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Can Price Transparency In The Insurance Industry Fix Healthcare?

Truthful information (Price Transparency) is a huge issue in the healthcare system. Hospital systems, physicians, drug companies, pharmacies, the healthcare insurance industry and the government hide behind the opacity of information.

There is a mutual distrust among stakeholders.

This mutual distrust must be overcome and price transparency achieved before any progress can occur in Repairing The Healthcare System.

In order to achieve Pareto efficiency in the healthcare system all the stakeholders must agree to price transparency. The advantage of Pareto efficiency is that all the stakeholders will be better off in the long term while some might have to yield to some issues in the short term.

Lodi Hurwicz introduced the idea of incentive compatibility. His point is the way to get as close to the most efficient economic outcomes is to design mechanism in which everyone does best for himself or herself. He says this can be achieved by sharing information truthfully (Price Transparency). It is easy to understand that some people can do better than others by not sharing information or lying.

The lack of interest in price transparency by the healthcare insurance industry was demonstrated in New York State in the last few weeks.

Major health insurance companies seeking steep premium increases in New York have submitted memos to state officials to justify the higher rates. Now they are fighting to keep the memos from the public, saying they include trade secrets that competitors could use against them.

Benjamin M. Lawsky, the state superintendent of financial services, whose new agency oversees the state insurance division said,

“How these companies are setting these rates is vital for the public to know, and should not be treated like a state secret,” “Transparency will promote healthy competition and enable the public to rigorously comment on proposed rates, two goals that all of us should favor.”

The state insurance division issues permits to healthcare insurance companies to sell insurance in the state. If a healthcare insurance company does not want the state to publish the reasons for its insurance premium increases they should not be issued a permit to sell healthcare insurance in that state.

Mr. Lawsky has ordered that the memos be made public. His decision will go into effect by the end of November unless the companies obtain a court injunction.

The healthcare insurance industry has held the advantage over consumers in the past under the long-standing “trade secret” exemption.  The state legislature should have the courage to eliminate that exemption.

The decision followed a battle by a consumer advocacy coalition, Health Care for All New York, which had first sought information for a policyholder in Queens who faced a 76 percent increase in his family’s Emblem Health premium. (The fee was later raised by 270 percent.)

State Insurance Department has received hundreds of consumer protests over proposed premium increases, many of them double-digit percentages without justification except that it must be done. The State Insurance Department now has the power to reject proposed rate increases. The question remains as to whether they have the courage to reject the increases.

Aetna and others are making outrageous profits selling healthcare insurance and paying its executives many millions of dollars a year in salary.

Aetna, like other carriers, has said premium increases are driven by the actual cost of health care. But consumer advocates dispute such assertions, while complaining that it is hard to challenge the increases without access to the company filings.

United Health/Oxford wrote, “This matter is of critical importance to us.” It called the information “proprietary.”

Aetna wrote,  “Public disclosure in this format will provide ready and easy access to comprehensive pricing, product and marketing strategies,” and warned of “substantial and irreparable injury to Aetna.”

Independent Health said, “It had spent “well over $700,000 developing the trade secret documents” and estimated that the value of keeping them confidential was much higher.

It sounds as if both Aetna and Independent Health are threating the state with legal action. If they do not like the state rule they should move on and not sell insurance in that state.

The state’s obligation is to protect its consumers from abuse. The state should simply deny permits to the healthcare insurance company to sell healthcare insurance in the state.

Moreover, other companies argued, the filings are too technical to be understood by consumers.

“Several of the exhibits to the rate application as well as the actuarial memorandum contain not only trade secrets as noted above, but esoteric actuarial pricing precepts best understood by fellow actuaries and health plan competitors,” Sean M. Doolan, a lawyer representing Excellus, Empire, Connecticut General, and Capital District Physicians’ Health Plan wrote to state officials.

“These documents, often speaking of concepts such as morbidity and anti-selection, could cause not only confusion, but also unnecessary alarm to the layman policyholder.”

These are excuses. They are lame and patronizing. Consumers are not as dumb as the insurance industry thinks.

Elisabeth Benjamin is vice president for health initiatives at the Community Service Society of New York and a founder of Health Care for All New York, a coalition of 100 groups working for more affordable medical care. She said the group has hired its own actuaries.

“The only way the public will find out whether these outlandish price hikes are justified is if we can see the underpinnings,” she said. “They would like to have us ignorant. What they are saying to us, by opposing the disclosure of why they think their rate increases are justified, is that they want to keep us uninformed consumers.”

They sure do want to keep consumers ignorant. I hope the state officials are not intimidated by the healthcare insurance companies. I hope the state officials are supported by New York’s governor. Consumers are starting to understand their power. They need to drive the healthcare system. This issue is a good place to start.

*This blog post was originally published at Repairing the Healthcare System*

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