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The Evaluation of Pro-Competitive Policies Effectiveness From Taxed-Based and Privatized Health Insurance Models

By Todd Brown, MSc.

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Brown T. The evaluation of pro-competitive policies effectiveness from taxed-based and privatized health insurance models. HPHR. 2022;54.  

The Evaluation of Pro-Competitive Policies Effectiveness From Taxed-Based and Privatized Health Insurance Models

Abstract

Introduction

Healthcare costs have continually been rising, which is unsustainable. One way of tackling this issue is by promoting competition policy. Competition has the goal of reducing cost while simultaneously improving quality. Several countries have attempted to promote competition within their healthcare systems with various results. The purpose of this analysis is to evaluate the effectiveness of pro-competitive policy in different healthcare settings.

 

Methods

A literature review was conducted by selecting articles from PUBMED and Google Scholar based on relevance to the topic.

Results

Most countries that implemented pro-competitive policies had various degrees of success at increasing competition within their healthcare system (United Kingdom and Massachusetts). The others United States had mixed or negative results.

Conclusion

Each countries healthcare system is unique, and the results of competition policy may vary depending on the country, the elements of the policy, and how it is implemented. These are important factors policy makers should consider when creating pro-competitive policies.

Introduction

The healthcare sector has continually seen an increase in expenditure over time primarily due to evolving factors such as population, demographic changes and innovations, among others. The rise in global healthcare spending has been of concern to policy makers, which begs the question, what is needed to reduce healthcare spending? One answer to this question has been the creation of policy to promote competition within healthcare.

 

Competition policy, at its core, has the goal of controlling cost while simultaneously improving efficiency, quality, and innovation within the healthcare setting.1 As Varkevisser, 2020 explains, consumers of healthcare only benefit from pro-competition policies when markets function properly.2 This leads to lower prices, improved quality, and increased choice and innovation; however, healthcare systems around the world are not created equal and differ from country to country. As such, policies to promote competition within the healthcare setting are often unique and difficult to reproduce. Additionally, their outcomes can be difficult to measure as these policies are often accompanied by various external changes within the healthcare system.3

 

This paper examines competition policy enacted in the US and UK and creates a clear overview of the results and effectiveness of these policies. The data is taken from various published articles and studies. A review was conducted by selecting articles from PUBMED and Google Scholar based on relevance to the topic. Search terms included “((Competition Policy) AND (Health Care)) AND (United States)” and “((Competition Policy) AND (Health Care)) AND (United Kingdom)”, along with slight variations in these search terms to be inclusive. Not all articles were selected for inclusion in the review. Inclusion criteria included recency (post-2010 where possible), actual policies that have been implemented to promote competition present in the articles, and analysis of competition policy outcomes noted in the article(s). Most of these studies evaluate how the healthcare system (including the providers, hospitals, patients, or insurance systems) respond and change in accordance with the implementation of the pro-competitive policies. It should be noted that while the role of regulating bodies, as well as mergers and acquisitions, within healthcare systems play a role in competition, this paper will not evaluate them at this time.

 

Before the competition policy is looked at, the paper will discuss the supply and demand restraints in relation to competition and how this relates to quality within healthcare systems. As such, section 1 outlines competition policy in respect to supply, demand, and quality. This provides a background to understanding why competition policy is important, and the limitations of competition in healthcare. Section 2 presents policies and their effectiveness in the UK (taxed-based health insurance). Section 3 discusses private insurance policies in the U.S. and their effectiveness (privatized health insurance). Section 4 lists the limitations and conclusions of this review. Section 5 outlines recommendations for policy makers to consider.

1. Competition policy market

The interaction between supply and demand determines a market’s equilibrium. Changes in competition affect the supply and demand curves by potentially reducing costs, improving quality, and improving outcomes.4

 

Healthcare markets are a great example of ‘market failure’ from an economic point of view. As Garattini & Padula, 2019 explain, this occurs on both the demand and supply side of the market.1 Information asymmetry and moral hazard occupy the demand side. Patients, who are often sick and vulnerable can’t shop around and choose the best option available for them. When they can, the information is often too complex for the average person to understand, meaning they can’t choose the best option for themselves even if the information was available. This leads to information asymmetry for the average patient. This means that physicians must fill the role of providing information and making suggestions to the patient; however, the provider doesn’t pay for the costs, which is usually done between the patient and the insurance. This means there is a potential moral hazard for both the patient and the provider.5 Thus, competition policy should increase the spread of easy to access information for the patient (the consumer).

