Issues & Insights

The ‘Lower Health Care Costs Act’ Would Be Bad For Everyone — Except Insurance Companies

Health care is an enduring problem for developed nations: there are limitless demands but limited resources, a cliché truer for health care than perhaps anything else. Most everyone wants to help make the situation better, except for those parties who only want to make the situation better for themselves. 

The latter appears to be the situation with the Lower Health Care Costs Act. Although its stated goal is a sound one, it is another in a long list of unprecedented government interventions into the private marketplace — which all sound good but will inevitably make health care worse. But a name like “Lower Health Care Costs Act” tends to sell better than the “Make Health Care Worse Act.” 

Introduced by Senate HELP Committee Chairman and Ranking Member Lamar Alexander (R-Tenn.) and Patty Murray (D-Wash.), the LHCC Act would set price controls on doctors based on a rejiggering of in-network guidelines.

Under the plan, patients would only have to pay their in-network cost-sharing to hospital-based providers, even when they are out of network. It would also ban those providers from balance billing those patients. To make up for the fact that providers won’t able to bill out-of-network patients for their services, the LHCC Act would set up a “median in-network rate” (based on the provider’s geography) for the doctor to get paid. 

But this scheme would have a major effect on the in-network market.

With a statutorily defined price for out-of-network reimbursement, insurance companies would have no incentive to renew contracts with their in-network providers at a rate above that “median in-network” price. That, in turn, would cause the median rate to go down every year. This would result in a death spiral for physician reimbursement, driving doctors out of business, and limiting access issues for patients.

Like many government interventions into this industry, the LHCC Act treats the people who provide health care as the villains. Half of doctors have said they want to quit the industry because of Obamacare, and another faulty government overreach might finally start pushing them over the cliff. Will slashing the supply of health care providers help anyone? 

Well, the one party the LHCC will help is insurance companies: with price controls in effect, insurance companies will be able to stiff doctors and hospitals. The LHCC would jack down physician reimbursement, providing a potential windfall of tens of billions to an industry that has raked in record profits thanks to Obamacare. While the rest of us have seen our premiums skyrocket, the largest insurers in the country have enjoyed enormous growth.

For example, United Health Group recorded $10.6 billion in profits in 2017 and a net earnings growth of 56%. Remember: every dime of profit earned by insurance companies is one not spent on health care for American patients. That’s why they were the bad guys in “John Q.” and “The Incredibles.”

A better solution for lowering health care costs is the one proposed by Sen. Cassidy (R-Louisiana) and Hassan (D-N.H.), the Stopping The Outrageous Practice of Surprise Medical Bills Act, that would create a consensus policy solution to “surprise billing,” when patients receive a bill from an out-of-network physician even when they’re at an in-network facility. 

Their plan would combine aspects of network matching, rate benchmarking and arbitration to create a system that protects patients without disrupting critical aspects of the healthcare delivery system. It would combine an interim payment to out-of-network physician practices, followed by independent dispute resolution (IDR) between practices and health plans when there are substantive disputes (which we expect to be infrequent).

This would create a “goldilocks” balance that the LHCC Act and other measures would not, proving resistant to both inflationary and deflationary pressure while reducing administrative burden.  

Health plans want to avoid inflation and instability, while doctors and hospitals want to avoid rates that would create unsustainable economic practices. This solution incorporates all those perspectives into a consensus framework that strengthens what is working today while fixing what is not. 

Republicans have historically been the party of small government and free markets. If Sen. Alexander is serious about supporting price controls in the private commercial health marketplace, he will prove they have joined the Democrats to be another party of big government. Who will protect us then? 

Jared Whitley is a long-time DC politico who has also lived in Dubai and Berlin. He has an MBA from Hult International Business School.

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