On “doc shock”

Since reading Kevin Drum’s post on “doc shock” — the issue of narrow networks for exchange plans leading people to “lose their doctor” — there’s something I can’t get off my mind.*

An exchange is a market. Yes, it’s a market with constraints, but it’s still a market with genuine competition to various degrees in various dimensions including network extent. Do we trust markets such as this to work in health insurance or not?

There’s a big debate about the question of whether markets “work” in health insurance. By “work” one generally means that the market is stable for insurers (e.g., no adverse selection death spirals), fair to consumers (e.g., they can access and comprehend sufficient information to make reasonable choices among options), and efficient for all (e.g., tolerable levels of administrative overhead and dead weight loss).

On one end of the spectrum of the issue of whether insurance markets can work are single-payer advocates who basically think it can’t. From their point of view, there’s too much waste in marketing, profit-making, administrative complexity, and inherent in the carving up of risk pools that choice requires. When applied to the issue of “doc shock,” a single-payer advocate might point to Traditional Medicare, which has the participation of the vast majority of doctors and all hospitals: nearly universal choice of provider with no choice of plan. No “doc shock” here.

The problem is that this point of view ignores Medicare Advantage (MA) and Part D drug plans, which are outside the Traditional Medicare paradigm and yet are very popular. Both exist in exchange-like market environments, harnessing plans in competition. MA plans have doctor and hospital networks. Part D plans have drug formularies and pharmacy networks. Beneficiaries who choose them — and many do — are generally satisfied. Competition in Part D appears to be working very well. It’s reasonable to conclude that many people prefer the option of a more narrow network at a lower price.

On the other end of the spectrum are market-advocates who espouse lighter regulations and encourage consumerism. “Skin in the game” is the rallying cry. Let people use their own money to buy what they want from a market free of the innovation-stifling constraints of exchanges. When applied to the issue of “doc shock,” such an advocate might say that more restricted networks are precisely what one should expect after you’ve constrained the market on cost sharing (limits on out-of-pocket costs and actuarial equivalent requirements) and constrained it on benefits (essential benefits requirements). The only significant, remaining way for plans to compete is by squeezing networks.

That all sounds reasonable. But there’s a problem here too. If one believes consumers can be savvy shoppers in a market environment — which any advocate of more “skin in the game” and less regulation must believe — then one should believe that the market will solve the “doc shock” problem on its own. If consumers are unhappy with narrow networks, plans will respond by offering options that are more expansive. Yes, those options will cost more. If consumers think that a higher premium is worth a more expansive network, they will vote with their wallets.

Now there are all kinds of problems with this view, the most obvious of which is that consumers may not be able to rationally assess network extent at time of purchase. That’s a perfectly reasonable objection. But it applies equally well to other dimensions of the health insurance and health care purchase decisions. It’s an argument for more consumer protection, more regulation, less skin in the game, and, consequently, less consumer and market autonomy.

Fundamentally, those arguing that “doc shock” is an issue need to decide whether they think the market can work for health insurance or not. If so, then they should have the courage of their convictions and argue that the market will equilibirate to the right set of choices with the right degrees of network extent, subject to existing regulatory constraints. If not, then consistency would dictate that an even more constrained market is in order, perhaps one with more demanding network adequacy requirements. But this will raise prices and limit choices for all, as some people prefer the option of a more narrow network at a lower price.

So, what’ll it be? Do you trust the market or not?

* I’m putting aside the fact that nobody literally loses their doctor due to the Affordable Care Act. You just might lose access to a plan that includes your doctor in its network. You’re permitted to go out of network at your own expense, of course.


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