Looking Ahead to Greater Health Care Cost Transparency

The theory that clearer public disclosure of health care prices will put meaningful downward pressure on the cost of those services will soon be put to the test as never before.

Federal "transparency in coverage" regulations for health plans have been finalized. Components of these rules will take effect in three stages, beginning on Jan. 1, 2022. Meanwhile, earlier rules mandating greater pricing transparency by hospitals are scheduled to take effect on Jan. 1, 2021, assuming they survive pending legal challenges.

ACA Legal Foundation

The latest regulations that govern health plans bought by employers and employees are "a historic step towards putting health care price information in the hands of consumers and other stakeholders," said the Centers for Medicare and Medicaid Services (CMS), the federal agency that wrote them. This advances "the [Trump] administration's goal to ensure consumers are empowered with the critical information they need to make informed health care decisions," the CMS added.

Pill container with money inside

The regulations' legal authority comes from the Affordable Care Act (ACA). This is perhaps an ironic twist given the Trump administration's efforts to invalidate the ACA in a case that, as of this writing, is being heard by the U.S. Supreme Court.

The American Benefits Council (ABC), an industry trade group representing employers, has mildly praised the regulations. "Price transparency is an important part of the value equation, and [the] final regulations will significantly increase the price information available to employees and their families," the group commented. The ABC added, however, that the rule "is not the conclusion of that effort [to lower health care costs] but is a step in the right direction."

The final rules give health plans more time to comply than the originally proposed version, a change praised by the ABC.

Detailed Pricing Information

The first part of the regulations takes effect, as mentioned, for plan years that begin on or after Jan. 1, 2022. It requires health plans to make available three separate regularly updated machine-readable files that include detailed pricing information covering:

"This data," said the CMS, "will provide opportunities for detailed research studies, data analysis, and offer third-party developers and innovators the ability to create private sector solutions to help drive additional price comparison and consumerism in the health market."

In other words, it won't be of immediate practical use to consumers. However, more patient-friendly data is mandated to be provided later, for plan years beginning on or after 2023.

That's when most plans must "make available" to participants, beneficiaries and enrollees personalized out-of-pocket cost information and the underlying negotiated rates for covered health care items and services. This includes prescription drugs. The requirement applies to both in- and out-of-network providers. The information needs to be disclosed through an Internet-based self-service tool and in paper form upon request.

Initially, 500 "shoppable" medical services will be covered by the requirement. Whatever is left off that initial list must be included in the following plan year. The result, according to the CMS:

For the first time, most consumers will be able to get real-time and accurate estimates of their cost-sharing liability for health care items and services from different providers, allowing them to both understand how costs for covered health care items and services are determined by their plan, and also shop and compare costs before receiving care.

A Share of the Savings

The regulations also contain a feature that reflects the fact that health care consumers don't always hunt for bargains — even when they have access to data that would point them toward cost-saving opportunities. The feature rewards a plan financially when its members begin switching to less costly, higher-value services. The hope is this will motivate health plans to work hard to get members to take advantage of the transparency resources and choose providers accordingly.

The feature enables plans to "share the resulting savings" by taking credit in their medical loss ratio (MLR) calculations. Under the ACA, health plans are required to provide rebates to plan members if the proportion of the premium revenue that goes to overhead costs exceeds certain thresholds, as determined by MLR calculations.

The goal of this provision of the new regulations is "to ensure that [health plans] would not be required to pay MLR rebates based on a plan design that would provide a benefit to consumers that is not currently captured in any existing MLR revenue or expense category," according to the CMS.

The agency hopes the new rule "will preserve the [ACA]-required value that consumers receive for coverage under the MLR program, while encouraging [health plans] to offer new or different value-based plan designs that support competition and consumer engagement in the health care market."

No Free Ride

Although the CMS anticipates that consumers — and, thus, employers — will ultimately experience financial benefits from the transparency regulations, the regs come with costs all their own. It will take between about $6 billion to $8 billion for insurers to develop all the required information-sharing tools, the government estimates.

Those costs will need to be recouped one way or the other and will surely be shared with the employers who sponsor health plans for their employees. Work with your benefits advisors to ascertain how the transparency regs may affect your organization's health care benefits costs.

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