This session, the Iowa house passed a bill with unanimous support. That bill, which was signed by the governor, bans state commercial insurance plans (employer-based and Medicaid) from requiring prior authorizations for cancer screening services.
Many have hailed this bill, from small town physicians to big firm lobbyists. Hearing the benefits of this bill and seeing the rare unanimous support, you, the reader, may think this bill will be great for Iowa. I hate to be the one to break it to you, but that will not be the case. Just because someone says something is good, doesn’t mean it will be good. Just because all our elected officials approved this bill, does not mean it deserves your approval. But I’m not going to talk to you about financial conflicts of interest in our state’s healthcare system or, remind you that just because something is common does not mean it is common sense. Rather, I’m going to introduce a simple, yet important principle of economics, one that was unfortunately ignored by our politicians. But first, let’s review the argument against prior authorizations.
Without a doubt, our healthcare system suffers from many inefficiencies, most notably high prices and administrative bloat. Our doctors have about five minutes with each patient, then spend the rest of their time completing digital paperwork in a constant struggle with insurance companies to receive approval (payment) for delivering healthcare services. Sometimes, how often is not exactly clear, providers must seek a prior authorization for a service before that care is delivered. If the insurance company denies the prior authorization, then the provider may not be paid by the insurance company, or the patient may delay or miss out on that healthcare service.
Before we can understand the folly of banning prior authorization, let’s now consider why they exist. Because of insurance, government mandates, and a myriad of regulations and subsidies, patients almost never pay the full price of their own medical care. Instead, an insurer pays the bill. The patient is insulated from the true cost of a service, which causes their demand for that service to grow. Concurrently, medical providers are financially rewarded for volume. Every additional scan, every extra biopsy, and every supplementary procedure generates more revenue. These are perverse incentives if the goal is effective, efficient healthcare delivery.
In this distorted system, the health insurance company is the only entity possessing a financial incentive to say limit low-value care. Prior authorization is their tool of choice. Can prior authorization misfire? Yes. Are these practices inefficient? Absolutely. But, when governments legislatively strip the insurer of the ability to use prior authorization, as Iowa has just done for cancer screenings, our healthcare system’s inefficiencies will multiply. Proponents of this bill have argued that the bill’s only impact will be reduced inefficiency while eliminating delayed/missed screening services for people who need them. Yet, proponents have ignored the key mechanism that allows prior authorization to limit low-value services. When providers know they must gain approval prior to delivering a service, providers will be less likely to recommend or seek authorization for a low-value services. This, the effect of being observed, is the sentinel effect.
Without the sentinel effect of prior authorization, providers will inevitably lower their clinical thresholds. Screenings that possess marginal, unproven, or highly questionable clinical value will be ordered because there is zero risk of denial. Utilization will increase. Costs will rise. According to actuarial models, eliminating prior authorization in a commercial market can drive up health insurance premiums by as much as 23%.
Who pays for that increase in premiums? Not the hospital administrators. Not the politicians who unanimously supported the ban. The cost is borne directly by working Americans. Employers, facing premium hikes, will respond the way they always do: by freezing wages, halting hiring, and shifting workers into high-deductible plans. That isn’t all. Costs will also rise for our Medicaid program, which will require new tax receipts, reallocating current revenue spending, or both. Worse yet is the potential toll on patients, as unconstrained screening guarantees an increase in false positives and the overdiagnosis of unharmful tumors. Unfortunately, Iowa’s legislature did not conduct a thorough analysis of this bill’s impact. So, we have no idea how this bill will impact cancer care, insurance premiums, or our healthcare workforce. Those are answers we need once this law takes effect, lest we embark on a progressive slippery slope towards prior authorization prohibition.
Banning prior authorization will not save us money or protect patients. Instead, this popular bill forces us to watch a system over-test, overtreat, and overbill our family and friends. Let us remember, consensus should be earned through evidence, not mistaken as evidence itself. So, the next time our elected officials uncharacteristically and unanimously agree, consider that your curiosity signal and begin asking questions no one else is willing to ask.
- Jason Simprini
