Written by: Tully Causey, MPH
Today, we are going to talk about a new law in Florida you’ve likely never heard of and why it is important. That law is House Bill 1175. It puts in place healthcare price transparency measures and was signed into law on April 14th 2016. To understand the importance of price transparency in US healthcare, we need to first understand the current state of US healthcare policy. That will require a little history lesson.
Before all of the government programs and legislation that are common nomenclature in present-day, something we now call health insurance was created. Different types of plans existed and they modeled the varying payment methods we have today. These initial forms of health insurance were largely good things, because they behaved as insurance was intended to behave: as a service to protect you in extreme situations; much like auto insurance for a car wreck.
If there was one point that was key in starting the cascade of healthcare legislation that created US healthcare as we know it today, it was during World War II. The US government imposed wage controls throughout the country, yet declared fringe benefits, which includes health insurance, as not a part of one’s wages per the restrictions. With the maximum wage set at $25,000, more expensive and more comprehensive health insurance plans were offered instead of higher wages. This was also when health insurance first came onto the political radar, because then public jobs had to begin competing with private sector health insurance plans to retain skilled employees. With more comprehensive plans, which were commonplace after the war, it set an expensive precedent after the wage caps were lifted. These expensive plans remained a staple of employment and cemented themselves there after unions demanded comprehensive health plans.
It is also important to note each side of the political healthcare arguments. Healthcare is not historically a truly partisan issue, as both sides of the aisle have championed healthcare policy. Nixon, a Republican, even proposed a plan considered to be the first version of the Patient Protection and Affordable Care Act (ACA) before his scandal ensued, derailing it. The core issue is ideological. When you break down all the legislation, the core question that you end up with is: Is healthcare a human right or a service?
If everyone believed it was a right, then healthcare would be provided, free for all. However, nothing is free, so that implies that any costs associated with healthcare would be paid for by the government through tax revenue. This is the “single-payer system” where only the government pays. The fear of government involvement is structure and the hindrance of innovation. Also, it removes the financial allure of becoming a physician, resulting in lowering physician standards, which in turn, affects the quality of healthcare.
On the other end of the spectrum where healthcare is considered a service, the argument is one of principle. The general belief behind this is if someone took the time and money to learn a trade in medicine, they should have the right to charge what they want for their services. If someone doesn’t want to buy it, then prices are subject to market forces like supply and demand. When the government gets involved, this can infringe upon that belief and freedom. However, if someone were to die after they were unable to pay and were, therefore, refused services, is that a crime? Unfortunate reality? The issue then becomes ethical. No matter which end of the spectrum you lean toward, most would agree the answer of healthcare being a human right or a service depends on the situation. If you look at how US healthcare legislation has grown over the years, it all builds off of those “it depends” anecdotes in the middle of the spectrum and building policy to separate the grey into black and white. I digress, but the politics and perspectives are vital for a clear picture of United States healthcare.
The wage controls of WWII led to the rise of employer-sponsored health insurance. An unintended side effect was the creation of healthcare inequity by limiting access to healthcare for those without health insurance. Patients with health insurance consistently paid, while payment from those without health insurance was always a gamble. Naturally many physicians started only seeing patients with health insurance. Those inequities hurt people who were unemployed, rural, elderly, disabled, and poor, without employer insurance. This created visible gaps in health insurance coverage and spurred the beginning of a series of healthcare programs and agencies to plug those gaps. These included, Medicare and Medicaid, Medicare Advantage and Part D, HIPAA, SCHIP, COBRA, TRICARE, and the VHA, to name a few.
These pieces of legislation acted as patches to fix the issues and inequities that presented themselves over the past 70 years. However, they could not control the largest problem these issues all spurred from: the rising cost of healthcare. The sheer economy of scale that health insurance, as an institution, has created since World War II has acted as a veil between the true cost of healthcare and what we, everyday citizens, see come out of our pockets.
The basic principle behind any insurance plan is risk pooling. Insurance companies use teams of actuaries that use high level math to calculate and estimate insurance prices and payouts, but the idea behind it is simple. To be a profitable insurance business you need to collect more than you pay out. You use given data to estimate the “risk” of a person needing health care services. Based upon that calculated risk you can estimate the cost you pay out. Then, you pool a group of individuals together and are left with an estimate of what that group will cost in reimbursement payments to providers. The Law of Large Numbers comes into play here, because the more people you have in a pool, the less overall variation there is likely to be. Millions in a pool results in very low variation and the less variation, the lower insurers can set the price of health insurance.
