Story by Margie Peterson
Photo by iStock/Fedora Chiosea
Jee-Hun Choi found the perfect testing ground.
There’s a debate over whether competition among insurers or a large single payer with a high volume of patients is more successful in keeping health-care costs down.
After the Affordable Care Act—aka Obamacare—went into effect in 2014‚ the state of Arkansas provided Jee-Hun Choi, an assistant professor of economics at Lehigh College of Business‚ a near perfect model to see whether an influx of a large number of new patients into the health-care system might enable an insurer to better negotiate with hospitals to hold down prices.
Proponents of the ACA pitched the landmark law as a way to improve and expand health care coverage to more Americans. Choi says the act used two main policy measures to sell ACA. First‚ it expanded Medicaid—a means-tested public insurance program for low-income people—in 37 states and Washington‚ D.C. In order to cover more people‚ the ACA reformed the market for individual plans to make them more accessible and affordable to more consumers. Arkansas is one of 37 states that expanded its Medicaid program through the ACA.
“But what makes Arkansas special and ideal for this research is a unique feature in their Medicaid program‚” Choi says. “While other expansion states used Medicaid exclusive plans in order to provide insurance coverage in their newly insured population‚ Arkansas used individual plans for its Medicaid expansion.”
“As a result of this expansion‚ about 250‚000 new beneficiaries were injected into the Arkansas individual health care insurance market‚” he says. "About 80 percent were absorbed into the largest existing insurer in the market—Arkansas Blue Cross Blue Shield.”
The non-elderly population covered by Blue Cross Blue Shield individual plans increased from 3.5 percent in 2013 to about 13 percent in 2015.
Choi used that dramatic increase to gauge how all those new customers gave Arkansas Blue Cross Blue Shield enhanced bargaining power with hospitals and other health care systems and whether the insurer received any price reduction from out-of-state hospitals. Using hospital inpatient claims and insurance enrollment data from the Arkansas Claims Database‚ Choi focused on non-elderly adults who were covered by individual plans between 2013 and 2015‚ which included one year before the expansion and two years after ACA took effect.
“I found that Blue Cross Blue Shield’s hospital prices decreased by 18 percent on average after the patient numbers increase induced by the Affordable Care Act‚” he says.
After looking at other variables that might have had an effect on prices‚ Choi concluded that an increase in bargaining leverage was the main force behind the price reduction for Blue Cross Blue Shield.
“The price reduction for Blue Cross Blue Shield was larger in areas with a larger enrollment increase and also for the types of services consumed in higher volume by the newly insured Medicaid beneficiaries‚” he explains.
The cost savings Choi found were substantial. The savings in inpatient expenditures‚ as well as the premium expenditure for Blue Cross Blue Shield‚ were about 10–12 percent of the total expenditure in the market.
So‚ did the Arkansas Blue Cross Blue Shield customers benefit? That’s still unclear.
The ACA includes a Medical Loss Ratio Rule that requires private commercial health insurers to use a percentage of their revenue from premiums for payment of services.
“For employer-sponsored health insurance plans‚ private insurers must use at least 85 percent of their premium revenue in order to pay for the reimbursement of their members’ health care utilization and 80 percent for individual plans‚” Choi says. “Otherwise‚ they have to make some rebate payments to the consumers.”
Arkansas Blue Cross Blue Shield complied with that rule in spending money on customers’ health care‚ but data was unavailable to determine whether insurance premiums were lowered.
Why it Matters
The Arkansas model indicates a large single payer may help contain prices because it has more bargaining power to negotiate lower rates for services.