News Summary
A study by Brown University reveals that Rhode Island’s hospital price growth cap, enacted in 2010, has resulted in significant savings for consumers, with premiums for fully insured plans dropping substantially. However, hospitals face financial strain with losses of approximately $158.3 million annually. Proposed legislation aims to address these challenges by extending regulatory oversight and increasing Medicaid reimbursements.
Providence, Rhode Island – A recent study conducted by researchers at Brown University has found that the hospital price growth cap implemented in Rhode Island in 2010 has led to significant savings for consumers, although it has also placed financial strain on hospitals. According to findings published in the journal Health Affairs on May 5, 2023, the price growth mandate has successfully lowered hospital prices and reduced health plan premiums for fully insured members.
By 2022, premiums for fully insured plans in Rhode Island were approximately $1,000 lower per member annually than they would have been had the price cap not been put in place. This indicates a tangible benefit for consumers as a result of the affordability standards overseen by the Office of the Health Insurance Commissioner (OHIC).
From 2010 to 2022, hospitals in Rhode Island experienced an average price drop of 9.1%. The study’s lead author, Andrew Ryan, noted that Rhode Island’s approach to regulating commercial prices is unique and has not been attempted in recent history by other states.
The hospital price growth cap was established as part of the state’s affordability standards, which were sanctioned by the Rhode Island General Assembly in 2009 through the creation of the Health Insurance Advisory Council. These standards are mainly applicable to fully insured health plans, which are favored by smaller businesses that may struggle with significant medical expenses. Conversely, larger firms often prefer self-insured plans, which are not directly governed by state regulations due to the Employee Retirement Income Security Act (ERISA).
While the study revealed that hospital prices declined in the self-insured market, premiums for these plans did not see a similar decrease. It was found that before these affordability standards were enacted, around 295,883 Rhode Islanders were enrolled in fully insured plans, a number that has since dropped to approximately 189,500 members. Now, self-insured plans account for nearly 60% of employee health plans in the state.
The analysis highlighted that out-of-pocket expenses for consumers dropped significantly, with savings of about $2.9 million for fully insured plans and approximately $5.3 million for self-insured plans annually. However, the overall dynamics of these savings remain unclear due to limited reporting requirements for self-insured plans.
Despite the reported savings for consumers, the financial impact on hospitals is concerning. Since the enforcement of the affordability standards, Rhode Island hospitals have collectively faced an estimated loss of around $158.3 million in commercial revenue each year. By 2021, the operating margins of these hospitals averaged -0.4%, a stark contrast to the national average of 4.8%. This decline has prompted discussions around a growing healthcare crisis in the state.
In response to these challenges, two pieces of proposed legislation seek to address the issues at hand. One proposal aims to extend OHIC’s authority over hospital contract rates, while another intends to increase Medicaid reimbursement rates for healthcare providers, thereby providing some relief to hospitals strained by the financial pressures of the price growth caps.
Study authors have also emphasized the necessity of recalibrating the hospital price growth caps periodically to ensure that hospitals are not subjected to unwarranted financial distress as they continue to operate within the newly established affordability framework.
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