The insurers' dilemna

This has to be a very difficult time for insurance companies in Massachusetts. Notwithstanding that they are non-profits, they are under a lot of scrutiny with regard to reserve margins and profitability. Much of this is unfair, but I think that is just a sign of the times. Hospitals face a similar issue, too. Doctors are certainly next in line.

But the Massachusetts insurers have an additional problem. As we have discussed here, they have been participants in creating a very large disparity in payment rates among hospitals, rate differentials based mainly on providers' market power. They are now under pressure to limit rate increases to hospitals, but the ones that come up for renewal are not necessarily the ones that have received higher rates.

Nonetheless, insurers are telling those who are up for renewal that they should expect no rate increase at all, or at best, an increase well below the rate of medical cost inflation. Those hospitals, by definition, are the ones without market power. So if the insurers hold them to low rate changes, the disparity between the have's and the have-not's will grow. This enhances the market power of their competitors, allowing them to poach doctors into their networks and gain still more market power. This increases the percentage of patients who go to the high-rate providers, aggravating the overall health care cost situation.

Thus far, I have seen no effort by insurers to cut this Gordian knot. One company promotes capitation, or global payments, as an answer to the problem. But capitation based on embedded reimbursement patterns does not solve the problem of rate differentials. Indeed, it perpetuates the problem.

Transparency with regard to rates could create a moral imperative that would help lead to a shift in the negotiations that would move things in the right direction. I see no move on the part of the insurance carriers, either individually or collectively, to ask the state to publish existing rates.

Transparency with regard to quality and safety could help create a marketplace for insurance products based on outcomes rather than market power. I see no move on the part of the insurance carriers, either individually or collectively, to ask the state to publish useful data on this front -- or to use their own commercial authority to require such publication as part of their contracts with providers.

Properly constructed and implemented administrative rate-setting likewise could help resolve disparities over time. I see no move on the part of the insurance carriers, either individually or collectively, to ask the state to engage in rate-setting.

So, while I am sympathetic to the unfair attacks on insurers that are part of the political environment, I am left to wonder. What is it that they are in favor of to help resolve an uncontroverted problem, a problem that itself aggravates the very situation facing the insurance industry?