Can Employer-Sponsored Insurance Be Saved? A Review of Policy Options: Price Transparency
By Sabrina Corlette and Maanasa Kona
Employer-sponsored insurance (ESI) provides critical coverage for 160 million Americans. However, the generosity of many of these plans is in decline, leaving many workers and their families with high out-of-pocket costs, relative to their income. Employers acting alone will not be able to reverse this decline. Policy change is needed, but assessing what policies will work is challenging. In this series for CHIRblog, we assess proposed policy options designed to improve the affordability of ESI, the state of the evidence supporting or refuting the proposed policy, and opportunities for adoption. In the first of the series, we reviewed the primary drivers of the erosion occurring in ESI and identified three recognized policy options to improve affordability: regulating provider prices, reducing anti-competitive behavior, and improving price transparency. The second blog in our series assessed the evidence for direct and indirect regulation of provider prices and options for policymakers. The third post in our series explored policy options to limit provider consolidation and anti-competitive behavior. This, the fourth and final post, reviews the promise of price transparency as a tool to understand what is driving health care cost growth and target strategies to constrain it.
Millions of workers are struggling with the affordability of their employer-based coverage, a problem stemming primarily from the high and rising prices that hospitals, physicians, and prescription drug manufacturers charge for health care goods and services. The high level of provider consolidation is a key factor in those high prices, but the problem is exacerbated by the fact that most employers have little to no access to data on the prices they are paying, the relationship of prices to the actual costs of delivering care, or whether or not the prices being charged are correlated with higher quality or better patient outcomes. This can lead to what the U.S. Congressional Budget Office calls a “lack of sensitivity” to high prices.
Employers largely rely on outside vendors or insurers to administer health benefits. Even when the employer self-funds their plan, it is generally a third-party administrator (TPA) that designs and manages the provider network, provides customer service, and processes medical claims. As such, these TPAs control access to data on the prices they pay for health care goods and services and enrollee utilization. Until recently, many of these TPAs considered that data to be a trade secret and refused to share it with their employer clients, even though it is the employer who is the plan fiduciary and ultimately responsible for spending under the plan.
In this context, federal and state policymakers have advanced policies designed to improve employers’ access to and use of health plan data, including the prices that TPAs negotiate with providers and the claims they pay on the plan’s behalf. There are several primary benefits to greater price transparency, including:
Helping employers gain a better grasp of what is driving health care cost growth in their plans, in order to better target strategies to constrain that growth;
Helping federal and state policymakers understand health system cost-drivers and devise more informed policy solutions; and
Helping federal and state officials monitor and enforce compliance with anti-trust laws.
There is less consensus about whether or not greater price transparency will benefit consumers. First, patients have little to no control over where they receive emergency care. Second, even when seeking elective care that is ostensibly “shoppable,” patients rarely take advantage of price transparency tools to choose providers. Studies have found that patients instead rely on the expert advice of referring physicians and other health care professionals when deciding where to obtain services.
Two Paths to Improving Health Care Price Transparency
There are several different approaches to expanding price transparency. In its September 2022 report on the budgetary impact of price transparency, CBO reviewed two proposals. The first would improve hospital and health plan price transparency regulations and the second would create a national All-Payer Claims Database (APCD). Taken together, CBO found these policies would reduce commercial health care prices by a very small amount (0.1 to 1 percent), although they posit that transparency could generate greater price reductions over the long term.
Opening the Black Box: Publicly Accessible Negotiated Prices and Allowed Amounts
Current federal rules require hospitals and health plans to publicly post machine-readable data files that reveal negotiated prices. Hospitals must further post their gross charges and discounted cash prices. Insurers must post their allowed amounts for out-of-network services. Unfortunately, these federal requirements are not working as intended and CBO projects zero budgetary impact from simply codifying the federal transparency rules. To have an impact, hospitals and insurers must comply with the requirements and the files must be made more accessible and usable.
Hospital compliance
Over two years after implementation, many hospitals remain non-compliant with the transparency requirements. These hospitals have decided they would rather risk paying a fine than to reveal price data they consider to be a trade secret. In response, CMS has increased hospitals’ penalties for non-compliance and recently announced they would be ramping up enforcement. Although the increased fines may increase compliance by a small amount, even the maximum penalty is just a small percentage of hospitals’ revenues. Further, even in the event of full compliance, there are a number of challenges with the data itself. In particular, there is little standardization in how the data is posted and displayed by hospitals, making it very difficult to compare prices across hospitals. Bipartisan legislation introduced by Congresswoman McMorris Rodgers (R-WA) and Congressman Pallone (D-NJ), the “Transparent PRICE Act,” builds on the hospital transparency regulations by setting additional standards to improve the usability of the data. CMS would also be required to conduct audits to assess the accuracy of the posted data.
