Don’t Shoot the Messenger

When the price of a product is low, no one seems to care. But when product prices rise, everyone wants to know why. Suddenly, Congress is holding hearings, analysts are weighing in on major news networks, and the American public is paying attention. Rightfully so, you deserve to know where your hard-earned money is being spent.

When it comes to health care, price increases are often reflected in the cost of health insurance. Because most Americans (88 percent) have some type of health insurance, we feel the pinch when insurance premiums rise. Naturally, we want to blame insurance companies. After all, they’re the ones sending the bills. But the truth is, health plans – like CDPHP – have less to do with price increases than you might think. That’s especially true here in New York.

Prior Approval 101

In 2010, the New York State Legislature passed a law requiring health insurers to submit rate changes to the state. Commonly referred to as “prior approval,” the law requires state regulators to review these requests and determine if they’re justified. The state then decides to approve, modify, or reject the requests.

Last year, health plans across New York requested rate increases averaging 12.5 percent. The state responded by cutting those requests to 5.7 percent, despite the fact that health care costs actually increased by 8 percent.

While the state’s actions were praised in the court of public opinion, the decision ultimately led to millions of dollars in losses for the health insurance industry, and forced many plans to reduce the amount of doctors, products, and services they’re able to offer consumers.

2016 Rate Filings

In the coming months, health plans will once again submit rate requests to New York state. When they do, they’ll consider a number of factors.

Last year, spending on prescription drugs hit a whopping $374 billion in the U.S. In 2016, analysts expect pharmacy trends will continue on an upward trajectory, increasing by as much 13 percent. The story gets worse when you talk about specialty pharmaceuticals, which include the much-discussed drugs Sovaldi and Harvoni that are used to treat hepatitis C. In 2016, the cost of specialty drugs is expected to increase by as much 19.5 percent.

Another big factor in the price-setting process is increases from hospitals and physicians. Over the past five years, mergers and consolidations among health care providers have increased by 50 percent. According to the Robert Wood Johnson Foundation, these mergers have led to price increases often exceeding 20 percent.

To combat these trends, health plans are taking steps to reduce the cost of care while improving efficiencies. Many are rewarding doctors for quality over quantity; they’re focusing on improved access to services through care coordination and nurse case management; and they’re re-negotiating rates with doctors and vendors to ensure that consumers get the best care at the lowest prices, all while cutting administrative expenses to record lows.

No one likes when the cost of goods or services go up. That’s especially true in health care, but consumers must understand that your health plan is only the messenger. For its part, the state wants to demonstrate to the public that it’s able to control rising costs. The problem is that knocking down insurance rates through prior approval does not fundamentally change the cost of health care.

When your health insurance company sends you a notice in the coming weeks letting you know that your insurance premiums are increasing, please don’t shoot the messenger.

Listen to our podcast, What’s Really Driving up Your Health Insurance Premium, with Dr. Bennett.

Photo by geralt / CC0 Public Domain