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The Senate Committee on Business & Commerce met on December 10 to discuss the health insurance market in Texas with a focus on market competition, physician groups, and hospital mergers. The committee also heard an update from the Texas Department of Insurance on the results of a data call on insurance claims resulting from Hurricane Harvey.

This report is intended to give you an overview and highlight of the discussions on the various topics the committee took up. It is not a verbatim transcript of the hearing, but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

 

Opening Comments

  • Hancock – Will be hearing from health care market stakeholders and two researchers speaking on the economics of the market

 

The Committee will receive an update from appropriate agencies, industry stakeholders and consumer groups related to market competition, consolidation practices and federal orders affecting the Texas health insurance marketplace.

Panel 1

Vivian Ho, Baker Institute Chair in Health Economics, Rice University

  • 2016 marked the first time physician-practiced ownership was no longer the majority arrangement, little evidence that the consolidation of the market causing this leads to increases in capability, but rather harms care and small practices
  • Presents research on effects of physician consolidation on market and consumers, has resulted in an 8% increase in fees in recent years, other issues like lack of specialty practitioners may be due to consolidation of specialties asking for higher fees than insurance can pay
  • Out-of-network health care charges more than 600% more than in-network services
  • TDI adopted usual and customary charges for PPO plan payments, but figures that these charges are based on have more than doubled in the last five years
  • Texas should consider redrafting these TDI rules, may also want to consider “baseball rules” arbitration
  • Statutory changes would be needed to set limits for self-insured plans

 

Robert Town, Powell Centennial Professor of American Economic Principals, The University of Texas at Austin

  • Speaking on hospital mergers and effect on prices & quality of care
  • Longstanding concern that hospital merging leads to increased bargaining power for hospitals and increased prices for consumers, consolidation is much higher now than in previous years & data shows this leads to increases in cost of care (different studies showing different amounts, 10%-12%)
  • Evidence also shows that not all horizontal mergers lead to price increases, identifying benign mergers is a central challenge of anti-trust action
  • On balance, studies do not find that hospital mergers lead to an increase in quality of care
  • Cross-market mergers are becoming more popular, recent studies have shown these also lead to price increases, though entities situated in different markets are not typically targeted by anti-trust action
  • Need careful and thorough review of these transactions

 

Panel 1 Questions

  • Nichols – Pointing out issues, but not offering recommendations, do you have any?
    • Ho – Texas should consider TDI reimbursement from current to percentage of Medicare, but difficult legislative proposal as it requires changing the Acts under which physicians are reimbursed
  • Hancock – And the self-insured are 40% of our market
    • Ho – Could be larger
    • On the hospital side, the state AG might have power to intervene
  • Hancock – Seems like the recommendation addresses the symptoms, but not the cause
    • Ho – Always puzzling over this, motivation for profit has always been there, but unsure as to why it has become more prevalent
  • Hancock – You want to guess as to why?
    • More people are being insured, more covered, and general feeling that prices can be raised
  • Hancock – As we step in as elected officials to try and fix the problem, we could be causing the problem?
    • I wouldn’t say that the state would
  • Hancock – I wouldn’t either
    • Very tough policy issue to address
  • Hancock – Do you have suggestions on how to address the cause? We’re seeing services leave rural areas after consolidation, etc.; are there options to address both the self-insured programs or the cause of consolidation
  • Hancock – Symptom is that pricing is increasing, are there ways to address consolidation itself?
    • Some have considered a “Cadillac tax” on ACA, need to make consumers aware of price increases
  • Zaffirini – testimony mentioned identifying harmful and benign mergers and need for careful review of mergers; what are the characteristics?
    • Town – Needs to be a clear and concise explanation of quality and efficiencies gained, another piece is relative bargaining power relative to insure after the merger
  • Zaffirini – How should conduct the review?
    • TDI and the state anti-trust agencies
  • Zaffirini – Are there positive mergers?
    • Yes, but they are in the minority
  • Campbell – Physicians always love private practice, but have been forced into group practice because it has become so expensive to operate a private practice; if we try and unwind mergers and groups a little bit, how can doctors go into private practice with the same detriments that exist now?
    • Ho – Greatest amount of consolidation is amongst physician groups of 100 or larger, overhead and administrative issues work themselves out well before you reach this number
    • Reimbursement rates should not be lowered to Medicare, but a 200% or 300% of Medicare; current is around 900% of Medicare in some cases
    • Research shows that physician groups not owned by hospitals have a lower cost per patient
  • Hancock – Is there a way to unwind where we are at?
    • Town – Painful and wouldn’t recommend it, best approach is to stop the transactions that would harm consumers today
  • Hancock – But aren’t we in a position to stop it because these situations are not feasible?
    • The train has left the station
  • Hancock – All that these groups have wanted to do is done, but this doesn’t help consumers
    • 3 options, unwind groups, regulate prices, or enhance bargaining power on the insurance side; all unattractive
  • Campbell – We would need to incentivize individual practice to unwind without the hammer, burdensome regulations need to be lessened to help incentivize private practice

