 2019 to leverage state purchasing power and other resources to establish a state-defined product (public option) that would offer more affordable insurance to individuals by using Medicare-based reimbursement rates for providers. The program faces many implementation challenges but reflects a growing interest among the states in leveraging government bargaining power to offer a more affordable coverage option, whether through a Medicaid buy-in for targeted populations or a public option available in the individual market. Other states, including Colorado, Nevada and New Mexico, enacted bills in 2019 to further study similar proposals.