Health insurance itself is one way the cost of healthcare can seem to be hidden, but it does not account for all of the concealed costs. Another way it hides is through government programs. You see that cost as tax dollars, not healthcare spending. The largest contributing factor is, again, due to the rise of employer sponsored health insurance. Most businesses will cover half of monthly premiums. In this case, if premiums increase, the consumer only feels half of the true increase on top of the already diluted cost healthcare through health insurance.
The frustrating part is while all this effort and legislation to patch up the issues of healthcare inequity happened, healthcare prices quietly and dramatically increased over the past 70 years. This brings us to the most recent decade. These hidden prices have reached a breaking point and the price veil we find ourselves behind is showing signs of crumbling. Premiums are getting too high for business owners to cover their portion of the cost. In many cases they simply could not be afforded anymore. It was impractical, however, to simply stop providing health insurance. That would reflect poorly for the company and likely result in the loss of employees to companies that offered health plans. The only option that is currently available in these situations is the restructuring of existing plans. This has led to the rise of high-deductible health plans where premiums are lower, but out-of-pocket deductibles before insurance are upwards of $1,300. The average deductible for all covered workers (factoring in those with no deductible) has risen from $303 in 2006 to $1,077 in 2015 per the Kaiser Family Foundation, an increase of 255%.
This trend in switching to high-deductible plans is significant, because for the first time in decades, the public is seeing how expensive healthcare is first-hand. The biggest catalyst in this trend was due to the ACA, because, in part, it mandates that everyone is required to have health insurance. The ACA also makes health insurance available to all. Naturally, if someone has to buy it, they will opt for the cheapest plans, which are high-deductible plans. High deductible plans create a shift in payment responsibility onto the individual. It finally opens up an opportunity for true supply and demand to come back into healthcare.
That brings us back to today and the point of House Bill 1175. Prices of health services have been historically a guarded trade secret because leverage when negotiating reimbursement rates with health insurers is crucial. Now that the public has a renewed and vested interest in the price of healthcare, price transparency initiatives are needed to start to take the price setting power away from health organizations and insurance companies and put back in the hands of the people. House Bill 1175 is Florida’s first attempt at price transparency in healthcare. It mandates a state website be created that will allow consumers to search healthcare services by provider, price, and quality. Additionally, it requires that hospitals and ambulatory surgical centers post online average payments and payment ranges received for bundles of health care services defined by the Agency for Health Care Administration. This will go into effect July 1 2017, and needs participation in order to have any tangible effect.
Is price transparency the answer to stop rising healthcare costs? No one can truly say with conviction either way. What it is, however, is the first time since before World War II that the people of the United States are facing the true cost of healthcare. Whether you agree or not with the ACA, the one thing you cannot dispute is that it concedes the power of paying for health care to insurance companies and solidifies them as permanent component in healthcare moving forward. Price transparency, right now, is the best way that Florida and many other states are trying to take some of that power back and give it to the people. This is the next best step in US healthcare policy.
Post-Election Addendum
With the results of this election, the repeal of the Patient Protection and Affordable Care Act (ACA) is a possibility. However, the Senate still does not have the 60-vote supermajority to do so easily, potentially blocking any “repeal and replace” efforts. There does exist “reconciliation” that will likely be the route if that happens. A reconciliation bill can only alter budget-related provisions of an existing law. In other words, a reconciliation bill can be passed to defund the ACA.
This would mean that 1- Income-based health insurance subsidies could be cut, so everyone would pay full price for plans that have been purchased. 2- There is also a provision that if the subsidies are removed, then insurers have the right to void any plans, so plans could be lost overnight. 3- The individual health insurance mandate would not be able to be enforced with a tax penalty. 4- Medicaid expansion funds would be lost and any taxes associated with funding various programs within the law gone.
What reconciliation can’t change, however, are things like preventing the denial of coverage to those with pre-existing conditions and allowing young adults to stay on their parent’s plans until the age of 26. A reconciliation bill repealing parts of the ACA has the potential to cause more imbalance in healthcare than a complete repeal “repeal and replace” route and there will undoubtedly be politics at play during these discussions. This subject could have its own blog post and will be a hot topic in the coming months.
In closing, know that this DOES NOT change the price transparency legislation and efforts. If the “repeal and replace” of the ACA does happen, it would not be a farfetched idea to see price transparency as a part of a new bill. Regardless, healthcare will probably look different in four years and only time will tell, so pay attention and let your opinions be heard.
Edited by: Casey Parker
Tully Causey, MPH is an alumnus of the Master of Public Health program with a concentration in Public Health Policy and Management, and currently a Project Manager for Johns Hopkins All Children’s Hospital.