 

On the supply side, gate-keeping and open markets are essential for cost containment.1 The basic components of competition on the supply side should culminate in multiple providers offering the same services that provide the patients choice in consumption. This comes with limited entry and exit barriers for companies (e.g., hospitals, physicians) so they can compete in the market and provide competitive services.5 With most European National Health Services, this comes with general practitioners (GPs) acting as gatekeepers to limit expensive and redundant specialty care to limit healthcare spending.

 

Studies have been conducted to determine how competition, including changes in supply and demand, affect the quality of health care provided within markets. One theme is consistent across studies, the government plays a key role in ensuring quality and containing costs.6 Once a market is in competition, quality becomes a strategic complement, meaning increases in perceived quality in one hospital will lead to competitors increasing their quality.7 This is true when price is regulated within the market.8 The reason for this is that when prices are set between different hospitals, and when quality information is available and patients have a choice in where they receive care, the only way hospitals can compete is on quality. Thus, quality, or the perceived quality, will rise. When price is not regulated in a competitive market, and the demanders are price sensitive, both price and quality are likely to fall.9 Price differences between suppliers becomes the main determining factor when choosing between options, leading to quality being a smaller.10 When the demanders are not price sensitive, this can lead to the focus being on quality. This places individuals with the power to choose between suppliers. This occurs when consumers have a choice in suppliers and no cost constraints (e.g., when insurance covers the cost). The tenants of the healthcare market follow the rules of basic economics and teaches us that “If the elasticity of demand with respect to quality increases or elasticity of demand with respect to price decreases, both price and quality increase”.6

 

There is, however, debate on whether competition within the healthcare sector leads to better results. To show that competitive markets, and not just a concentrated market of hospitals, provide higher quality gains, Croes et al., 2018 performed a study comparing competitive markets and concentrated markets.11 They found that more competition provided higher quality than the concentrated markets. Other studies provide mixed results in terms of quality when competition is involved, such as the U.S. where competition has led to consolidation of the market, which has brought about higher prices and mixed quality results.3 Einav & Levin (2015) explain that competition in healthcare can have different goals, and each one should be considered when determining if the promotion of competition is successful, 1. providing similar care at lower cost; 2. proving better care at the same cost; or 3. achieving cost savings that is possibly worse in care, but still good enough.12

2. Taxed-based system (United Kingdom)

Tax-based healthcare systems raise their revenue mainly from taxes with some nontax government revenue.13 Additionally, tax-financed systems typically have their own directly managed facility that they operate and run. Lastly, most tax-finance systems have a GP gatekeeper system to help manage visits and spending. Certain tax-based systems (including some mentioned in this paper) have had limited choice in provider although this is changing to promote choice for consumers by encouraging competition within the market. However, in systems where competition has been introduced through choice for the consumer, GPs typically make the choice instead of the consumer.8 Again, no two health systems are perfectly alike and there are exceptions to these assumptions. Although competitive reforms in the UK started around 1990s, this analysis will look at more recent reforms in the UK to promote competition.

 

The most recent reforms, which have taken place since the 2000s, were aimed at promoting competition within the hospital sectors. This includes two approaches: a change in reimbursement known as Payment by Results (PbR), and a change to allow patients the choice in location of treatment between hospitals.14 Although not a reform, around 2010 the NHS started a website to provide quality and performance information on providers to help with information access for consumers.8 The PbR, which occurred in 2002, changed the payment scheme from a Reference Cost Indexing (RCI) to activity-based financing. The PbR aimed at overcoming the providers from denying hard or complicated cases and reward them based on efficiency with payment in a fair way.15 The UK government has been in close control of the hospital sector and has supervised all major changes internally which has promoted internal competition between hospitals (through increased choice in services and allowing non-reimbursable medical treatment) while maintaining universal healthcare.16

