Alabamians and their employers pay more for health care insurance each year. Indeed, employee contribution to health insurance premiums is more in Alabama ($6,246) than in New York ($5,724).
The problem is that a whopping 94% of Alabama patients essentially have one private health care insurance: Blue Cross Blue Shield of Alabama (BCBS). This leaves Alabama tied with Alaska as the least competitive insurance market in the nation, limiting patient options, hurting hospitals and physicians, and feeding the insurance industry.
The first challenge of this structure is obvious. Because BCBS controls the regional market, it can potentially negotiate lower reimbursement rates with doctors and hospitals, putting stress and strain on the system. Building on that, if BCBS decides not to cover a certain treatment, a large percentage of Alabama will not have access to the procedure, medication, or therapy.
There are current real-world applications of this. Alabama BCBS is one of the few states that does not cover lumbar or lower back artificial disc replacement surgery, an FDA-approved surgery since 2004. This surgery replaces the disc or shock absorber in the lower back. The other option is a fusion surgery with rods and screws or other devices that replace the disc material.
There are differing academic opinions, and surgery should almost always be the last option for lower back pathology, but Alabama BCBS approves fusion surgery. However, there is research illustrating the potential for lumbar disc replacement surgery to reduce the chances of needing another surgery in the future.
One of the reasons Alabama insurance can afford to be sluggish in responding to different technologies is a lack of competition for patients. There aren’t diverse insurance choices for Alabama employees, so there is very little pressure on the insurance market. How this negatively affects patients can be seen in the 27-year-old patient of one of my colleagues. She is awaiting lumbar disc replacement surgery and must continue to wait.
Lack of competition also impacts the health insurance prior authorization circus. Health insurance companies have set up a system where they must approve certain surgeries before they agree to pay for them, despite the physician and patient deciding upon a personalized treatment plan.
In theory, this makes economic sense because the insurance companies are paying the bill and shouldn’t write blank checks. In actuality, the prior authorization system is an intentional delay tactic. This cumbersome apparatus frustrates families, hurts patients, and burns out physicians.
Ninety-four percent of physicians believe prior authorization delayed care for patients, 2022 data from the American Medical Association (AMA) notes. Thirty-three percent of physicians noted that a prior authorization delay led to a serious adverse event for a patient. Unfortunately, 80% of physicians had to abandon a specific treatment plan for a patient due to prior authorization hassles.
It costs time and effort to lobby for patients. The same AMA data noted that physicians and their staff spend 14 hours a week on average completing prior authorizations. This could be tolerated if it was an actual true peer review by the insurance company to ensure broad adherence to the latest clinical evidence to improve outcomes.
I have written here, here, and here — the latter specifically regarding Alabama — about insurance prior authorization for over five years. We published a peer-reviewed scientific paper in a leading neurosurgery journal proving that insurance companies were intentionally delaying approval for more costly surgeries. It’s not unusual for our spine team to argue the merits of a spine surgery on behalf of our patient to a retired emergency room physician or pediatrician acting on behalf of the insurance company.
Lack of competition doesn’t help, for it induces less impetus to fix this problem. And it’s getting worse each year in each state.
Alabama citizens need to understand that one reason real wages are not rising is due to these increased health care insurance costs. World War II wage control laws explain why private health insurance is tied to employers. In 1942, companies could not increase wages, so they competed with benefits. In 1943, the IRS decided not to tax these benefits; employer-paid premiums are exempt from both payroll and federal income tax. The problem is that health care is a benefit that employers are now having to pay more for each year. This makes it harder for employers to increase real wages, especially when wages are taxed more than health insurance benefits. It’s a regressive system.
So, where does all this Monopoly money go?
In 2022, United Health Group posted a $20.6 billion national total net earnings. That same year, insurance giant Cigna posted a national total net income of $6.7 billion. In 2012, BCBS operated a $1 billion surplus with over $2.8 billion in assets just in Alabama. In 2013, The CEO of BCBS Alabama made $4.84 million. I had trouble finding more current data as a law was passed in 2015 making the salary of Alabama's top health insurance executives confidential.
Conceptually, this lack of competition and high barrier to entry in Alabama follows the typical economic principles of a private monopoly. In a private monopoly, the quality of service goes down (output) and the cost (price) goes up in both direct and indirect ways. This is opposed to most states that function within an oligopolistic health insurance industry structure.
The arc of reform needs to bend towards the injection of competition between and within state lines. With that will come better products, lower prices, higher quality, and more innovation.
Richard Menger MD MPA is an assistant professor of neurosurgery and political science at the University of South Alabama. He is the lead editor of the textbook, "The Business, Policy, and Economics of Neurosurgery." @RmengerMD
The views and opinions expressed here are those of the author and do not necessarily reflect the policy or position of 1819 News. To comment, please send an email with your name and contact information to Commentary@1819News.com.
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