Health plan compliance
While insurers may be more likely than hospitals to technically comply with their obligations under the federal transparency rules, there are significant problems with the accessibility and usability of their data files, despite CMS’s efforts to develop heightened standards for insurer data. The data files are difficult to find and comprehend, many files are too large to access without a supercomputer, and the variation in file types and structures make it challenging to access the data. The “Transparent PRICE Act” not only codifies the insurer price transparency regulations but also adds standards to ensure that the files are in a format that allows for comparison across health plans and “limited to an appropriate size.” As of this writing, CBO has not yet scored the bill.
All-Payer Claims Databases: Promises and Pitfalls
CBO also analyzed a second way to increase price transparency in a standardized and accessible way: a centralized, national repository of health care price data, called an All-Payer Claims Database (APCD). Currently, 26 states have or are implementing APCDs that collect data on claims and providers from commercial health insurers. These databases can be important tools to help policymakers and researchers advance cost containment goals. The Consolidated Appropriations Act of 2021 (CAA) authorized $125 million over three years for states to develop new APCDs or improve existing ones. However, that bill does not correct the 2016 Supreme Court decision, Gobeille v. Liberty Mutual Insurance Co., holding that the Employee Retirement Income Security Act (ERISA) preempts states from requiring self-funded employer plans to submit claims data to APCDs. Given that these self-funded plans cover about 65% of workers, this decision deprived states of a huge swathe of information about commercial prices and cost drivers. A U.S. Department of Labor APCD advisory committee has recommended requiring state-level APCDs to standardize data collection, display, and use. Some posit that such standardization could incentivize large, multi-state employers with self-funded plans to voluntarily contribute their claims data.
However, state-level policies can further limit the utility of the data. For example, only a few states use their APCDs to publicly report price information on individual providers and health plans. And some do not allow outside stakeholders, such as researchers, to analyze the data, or charge significant sums to do so.
In part because of these limitations, the Bipartisan Policy Center has recommended establishing a national APCD; a similar proposal was included in the bipartisan “Lower Health Care Costs Act” introduced in 2019 by Senators Alexander (R-TN) and Murray (D-WA). A national-level APCD that provides access to insurer-specific negotiated prices for individual providers would have significant benefits, including greater visibility, standardization, and comprehensiveness (self-funded plan data would be included). The data would also be made freely available. A national APCD also has significant advantages over the insurer and hospital data files required under current federal regulations. Such a database would enable more comprehensive price comparisons, and could incorporate more detailed information about the distribution of prices. Ideally, a national APCD could also incorporate data on providers’ performance on measures of clinical quality, which the federal government already collects, enabling users to assess a provider’s cost and quality side-by-side.
One recent study estimated that prices for hospitals’ services could decline by between 2.2 percent and 4.7 percent as a result of employers’ responses to public reporting of price data from a federal APCD. However, there is reason for some skepticism that price transparency, by itself, will change employers’ behavior. As CBO points out in its report, a national APCD won’t change the factors, such as geographically dispersed workers and a consolidated and complex health care system, that limit employers’ ability to tackle health care prices.
Building a Culture of Transparency
In addition to the two transparency initiatives analyzed by CBO, affordability advocates and policymakers are pursuing several other strategies to shed light on health plan spending and the financial incentives that are driving high and rising health care costs.
Ensuring that Employers Can Access their own Claims Data
Given the inadequacies of currently available health plan price transparency data, employers interested in understanding and controlling their health care costs, at a minimum, need access to their own claims data. Employers also have a fiduciary duty to administer the plan in the best interest of members, which they cannot do if they are in the dark about how much their plan is paying for services.
However, employers have often struggled to obtain this data from their TPAs. Traditionally, many contracts between providers and TPAs included “gag clauses,” which barred TPAs from sharing claims or pricing data with their self-funded employer clients. Though the CAA of 2021 prohibited the inclusion of these gag clauses in provider-payer contracts beginning in 2022, recent evidence suggests that some TPAs continue to limit employers’ use of their own claims data. For example, according to a report published by the Bipartisan Policy Center (BPC), some TPAs are limiting the numbers of claims they permit the plan sponsor to review (for example, one TPA caps audits at 225 claims from the prior year), restricting how plan sponsors can use the data, and using other tactics to prevent employers from conducting analyses. To ensure compliance with both the letter and the spirit of the CAA’s gag clause ban, the BPC has recommended that the Biden administration issue clear rules stating that claims data is a “plan asset” under ERISA. This would clarify that the plan sponsor (i.e., the employer) has the ultimate responsibility, as fiduciary, to exercise control over the data.