 

One study, which evaluated the results of these reforms, found no change in total expenditure across the UK healthcare system, although the results on quality improvements were positive (Gaynor et al., 2013).17 Cooper et al., 2011 and Gaynor et al., 2013 found positive improvements in heart attack patients in locations with the highest competition with Gaynor et al., 2013 also reporting improvements in the number of deaths (fewer) for all hospital patients and a decreased length of stay for hospital admissions.17,18 Gutacker et al., 2016 found that readmission rates within hospitals fell.19 These improvements in quality, associated with the no change in total expenditure, means the improved quality came at no cost increases across the system as a whole.9

 

Propper (2018) points out the limitations of these evaluations when determining the effectiveness of these pro-competitive reforms. With many different changes occurring together, including changes in payment systems and choice in provider, we can’t determine which change brought about the improved quality.

3. Private systems (United States)

The U.S. is different than most of its other peer countries in that it relies on private insurance and out-of-pocket payments.13 Within the U.S., insurers, hospitals, and doctors are private entities where any increase in price (at any level) has a high pass-through rate to patients meaning they pay more for their care.14 There are publicly funded programs (such as Medicare and Medicaid), but these will not be evaluated as this section focuses on private systems. Additionally, the U.S. allows pharmaceutical promotions, which can play a role in competition and the high cost of healthcare20; however, this will also not be evaluated.

 

The U.S. spends nearly 18% of its gross domestic product (GDP) on health expenditures, which is nearly twice as much per capita when comparing to other high-income countries.21 This U.S. market failure can in part be due to policies that inhibit competition or due to excessive regulation that undermines the policies and prohibits their successful integration.22

 

This paper will look at two policies, the Massachusetts Health-Care Reform and the Affordable Care Act and evaluates their effectiveness in increasing competition by lowering costs and improving quality.

a. Massachusetts

The Massachusetts Health-Care Reform sought to provide near universal health coverage to citizens of Massachusetts by mandating health insurance, expanding Medicaid, and ensuring “minimum creditable coverage” by all health insurance plans.23 One of the main competitive changes came on the health insurance supplier side where an online marketplace was created for consumers to compare insurance plans and shop for the best insurance.24

 

Sommers et al.,2014 summarizes the effect of the reform, which expanded health insurance coverage to more adults, improved access to health care, and decreased overall mortality.23 The reform also lowered the probability of patients delaying care due to cost with the reform having its greatest improvement (in terms of coverage and improved access) for the socioeconomically disadvantaged groups.24

b. Affordable Care Act

Following the positive results of the Massachusetts Health-Care Reform and using its structure and design as a model, President Barack Obama created the Affordable Care Act (ACA) in 2010. Within the U.S., competition and patient choice was already established on the insurance side where insurers negotiation with competing suppliers (e.g., hospitals, individual providers) for the price on health care; however, the contracts were often very complex, so the ACA followed the design of the Massachusetts Health-Care Reform by creating an online marketplace for consumers to buy insurance with less complex contracts where insurers compete for contracts.8 The ACA mandated that each U.S. state has an insurance exchange and that they regulate the insurance plans by ensuring each has minimum coverage of benefits, allows consumer choice, and limits risk selection which ensures everyone can get the plan they desire.12

 

The results of the ACA can be difficult to measure as only 30 states have adopted the ACA expansions, a change in presidency brought changes to the mandate, and not enough time has passed to give a definitive answer; however, Reisman (2015) stated, “so far, so good.”25 The ACA has reduced the number of uninsured individuals, especially among the socioeconomically disadvantaged groups, and has improved the quality of care for people with chronic conditions.25 Others disagree; Manchikanti et al., 2017 discuss how most access improvement has been made through Medicaid while the working and middle class have faced higher out-of-pocket expenditure and received less support; and the goal of improved quality has not been met due to no improvement in preventive healthcare spending, higher management costs for chronic diseases, and a decrease in solo and independent practices (due to high regulatory compliance costs).26

