George Pantos

April 6, 2010

To the delight -- or disgust -- of many, the Democrats' health reforms are now enshrined in law. Supporters and critics alike describe the reform effort as the greatest reinvention of the American health sector in a generation.

But Obamacare also represents a missed opportunity. The Democrats' plan doubles down on our healthcare system's most basic structural flaws, which have stifled competition -- and the lower prices that go along with it -- for decades. The reform package's efforts to expand access to care are doomed unless lawmakers bring health costs down by dismantling impediments to competition.

People of all political stripes agree that our healthcare system is too costly. In 1970, health spending amounted to roughly $350 per person. By last year, it had risen to an alarming $8,160 per head.

Because most Americans receive health insurance through their employers, businesses shoulder the bulk of the cost burden. In 2009, many employers' healthcare expenditures went up 10 percent. Costs will likely increase by another 7 percent this year.

These exploding costs are largely attributable to a lack of competition in the health sector.

In almost every other segment of the American economy, price transparency and competition help drive prices down and quality up. Health care, however, remains largely insulated from market forces.

Why? For starters, the prices of procedures, services, and treatments are nearly indecipherable. Insurance companies usually pay doctors and hospitals directly, so patients know little about the cost of their care.

Employers are similarly in the dark. Insurers are generally -- and understandably -- reluctant to grant companies access to their employees' medical claims data. After all, if a company doesn't know how it’s spending its healthcare dollars, it will be less likely to resist premium hikes.

Historically, businesses have accepted whatever rate increases their insurers proposed not just because they didn't know they were getting a raw deal -- but because they had nowhere else to go.

A recent study from the American Medical Association underscores this reality. In over half of 313 metropolitan areas surveyed, one insurer held market share greater than 50 percent.

A Goldman Sachs analysis reached a similar conclusion, citing an insurance industry expert who stated that "price competition is down from [a] year ago." The report also noted that small businesses looking to renew their policies were often confronted with premium increases and no access to claims data. Many insurers simply refused to renew policies.

The new health reform plan does little to address this lack of competition. If policymakers have any hope of lowering costs, they must rectify this shortcoming.

Of paramount importance is increasing transparency for healthcare data.

Many reformers have highlighted the need for clear pricing at the doctor's office or hospital so that patients can comparison shop. But as long as employers are footing the bill, patients have little incentive to do so.

That's why firms should insist on access to their employee population's claims data on an aggregate basis complying with all HIPAA standards -- so that they can evaluate where their health plan dollars are going and whether they're getting value for these dollars.

Businesses should also insist on the right to purchase insurance and prescription drug coverage separately.

Prescription drug data is the most valuable predictor of an employee population's potential costs and risks. Unlike regular claims data, which can sometimes take months to process, prescription claims data is accessible almost immediately. Armed with such data, employers can react quickly to help manage chronic diseases or enroll employees in wellness programs.

Unfortunately, by bundling health and drug benefits, insurers reduce competition and force companies to pay more than they otherwise would.

Several simple government actions could also stimulate competition. Authorities should ban "most favored nation" agreements, whereby one insurer receives larger discounts from a healthcare provider than its competitors can obtain. These contracts drive costs up -- and even worse, effectively bar alternatives.  Without competition, carriers receiving “favored nation” pricing have no incentive to find ways to lower premiums. This type of pricing is one of the chief reasons why corporations' medical benefit costs are escalating.

Officials could also end "Certificate of Need" programs, which require healthcare providers to seek permission before building new hospitals. They've helped incumbent providers prevent competitors from entering the market. According to a joint Federal Trade Commission/Department of Justice report, "CON programs can actually increase prices by fostering anticompetitive barriers to entry." In what other sectors do laws specifically prohibit entrepreneurs from competing?

Unless lawmakers act to remove the barriers to competition that drive health costs into the stratosphere, firms and individuals will be unable to afford the coverage the reform package supposedly guarantees them.

George J. Pantos, Esq., is Executive Director of the Healthcare Performance Management Institute.

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Published in: The Detroit News and Kaiser Health News