Providers v. health insurers: old headline, new dynamics
If there is one thing one can expect in the world of health policy and the business of health care, it’s that there will at times be public disputes between big players in the system, usually over how much one pays the other. Thus, spates between hospital systems and health insurers that spill out from negotiating tables into the headlines should be viewed as less dramatic than they appear. Despite the annoyance for patients as deadlines loom, the deal usually gets done.
In many respects, the recently resolved dispute between Texas’ largest insurer, Blue Cross Blue Shield, and one of the state’s largest hospital systems, Texas Health Resources (THR), shouldn’t be a surprise. For all the talk of money in health care, it’s often not a high margin business for many big actors.
Non-profit health insurers like the Blues tend to target a 1-2% operating margin to be sustainable. Hospitals sometimes make a little more, with profits at times in the mid-single digits depending on the variability of the market. But, both are at risk of huge losses when markets turn sour. The Blues have taken a financial beating under the ACA and many a hospital system struggled during the economic downturn of 2008 and beyond.
Uncertainty in the wake of November’s election makes hard negotiating understandable on both sides, with the chaotic unknown of what changes — and new financial risks — might be coming for key parts of the health care system. News reports noted the difference between a Texas Health Resource rate increase request of 4-5 percent, with Blue Cross Blue Shield offering 2 percent. While the reported $57 million annual difference between the two positions wasn’t confirmed by both sides, it’s clear small percentages mean a lot of money in the big business of health care.
For all that, we think there’s another dynamic to keep an eye on that could have an impact in Texas — and elsewhere — over time. While we were tracking the weeks-long public dispute between Blue Cross and THR, we continued to talk to other health care leaders, including those in the business community. We found purchasers of coverage are concerned about costs…but not yet enough for dramatic action.
A number of variable, localized factors drive the cost of health care that is the largest driver of the cost of health insurance. How competitive is the local provider market? Is there a local culture of health insurers and providers collaborating? What’s the health of the local population? Do employers view their employees as assets, such as in the tech industry, or as a commodity cost, such as many retailers?
In markets around the country where costs have reached a tipping point and purchasers are willing to take more dramatic steps, such as Alaska and Massachusetts, you see the market moving beyond higher employee cost sharing (such as high deductibles) to being willing to accept narrower or tiered networks of providers. Such arrangements exclude sometimes popular — but expensive — providers, or significantly increase the out-of-pocket cost for the employee member who chooses to use that provider instead of lower-cost competitors.
It comes down to how much grief is the employer and the company’s HR team willing to take for making a potentially unpopular choice in the interest of controlling ever rising health insurance costs. What’s the tipping point for an employer dealing with health insurance costs that keep growing saying “enough is enough”?
Here’s what we’ve heard, including in the Dallas-Fort Worth area where the Blue Cross/THR dispute would have had the most impact if not resolved: employers aren’t yet ready to take that leap to more aggressive attempts to control costs, which include significant limits on provider networks. Concerns about the ability to compete for employees in a vibrant employment market are real, even as hospital system “consolidation has had a huge impact” on rising costs, as one business leader noted.
Insurers across the country have created much narrower networks to serve the individual and small group markets under the ACA, in a desperate attempt to control costs and restrain price increases for those customers (and staunch their own financial losses in the individual market). In some cases, insurers have begun offering those narrower networks to larger employers. Some mid-size employers have compared the price difference and started to bite, but movement has not been significant with large employers who drive much of the economics of the employer group market.
Insurers like Blue Cross can negotiate hard, but they’re often a middle man. Until more employer purchasers are willing to support leaving a popular hospital system out of the network or with substantially higher employee cost-sharing then any insurer has only so much leverage.
Will that happen in Texas, including in metro areas with high concentrations of white collar professionals and rapidly growing, brand name hospital systems? It’s tough to say.
It may take a seminal moment, such as when Microsoft moved its entire employee base from generous PPO products to (largely employer funded) HSAs. In this case, it might be a major, white collar employer in Texas being willing to leave a major hospital system behind in buying a tiered or narrow network product.
For now, providers will have an advantage a macro advantage in negotiations with insurers, until the ultimate purchaser decides they want to change the rules of the game.