4. Conclusion

The principal finding within this paper is that policies to improve competition in different healthcare systems around the world have generally had a positive effect. In summary, the pro-competitive reforms within taxation- based insurance models have also generally been positive. The UK’s change in reimbursement and increased patient choice was considered successful at improving competition (and improving quality) without increasing cost. The private health insurance changes within the U.S. had mixed results in attempting to increase coverage and competition between insurance companies. The Massachusetts Health- Care Reform had positive results in terms of expanding access and service quality. The ACA had mixed results in increased access (more covered in total with a change in coverage for the working class) with mixed results in quality of care received; however, it may be too early to tell if the ACA has succeeded or not.

 

There are several limitations to this evaluation. Conducting experiments that generate more hospitals in one area, or that allows greater choice for some over others, is very difficult to do in a working system.3 As such, most of the research articles and studies evaluated compare certain metrics (e.g., quality, cost) from years before the policy and compare them to the years following the policy. Other factors outside of the policy may affect the results (including a country’s financial changes like a recession, changes in population demographics, improvements in medical technology, among others). Other limitations include a lack of evidence-based research on all countries evaluated; not enough policies being implemented and evaluated in various countries around the world; and, when a country does implement policy to improve competition, it is typically done in conjunction with multiple policy changes, so determining the effectiveness of one policy change is difficult. Further evidence- based research should be conducted to determine the current research findings legitimacy in terms of competition policy results. Lastly, this evaluation looked at high-income countries, where high-income and low-income countries operate and perform differently; evaluation on competition policy should be conducted for low-income countries.

 

With more and more countries in recent years (especially since the 2000s) attempting to increase competition within their individual markets, we will continue to learn more about what does and does not work. Sharing this information between countries is vital as healthcare spending by GDP is at an all-time high for most countries and something must change to lower total expenditure costs. In this evaluation we have seen how some countries have succeeded at lowering costs (and improving quality) while others have had mixed or negative results. With continual changes in terms of innovation and big data, the future of pro-competitive health policy is bright, as it may be the very thing that is needed to contain cost while improving quality.

5. Recommendations

There are several important lessons that can be extracted for policy makers to consider when determining whether to implement a pro- competitive policy. First, one policy does not fit all situations. One policy that works in one country may not work in another country. Policy makers should evaluate their countries individual situation to determine if, when, and how a policy should be implemented.

 

Second, each country’s individual situation includes evaluating which policies are already in place and how a new policy will affect, and be affected by, those policies. Too many policies can be detrimental and hamper competition, as shown by the U.S., and other policies can build on each other, like with the UK.

 

Third, competition policy can benefit consumers when it lowers prices, raises quality, provides more choice, and increases innovation.2 Although difficult, one way of doing this is by promoting cooperation along with competition. Doing so can allow providers, hospitals, and insurers to share information and create value while competing for customers.

 

As such, I recommend each country to evaluate their current health policies and consider how they can incorporate pro-competitive policies that

 

  1. increase patient choice (of provider and insurer);
  2. improve patient knowledge (specifically around access to quality matrixes);
  3. improve cooperation (this leads to better value from within a competitive market);
  4. change provider and hospital payment methods (to incentivize competition and quality).

 

These policies have been shown, at some degree or another, to improve quality and decrease cost. In doing so, they should allow researchers to evaluate the effectiveness of these policies in an evidence-based manner so information and lessons can be shared between countries.

 

References

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  2. Varkevisser M. Mary Guy, Competition Policy in Healthcare: Frontiers in Insurance-based and Taxation-funded Systems. Med Law Rev. 2020;28(2):426-440. doi:10.1093/medlaw/fwz036
  3. Bloom N, Propper C, Seiler S, van Reenen J. Healthcare: how competition can improve management quality and save lives | Microeconomic Insights. Microeconomic Insights. Published December 16, 2015. Accessed May 13, 2021. https://microeconomicinsights.org/healthcare-how-competition-can-improve-management-quality/
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About the Author

Todd Brown, MSc

Todd Brown is a medical student at the University of Utah. Before attending medical school, he attended Imperial College London where he graduated with his master’s in International Health Management.

 

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