Charlie Arlinghaus

March 4, 2014

As originally published in the New Hampshire Union Leader

Among politicians, price controls are a bad idea unless they’re your idea. In truth, the government setting prices is never the right solution to a problem.

Those who would have the state government set and control prices in the workers’ compensation part of health care should remind themselves that they were opposed to government price controls five years ago when it was then-Sen. Maggie Hassan’s idea for a hospital price fixing commission. They were right then. They should listen to their old selves now.

Employers looking for ways to reduce the cost of doing business in New Hampshire have looked to possible reforms in the workers’ compensation system. Workers’ compensation is the successor to Otto von Bismarck’s sickness and accident laws. It is a mandatory system of employer paid insurance to cover workers’ temporary and permanent disabilities.

Compensation costs are divided between a medical benefit and cash benefits for lost work time, known as indemnity. Many states looking to lower costs have merely dictated that medical benefits be reduced according to government price controls. In essence, a fee schedule for at least some costs is adopted at a lower rate than had been paid. New Hampshire is considering having the government set prices.

According to data compiled by the state of Oregon, New Hampshire’s costs are the 12th highest in the country (a slight improvement from ninth highest two years ago). The bad news may be that our costs are above average, but the good news is that we’re improving rapidly.

According to the National Academy for Social Insurance, which does an annual report on costs, from 2008-2012 (the latest data) New Hampshire saw workers’ compensation costs decline by 8.5 percent when the country as a whole increased by 5 percent. At a minimum, we’re doing something right.

What we’re doing right is not having price controls and having a robust system that allows timely access to care and dramatically reduces indemnity costs by getting people back to work faster. Nationally, benefits are half medical, half indemnity ($30.8 billion, $31 billion). In New Hampshire, indemnity or cash benefits are only 34 percent of total benefits ($77 million) with medical benefits making up $152 million, or 66 percent.Imposing government price controls on the medical side of benefits will increase indemnity costs. The University of Washington School of Public Health studied California’s expensive system and found that “access barriers increased the duration of compensated lost time by approximately 60 percent.”

We know that price controls will reduce access. In fact, the New Hampshire Medical Society found in an online survey that 96 percent of its responding members will opt out of workers’ compensation if price controls are adopted. The real number will be smaller, but access will be affected and indemnity costs will rise. We’ve seen this before in New Hampshire.

A plan 25 years ago to place artificial caps on prescription drugs in mental health led to a small decrease in drug costs and a huge increase in hospitalization. The drugs were reducing the need for more expensive hospitalization. I suspect that in workers’ compensation, access and competition are reducing indemnity costs.What can we do? We want to preserve what’s working well. New Hampshire was one of only 16 states to see costs decrease from 2010-2012. And as noted before, we’re down 8.5 percent when the country is up 5 percent. Those are good trends.

There are some medical outliers, though. The way to eliminate the high-cost outlier is through transparency. If we don’t know what providers charge, we can’t know who’s high and low. A database with all payers, including the self-insured and privately insured, will help insurers decide where to go. This again is something New Hampshire has experience with.

The state’s health care plan includes a tool called “Compass” that allows members to save themselves out-of-pocket costs and find more competitive providers for the same procedure. In the last four years, this program has saved millions of dollars and directly and indirectly forced other providers to become more competitive.

In workers’ compensation, this same level of transparency doesn’t exist. Because it is illegal to compare prices (collusion is an anti-trust violation), high-cost providers don’t know if they are particularly high. If a transparency site shows you that you’re an outlier and you know that customers can easily find out too, you will lower your costs to be competitive.

New Hampshire is one of the few states moving in the right direction. Instead of hurting that progress with government-mandated price controls, let’s try and improve competition.

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