Our Publications

A Proposed Public Option Plan to Increase Competition and Lower Health Insurance Premiums in California

Posted on By jordan-wolf

By Richard M. Scheffler, Stephen M. Shortell | Published April 21, 2023 in The Commonwealth Fund | Link to Full Article

A public option is a government-established health insurance plan designed to inject more competition into the market and improve coverage affordability over time. Despite widespread support, little progress has been made at the federal or state level toward creating such a plan. We propose a public option plan for California, Golden Choice, that would be based on the state’s “delegated model” of health care under which provider organizations accept the financial risk for delivering health care services.

Even though a “public option” health plan has support from the Biden administration as well as the majority of voters, little progress has been made in creating one at the federal level.1 At the state and county levels, public options — simply, health insurance plans established by governmental entities — have been introduced to increase competition in the insurance market and improve affordability of health coverage over time. Governmental authorities can either directly administer these plans or establish a public–private partnership whereby the state sets requirements for private health plans to offer coverage.

Absent federal action, several states like Washington, Colorado, Nevada, and Minnesota have developed their own public option plans, with many other states in the process of developing plans.2 These plans rely on price caps or regulations, such as a requirement that insurers offer a public option plan to participate in Medicaid.3 To date, however, they have had little success in attracting enrollment or increasing competition among insurers to lower premiums.4

We propose a different type of public option plan for California. It would be based on the state’s “delegated model” of health care: provider organizations accept the financial risk of delivering health services, and their earnings are linked to their ability to keep patient care costs within a budget. Below we describe this new approach to a public option, which we call Golden Choice, and evaluate its potential impact on consumers’ health insurance premiums.

Golden Choice: California’s Public Option

Posted on By crystal-haryanto

By Richard M. Scheffler, Stephen M. Shortell, and Daniel R. Arnold | Published April 21, 2022 | Link to Full Report

California’s challenge and opportunity is to provide accessible, affordable, equitable, and
continuously improving quality of care to its entire population. Governor Newsom has expanded
Medi-Cal to cover undocumented adult immigrants, which when combined with the Biden
administration’s premium subsidy increases, will result in near universal coverage for all in
California. Nonetheless, the affordability of such coverage remains a major challenge for the
state. A recent CHCF / NORC survey of Californians reported that just over half (52%) of
respondents said they skipped or postponed care due to costs. Additionally, more than 1 in 3
(36%) reported having medical debt, with 1 in 5 (19%) of those with medical debt owing $5,000
or more. Just over half (52%) of people with lower incomes surveyed reported having medical
debt, compared to 30% for those with higher incomes. Furthermore, Latino/x (52%) and Black
(48%) Californians were more likely to have medical debt than White (28%) and Asian (27%)
Californians. Between 2008 and 2018, Californians’ health care spending experienced a 68%
increase, compared to only a 16% increase in median household income. The growth in health
insurance premiums has far exceeded that of wages over the last two decades.

Building on the success of Covered California (the state’s innovative health insurance
exchange) and the presence of organized/integrated medical groups and independent practice
associations (IPAs) with experience in providing care under risk-adjusted per member per
month payments, the state has the potential to develop a public option that increases
competition in the health insurance market, which would lower price and can improve quality. A
public option plan (POP) is a state plan to offer health insurance for the purpose of increasing
competition, consumer choice, and affordability of coverage. Improvements in affordability
would be particularly important for low-income and minority populations, as their wages are
lower. We test the viability of our POP on Covered California and CalPERS. Furthermore, we
show how the L.A. Care county-based plan was successful in attaining enrollment while
lowering premium growth for all plans in the LA Regions of Covered California. At this time, we
are not recommending that a POP be offered on Covered California or by CalPERS. This
decision will need to be made by them, legislators, or the governor. Nonetheless, our analysis
shows that our POP would have lower premiums than many of the plans currently on the
Covered California.

This study was funded by the Commonwealth Fund (Grant No. 20223713).

