Does CareFirst’s dominance hurt consumers?

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So, CareFirst BlueCross BlueShield still dominates the Maryland health exchange. And as discussed in today’s article, that could have an impact on the future of the exchange.

But what’s it mean for consumers’ pockets? And what about for physicians?

The convention wisdom, according to Bradley Herring, a health economist at Johns Hopkins University, is that when one or two insurers dominate the market, they use that influence to charge higher premiums than they otherwise could.

“But on the flip side,” Herring said, “a health insurer with greater market power can also negotiate lower prices with providers, which can reduce health care spending. So those two effects kind of cancel each other out in terms of what the consumer pays.”

In most states, insurers negotiate rates with hospitals, physicians and other providers. Therefore, all of those providers are affected when one or two companies dominate the market. The companies have more bargaining power, because the providers wouldn’t want to be excluded from the insurer’s network, so the provider will agree to receive lower rates.

In Maryland, however, a state panel sets the rates that all hospitals can charge for its services, and those rates are the same for “all payers” — every insurance company, Medicare, Medicaid, etc. That means that hospitals in Maryland don’t really care that CareFirst dominates the market; it can’t negotiate lower rates.

But the state rate-setting system does not extend to physicians.

So, Herring said, physicians might feel the impact of CareFirst’s dominance.

“I think physicians would be paid more in Maryland if the health insurance market was more competitive here,” he said. “Although that’s similar [for physicians] in other states.”

So, to recap: CareFirst probably sets its premiums at similar rates as other companies with less market share, Herring said. But behind the scenes, because CareFirst can pay physicians less than less popular insurance companies, CareFirst enjoys a larger profit margin.

“At least,” Herring said, “that’s the theory.”