 

Panel 2

Doug Danzeiser, Director of the Life and Health Insurance, TDI

  • Will be giving overview of health insurance market and recent federal activity
  • Fully insured and employer markets are relatively stable, at least one carrier is in every county, but number of counties with one or two carriers has gone up
  • Reduction has mainly been geographically rural
  • Premiums continue to rise, though not as much as in past years
  • Approximately 80% of purchasers receive federal tax subsidies, but those without might drop policies as premiums increase
  • Provides an overview of 1332 waivers, recent guidance by CMS has provided further flexibility for states and may start to see more waivers granted
  • Recent CMS guidance discussed 4 possible kinds of waivers:
    • Account-based subsidy where some premium subsidies could go into state-directed account
    • State specific premium assistance where federal money creates a state subsidy program with state-specific eligibility
    • Adjusted plan options waiver where states could change mandates or offer subsidies
    • Risk stabilization through reinsurance, etc.
  • Requirement for budget neutrality, etc. could stand in the way of waiver options
  • Under recent federal rules, small employers may be exempt under some association health plan requirements
  • Short-term limit duration plans have been bolstered by recent federal rule, allows duration of up to 12-months with possible renewal, though Texas rules limit these plans to less than a year
  • L Taylor – Asks after the changing number of uninsured individuals recently?
    • 4 million in 2015, 1.1 million in 2017
  • Hancock – Asks after the current lawsuit
    • Rules in question were created in 2013 under previous ACA implementation, rule told carriers they needed to reimburse at a level high enough to make balance billing less common; has had an impact
  • Hancock – What impact have you seen on charges and reimbursement?
    • Can get back to you with details; usual and customary charge methodology is based on provider charges and these are not currently regulated
  • Hancock – Have they increased or decreased
    • Increased, unsure of details
  • Hancock – You don’t want to agree with eh 900% charge increase number quoted earlier, but would it be close to this?
    • Not sure, charges have gone up and reimbursements likewise
  • Hancock – Would you disagree with anything said previously?
    • Can’t recall anything I would disagree with
  • L Taylor – Asks after total insured population
    • Small employers have had some variability, large employer market has increased, don’t have data on self-insured market
    • Likelihood of patient being under TDI-regulated plan has decreased recently from 17% to 16%
  • L Taylor – Asks after price increases going up in concert with insurance increases
    • Raja Malkani, TDI – Average is difficult to answer as it depends on plan; generally, looking at ACA plans most have had cumulative rate increases of 70% to 200% from 2014 to 2019
    • Cost sharing has gone up as well, compounding the problem
  • Hancock – In trying to fix this issue, could elected officials be making the problem worse?
  • Campbell – Increased cost share makes it very difficult for consumers to choose where to go

 

