Private commercial health insurance coverage has long served as the central pillar of our national health insurance system. Not only are commercial health insurance plans the dominant source of health coverage for most Americans and employers but Medicare and Medicaid programs often rely on private health insurance plans to administer their health benefits.
The cost of commercial insurance is increasing at an unsustainable rate — squeezing individuals and families, employers, and public programs. The average family insurance premium has increased 47% over the past 11 years — faster than general inflation and more than any other part of the health care system.i This contrasts with hospital prices, which have grown an average of 2.1% per year over the last decade, about half the average annual increase in health insurance premiums. And, more recently, hospital prices have grown much more slowly than the overall rate of inflation.ii
- Many health plans apply prior authorization requirements in ways that create dangerous delays in care, contribute to clinician burnout and significantly drive up administrative costs for the health care system.
- Insurers often force patients to suffer through periods of ineffective treatment before permitting access to the most appropriate therapy. Use of step therapy or fail-first policies is increasing, and its inappropriate application often results in short-term savings for insurers while increasing provider administrative burden and adding downstream costs due to patient delays and complications.
- Insurers frequently establish flawed or overly stringent medical necessity policies that prevent patients from obtaining the necessary care recommended by their physician.
- Many commercial insurers leverage their market power and position to steer providers to purchase their auxiliary products that drive up administrative costs and line insurers’ pockets.
- White bagging is an insurer practice that effectively bans a provider from using their own medication inventory to supply drugs used to treat patients in their facility and prohibits providers from having oversight of the procurement, storage and handling processes, which has important implications for safety and efficacy.
- Many insurers use electronic payment methods that require providers to pay money to receive their contractual reimbursements from commercial insurers. The insurers often receive incentives from credit card companies or payment vendors for issuing these payments. Providers should not have to pay to get paid.
Need for Action
Some commercial health insurers have implemented policies that add billions of dollars in added unnecessary administrative costs to the health care system while compromising patient care. Commercial health plan abuses must be addressed to protect patients’ health and ensure that medical professionals, not the insurance industry, are making the key decisions in patient care.
Commercial Insurer Policies That Hurt Patients, Increase Costs
Several under-examined features of commercial health insurance contribute to unsustainable cost growth — many of which are unnecessary at best and harmful to patient health and workforce wellbeing at worst. Insurers’ use of policies that deny or delay medically necessary care — often applauded by insurers as ways to control cost — have become extraordinarily burdensome on hospitals, providers and patients.
Massive administrative costs are due in large part to the complex payment and reporting requirements of various commercial health insurers.iii More frequently they include excessive and unjustified application of utilization management tools and prior authorization requirements. These practices add costs by slowing down the provision of care, requiring providers to purchase additional information technology tools, and requiring them to hire additional staff to manage the requirements.
Ironically, many commercial health insurers point to these processes and requirements as part of their efforts to manage health care spending. What is often ignored are the complicated business and financial relationships between many health insurers and intermediary service providers.
For example, the three largest pharmacy benefit managers (PBMs) are owned by commercial health insurers. The administrative services-heavy data and analytics company Optum drives more revenue for UnitedHealth Group than its commercial health insurance arm, UnitedHealthcare (UHC), despite UHC being the largest commercial health insurer in the country. These complex relationships create potential conflicts of interest. Specifically, the insurer may put in place an administrative requirement on providers that drives the provider’s need to procure the intermediary’s tool or service.
As the nation works to improve the affordability of the U.S. health care system, holding health plans accountable will help to reduce unnecessary spending on administrative processes and services while simultaneously improving patient access to care and reducing undue burden on our health care workforce.
- First, we recommend identifying and measuring unnecessary administrative costs because of health plan abuses and excessive requirements. Currently, much of this information is reflected in national datasets as spending on hospitals, health systems and physicians because they are the ones who must absorb the cost of paying staff and acquiring the expensive products needed to comply with these commercial health insurer policies.
- Second, we must adopt policies to streamline, standardize and reform these burdensome processes to reduce administrative inefficiencies.
“ A 2019 AHA survey of hospitals revealed that one large, national hospital system spends $15 million per month on administrative costs associated with insurer prior authorization changes. The system employs two to three full-time staff just to monitor insurer bulletins for changes to their prior authorization rules.
The full report provides information on the areas with the most opportunity for improvement.
- Kaiser Family Foundation, “2021 Employer Health Benefits Survey.” Available at: https://www.kff.org/report-section/ehbs-2021-section-1-cost-of-health-insurance/
- American Hospital Association, “Massive Growth in Expenses and Rising Inflation Fuel Continued Financial Challenges for America’s Hospitals and Health Systems.” Available at: https://www.aha.org/system/files/media/file/2022/04/2022-Hospital-Expenses-Increase-Report-Final-Final.pdf
- William H. Shrank. Waste in the U.S. Health Care System, Journal of the American Medical Association. Available at: https://jamanetwork.com/journals/jama/article-abstract/2752664