Like most states, Rhode Island has experienced significant health insurance premium increases over the last several years, and was presented with another hefty, double-digit rate hike for 2011 by its primary health plans. The Insurance Division has approved a rate increase of about 8-12% for most groups, which is about 1-4% lower than the original rate request by the health plans. What is most notable, however, is the conditions which were attached to the premium increase approval; conditions which attempt to address one of the major underlying causes of rising health spending–hospital price increases. (Insurance Division Material)
Rhode Island had earlier commissioned a study of what was driving health spending and found that hospitals costs were the largest contributor and that there likely was a negotiating imbalance between health plans and the hospitals. The conditions on the rate increases are intended to help address this imbalance. The conditions include a requirement that payments be based on methodologies for inpatient and outpatient services other than fee-for-service and that are designed to reward efficiency and quality; the increases in hospital payments must not be higher than the CMS hospital input price index, with an allowance for greater increases if hospitals demonstrate attainment of at least three national quality or efficiency objectives; plans and hospitals must work toward mutual administrative efficiencies in areas such as claims processing; efforts must be made to improve hospital/primary care physician coordination and the parties must allow disclosure of the specific contractual terms to the Division and the public.
Health plans seemed generally pleased and the hospital association reacted with caution, claiming many of its members were losing money as it was. Generally, government interference with market forces rarely meets its intended objectives and often creates unintended new problems. But Rhode Island deserves credit for recognizing that the rise in health insurance premiums is only a symptom of underlying provider price increases and attempting to limit those increases. One of the real causes is rampant hospital inefficiency and lack of cost controls. Hospitals tend to have far more employees than they need and to pay excessively, and to overbuild and acquire excessive equipment. Knowing there are limits on the price increases they can deliver to consumers and health plans may force hospitals to address their internal cost issues.