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Insurers take on the hospitals

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The American Medical Association has repeatedly used health insurer market concentration statistics as weapon against the health insurers.

Now health insurers are wielding that some Big Data club against the big hospital companies.

America’s Health Insurance Plans (AHIP) has commissioned a report by T. Scott Thompson, an economics consultant, that shows how a high or low level of competition in a community’s hospital market affects the prices patients pay for hospital services.

Earlier, AHIP launched an effort to draw attention to high drug prices. In recent weeks, manufacturers have faced intense pressure to cut the cost of some specialty drugs.

See also: Skyrocketing cancer drug prices are Express Scripts’ target

One striking aspect of the report is that Thompson depends on a Patient Protection and Affordable Care Act (PPACA) provision — the bronze-silver-gold-platinum “metal level’ system for classifying a plan’s actuarial value — to make his case.

He analyzes the relationship between hospital concentration and premiums for individual gold-level coverage sold by 13 carriers through California’s Covered California PPACA exchange system in 19 rating regions. To simplify the analysis, he assumes the buyer was a 24-year-old.

He concludes that high hospital market concentration could increase premiums for a 24-year-old living in regions with three or fewer effective competitors by about 8 percent, or more than $20 per month in the affected rating regions.

To learn more about what Thompson found, read on.


1. In California, the number of effective hospital competitors varies widely.

Thompson treated one organization that controlled more than one hospital in a rating region as a single effective competitor.

He found that a few Covered California gold plans operate in regions with 16 to 18 effective competitors, a significant minority in regions with nine to 11 effective competitors, and the majority in regions with two to six effective competitors.

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Confused doctor

2. The correlation between high hospital market concentration and high premiums was not perfect.

In California, the cheapest gold plan in the most competitive market was only about $200 per month, and the most expensive was close to $300 per month. That cheapest gold plan was the cheapest of all the gold plans Thompson studied, but the most expensive cost almost as much as the average gold plan in the least competitive markets.

In the moderately competitive markets, the cheapest plans were almost as affordable as the cheapest plan in the most competitive market, and the most expensive plans were about as expensive as typical plans in the least competitive markets. 

See also: Insurers go for the bronze buyers.

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3. Efforts to consider factors that might throw off market-to-market comparisons did little to change the effect of hospital market concentration on premiums.

Thompson says he tried to adjust the data using measures such as average local housing costs to see if that would change the picture. He says including that variable and other variables did not appreciably reduce the estimated dependence of premiums on hospital market concentration.

See also: 19 PPACA exchange gorillas: 9 are pushing rates higher in 2015.


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