Can we trust health insurers?
Can we trust health insurers?
Jan Boone
Tilec, Tilburg University
Can we trust health insurers?
Introduction
How to think of this
Critical configurations
What do we need to know
Can we trust health insurers?
Introduction
Introduction
Can we trust health insurers?
Introduction
motivation
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Dutch ministry of health tries to stimulate selective
contracting by health insurers:
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idea is that insurers contract the most efficient providers
offering
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adapting article 13 to reduce reimbursement for out-of-network
treatments
insurers can vary co-payment for a treatment depending on
provider
highest quality at
lowest price
can we trust health insurers to do this?
Can we trust health insurers?
Introduction
framework
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when consumers buy health insurance, they do not know the
quality of the different providers:
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quality has a number of dimensions, like
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how good are the physicians?
good food, internet access, friendly nurses?
hard to know when buying insurance
consumers do not know yet which treatments they may need
quality can differ by provider and treatment
if consumers would observe quality when buying insurance, the
issue would not be trust
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e.g. the problem might then be about adverse selection
Can we trust health insurers?
Introduction
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when a consumer falls ill, becomes patient, he is better
informed
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knows which treatment is needed
asks family and friends about experiences with providers for
this treatment
asks primary physician what best provider is in the network of
the insurer
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patient chooses provider which offers highest quality in the
network
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will this network include the most efficient providers?
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if so, will patient choose the most efficient provider?
Can we trust health insurers?
Introduction
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insurers know more about quality:
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learn from their insured’s experience
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can see how often their insured have to return to provider
ask their insured how they were treated at provider
difficult to directly signal provider quality
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in the Netherlands, (too much) emphasis on volume
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insurers learn about cost through provider prices
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they have the information to contract most efficient providers,
do they have the incentive?
Can we trust health insurers?
Introduction
what we know
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there is quite some evidence (mainly from the US) that
selective contracting leads to lower costs
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lower treatment prices
lower utilization
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intuition: for given quality, there is a clear incentive for insurer
to choose the cheapest provider
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not the case for insured patient
Can we trust health insurers?
Introduction
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evidence of selective contracting on quality is mixed
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findings where selective contracting reduces quality
positive effect on quality when prices are regulated
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intuition: for given cost, clear incentive for patient to choose
highest quality
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not the case for insurer: is not rewarded for quality (as it is
not observed when insurance is bought)
Can we trust health insurers?
Introduction
other arguments used
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the change in article 13:
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reduces provider choice
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poor people get narrow networks and rich get broad networks
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why is it good to force everyone in a broad network at a high
premium?
people do not understand contracts with narrow networks
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contracts with full networks can still be offered
explain it better
we need quality information first
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hard to process when you buy insurance
quality and costs should be made comparable
Can we trust health insurers?
How to think of this
How to think of this
Can we trust health insurers?
How to think of this
model
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assume that there are 2 providers and 1 insurer
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provider Pi has quality qi and treatment cost ci
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most efficient provider is the one with highest net value qi − ci
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not necessarily the one with highest qi
nor the one with lowest ci
it is socially optimal that patient is treated by provider with
highest qi − ci
Can we trust health insurers?
How to think of this
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neither quality nor costs should be leading
important concept: value for money
captured here by qi − ci
Can we trust health insurers?
How to think of this
Can we trust health insurers?
How to think of this
Can we trust health insurers?
How to think of this
Can we trust health insurers?
Critical configurations
Critical configurations
Can we trust health insurers?
Critical configurations
insurer critical configuration
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suppose c1 > c2 and q1 > q2 such that q1 − c1 > q2 − c2
socially optimal to contract provider 1
when consumers see that only one provider is contracted, they
have expectation q E
insurer compares q E − p1 with q E − p2
with c1 > c2 we have p1 > p2 and the insurer chooses
provider 2
Can we trust health insurers?
Critical configurations
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in insurer critical configuration selective contracting leads to
the wrong choice of provider
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both providers need to be contracted for patient to visit the
efficient provider 1
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when both providers are contracted, primary physician sends
patient to provider 1
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insurer critical configuration happens when quality has its price
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quality requires more training, better equipment, more nurses
Can we trust health insurers?
Critical configurations
patient critical configuration
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suppose c1 > c2 and q1 > q2 such that q1 − c1 < q2 − c2
if both providers are contracted, insured patient visits highest
quality provider 1, which is inefficient
if insurer contracts one provider only: contracts efficient
provider 2 which has lower cost
Can we trust health insurers?
Critical configurations
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in patient critical configuration selective contracting is socially
optimal
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example: expensive new technologies that cost more than
they generate in qaly’s gained
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proton beam therapy (?)
http://www.nytimes.com/interactive/2014/sundayreview/hotel-hospital-quiz.html
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insured patient wants the latest technology, but this is not
always efficient
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role for insurer to limit the network to providers that use cost
effective treatments
Can we trust health insurers?
Critical configurations
when is selective contracting good
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when quality has its price, selective contracting is welfare
reducing and we cannot trust insurers to make the correct
choice
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selective contracting is a good idea when
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quality and cost are negatively correlated
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high quality goes together with low costs
insurer selectively contracts low cost and hence high quality
well run hospitals have both high quality and low costs
when operations are done well, less likely that patient needs to
return
when high quality is less efficient (lower q − c)
if Dutch providers have more or less similar quality and differ
mainly in costs
Can we trust health insurers?
What do we need to know
What do we need to know
Can we trust health insurers?
What do we need to know
which situation is (most) relevant?
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if we want to argue that stimulating selective contracting is a
good idea
we need to show that in the Netherlands
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either quality and costs are negatively correlated
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or hospitals with high quality, actually offer low surplus
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well managed hospitals have both high quality and low costs
high quality providers are not cost effective
they offer high surplus for a patient, but not for a consumer
buying health insurance
e.g. they give in too easily to patients’ demands for treatments
in these cases, we can trust the insurer to make the right
choice
in this model, selective contracting can raise welfare, but it
does not raise quality
Can we trust health insurers?
What do we need to know
Can we trust health insurers?
What do we need to know
Can we trust health insurers?
What do we need to know
Can we trust health insurers?
What do we need to know
other reasons for selective contracting
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primary physicians refer to wrong hospitals, insurers need to
prevent this by contracting selectively
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patients shop around till a provider is willing to treat them
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evidence is needed for systematic referral mistakes
reduce choice on gate keeping GP
insurers can create a reputation for contracting high quality
providers
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the benefit of a reputation is that you earn strictly positive
profits
if we believe in this mechanism, then we shouldn’t make the
health insurance market too competitive
Can we trust health insurers?
What do we need to know
summary
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if we want to argue that selective contracting is good idea in
the Netherlands:
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show that insurers –by minimizing costs– choose providers with
highest value for money
compare across hospitals/specialties/treatments costs and
quality indicators
Can we trust health insurers?
What do we need to know
References
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The material here is based on two papers and the references
therein:
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Health provider networks, quality and costs, with Christoph
Schottmueller
Provider Competition and Over-Utilization in Health Care,
with Rudy Douven