Private commercial health insurance coverage has long served as the central pillar of our national health insurance system. Not only are commercial health insurance plans the dominant source of health coverage for most Americans and employers, but the Medicare and Medicaid programs often rely on private health insurance plans to administer their health benefits.
The cost of commercial insurance is rising at an unsustainable rate – squeezing individuals and families, employers and public programs. The average family insurance premium has risen 47% over the past 11 years – faster than general inflation and more than any other part of the health care system.of That’s in contrast to hospital prices, which have risen an average of 2.1% a year over the past decade, about half the average annual increase in health insurance premiums. And, recently, hospital prices have been rising much more slowly than the general rate of inflation.of secondment
- Many health plans implement prior authorization requirements in ways that create dangerous delays in care, contribute to physician burnout, and significantly increase administrative costs for the health care system.
- Insurers often force patients to suffer through periods of ineffective treatment before allowing access to the most appropriate therapy. The use of step therapy or first-failure policies is on the rise, and its inappropriate application often results in short-term savings for insurers, while increasing provider administrative burdens and increasing subsequent costs due to patient delays and complications.
- Insurers often have flawed or overly strict medical necessity policies that prevent patients from getting the necessary care recommended by their doctor.
- Many commercial insurers use their market power and position to direct providers to purchase their ancillary products which increase administrative costs and increase insurers’ pockets.
- White sucking is an insurer practice that effectively prohibits a provider from using its drug inventory to supply medications used to treat patients at their facility and prohibits providers from having oversight of the procurement, storage, and treatment processes, which has important implications for safety and efficacy.
- Many insurers use electronic payment methods that require providers to pay cash to receive their contractual reimbursements from commercial insurers. Insurers often receive incentives from credit card companies or payment vendors for issuing these payments. Providers don’t have to pay to get paid.
Need for Action
Some commercial health insurers have implemented policies that add billions of dollars of unnecessary administrative costs to the health care system, compromising patient care. Commercial health plan abuses must be addressed to protect the health of patients and ensure that medical professionals, not the insurance industry, are making key decisions in patient care.
Commercial insurance policies that harm patients drive up costs
Several under-examined features of commercial health insurance contribute to unsustainable cost increases—many of which are unnecessary at best and detrimental to patient health and workforce well-being at worst. Insurers’ use of policies that deny or delay necessary medical care — often applauded by insurers as a way to control cost — have become extremely burdensome for hospitals, providers and patients.
The massive administrative costs are largely due to the complex payment and reporting requirements of various commercial health insurers.iii Most often they involve excessive and unjustified application of utilization management tools and prior authorization requirements. These practices add costs by slowing the delivery of care, requiring providers to purchase additional information technology tools, and requiring them to hire additional staff to manage demands.
Ironically, many commercial health insurers point to these processes and requirements as part of their efforts to manage health care costs. What is often overlooked are the complex business and financial relationships between the many health insurers and intermediary service providers.
For example, the three largest pharmacy benefit managers (PBMs) are owned by commercial health insurers. Administrative Services – Heavy Data and Analytics Company Optum brings in more revenue for UnitedHealth Group than its commercial health insurance arm, UnitedHealthcare (UHC), despite UHC being the nation’s largest commercial health insurer. These complex relationships create potential conflicts of interest. Specifically, the insurer may impose an administrative requirement on providers that triggers the provider’s need to purchase the intermediary’s tool or service.
As the nation works to improve the affordability of the US health care system, holding health plans accountable will help reduce unnecessary costs for administrative processes and services, while improving patient access to care and reducing unnecessary burden for the health care workforce.
- First, we recommend identifying and measuring unnecessary administrative costs due to health plan abuses and excessive claims. Currently, most of this information is reflected in national data sets as expenditures for hospitals, health systems, and physicians, because they are the ones who must absorb the cost of paying the staff and purchasing the expensive products needed to meet these commercial health insurance policies.
- Second, we must adopt policies to streamline, standardize, and reform these burdensome processes to reduce administrative inefficiencies.
“ A 2019 AHA survey of hospitals found that a large, The national hospital system spends $15 million a month on administrative costs regarding changes to the insurer’s prior authorization. The system employs two to three full-time staff just to monitor insurers’ newsletters for changes to their prior authorization rules.
Full report provides information on areas with the most potential for improvement.
- Kaiser Family Foundation, “2021 Employer Health Benefits Survey.” Available at: https://www.kff.org/report-section/ehbs-2021-section-1-cost-of-health-insurance/
- American Hospital Association, “Massive cost increases and rising inflation fuel ongoing financial challenges for America’s hospitals and health systems.” Available at: https://www.aha.org/system/files/media/file/2022/04/2022-Hospital-Expenses-Increase-Report-Final-Final.pdf
- William H. Schrank. Waste in the US Health Care System, Journal of the American Medical Association. Available at: https://jamanetwork.com/journals/jama/article-abstract/2752664