For example, the minimum MLR rules for insurers may superficially appeal to some insurance purchasers, but they could further disarm payers in aggressive price negotiations with providers and stifle insurers' investments in innovative monitoring and improvement of health care delivery. n5 MLR rules also could inhibit new entry by start-up insurance carriers lacking sufficient investment capital cushions to overcome initial marketing and administrative expenses. The eventual scope and scale of the ACA's regulatory requirements for essential health benefits also could discourage investments in low-cost, nonmedical alternative interventions that can produce results superior to mandated traditional care.
It is important to distinguish between short-term effects as the ACA exchanges begin their first shake-down year of implementation and the more likely long-term dynamics of this more heavily regulated and tax-subsidized "market" for individual and small-group insurance. Given the potential leverage that state and federal exchange administrators may eventually exercise over participating insurers, n6 the most likely scenario to unfold as the costs of guaranteed benefits squeeze against the supply of revenue from tax subsidies and enrollees' discounted premiums is for a few surviving large insurers to gain a dominant share of the coverage provided in the exchanges, as they gravitate more toward a regulated public utility model (e.g., captive customers, low but predictable rates of return, economies of scale in managing regulatory compliance costs, and commodity-like products). Whether this dynamic might eventually spill over into the larger employer-based health insurance market remains conjectural, but not implausible, at this point.
Health Firms Grow Bigger & Politics Reigns Supreme
Passage of the ACA triggered a new wave of defensive consolidation in the health care sector, instead of just presenting better opportunities to reconfigure operations and business relationships to become more efficient. Anticompetitive strategies were predictable responses to the new law's incentives and penalties. The elegant theory of how the ACA's payment incentives and regulatory guidance will inspire more coordinated, high-value care within larger, more vertically integrated health care systems needs to be tempered by some more likely political and economic realities.
Entrenching Dominant Incumbents
The ACA's reimbursement schemes and regulatory burdens are more likely to entrench large, existing players in health care markets than to encourage start-up innovators. The law is designed to limit returns on private capital invested in health care services and products; indeed it often frames private profits as reducing the resources needed for direct patient care (e.g., rate review thresholds, MLR limits, formulaic "productivity adjustments" in reimbursement, rebate-like taxes on health care providers, insurance cooperative subsidies, and mandated benefits). However, these very rules bias the evolving health system further against entry by the new, innovative entrepreneurs most likely to search for hyper-profitable new ways to reengineer inefficient health care practices, products, and systems.
Under the ACA's regime of complex, confusing, and costly regulation, it will take a larger village of lawyers, lobbyists, and lines of credit to comprehend, cope, and comply (or maneuver). n7 Growing bigger, or staying large, becomes the best hedge against political and regulatory risks. Too big to fail may not be guaranteed, but too small to survive becomes more likely.
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