McKinsey & Co. has a report on the state of the ACA marketplace (and the whole individual market) that reinforces one dominant point that was already clear: The marketplace is relentlessly pushing insurers toward a narrow network/managed care model.
At the individual carrier level, results varied as well. While most carriers had negative margins after accounting for the 3Rs, approximately 30% of carriers achieved a positive margin in 2014. At the plan level, patterns emerge around performance differences. In the aggregate, plans based on health maintenance organizations (HMOs) had lower losses than plans based on preferred provider organizations (PPOs), consistent with their ability to enable more tightly managed benefits and care. In both 2015 and 2016, the premium increases for HMO plans were roughly half those of PPO plans, which suggests the initial results carriers experienced in the individual market were more favorable for the HMO plans.
Similarly, plans with narrowed (narrow or ultra-narrow) hospital networks had better aggregate margins and lower claims in 2014 than broad-network plans did, likely resulting in part from unit-cost advantages...Plans with narrowed networks also had lower median premium increases than broad plans did in both 2015 and 2016. In addition, the pricing spread between the two plan types has continued to expand—the difference in median premiums between narrowed- and broad-network silver plans from the same carrier increased from 16% in 2014 to 22% in 2016. 7 The combination of the improving relative pricing of narrowed networks and their superior financial performance suggests that they may be emerging as one sustainable element of exchange plan design.That last sentence is a masterpiece of understatement. Insurers whose primary business has been Medicaid managed care, such as Centene and Molina, are profitable in the marketplace and expanding, as are some of the Blues. Preferred Provider Organizations (PPOs) are disappearing.
One harsh way of summarizing the trend is this: marketplace enrollees are getting Medicaid-like networks with higher cost-sharing. Which leads me again to wonder: why not roll with this trend instead of fighting it, by making the state the contractor and the federal government the payer? That is, why not structure a state marketplace like a Basic Health Plan*, with the state paying participating (and competing) managed care organizations (MCOs) on a capitated basis? That is, make every option in the marketplace a public option. That should mean even lower provider payment rates, a savings that can be passed on to enrollees.
In other words, if you're going to give people Medicaid-like networks, give it to them at Medicaid-like prices, albeit proportionate to income, and open the marketplace to all who lack access to affordable employer-sponsored insurance or public programs (Medicaid, Medicare, Tricare). Call it Medicaid-plus-for-all-who-need-it (well, don't -- give it a nicer name).
As I've noted before, insurers are happy as clams in publicly-financed insurance programs they administer -- e.g., Medicare Advantage and managed Medicaid. The losers in this plan would be healthcare providers -- but in a market accounting for less than a tenth of the population (perhaps 25-30 million at full capacity). The individual market, rendered public, would be one relatively modest lever to get inflated U.S. provider payment rates down.
That such levers are desperately needed is highlighted by Margot Sanger-Katz in today's NYT Upshot column. Waving aside Bernie Sanders' Utopian Medicare-with-no-copayments-for-all plan, Sanger-Katz considers the high costs of a genuine Medicare-for-All plan, with premiums and copays comparable to what current Medicare beneficiaries pay. The conclusion:
That Medicare-for-all plan would still cost more than single-payer plans in other countries. Here’s why: Medicare pays doctors and hospitals higher prices than single-payer systems do in other countries.Emory healthcare economist Kenneth Thorpe calculated that to avoid massive disruption of the U.S. healthcare system, the single-payer Sanders plan would have to pay 118% of Medicare rates. The managed care companies running the BHPs in Minnesota and New York probably pay considerably less than that -- as do, most likely, Centene and Molina in the ACA marketplace. Again, though, extending sub-Medicare rates throughout the individual market would be a relatively modest lever for controlling rates in the U.S. market as a whole.
“The big thing is that providers here make quite a bit more money than they do anywhere else, and in order to get in the ballpark of where these other countries are, you’d have to reduce payment rates to physicians to much, much lower levels,” said John Holahan, one of the authors of the Urban analysis [of the Sanders plan]. “That’s just hard to do.”
The Organization for Economic Cooperation and Development, which looks at a group of developed countries, has found that the United States pays substantially higher prices for doctors, hospital stays and prescription drugs than the rest of the group. Medicare pays less than the United States average, but not enough less to make up that difference.
Making the American health care system significantly cheaper would... require paying doctors and nurses substantially lower salaries, using fewer new and high-tech treatments, and probably eliminating some of the perks of American hospital stays, like private patient rooms.
The average family physician in the United States earns $207,000, according to the Medscape Physician Compensation Report. General practitioners in Britain, which has a single-payer system, earn $81,000 to $122,000. The gaps in pay for specialists are even bigger.
Unless, that is the narrow network infection spread to employer plans -- as is in fact happening. Narrow networks are a solution only in a dysfunctional every-payer-for-itself system. They're horrible for patients, mainly by exposing us to balance billing when a non-network provider gets into our treatment mix. But perhaps, if a critical mass of payers resorts to narrow networks, the networks start getting wider again -- because higher-priced providers won't be able to afford excluding themselves. In other words, a developing narrow network norm may ultimately evolve into a kind of market-regulated equivalent of all-payer.
This weekend I got a peek through an accidental window into norms that partly drive our healthcare costs. While visiting a patient in a teaching hospital, I was audience to a revealing chat with an attending nurse. She has a Ph.D in nursing and spends much of her time instructing other nurses, and she felt she hasn't been adequately compensated. "Where's my $200,000 a year?" she said, then quickly walked that back, a little embarrassed, it seemed, to have voiced a private semi-fantasy. It struck me as a revealing moment.
Nurses are invaluable and deserve to be well paid. My wife is a nurse-midwife, which is a nurse practitioner equivalent on an educational level, and I'm all for her being paid fairly, and I think she is. But that $200,000 wish-demand doubtless gestated in mental comparisons to the outsized pay of hospital physicians. And it bespeaks a financial motive for new educational expectations. While this nurse is a Ph.D, nursing programs are increasingly pushing students into non-research nursing doctorates, the Doctor of Nursing Practice (DNP). My wife regards this as, if not a bullshit degree, not necessary for most practicing nurses. It will drive up education costs for nurses -- and healthcare costs for the rest of us.
With every monthly U.S. jobs report, as healthcare reporter Dan Diamond tweets out the figures for job growth in the healthcare industry, I joke that we're becoming a nation of nurses (and insurance administrators, and home health aids, etc.). As healthcare gobbles up an ever greater share of GDP, it's a source of both good (and not-so-good) jobs and crushing costs for us all in our inevitable roles as patients and taxpayers. We are not going to suddenly start paying healthcare providers less. But we have to find ways to increase their pay more slowly.
* A Basic Health Plan (BHP), an option for states created by the ACA, is a low-cost, state-run health plan for state residents with incomes between 138% and 200% of the Federal Poverty Level. So far, only Minnesota and New York have formed BHPs, while Oregon and Washington are considering doing so. In the existing BHPs, the state pays managed care organizations to offer plans rather like managed Medicaid plans. Premiums and cost-sharing are negligible in the New York BHP and lower for all enrollees in the Minnesota BHP than private coverage would be in the ACA marketplace.