Panel 3

Dr. Arlo Weltge, Emergency Physician, Texas Medical Association

  • Consolidation is an issue of concern to physicians as well as the public, can result in reduced patient choice, increased cost, and decreased physician input in clinical decisions
  • More difficult for small physician practices to survive
  • Recent legislation worked to prohibit influence on physician decisions, but legislature must continue to work to combat hospital interference in physician judgment without fear of reprisal
  • SB 833 in the 85th by Sen. Hughes would have increased these protections, 501(a) health care corporations are regulated, but enforcement could be bolstered with complaints processes, etc.
  • Large national PBMs could have an affect on physician’s judgment, concerned that they are making unilateral decisions overriding physician decisions; would hope to see PBM oversight addressed in legislation
  • Zaffirini – What kind of oversight?
    • Looking for some line or boundary to interfere with patient judgment, arbitrary limitations of certain pharmaceuticals, remediation, etc. are interfering currently
  • Zaffirini – Oversight by whom?
    • Would assume HHSC or TDI
  • Zaffirini – Would this require legislation?
    • Likely yes

 

John Hawkins, Senior Vice President, Texas Hospital Association

  • Large number of uninsured creates a significant uncompensated care (UC) pool, new negotiation of 1115 waiver reduces state’s ability to handle this
  • Marketplace is underperforming, federal money was set aside to stabilize premiums, but it was never appropriated
  • Sequestration, Medicaid cuts, etc. put pressure on hospitals and staff; market activity is a response to the cuts seen
  • Lowering admin burden could help, could also help to lower substantial IT costs and this would assist moving into Value-Based Payments (VBP)
  • Can consolidate clinical service lines for services duplicated in the community
  • Other large issue is access to capital, many large rural facilities do not have capital access like urban facilities do
  • Trying to standardize and reduce variance in practice of medicine, working with stakeholders to prevent effect on clinical decisions
  • Nichols – I’ve lost 4 hospitals in rural counties, powerful groups are needed to negotiate prices for facilities like this
  • Zaffirini – Do you have an opinion on how consolidation has affected rural areas?
    • Rural areas have a large challenge, often the best opportunity for these rural facilities is to partner with a larger urban facility; can also benefit the urban hospital
  • Zaffirini – Is it correct that along the entire Texas-Mexico border there is only one public hospital?
    • Correct, state does not put up funds, so these hospitals are reliant on IGT
  • Zaffirini – How many public hospitals are in rural areas?
    • Likely 100, often don’t have the tax base to generate revenue
  • Zaffirini – Asks for specific recommendations on other testimony?
    • Key is the data to determine if transactions are beneficial
  • Hancock – Do you disagree with anything said regarding substantial increase in revenues?
    • Not necessarily, the issue is the uncertainty in the market, many significant margins would likely be to subsidize other facilities
  • Hancock – Speaking to larger market, health care revenue is growing at a faster rate than any other industry
    • Correct
  • Hancock – Has number of members for diversity of participation increased or decreased
    • Number has increased, investor-owned sector is growing somewhat
  • Hancock – I get this, but companies or associations, is that increasing or decreasing?
    • Significantly decreasing
  • Hancock – What about for TMA?
    • Diversity is increasing, consolidation due to difficulty of practice

 

