Friday, November 29, 2013

Having Your Cake and Eating it Too: Health Care Edition

I noticed fairly recently that there's growing anger among many state policymakers and insurance commissioners about the narrowing provider networks under many of the plans in the ACA's exchanges.

Before I delve into the few points I wanted to make, I suppose a quick primer is in order for how most insurers work. An insurance company, say, Aetna or BCBS, contracts with a network of providers and hospitals and agrees to pay them a certain amount in reimbursement for various procedures. What the aforementioned malcontents are upset about is that many of these plans on the exchanges in some states are featuring more narrow networks of hospitals and doctors in order to offer lower premiums. Naturally, the ACA is to blame for this, right? 

Not really. I'd argue that this is more of a feature of a competitive market than anything else. The insurers, wanting to offer more affordable plans in the exchanges, contracted with doctors and networks that agree to take lower payments for equivalent procedures than other, more expensive hospitals or doctors would. The savings, then, are passed on to consumers in the form of lower premiums.

The other important point to be made here is that this kind of insurer, known as a Health Maintenance Organization, or HMO, has been around since 1973, and has been growing in prevalence for quite some time. The ACA simply accelerates their growth because--guess what? People like lower prices. People like competition. And, quite frankly, this kind of narrowing of the networks is a very good thing, because it plays a huge role in slowing the growth of health care costs (which, by the way, means more money you could be spending on other things). For example, in the 1990s, HMOs became far more prevalent, but in the early 2000s, there was a backlash in many states as a result of the narrowing of provider networks. An MIT study comparing states that restricted these cost-cutting measures to those that did not found this:
"I find that the backlash increased the U.S. health care share of GDP by 2 percentage points relative to a counterfactual with no backlash, which is slightly more than its entire increase during the backlash period."
You'll also note the spike in 2001, at the height of the backlash, which appears to corroborate this story:

Look, I can understand that some people might be upset about losing a doctor they like, but this isn't really news at all. Insurer networks change all the time. And people are going to have to decide if they want to have a wider choice of doctors or if they want to save money, similar to any other decision a cost-conscious consumer would have to make.

Policymakers--both left and right--should stop promising the moon to constituents on health care, because that's exactly how we ended up in such a mess. Designing a health care system that isn't as staggeringly wasteful and inefficient as ours is can't be achieved if we promise that you can always keep your doctor or your health plan, or if we try to force insurance companies to cover certain hospitals. This isn't realistic, and even worse, it isn't good policy, and it has to stop.

P.S. I think it should be noted that there are winners and losers under every single public policy, and acting surprised or expressing a sense of schadenfreude only further degrades the quality of policy discourse.