Health spending has skyrocketed over the last several decades. According to Peterson-KFF Health System Tracker, health spending totaled about $1.4 trillion in 2000, tripling to approximately $4.1 trillion in 2020. Many policymakers and industry experts theorize that improving the transparency of health-care prices will motivate consumers to do their research before purchasing health insurance to lower their overall health-care spending.
Due to a new price transparency rule that went into effect on July 1, 2022, health insurers are now required to disclose the negotiated prices that they pay to facilities and physicians for each service and item provided. This federal rule follows a previous rule from January 1, 2021 that required hospitals to disclose negotiated prices for services and items.
Learn more about this new price transparency rule for health insurers in the US and what it could mean for the future of health plans.
Price Transparency Key Disclosures
Insurers generally negotiate prices for services and items that are provided by facilities and physicians within their networks. These negotiated prices can vary among insurers with some charging significantly more than others for the same services. The price that an insurer pays can also vary. With complexities in pricing, consumers typically have to wait until they receive their bill to understand how much they owe.
Health plan price transparency is important as it helps consumers better understand the cost of a covered service or item before receiving care. With the new price transparency rule, most group health plans or issuers of individual or group health insurance are now required to post pricing information that can be used by third parties, such as app developers or researchers, to better help consumers understand the costs of health care.
Additional requirements are expected to go into effect starting on January 1, 2023, and again on January 1, 2024. These new release dates are expected to provide consumers with additional transparency into pricing information, enhancing their ability to shop for health care that they can afford and that meets their unique needs. This information should provide consumers with more insight as to what their health insurance will pay for when they see doctors that may or may not participate in the insurer provider’s network.
Complying With The New Federal Transparency Rule
Rising health-care costs are a common concern among employers. The release of the new federal transparency rule has the potential to lower the medical cost trend in 2022 going forward, resulting in cost savings for both employers and consumers.
Health plans and plan sponsors were required to publish public machine-readable files by January 1, 2022 that show prescription drug pricing, in-network rates and out-of-network allowed amounts. By January 1, 2023, an internet-based self-service tool that lists personalized, out-of-pocket cost estimates, as well as other essential price-related data, must be provided. By January 1, 2024, this self-service tool must be expanded to cover all services, items, and prescription drugs.
It is the responsibility of the health plans and plan sponsors to ensure that these requirements are met and to create a communication plan with pharmacy and medical issuers to ensure access to the required data in a timely manner.
Many employers are choosing to modify their contracts with pharmacy and medical issuers to streamline these processes. Even self-insured employers that choose to contract with pharmacy or medical plan issuers are required to meet these transparency requirements.
A New Financial Tool Built Into The Rule
Many health insurers throughout the nation are preparing to comply or already comply with the new federal transparency rule. However, it is not clear how many health plans will ultimately comply with the Transparency in Coverage final rule. Health insurers and various observers within the industry will also be on the lookout for how health insurers use a new financial tool built into the rule which is designed to motivate consumers to pick low-cost, high-value physicians, hospitals, and health-care providers.
With the implementation of this new rule, the US Department of Health and Human Services (HHS) will allow health insurers to offer incentives, such as lowering or waiving deductibles or co-payments. These incentives will be used to encourage consumers to shop for services from higher-value, lower-cost providers. When these types of incentives are utilized, health plans can provide enrollees with a portion of the savings. The savings shared with enrollees can also be included in their medical-loss ratios (MLR), in addition to incurred claims and other costs related to improving health care.
Health insurers have paid out millions of dollars in rebates to consumers since the MLR rules were first established in 2014 with the Affordable Care Act (ACA). Many observers in the industry reveal that health insurers are likely to accept the option to reduce what they pay under the current MLR rules while still incentivizing consumers to pick higher-value, lower-cost hospitals and healthcare providers.
How Will Health Plans Define High-Value Providers?
One of the biggest concerns surrounding the new price transparency rule for health insurers is how health plans will define high-value providers. Defining value in the health-care industry can be complicated as what is deemed valuable can differ from person-to-person.
Value is generally linked to what a consumer is willing to pay for a particular service or item. It is often defined as the combination of quality of care that a person receives for the price that they are willing to pay. Some consumers will choose a hospital or health-care provider based on quality and are willing to pay a higher price for quality health-care services, while other consumers will opt for a lower-cost hospital or provider.
With the new health plan transparency rule, hospitals are now required to post what they charge for services and health care, meaning insurers will be able to see exactly what their competitors pay. This transparency across health plans will result in greater competition and most likely less variation in what insurers pay. The exception to the new rule is health insurers that were grandfathered in under the ACA, as well as health plans that offer non-grandfathered health insurance coverage in both group and individual markets. These plans are marketed to consumers by insurers or agents and not sold on the ACA exchanges.
More Completion And Less Variation
With the new price transparency rule for health insurers, consumers can make more informed decisions regarding their health care and more accurately compare costs between different providers. The federal rule applies to a wide range of health-care services, such as blood tests, prescriptions, and hospitalizations.
The services covered by the rule will continue to expand over the next two years. By early 2023, all health plans are required to share the costs of the 500 most common health-care services and items, and by early 2024, all health plans must make the costs of all covered services and items public.
All insurance plans are also required to provide an explanation of benefits (EOB) statement, along with an estimate of any out-of-pocket costs charged for health-care services. This statement and estimate must be provided to consumers before the services are rendered so that consumers know what their out-of-pocket costs will be before receiving treatment.
With greater transparency across facilities and providers, there is likely to be less variation in cost. This means that consumers will have more options when making important health-care decisions due to fewer financial limitations. Insurers are required to update costs on their EOBs a minimum of once per month to maintain accuracy, ensuring that consumers are given complete transparency at all times.
Making Price-Comparison Information Available
The requirements under the new price transparency rule will give consumers the tools they need to access insightful pricing information through their health plans. With the release of public machine-readable files from insurers that showcase what they pay for covered services and items to in-network providers, as well as billed charges from out-of-network providers and the allowed amounts that insurers pay, consumers will be better equipped to make informed decisions about their health care.
Hospitals are also required to provide individuals with a convenient price-comparison tool that can be accessed via the internet. This tool will allow consumers to receive an estimate of what they can expect to pay out-of-pocket for a particular health-care service or item from a specific provider or group of health-care providers for any of the 500 services or items currently covered by the rule.
Consumers can also request that insurers make price-comparison information available to them. According to HHS, failure to make this information available could result in fines of up to $100 per day for each affected individual or each violation.
How New City Can Help
With changes being made to health plans and more on the way, it is the responsibility of employers to share important information with their workforce regarding cost-comparison tools, employee options when choosing providers in their network, and billing procedures. Speaking with an experienced employee benefits consulting firm can provide valuable insight to better understand plan changes and to help employees avoid pitfalls like high health-care costs and surprise medical bills.
New City Insurance is a reputable employee benefits consulting firm that specializes in several key areas, including benefits consulting, compliance, insurance, and technology services. New City works hard to build custom plans with major carriers to enable employees to continue in their network while reducing costs and increasing coverage. To learn more about how New City Insurance can help your business, request a consultation online or call New City at 888.210.2765.