CBO Gives Congress Advice on How to Battle Rising Commercial Health Insurer Prices

In September 2022, the Congressional Budget Office (CBO) released a new report, Policy Approaches to Reduce What Commercial Insurers Pay for Hospitals’ and Physicians’ Services. In the report, the CBO identified some approaches that Congress could adopt to reduce prices paid by commercial insurers for hospitals’ and physicians’ services, in turn lowering health insurance premiums and federal subsidies.

For the purposes of this particular report, commercial health insurance includes employer-based insurance as well as individually purchased plans. Additionally, the prices paid by commercial insurers in this report are the actual amounts paid to providers, not the billed charges/list price.

CBO created this report in response to commercial health insurers prices for hospitals’ and physicians’ services increasing more quickly than prices paid by public health insurance programs. CBO notes that it is those rising prices – not the growth in the per-person use of health care services – that is an “important driver of recent increases in premiums for commercial health plans.”

CBO identified several factors impacting those rising prices, including the market power of hospitals and physicians and the lack of sensitivity consumers and employers have to those price increases, as they do not necessarily feel them directly.

CBO Suggestions

CBO suggests that Congress can take action to reduce the commercial insurers’ prices for providers by directly targeting the factors that are contributing to the price increases, while also acknowledging that “many of the causes of those factors are not amenable to change by legislative action.” CBO also notes that regulation could help to lower the prices.

The three broad policy approaches CBO recommends Congress look into are:

1. Promote competition among providers, potentially reducing prices by targeting providers’ market power
2. Promote price transparency, which might lead to consumers’ and employers’ price sensitivity
3. Cap the level (or growth rate) of prices, which would regulate prices and thereby reduce them.

Promote Competition

When it comes to promoting competition among providers, CBS would target the market power of hospitals and physicians in four ways: (1) increasing antitrust enforcement, (2) reducing providers’ incentives to consolidate, (3) making it easier for providers to change jobs, (4) and prohibiting anticompetitive contracts between insurers and providers.

Promote Price Transparency

To promote price transparency, CBO suggests two sets of policies: (1) expanding or refining existing federal regulations that require hospitals and insurers to make their prices available to the public and (2) establishing a federal all-payer claims database and providing standardized information about prices for health care services using that database.

Capping Level/Growth of Prices

The third set of policies would directly reduce the prices paid by commercial insurers, including: (1) capping the level of prices by setting maximum amounts that hospitals and physicians could receive from commercial insurers, (2) capping the annual growth rate of those prices, or (3) taxing services when the price exceeds a certain maximum amount.

CBO believes that the most direct route – capping the prices – might have the largest impact on prices, but it would depend on the design of the caps. For example, adopting a comprehensive set of price cap policies would reduce prices by a moderate (between 3-5%) amount to large amount (more than 5%) in the first ten years after the policies were enacted when compared to the current trajectory. CBO also believes that promoting price transparency would result in only very small price reductions (0.1% to 1%) while promoting competition among providers could result in small price reductions (between 1%-3%).

Federal Budget Implications

CBO believes that any of the three approaches would reduce the federal deficit and that commercial insurers would pass their savings on to consumers by reducing premiums, which would then decrease federal subsidies for health insurance.

CBO also noted that lowering the prices paid by commercial insurers would also reduce income for some health care providers and improve the financial situation for patients with commercial health insurance. It might also result in a decrease in the quality of health care and/or patient’s access to health care.