The Rise of Cross-Market Hospital Systems And Their Market Power in the US

Posted on By crystal-haryanto

By Brent D. Fulton, Daniel R. Arnold, Jaime S. King, Alexandra D. Montague, Thomas L. Greaney, and Richard M. Scheffler | Published November 11, 2022 in Health Affairs | Link to Full Article

Although hospital consolidation within markets has been well documented, consolidation across markets has not, even though economic theory predicts—and evidence is emerging—that cross-market hospital systems raise prices by exerting market power across markets when negotiating with common customers (primarily insurers). This study analyzes hospital systems using the American Hospital Association Annual Survey Database and defines hospital geographic markets as commuting zones that link workers to places of employment. The share of community hospitals in the US that were part of hospital systems increased from 10 percent in 1970 to 67 percent in 2019, resulting in 3,436 hospitals within 368 systems in 2019. Of these systems, 216 (59 percent) owned hospitals in multiple commuting zones, in part because 55 percent of the 1,500 hospitals targeted for a merger or acquisition between 2010 and 2019 were located in a different commuting zone than the acquirer. Based on market-power differences among hospitals in systems, the number of systems in urban commuting zones that could potentially exert enhanced cross-market power increased from thirty-seven systems in 2009 to fifty-seven systems in 2019, an increase of 54 percent. The increase in cross-market hospital systems warrants concern and scrutiny because of the potential anticompetitive impact of hospital systems exerting market power across markets in negotiations with common customers.

Private Equity’s Entry into Healthcare Reveals Gaps in Competition Policy

Posted on By crystal-haryanto

By Laura Alexander, Ola Abdelhadi, Brent Fulton, and Richard Scheffler | Published October 27, 2022 in the Competition Policy International (CPI) Antitrust Chronicle | Link to Full Article

The large and increasing amount of money under private equity (“PE”) management and the huge push by PE into healthcare, raises concerns and challenges for healthcare policy, but also for competition policy. Emerging evidence about the adverse impact of PE investment in healthcare on competition, prices, quality of care, and patient health is a serious concern. These troubling findings raise the question of how, if at all, antitrust law and antitrust enforcers should treat conduct and deals involving PE owners. While one of the virtues of the antitrust laws is their broad applicability, application of those laws to particular markets and companies is only effective when it is rooted in the realities of competition in those market and the competitive incentives that those companies face. PE’s impact on healthcare reveals significant gaps in the tools and methods for using the antitrust laws to protect competition. We conclude, however, that competition laws applicable only to PE are not generally needed; rather, when policymakers, regulators, and enforcers are applying competition laws to PE-owned companies, they need to take account of the unique incentives facing PE managers, the competitive implications of the PE ownership structure, and types of competition concerns that tend to arise surrounding PE deals. In markets that already face limited competition, such as healthcare, the incentives and ownership structures of PE may exacerbate existing competition concerns and anticompetitive impacts, potentially necessitating PE-specific policies.

New Evidence about the Heterogeneity of Indiana’s Healthcare Markets: Competition, Costs, and the Impacts of Market Structure

Posted on By crystal-haryanto

By Brent D. Fulton, Daniel R. Arnold, Ola A. Abdelhadi, and Richard M. Scheffler | Published October 2022 | Link to Full Report

On April 29, 2021, Indiana enacted HB 1405, directing a study to be conducted on the market concentration in Indiana’s healthcare sector. This study focuses on the health insurance, hospital, and physician industries. The healthcare sector in Indiana is a microcosm of the healthcare sector in the United States, consisting of dominant health insurers and a delivery system that has evolved into a patchwork of hospital systems that have grown in size and geographic scope via mergers and acquisitions, including vertical acquisitions of physician organizations. This study shows that the healthcare sector in Indiana is not monolithic, neither across the industries we analyzed—health insurance, hospitals, and physicians—nor across its MSAs. Therefore, policies aimed at improving healthcare competition, affordability, and quality need to account for this heterogeneity.

This study was funded by the Indiana Legislative Services Agency (Grant no. 22021).

The report will be presented at the Interim Study Committee on Financial Institutions and Insurance hearing on October 20, 2022.

Indiana’s Soaring Hospital Prices and Unaffordable Insurance Premiums: Causes and Potential Solutions

Posted on By crystal-haryanto

By James R. Godwin, Brent D. Fulton, Daniel R. Arnold, Ola A. Abdelhadi, and Richard M. Scheffler | Published October 6, 2022 | Press Release | Link to Full Report

The residents of Indiana receive healthcare from poorly functioning markets that need immediate attention. Our study of Indiana’s healthcare markets builds on the work of others that found hospital prices in Indiana are among the highest in the country. We provide empirical evidence that shows hospital mergers are an important contributor to these high prices, yet hospital mergers in the state have not been challenged in court by federal or state antitrust regulators. Moreover, the higher prices from these mergers lead to higher health insurance premiums paid by employers, causing a reduction in wages. We examined measures of healthcare quality but found no evidence that mergers produced higher quality. At the same time, the major hospital systems have amassed significant financial reserves, far higher than most hospitals in the rest of the country. On the payer side, insurer markets are highly concentrated, including some markets that became significantly more concentrated over the past decade. Collectively, these factors contribute to health insurance premiums being less affordable in Indiana as compared with neighboring states and the country. Based on these findings, we suggest policies that the state legislature and regulators could implement to ameliorate the situation, so that residents of Indiana will have better access to more affordable and higher quality healthcare.

