Picking Winners and Losers in the Exchange

Charlie Arlinghaus

September 26, 2013

As originally published in the New Hampshire Union Leader

The government-sponsored insurance plan offered through the Obamacare exchange has come under fire this week for leaving behind some of the hospitals in the state to provide a competitive advantage to the others. People naturally bristle at the government picking winners and losers through its plan, but the situation is more complicated than it first appeared.

Under the new federal health care law, every state must have an “exchange” to offer subsidized health insurance. The latest public relations spin would change the name of these exchanges to “marketplaces” but recent events have revealed they aren’t marketplaces and aren’t subject to market forces.

In New Hampshire, only one company signed up to offer the policies to be subsidized through the exchange. That company, Anthem, is the dominant player in the regular market, issuing 56 percent of policies.

Some had hoped for competition in the new federal exchange, but there would be none. To make matters worse, the new plan, with its additional mandates and required coverages, would manage to find affordability only by limiting access to certain providers. If your doctor or hospital is in, you’re happy. But nearly half of the hospitals (and the doctors they own — most doctor’s practices are owned by hospitals) are left behind.

Let’s start by saying that limited networks are a perfectly reasonable way to save some money. Providers are limited as a way to get them to accept below-market prices. Even so, rates will increase for most consumers. Anecdotally, one consumer I know will see his rates double even with none of his doctors in the plan any longer. On the other hand, he’ll get new coverage he doesn’t want, but still has to pay for.

We’re told by Anthem that despite the increased costs over your old plan, the new, limited plan has costs that are 25 percent lower — not lower than what they were but than what they would have otherwise been.

So Anthem chose to offer a plan with limited providers who have all agreed to accept a much lower payment than they would currently receive for private insurance. Currently, Medicaid pays roughly 1/3 of the price charged to regular consumers. The new plan would be closer to Medicaid than regular insurance.

Why would a hospital accept lower payments? First of all, because if the new health care law is unchanged, the exchange will occupy a greater and greater share of the insurance market each year. It’s easier to be in from the beginning than to be left behind and try to claw your way in from the outside. Second, by leaving so many providers behind, those favored by the government-sponsored plan will get a greater share. A hospital can make less money on each patient if it has more of them and its regional competitors start to wither away.

There would be much less consternation about this plan if there were an alternative in the exchange. If one competitor chose to offer a limited network, consumers with such an interest could instead move to a perhaps more expensive but less-limited network. But consumers have no such choice. There is one company offering plans that vary slightly by deductible size. There are no alternatives, no choices, no competition.

At first, public reports seemed to indicate that the hospital left behind had opted out themselves because they chose not to accept lower rates. Instead, we learn that the opposite is true. Hospitals perfectly willing to accept lower rates were nonetheless not allowed in.

Last weekend on Josh McElveen’s public affairs show on WMUR-TV, we saw the head of the hospital in Rochester (New Hampshire’s sixth-largest community) tell Anthem’s CEO he was willing to accept her rates and ask to be allowed onto the list. She pointedly ducked the question, but the answer is clearly no.

The hospitals cut out of the plan are left with two choices: hope the new system fails miserably and is repealed, or quietly go out of business. Consumers like you and me can look forward to higher insurance rates and only hope that our providers make it onto the government approved list.