Jamie Dudensing, CEO, Texas Association of Health Plans

  • TAHP advocates for sound & competitive health insurance market
  • Unexpected surprise bills is the #1 cost worry for consumers, outpacing premiums, etc.
  • Research shows that premiums are tracking directly with underlying health care prices, provider prices are the leading cause of overall cost increase
  • Texas has some of the highest prices, highest cost, highest surprise billing rate, highest number of uninsured, etc.
  • Cost drivers include large increase in group consolidation, rapid growth of surprise billing, mandates and regulations within the state, lack of affordable coverage because of lack of market stability, & proliferation of free-standing ERs
  • Usual and customary payment standard mandate on health plans has had huge impact on costs
  • Recommendations include:
    • Should prohibit surprise billing or hold consumers harmless when they are not responsible for choosing the provider, New York is a good standard
    • Should give AG power to hold price gougers accountable
    • Should eliminate mandates and regulations without value
    • Should take advantage of federal flexibility to stabilize market
  • Nichols – Every panel has testified to the problem created by usual and customary, was this by rule or statute?
    • Not by statute, was never any debate or discussion, rule implemented in 2012 or 2013
  • Nichols – Sounds reasonable to have usual and customary, but when everyone raises prices it becomes usual and customary
    • This is the danger of government becoming involved in the pricing regulation; provides data showing the price increases similar to Ho’s testimony where code prices increased from 200%-300% to 900%
  • Nichols – TDI has a responsibility to regulate, but in this case, it shot prices through the roof
    • TDI can only regulate the fully insured market, little to no regulation on the other side; negotiation power changes as you increase regulations on one sector and not the other
  • Nichols – Asks after out-of-network prices
    • TAHP supports a reasonable approach, need to have a floor for health plan reimbursement, but also need to hold consumers harmless for decisions out of their control
  • Nichols – I think finding the “reasonable” approach is difficult
    • Texas mandate increased cost of care, ACA standard regarding average network rates is a more “reasonable” approach
  • Nichols – You are prohibited from releasing cost information
    • Health plans are required to release price information, but we cannot provide comparisons of in-network physicians; should not be difficult for patients to have an idea of in-network providers and cost relative to market
  • Hancock – On the pricing information provided earlier, do you disagree to the information or data we have available?
    • Weltge, TMA – Not familiar with information so not in a position to agree or disagree
  • Hancock – Asks that data be shown to him, would like to agree on data
    • Dudensing, TAHP – Two databases exist in the private market, FAIR health and Truven; these are now competing and provide holistic info
  • Hancock – Would like to agree on data as a starting point
    • Hawkins, THA – Accurate if it’s coming from these sources
  • Hancock – Asks Dudensing to speak to consolidation around the state and negotiating power resulting from consolidation; revenue from all market actors is rising as at expense of consumers
    • Dudensing – Problems arise without controls on networks, entities can step out of network and cause network adequacy for health plans
    • Can’t fix all of the issues with consolidation, but can fix things moving forward and prevent network adequacy manipulations; difficult for insurers to negotiate when a single group controls an area and can unilaterally move out of network
  • Campbell – Health plans can choose to have a provider in network?
    • Correct
  • Campbell – It sounds like you aren’t favorable to independent pricing entity setting usual and customary, but would rather have a little more than the federal government sets
    • The federal reimbursement can be more reasonable
  • Campbell – Federal government can often slice prices to providers, independent group could set prices more fairly; seems like insurance groups can price fix essentially with networks
    • Power of negotiation lies currently with the providers
    • Government does not need to set the price at all
  • Campbell – ER care will be more costly, but some insurance companies are making determinations on whether something is an emergency problem after care has been rendered; not fair to place all this on ER care, need to ensure we do not hold public responsible for deciding what is an emergency
    • Would agree, Texas bases emergency determinations on symptoms rather than final result, important regulation
    • But if consumers are walking in with apparent non-emergency like head lice, there is not reason they should not see the price for care
  • Campbell – Agrees, but want to ensure we do not over-regulate
  • Zaffirini – I believe you were involved in an effort to focus on preventative care and educate patients, what efforts are underway to educate patients on where to go & how can they tell the difference between different facilities
    • One health plan has a concierge team that will assist patients, apps also exist to help guide consumers to appropriate facility
  • Hancock – Listening to the three large associations, we hear of lack of revenue and payments or ability to negotiate; but this is not related to consumers paying more and more every year while we have consolidation across the board

 

Panel 4

Stacey Pogue, Senior Policy Analyst, Center for Public Policy Priorities

  • Focusing on short-term health plans, consumers pay a lower premium, but take on a much higher risk and limited health care access
  • Short-term plans often do not cover pre-existing conditions
  • Short-term plans also carry risks for those who do not purchase them: uncompensated health care for things not covered, can erode market stability
  • Texas needs to examine how to provide temporary stopgaps, but without increasing risks too much

 

Mia Garza McCord, Interim President, Texas Conservative Coalition Research Institute

