A study by actuarial and consulting firm Milliman, commissioned by the Massachusetts Association of Health Plans, suggests that eliminating or restricting prior authorization could lead to significant increases in commercial premiums and Medicaid capitation rates. The report also highlights the “sentinel effect” – the inclination of providers to refrain from ordering tests or treatments when approval is required – arguing that eliminating prior authorization could reverse this, leading to unnecessary or inappropriate services being ordered. The study was based on 2022 claims experience and 2020 Massachusetts Medicaid data, and assumes that eliminating prior authorization could increase premiums an additional 5.6% to 16.7%.
Impact of Restricting Prior Authorization on Commercial Premiums and Medicaid Rates
A recent study suggests that curbing or eliminating prior authorization could lead to significant increases in commercial premiums and Medicaid capitation rates. The increases could range from approximately $600 to $1,500 per member annually for commercial premiums and from $270 to $1,100 per beneficiary annually for Medicaid capitation rates.
Cost Increases Could Add to Current Health Insurance Premiums
The study, conducted by independent actuarial and consulting firm Milliman, investigates the potential impacts on healthcare costs, consumers’ out-of-pocket expenses, and insurance premiums in Massachusetts if prior authorization is eliminated or restricted. It projects these potential premium increases to be in addition to other factors that influence health insurance premiums, such as provider reimbursement and pharmaceutical spending.
Legislative Proposals to Eliminate Prior Authorization
Proposals are being considered at both the state and federal level to eliminate prior authorization, concurrent review, and retrospective review. These proposals aim to restrict health plans’ ability to use these tools to ensure cost-effective care.
The Sentinel Effect in Prior Authorization
The study also explores the possible effect of eliminating prior authorization on the “sentinel effect”. This term refers to providers’ restraint from ordering tests, procedures, or services that require external approval. The study predicts a negative impact on the sentinel effect if the requirement for external review is removed, leading to an increase in premiums between 5.6% to 16.7%.
State’s Ability to Meet the Health Care Cost Growth Benchmark Could Be Impacted
Efforts to restrict or eliminate prior authorization could hinder the state’s ability to meet the Health Care Cost Growth Benchmark, established in Chapter 224 of the Acts of 2012. This could lead to increased patient utilization or a shift towards higher-cost medications, treatments, and services.
The Study’s Modelling and Data
The study analyzes the impact of reducing or eliminating prior authorization, using 2022 claim experience and the 2020 Massachusetts Medicaid data from the Transformed Medicaid Statistical Information System (T-MSIS) monthly claims file, a CMS dataset.
For more information, please visit the full report.
Stance on the Milliman Report
Several stakeholders and experts expressed concerns about the potential increase in healthcare costs, the burden it could place on employers and small businesses, and the implications for patient safety and evidence-based care. They also recognized the role of prior authorization as a crucial tool in managing utilization and containing health system costs.
About the Massachusetts Association of Health Plans
The Massachusetts Association of Health Plans represents 15 health plans and 2 behavioral health organizations covering more than 3 million Massachusetts residents. It is dedicated to improving health for all in Massachusetts by promoting high-quality, affordable, and equitable health care.