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A Project of The Annenberg Public Policy Center

ACA Doesn’t ‘Set Prices’ on Exchanges

Rick Santorum wrongly claimed health plans on the health care exchanges are offering more limited networks of doctors and hospitals “because the Obama bill set prices at such levels” that some doctors and hospitals “do not participate in these programs.” The Affordable Care Act does not set prices for medical care.

The private insurance companies participating in the exchanges set prices, which doctors and hospitals can balk at. The insurance companies set those prices in order to be able to offer more affordable plans in a competitive marketplace.

Santorum made the claim on CNN’s “State of the Union” during a spirited back-and-forth with Howard Dean, the former Vermont governor who once chaired the Democratic National Committee, over the merits of the Affordable Care Act.

Santorum, Dec. 1: And here’s the thing that, again, no one’s talking about. The networks, in other words the doctors and hospitals that are in these exchange products, are dramatically smaller.

In other words, yes, you’ll be able to get your preventive care from your doctor, but if you want to go to the children’s hospital, sorry, you can’t get that kind of specialized care from specialized doctors. Why? Because the Obama bill set prices at such levels that doctors and hospitals, particularly the ones that are in high demand, do not participate in these programs. So you’re going to see the end result be higher costs, less care, and then as a result, because they’re narrow networks, longer waits and longer lines. This is just beginning, the disaster of Obamacare.

No statistics are publicly available to substantiate whether the plans on the exchange are offering more limited networks, but there is anecdotal evidence that some insurance providers are offering plans that restrict choices to a relatively small network of doctors and hospitals. As Jonathan Chait of New York magazine wrote, “It’s making customers more sensitive to price. Of course, the flip side of this dynamic is that the ruthless price competition is encouraging insurers to squeeze doctors and hospitals. The most affordable plans on the exchanges often exclude more expensive providers.”

Contrary to Santorum’s assertion, however, the Affordable Care Act does not set the price levels for care. The law requires insurance companies to spend at least 80 percent of premiums on health costs — as opposed to spending on administration, marketing, and profit. But the actual prices for medical services are set by insurance companies offering plans on the exchanges; and those same insurance companies decide what doctors and hospitals will be in the network. In Missouri, for example, Anthem BlueCross BlueShield excluded one of the state’s top hospital systems from policies it offered on the exchange.

“The ACA does not set prices related to commercial insurance, for either premiums or payment for care,” Deborah Chollet, a senior fellow at Mathematica Policy Research, a nonpartisan research firm, wrote to us in an email. “The narrow-network plans offered by some issuers are intended to (a) maximize negotiating leverage with providers by narrowing their PPOs; and (b) thereby reduce premiums to attract consumers. So, this is not regulation; it is competition at work.”

“That said,” Chollet added, “consumers need to be aware that if they want to go anywhere to buy care, they will have to pay more for it in premiums, out of pocket, or both.”

Karen Pollitz, a senior fellow at the nonpartisan Kaiser Family Foundation, echoed those sentiments.

“The ACA does not set prices for health insurance policies,” Pollitz told us in an email. “Rather, market competition drives insurers to seek ways to hold down premiums. It’s too early to say how many plans offered on Exchanges have narrower networks (compared to, say, what insurers had offered previously on the nongroup market, or compared to what employer plans offer).”

In Maine, for example, Pollitz said, Anthem “has gotten lots of press for limiting the number of network hospitals; but a new co-op health plan offered in Maine offers a significantly broader network.”

Experts we spoke to agreed that while there are no hard statistics yet on the extent to which plans on the exchanges have limited the doctors and hospitals in their networks, Santorum is correct that there seems to be a trend among insurers participating in the exchanges of limiting those networks.

“It’s definitely the case (based on conversations with insurers and with providers) that insurers have decided to limit networks in some instances in order to price their health plans more competitively,” Pollitz said. “It’s also definitely the case that some providers have declined to participate in some of the new health insurance networks, holding out for higher fees from some insurers in return for a promise to participate exclusively in their networks. This is market competition at work — not entirely transparent, unfortunately, so it’s not yet clear what the impact will be on patients.”

Paul Ginsburg, president of the nonprofit Center for Studying Health System Change, said the exchanges and the structure of subsidies “have created a highly competitive environment for insurers.” In order to keep premiums low, many insurers have excluded some expensive providers from their networks.

“Children’s hospitals have a reputation for being particularly expensive,” Ginsburg wrote to us in an email.

The New York Times recently detailed how some in-demand hospitals are able to charge significantly higher prices for medical services than their competitors.

While Santorum’s comment makes it seem as though doctors and hospitals opted out, it is insurance companies that ultimately decide what doctors and hospitals will be in their network.

“The only role that doctors and hospitals play is deciding whether to offer lower rates to get into these limited networks,” Ginsburg said.

And while the process may lead to fewer choices, it’s not all bad for consumers, Ginsburg said. Some hospitals have discounted their rates in order to be included in networks.

“Competitive pressure is leading to lower prices, which are pursued through limiting the network,” Ginsburg said.

And Larry Levitt, senior vice president of the Kaiser Family Foundation, said: “I do believe there are stronger competitive forces operating on insurers in the individual market, and that is helping to keep premiums down.”

Limiting networks is nothing new, a fact that was highlighted in a story in the New Republic.

“Virtually all insurance now sold includes a limited network of doctors and hospitals (i.e., PPOs, HMOs, POS, and EPOs), and that was true before the Affordable Care Act as well,” Levitt said.

The bottom line: It appears to be true that some plans sold on the exchanges will restrict access to hospitals and doctors, but contrary to Santorum’s claim, it’s not because the Affordable Care Act sets prices in a way that discourages doctors and hospitals from participating. The plans are being limited by insurance companies seeking to offer more competitively-priced plans.

— Robert Farley