Hospital Monopolies Are What’s Wrong with American Health Care

Call it a sign of the times. If Rich Uncle Pennybags (a.k.a. “Mr. Monopoly”) appeared today, he would have little interest in holding properties like the Short Line Railroad. In the 21st century, acquiring railroads, or even utilities, is so Baltic Avenue. The real money—and the real monopolies—lie in health care, specifically in hospitals.

Despite the constant focus on prescription drug prices, pharmaceuticals represent a comparatively small slice of the American health care pie. In 2016, national spending on prescription drugs totaled $328.6 billion. That’s a large sum on its own, but only 9.8 percent of total health care spending. By contrast, spending on hospital care totaled nearly $1.1 trillion, or more than three times spending on prescriptions.

Hospitals’ Monopolistic Tactics

The Journal profiled several under-the-radar tactics that some large hospitals use to deter competition and pad their bottom lines. For instance, some contracts “prevent patients from seeing a hospital’s prices by allowing a hospital operator to block the information from online shopping tools that insurers offer.”

Hospitals use these tactics to oppose transparency, because they fear, correctly, that if patients know what they will pay for a service before they receive it, they may take their business elsewhere. It’s an arrogant and high-handed attitude straight out of Marxism.

Also in hospitals’ toolkits: So-called “must-carry” clauses, which require insurers to keep their hospitals in-network, regardless of the high prices they charge, or poor quality outcomes they achieve. The Journal reported that one of the nation’s largest retailers wanted to kick out the lowest-quality providers, but had no ability to do so.

Officials at Walmart a few years ago asked the insurers that administered its coverage…if the nation’s largest private employer could remove from its health-care networks the 5% of providers with the worst quality performance. The insurers told the giant retailer their contracts with certain health-care providers didn’t allow them to filter out specific doctors or hospitals, even based solely on quality measures.

Surprise! Obamacare Made It Worse

Many of these trends preceded President Obama’s health care law, of course. But it doesn’t take a PhD in mathematics to see how hospital mergers accelerated after 2010, the year of Obamacare’s passage:

Hospitals responded to the law by buying up other hospitals, increasing market share in an attempt to gain more negotiating “clout” against health insurers. That leverage allows them to demand clauses such as those preventing price transparency, or preventing insurers from developing smaller networks that only include efficient or better-quality providers.

Here again, industry consolidation begets higher prices. In many cases, hospitals can charge more for services provided by an “outpatient facility” as opposed to one provided by a “doctor’s office.” In some circumstances, the patient will receive the same service, provided by the same doctor, in the same office, but will end up getting charged a higher price—merely because, by buying the physician practice, the hospital can reclassify the office and procedure as taking place in an “outpatient facility.”

Remember: Hospitals Endorsed Obamacare

In 2010, the American Hospital Association, along with other hospital associations, endorsed Obamacare. At the time the hospital lobbies claimed that the measure would increase the number of Americans with health insurance coverage. For some reason, they neglected to mention how the law would also encourage the consolidation that presents ever-upward pressure on insurance premiums.

But remember too that Obama repeatedly promised his health-care law would lower premiums by $2,500 for the average family. Unfortunately for Americans, however, Obamacare’s crony capitalism—allowing hospitals to grow their operations, and thus their bottom line, in exchange for political endorsements—continues to contribute to higher premiums, putting Obama’s promise further and further away from reality.

This post was originally published at The Federalist.

A Retiree Health Care “Fix” That Isn’t

Since the Affordable Care Act became law in 2010, supporters and opponents have argued about whether the measure would lead employers to drop health coverage for workers. This issue has returned to the news; Wal-Mart recently decided to drop coverage for some of its part-time workers, and The Wall Street Journal reported this week that some firms, seeking to avoid employer penalties under the law, have encouraged employees to enroll in Medicaid.

While their private-sector counterparts have received more attention, public-sector employees–particularly retirees–could face similar problems with dropped coverage. The Atlantic reported last week on the trend of cities in financial distress, from Detroit to Chicago to Sheboygan, Wis., reducing or eliminating coverage and seeking to use the insurance exchanges to get out of their health-care obligations to retirees. As one pension expert quoted in the Atlantic noted, “every public-sector employer is looking at the exchanges as a potential way to get out of the unfunded liabilities that the public sector is bearing.”