  • Current system is convoluted and puts consumer at a disadvantage, consumer do not have an accurate view of costs
  • CMS predicts US health care costs to grow to $5.7 trillion by 2020
  • Consumers in the health care market do not have options like in other markets, “right to shop” could benefit markets such as ERS and TRS
  • Direct primary care could be a solution, but certain regulatory agencies view this as a secondary health plan & this blocks the ability
  • Zaffirini – Regarding quality of care and right to shop proposal, how do we ensure quality of care
    • Could be some market factors, there are minimum standards, but enough consumers recognizing poor service would correct the issue

 

Blake Hutson, Associate State Director, AARP

  • Where consolidation meets the consumer is not necessarily surprise medical bills
  • SB 7 transparency efforts are appreciated and have driven up numbers of patients reaching mediation
  • Solution is to keep what we have, but add the hold harmless at the front end
  • AARP also did independent research finding many facilities are not in compliance with laws prohibiting usage of other entities’ marketing materials, etc.; consumers are being misled
  • Zaffirini – What barriers can we remove to surprise billing?
    • Biggest factor is the hold harmless, mediation regulations have been a large improvement
  • Zaffirini – What steps are needed for mediation or billing disputes
    • Consumer barrier for entry is high, mediation is needed but consumers do not offer much by being involved
  • Zaffirini – Asks after the out-
    • Many are abusing the system, claiming that they “accept” certain coverage, etc. while not being in network
    • Can be a lot done on language and fee transparency
  • L Taylor – I thought we passed legislation requiring entities to be very specific about network status, need to follow up on this if it is not being followed
    • Agreed, many may not have bandwidth to address this

 

Dr. Dean Waldman, Director, Center for Health Care Policy, Texas Public Policy Foundation

  • It is the market’s job and the physicians to ensure consumers are receiving proper care
  • Networks are narrowing, rural hospitals are closing, problems are getting worse
  • Root cause is attempt by government to control the market, leads to lack of competition, consumers without incentive, etc.; leads to rising prices and lowered access
  • Need to begin to unwind anti-competitive regulations
  • Would recommend broadening association rules regarding insurance participation, HAS and HRAs should be allowed to pay for direct primary care
  • Should be cautious about price transparency and reference pricing, need to speak to actual cost to consumer; reference pricing is price controls
  • Need a new 1115 waiver that should waive all eligibility standards, verification, benefits packages, etc.; Texas needs to restore control of Medicaid to state; need to have HSAs for Medicaid enrollees and allow use for primary care; need to incorporate personal responsibility into Medicaid

 

Texas Department of Insurance Data Call:  Receive testimony from the Texas Department of Insurance Hurricane Harvey related property and casualty insurance claims data analysis.

Panel 5

David Muckerheide, TDI

  • Present as a background/resource

 

Brian Ryder, Senior Actuary, TDI

  • Presenting highlights of data from insured losses, 728k closed claims as of June 2018, 4% of claims remain open
  • Paid claims have increased by $10 billion since last presentation, expecting $19.7 billion before reinsurance; time to pay claims has also increased
  • Large part of claims are flood claims
  • L Taylor – Does flood include Write Your Own?
    • Yes, vast majority
  • Average payment was $13k for residence, $14k for auto, commercial was $200k per claim
  • Nichols – Asks after which part of the state data his district falls under
    • Houston and Southeast Texas/Houston Area
    • Directs Sen. Nichols to loss amount data for individual counties
  • Nichols – Regarding individual counties, there are reopened claims, how does this fit into the 4% open claims?
    • Reopened claims data includes claims that where reopened at some point, but could have been closed
  • Zaffirini – What claims have not been paid, what is the timeline for these individuals?
    • Some claims are closed without payment due to lack of coverage or damage
  • Zaffirini and Ryder discuss the specifics of statistics presented on open and closed claims, TDI presents data on open and closed claims as of June 30, 2018
  • L Taylor asks for clarification on the data presented as opened or reopened
  • Hancock – Current law allows for an individual to be out of residence for 2 years and maintain homestead exemption, do you anticipate this being an issue where some are not in their homes for longer than this period?
    • Average time to close claims is 45 days with 96% closed
    • Muckerheide, TDI – Also subject to prompt pay regulation
  • Hancock – No way to identify whether a person’ home is inhabitable within a 2-year period though