Follow the Money: Understanding the Financial Incentives of Pharmacy Benefit Managers and TPAs
To better understand the financial incentives influencing the decisions of PBMs and other TPAs and how they might be inflating health care costs, the CAA requires third-party vendors to disclose financial transactions of $250 or more, with a description of the services they rendered in exchange. However, some TPAs and PBS are arguing that these disclosure requirements do not apply to them. A recent bipartisan letter from Congress to the U.S. Department of Labor urged Department officials to clarify Congress’ intent that the CAA’s vendor disclosure provisions extend to PBMs and TPAs.
Lack of transparency around financial incentives influencing PBMs is of particular concern, because PBMs are middlemen that manage prescription drug benefits on behalf of insurers and employer-sponsored plans and they have a significant impact on total drug spending. They also operate with little to no transparency, making it difficult to understand the financial incentives driving formulary design and drug purchasing decisions. In addition, the industry has experienced a wave of consolidation, so that today a very small number of PBMs manage drug benefits for plans nationwide.
Congress is considering legislation that would require PBMs to report to the U.S. Government Accountability Office (GAO) data on utilization, gross spending, and out-of-pocket spending on prescription drugs, as well as additional information such as rebate amounts and total out-of-pocket spending by plan enrollees. States too are mandating that PBMs report more pricing and rebate data.
Improving Consumer Access to Health Care Prices
Consumers rarely take advantage of price comparison tools to select higher value and lower cost providers, but some evidence suggests that if a critical mass of consumers can be persuaded to use these tools, some providers will lower their prices in response. A New Hampshire study found that imaging service providers decreased their charges by an average of 2% after the state introduced a public website displaying provider prices derived from the APCD. However, prices for office visits—a service tends to be more variable than imaging—have been shown to be less affected by price shopping.
The CAA requires health plans to provide their enrollees with price comparison tools and an “advanced explanation of benefits” (AEOB). The former is designed to help plan enrollees assess providers’ prices and determine which providers deliver the most cost-effective services. The latter should, when implemented, inform patients of what their out-of-pocket costs will be after they’ve scheduled a service, but before it is delivered. However, the Biden administration has been slow to develop guidance for insurers and providers to transmit AEOBs, so it is not yet available.
While price tools and AEOBs can be helpful to some patients, they are tools with limitations. Many health care services are not scheduled far enough in advance for patients to undertake the price research required. Even when they are, most patients are not trained to assess whether the price of a given health care service is a good value for the benefits delivered, relying instead on their physicians to make referrals.
The Need for Transparency in Health Care Mergers and Acquisitions to Understand Cost Drivers
Provider consolidation and private equity’s investment in health care can both drive up health care costs without improving the value of care. Understanding the impact of these two forces is an essential prerequisite to cost containment initiatives. However, provider ownership can be challenging to track. In 2022, the Department of Health and Human Services, under the direction of an executive order, released ownership data for the over 7,000 hospitals certified to provide care to Medicare patients. The data is intended to help researchers and enforcement agencies identify bad actors and analyze how ownership impacts costs and health care outcomes.
Congress is currently considering legislation that builds on these efforts. For example, H.R. 3262, introduced by Congresswoman Schakowski (D-IL) and Congressman Bilirakis (R-FL) would have physician groups, hospitals, and other provider types annually report to HHS information about their parent company and ownership structure, along with any mergers, acquisitions, or changes in ownership. An analysis by scholars at Brookings suggests this bill could be “the most potentially impactful” transparency proposal because it would allow anti-trust agencies and researchers to more easily track consolidation across the provider ecosystem, and conduct analyses of emerging trends, including, for example, the effect of private equity, payer, and hospital acquisitions of physician practices.
Takeaways
Price transparency is a rare source of bipartisanship in Congress and state legislatures. But it is a means to an end, not an end in itself. Even with greater access to data, the purchasers of health care services (employers and patients) won’t be able to move the needle on health system costs by themselves. Price transparency does nothing to change the market power of provider systems that enables them to set and increase prices as they wish. Ultimately, the future security of ESI as a source of affordable health coverage will require public policies that leverage newly available data and rein in unreasonable provider prices.