But transferring state and municipal retirees to insurance plans on the exchanges doesn’t reduce the amount of unfunded liabilities; it shifts the cost from state and local governments to Washington. Many of the retirees in question could qualify for federal premium and cost-sharing subsidies for their exchange insurance policies. Even by Washington standards, the magnitude of the problem is daunting: A 2012 Pew study found that state governments held $627 billion in unfunded retiree health obligations; adding local government health plans could push those obligations toward $1 trillion.

State governments are grappling with a difficult revenue environment, while the federal government faces long-term fiscal challenges caused by demographic shifts. Given these dynamics, what looks to some mayors like a quick fix to their budget woes–shifting retirees to the federal exchanges–could, in the broader fiscal sense, amount to shifting deck chairs on the Titanic. If efforts by cities and states ultimately encourage private-sector firms to drop health coverage for their workers and retirees, they will add to our nation’s collective entitlement obligations—and could end up sinking our federal fiscal ship.

This post was originally published at the Wall Street Journal Think Tank blog.

With Obamacare, What Happens in Massachusetts Won’t Stay in Massachusetts

PriceWaterhouseCoopers recently released a study of Massachusetts’s experience with health care reform, claiming that under Obamacare most employers will not reduce or eliminate the health coverage they currently offer. However, there are at least three aspects the study did not directly address, all of which suggest that employers will, in fact, scale back their health insurance offerings:

1)      Obamacare is a federal program, not confined to one state. The PriceWaterhouseCoopers study equates changes made in one state to a law affecting all 50 states, and assumes that employers around the country will respond in more or less the same ways. However, that assumption falls short. When Massachusetts passed its reforms in 2006, national employers, such as General Motors or Walmart, were not allowed to drop their health plans in Massachusetts alone, while still providing coverage for their workers in the 49 other states. Now, if they so choose, they can shed their employee health benefit obligations in all 50 states, and the workers will be covered under Obamacare.

2)      Obamacare contains fewer restrictions for employers who want to drop coverage. The Massachusetts legislation—“An Act Providing Access to Affordable, Quality, Accountable Health Care”—included more robust restrictions on accessing insurance subsidies than Obamacare. As Josh Archambault of Massachusetts’s Pioneer Institute writes:

In the Commonwealth, if an individual is offered employer insurance, they [sic] cannot access the exchange or subsidies, period. The only way around this firewall is for the company to drop coverage altogether, and for employees to go uncovered for six months before they can access subsidized coverage. This is highly unlikely given the industry mix in the state.

Conversely, under Obamacare, employers can stop offering insurance at any time, and their workers will become immediately eligible for income-based insurance subsidies.

3)      Obamacare subsidizes more individuals than the Massachusetts plan. While Massachusetts’s law subsidizes health insurance for families with incomes of less than three times the federal poverty level (FPL), Obamacare grants subsidies up to four times the FPL. According to the Census Bureau, in 2011, 133.9 million non-elderly Americans lived in households with incomes less than three times the FPL, but 169.2 million non-elderly Americans lived in households with incomes less than four times the FPL. In other words, more than 35 million more Americans will be eligible for income-based subsidies under Obamacare than if the Massachusetts law were extended nationwide. That fact—that more than three in five Americans will qualify for taxpayer-funded health subsidies based on their income—will only encourage employers to drop health benefits, because the majority of their workers can obtain new federally funded insurance instead.

The PriceWaterhouseCoopers study also argues that the existing tax benefits provided to highly paid employees—those individuals not eligible for Obamacare subsidies—will encourage firms to keep offering health coverage under Obamacare. However, as economist Doug Holtz-Eakin has argued, if employers restructure their businesses to drop insurance for low-income and middle-income workers, the costs to the federal government will explode.

The case against the recent PriceWaterhouseCoopers study can best be expressed by a 2011 survey of large employers, which found that nearly half of all employers surveyed were very or somewhat likely to “significantly change/eliminate subsidies for employee medical coverage.”  Which organization happened to sponsor that survey? None other than PriceWaterhouseCoopers.

This post was originally published at The Daily Signal.