This study was funded by Arnold Ventures (Grant No. 20-05350).

Unified Financing of Health Care in California: The Road Ahead

Posted on By crystal-haryanto

By William Hsiao, Richard M. Scheffler | Published August 11, 2022 in Health Affairs Forefront | Link to Full Article

The inequitable, ineffective, and wasteful health care system in the US has been extensively analyzed and documented. In the last presidential election cycle, Senator Bernie Sanders (D-VT) proposed a single-payer system, Medicare for All, to solve our health care system deficiencies. He aroused wide public support for it. In early 2022, Congresswoman Pramila Jayapal (D-WA) led 120 congresspersons to introduce the Medicar for All Act of 2022 in the House (H.R. 1976). However, the passage of any federal single-payer bill seems dim because of the strong opposition of powerful vested interest groups and lack of a political majority. Hence, it’s more likely that states may take major initiatives in the intermediate future. What can states do?

Challenges with Defining Pharmaceutical Markets and Potential Remedies to Screen for Industry Consolidation

Posted on By crystal-haryanto

By Robin Feldman, Brent D. Fulton, James R. Godwin, and Richard M. Scheffler | Published May 6, 2022 in the Journal of Health Politics, Policy, and Law | Link to Full Article

Dramatic increases in pharmaceutical merger and acquisition activity since 2010 suggest we are currently in the midst of a third wave of industry consolidation. Reviewing 168 economic, legal, medical, industry, and government sources, we examine the effects of consolidation on competition and innovation and explore how industry attributes complicate M&A regulation in a pharmaceutical context.

Do State Bans of Most-Favored-Nation Contract Clauses Restrain Price Growth? Evidence From Hospital Prices

Posted on By crystal-haryanto

By Daniel S. Arnold, Katherine L. Gudiksen, Jaime S. King, Brent D. Fulton, and Richard M. Scheffler | Published May 11, 2022 in The Milbank Quarterly | Link to Full Article

Decades of consolidation in both health care provider and insurer markets has resulted in highly consolidated health care markets throughout the United States, leading to higher prices for patients and employers. In some instances, dominant health insurers have used their market power to demand clauses in contractual agreements that drive up the cost of health care in anticompetitive ways. As a result, antitrust enforcers and policymakers have begun scrutinizing contracting practices between health insurers and providers as one way to promote competition in consolidated markets.Most-favored-nation (MFN) clauses (sometimes called “pricing parity” or “price protection” clauses) were some of the first provisions challenged in court and prohibited by state laws, but the economic impact of these laws remains unknown. This study estimated the effect that laws banning MFN clauses in health insurance contracts have had on hospital prices.

Physician Compensation In Physician-Owned and Hospital-Owned Practices

Posted on By crystal-haryanto

By Christopher M. Waley, Daniel R. Arnold, Nate Gross, and Anupam B. Jena | Published December 8, 2021 in Health Affairs | Link to Full Article

Physician practices are increasingly being acquired by hospitals and health systems. Despite evidence that this type of vertical integration is profitable for hospitals, the association between these acquisitions and the incomes of physicians in the acquired practices is unknown. We combined national survey data on physician practice ownership with data on physician income to examine whether hospital or health system ownership of physician practices was associated with differences in physician income during 2014–18. During the study period, hospital and health system ownership of physician practices increased by 89.2 percent, from 24.1 percent to 45.6 percent of all physicians in our sample. Among physician practices overall, vertical integration with hospitals or health systems was associated with, on average, 0.8 percent lower income compared with independent physicians after multivariable adjustment. In analyses by physician specialty, vertical integration of physician practices with hospitals or health systems was associated with lower income for nonsurgical specialists, no difference in income for primary care physicians, and slightly higher income for surgical specialists. Although vertical integration of physician practices is a rapidly growing trend, physicians might not directly benefit financially.