Employment-based coverage is at the heart of America’s health care system. It is the most common source of coverage, providing insurance to more than 150 million Americans. It is also increasingly unaffordable for families and businesses.
Premiums for people covered by their employer have increased rapidly over the past decade. Since 2010, the average premium for a family plan has increased by 55%, nearly three times the rate of inflation and more than twice as fast as wage growth. Average family premiums exceed $ 20,000. That’s roughly the cost of buying a new Honda every year. The number of people benefiting from high-deductible health plans and the average deductible have also increased significantly. More than one in four workers with single coverage now have a deductible of at least $ 2,000, a substantial increase from one in 10 workers in 2010.
The high cost of health care creates affordability problems for families and employers. As employers seek to cope with rising costs, workers ultimately bear the burden. Research suggests that employers are dealing with rising health care costs in a number of ways, including limiting wage growth, increasing workers’ contributions, decreasing the generosity of their benefits, and reducing employment. .
Workers often end up paying more for less generous coverage while at the same time their wages stagnate. Even for people with employment-based coverage, many find it difficult to afford care. Four in 10 adults enrolled for coverage through their employer reported having difficulty paying for health care or health insurance costs. Half reported that a family member had delayed care or prescription drugs because of the cost.
As policymakers contemplate reforms to our healthcare system, reducing the increasingly heavy financial burdens faced by people with employer insurance should be a priority. To truly improve the affordability of this coverage, it will be necessary to tackle the irrational and excessive prices we pay for care, including directly limiting the prices resulting from the most egregious market failures. Lowering prices in the employers’ market would improve the situation for families, reduce the health care costs that employers face and allow them to pass part of the savings on to workers in the form of higher wages, and reduce the deficit. federal government, primarily by increasing tax revenues.
Lack of competition allows suppliers to raise prices
Private policyholders are increasingly paying for health care due to the high and rising prices charged by providers. Healthcare markets in the United States often lack competition. Over the past decades, large healthcare systems have combined with other hospitals and doctor’s offices at a rapid pace, leading to many markets with dominant healthcare systems or “go-to” hospitals.
It is clear that pooling providers results in higher prices for people with private insurance with little or no effect on the quality of care. Unlike Medicare and Medicaid, insurers in the private insurance market must negotiate payment rates with providers. Dominant health systems can exercise their market power in these negotiations to demand higher prices. The tools of private payers to lower these payment rates are relatively limited.
On average, hospitals charge privately insured patients nearly 2.5 times what Medicare pays for the same service. Prices vary widely, both within and between states. In some states, average hospital rates exceed Medicare rates more than three times, with individual providers charging even more.
Higher prices translate into higher premiums and disbursements for people with employment-based coverage. Price growth accounted for almost three-quarters of the increase in per capita spending between 2014 and 2018. By comparison, increases in usage were just over 20%.
Efforts to reduce prices have been limited
The Affordable Care Act led to major extensions of coverage and put in place important new protections, including protections for people with pre-existing conditions. However, it left the employer insurance market, where most non-elderly Americans have coverage, relatively intact.
Some employers, realizing the cost of health care weighing on their business and their workers, have tried to restrict prices. There are success stories, such as in Montana, where the state employee health plan was able to limit prices based on Medicare payment rates, which allowed the state and its employees to ‘to save money. But overall, employer-led efforts to limit prices have so far met with limited success.
A major limiting factor is that most employers do not have the necessary market power to thwart claimants. Because large employers often have workers dispersed across multiple states, their bargaining power in any given health care market is limited.
There may be exceptions. For example, government employee health plans may be able to amass enough subscribers in their local market to counter the market power of health systems that will not agree to cut rates. Collaborative purchasing models that combine market power between employers have also shown promise initially. Buyers should explore these types of models. However, the success of these approaches still depends on a sufficient number of combined registrations and sufficient competition in the market to be able to credibly say “no” to a high-priced health system.
Policy action that directly restricts prices is needed to improve affordability for people with employment-based insurance
Policy makers will ultimately have to intervene to achieve widespread and significant reductions in the price of health care for the privately insured. Policies to improve competition (for example, by prohibiting health systems from preventing insurers from referring patients to cheaper providers) are good policy and would help curb some of the practices used by health systems dominant to raise prices. But they alone will not solve the problem.
As Congress and states consider ways to address affordability, they should consider policies that address the underlying cost problem (the high prices charged by suppliers) and extend them to the employer market. One possible approach is to cap prices based on a percentage of Medicare rates. The idea is that market-based negotiations should work as usual where they work reasonably well. But in cases where a large healthcare system is able to extract rates that exceed, say, 200% Medicare, this indicates that the system is exploiting excessive market power. There may be legitimate concerns about the adequacy of health insurance rates and differences in quality. However, limiting what hospitals can charge to twice what Medicare pays seems like a place to draw the line between fair reimbursement and tackling the abusive pricing practices we see now. Price limits could also be based on a multiple of privately negotiated rates, as some have proposed.
For example, what would a system mean that would limit hospitalization rates to no more than twice Medicare for the health care system? Analysis released by the Committee on Responsible Budgeting suggests that price caps for non-rural hospitals could collectively save employers and families nearly $ 900 billion in premiums and patients save nearly $ 100 billion. cost-sharing dollars over the next decade. The 10-year savings to the federal government would total approximately $ 200 billion. Capping hospital rates would reduce federal premium subsidies for plans purchased in Affordable Care Act markets. However, most of the federal savings would come in the form of increased income, as lower health care costs and hence bonuses allow employers to shift more money from health benefits to wages.
Recent analyzes by the Urban Institute, the RAND Corporation and the Henry J. Kaiser Family Foundation on the effects of limiting payment rates suggest similar savings levels and highlight the effects of limiting payments to different multiples of Medicare. Reducing excessive prices means we would see higher growth in wages and employment, lower bonuses and cost sharing for families, and a reduced burden on taxpayers. Payment rate caps should be on the table as Congress and states consider ways to ensure broad access to more affordable health care.