Two initiatives—one led by the state and one led by private parties—aim to address the rising cost of health insurance premiums in different ways. Both are still in early phases, but they have shown the potential to influence prices in the years ahead.
A New Approach to Setting Prices
Consumers fed up with rising prices often have a familiar request for insurance companies: “negotiate better prices!”
If only it were that easy.
Negotiating requires coming to an agreement. You could very well negotiate with a car salesperson by asking him or her to sell you a new sports car for $10,000. But the salesperson is under no obligation to agree.
In the case of health care providers, including hospitals, they aren’t required to join any health insurance plan. If an insurance plan asks for prices to be lowered, providers can say no.
And that’s not all. Insurers feel pressure from both sides of their business. As PERA’s Director of Insurance Jessica Linart puts it, “insurers want to keep prices low for clients, but they also have pressure from those same clients to keep a broad network.”
As much as consumers want low prices, if a person’s favorite doctor isn’t covered by their insurance, or, worse yet, if he or she was covered but dropped out due to hard-ball price negotiations that could motivate someone to look for insurance elsewhere.
In this sense, the negotiation between customer and insurer is as important as the negotiation between the insurer and a health care provider. And in order to keep their network as big as possible, insurers often must accept prices set by providers.
Health care in Colorado has an additional complicating factor, especially when it comes to hospital care. For years, hospital systems have been growing and merging, leading to concerns about reduced competition, which can keep costs high and lower quality.
While hospitals contend that the correlation among consolidation, competition, prices, and quality is tenuous, Colorado does have high hospital costs relative to other states, regardless of the driving factors. And the profits hospitals generate suggest to some that there is room for prices to come down.
It’s within this context that the Colorado Health Purchasing Alliance (CHPA) was born. “The idea of the Purchasing Alliance is that they would take the carriers out of the discussion,” Linart said. “They put employers directly in negotiation with providers.” (Note: CHPA was created in and supported by Colorado Business Group on Health, a non-profit, employer-led coalition “committed to collaboratively improving the health care value-proposition.” Colorado PERA is a member of CBGH.)
The Alliance works like this: Currently, insurance carriers negotiate with hospitals and providers for lower prices. The Alliance would effectively replace the insurance company as the main negotiator with hospitals. It would negotiate on behalf of all Alliance members collectively, rather than for each plan individually, and would create a network of hospitals all members could access. Insurers would still administer the plan and pay claims.
To incentivize hospitals to accept lower prices, the Alliance members would direct more business to those hospitals that deliver quality care for low prices through benefit incentives, such as lower copays. Hospitals that participate, for example, could see a boost in business as consumers flock to those facilities due to lower costs and quality care.
The negotiating power that comes with representing a larger pool of consumers is self-evident. But forging such agreements is not easy. Health risks, and their associated costs, carried by some groups are greater than others. PERACare, for example, is a retiree plan and consists of older people with more expensive healthcare needs than a plan built for a company or school that is built around a wide range of ages. While those in a retiree plan would jump at the chance to combine their risk with a younger risk pool, the enthusiasm to combine might not be as great on the other side. The Alliance sidesteps this problem by focusing squarely on setting up a network, not joining risk pools together.
PERA is actively monitoring the development of the CHPA. The Alliance is still in its early phases and no network is currently operational. But it does hold potential to lower costs for members in the future. “What PERA hopes is that if the Alliance gets this up and running, we can participate,” Linart said. “Our members would benefit from the lower cost as the long-term goal is that this would bring down premiums.”
Reinsurance—Managing the Outliers
Imagine going out to dinner with a few friends and agreeing to split the check. Everyone orders a $10 burger and a $5 beer except for one person, who orders a $40 T-bone and a $100 bottle of wine.
A similar situation can occur in a risk pool if one person incurs a really high bill—an expensive treatment for a disease, for example. Premiums for the entire group can go up in the following year, even if everyone else had a fairly healthy year.
Earlier this year, lawmakers passed Senate Bill 20-215, which, among other measures, creates a reinsurance program. Under the reinsurance program, the state serves as a financial backstop for insurers, helping cover the most expensive patients. This, in turn, dampens the premium increases the following year. The funds come from federal dollars that would otherwise have been spent on subsidies for higher premiums, as well as from fees imposed on hospitals and insurers.
The Colorado Division of Insurance estimates that, in 2021, the program will save consumers 17.4% over what premiums would be without reinsurance (though premiums still will rise an average of 2.2% compared to 2020). The biggest savings occur in rural areas of the state.
While this is encouraging news, the reinsurance program only includes those who purchase health insurance through Connect for Health Colorado.
PERACare is not associated with Connect for Health Colorado, but Linart said anyone looking for health insurance should review and consider all their options. It’s a decision with multiple variables—premium cost, ability to pay out-of-pocket expenses up to the policy max, projected health care needs, and coverage area to name just a few. PERACare offers multiple plans that covered more than 60,000 people in 2019. But for those considering all the options, Connect for Health Colorado provides a centralized marketplace where dozens of plans can be compared.