Health Insurance Companies to Simplify Prior Authorizations, Reduce Costs
TL/DR –
A report by Trilliant Health reveals major price variations for medical procedures across different hospitals and surgery centers in the U.S. Prices for the same operations varied up to nine-fold, with no link found between higher costs and improved healthcare quality. The study highlights that this price variation is a major contributor to the high healthcare costs in America, which spent $4.9 trillion on healthcare in 2023, despite having the lowest life expectancy among large, wealthy nations.
Major Health Insurance Companies Commit to Prior Authorization Reforms
As health insurance subscribers often struggle to predict the cost of medical procedures, even with coverage, a new report from Trilliant Health reveals significant differences in pricing across various hospitals and surgery centers for identical services.
The analysis, based on claims data from major insurers, UnitedHealth Group and Aetna, demonstrates wide price fluctuations for the same operations. For instance, an ankle replacement could range from $22,011 in an Austin, Texas hospital to over $197,000 in a New Jersey hospital. This variation can lead to significant medical debt for insured individuals.
Interestingly, the report also revealed no correlation between higher prices and improved health quality even among the top 10 hospitals. Allison Oakes, Chief Research Officer for Trilliant Health, suggests that this information can help consumers and employers better understand health care pricing, which has been a well-guarded industry secret.
Increasing Health Spending Linked to Hospital Prices
Research shows that the U.S. spent $4.9 trillion in health care in 2023, translating to $14,570 per person. Despite this high expenditure, U.S. life expectancy remains the lowest among wealthy nations.
Employers typically bear the cost of health insurance for working-age adults, but without clear pricing structures, it’s challenging to decide which hospitals and surgery centers to include in workplace insurance plans. High-deductible health plans often leave consumers paying large amounts out-of-pocket before coverage begins. Over the past 25 years, the rising cost of employer health insurance premiums has nearly tripled worker’s pay raises, largely due to hospital pricing.
The Role of Price Transparency in Competition and Cost Reduction
With federal price transparency rules now in effect, insurers must disclose prices negotiated with hospitals and other providers. However, widespread price differences for identical procedures continue to exist, highlighting a lack of competition in health services and the need for improved price transparency.
Vivian Ho, a Rice University economist, suggests that employers can utilize price information to tailor health insurance offerings. Following this approach, a large New York labor union attempted to steer employees towards cost-effective hospitals, prompting an investigation into perceived anti-competitive behaviors.
A Massachusetts study that used tiered pricing, charging consumers higher copays for more expensive hospitals, saw overall spending drop by over 8% in three years. This approach simplifies the pricing structure for consumers, helping them understand their options for lowering costs.
While insurers have been criticized for practices such as prior authorization and service denials, the main driver of health insurance premiums remains hospital charges for inpatient and outpatient services. “The hospitals and the consolidated health care systems are charging very high prices,” says Ho.
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