Watch Out Health Care Swamp - the Senate is Coming for You

The Lower Health Care Costs Act, introduced Wednesday by Senators Lamar Alexander (R-TN) and Patty Murray (D-WA), the Republican Chairman and Ranking Democrat for the U.S. Senate Committee on Health, Education, Labor and Pensions, is the most transformative health care legislation in a generation. Unlike the Affordable Care Act, which added requirements and subsidies to the existing system, the Lower Health Care Costs Act would fundamentally heal what has been broken in that system. The bill takes on the market distortions caused by a lack of consumer information, undisclosed conflicts of interest, and anti-competitive collusion that keeps prices secret and soaring. Its provisions would bust up the ruling oligopoly for so many local health care markets, made up of a few hospitals and insurers, and shift power to patients and employers who pay for care.

These reforms can’t come fast enough. Premiums for employer-sponsored plans (the type that most Americans have) have increased in the last decade by 55 percent. But even worse – average deductibles for those same plans have tripled, to a level far outpacing the average amount Americans have in savings. The root cause of increased costs is the lack of price information for patients, who must often bear the cost of care until their deductible limit is reached, and for employers, who suspect but can’t prove that their insurance company and broker have been fleecing them for years.

The bill would end the kabuki dance that employers must endure each year at plan renewal time – hospitals charge an outrageous list price to insurers – often many times the Medicare allowed rate. The insurance company “fights” to get that hyper-inflated rate down by what seems like a giant percentage – say by half or a third. But if your rates are already three times what they should be, then cutting them in half is still an outrageous price. Then the insurance broker brags about this “great” discount to the employer. “Congratulations,” he says, “your rates are only going up by 10% next year. Those mean old insurance companies wanted to raise your premiums by 20%, but I got you a better deal.” 

The truth is that all of these service providers have financial interests that are fundamentally opposed to the financial interests of patients and their employers. Hospitals’ prices are many multiples of Medicare allowed costs – an extreme markup, for no reason related to higher quality or better outcomes. Insurance companies for the larger employers get a cut of every claim they process, so the more you pay, the more they get paid. In other words, they have every incentive to ensure that the “discounted” premiums they’ve bragged about are higher every year. Brokers act like your agent as you buy or renew a plan, but most of them are really a seller’s agent – they get paid a percentage of your premiums by the insurance company. The higher your premiums, the more they make.

The Alexander-Murray bill would expose this racket and require insurers to report their real prices – the prices they actually pay hospitals and doctors on behalf of patients – to a public database. That way, you can see the wild price variations and price gouging, such as when Dr. Gougey-pants charges three times more for the same MRI scan if he does it at St. Gouging General Hospital down the street rather that at a free-standing imaging center on the other side of town. Patients and their employers would almost always choose the lower-cost location if they had that information up front - especially for the 80% of care that is non-emergency care and able to be scheduled in advance. 

The bill would also end the practice of “surprise billing,” which is when you prudently select a hospital that is in your insurance company’s network. You probably thought that, at an in-network hospital, every doctor who sees you will be in-network also, right? Wrong. Certain specialists have refused to sign agreements with insurance plans. Instead, they extract whatever they can out of your insurance company, and then they just bill you separately for the rest of their unlimited out-of-network charges. This practice has become so lucrative that private equity firms are starting to buy up specialty groups that engage in it. The Alexander-Murray bill would end surprise billing by limiting what out-of-network specialists can charge a patient to whatever the going in-network rate is in your town.

Chairman Alexander has announced that the committee will take up this bill next week. President Trump is also reported to be signing an executive order on Monday that would end secret prices through regulatory action. This comes on the heels of his announcement a few weeks ago of principles for tackling surprise billing, as well as the requirement, starting at the beginning of this year, that hospitals report their bloated list prices online. These reforms should be hailed for the creative disruption they will bring to the health care racket, er, market. Honest pricing in health care may just be the best medicine of all.