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Here's How the Supreme Court Just Blew Its Opportunity to Help Lower Your Healthcare Costs

By Sean Williams - Mar 12, 2016 at 2:18PM

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Instead of striking its gavel against health insurers, this decisive Supreme Court ruling put the wind in their sails.


Image source: Flickr user Peter Stevens.

The Supreme Court of the United States, or SCOTUS, went back to work last week for the first time since the passing of Antonin Scalia in mid-February. The first decision it issued since its recess turned out to be a doozy.

Healthcare transparency? Not exactly...
The case in question was Gobeille v. Liberty Mutual Insurance Company. This case challenged a Vermont data collection law passed in 2005 that was aimed at improving pricing transparency and treatment quality in the healthcare space. Specifically, it required health insurers like Liberty Mutual Insurance to hand over data regarding the price it paid on medical claims. The idea was that if medical claim charges were transparent from the insurer, then the consumer could make a more educated purchasing decision by buying insurance from health-benefit providers that pass along savings to their members. It's a similar idea to Obamacare's marketplace exchanges, which attempted to boost transparency by making price comparisons easier to understand.

Image source: Pixabay.

However, insurers keep what they pay for medical claims a closely guarded secret, because it means not necessarily having to pass along those savings to the consumer. Not surprisingly, Liberty Mutual refused such requests for data on its medical claims (Liberty Mutual self-insures its roughly 60,000 employees), instead citing that provisions within the Employee Retirement Income Security Act, or ERISA, would protect it from having to divulge such data.

While SCOTUS took up this case from Vermont, a similar argument is playing out in 17 other states that have data collection laws in place. Thus, the decision in this case would likely affect rulings in the other states too.

The verdict? SCOTUS ruled in favor of Liberty Mutual. Officially, SCOTUS ruled by a vote of 6-to-2 (so this wasn't strictly a conservative vs. liberal vote) that Vermont's data collection law didn't apply to self-funded insurance plans, which are what many of the largest companies in the U.S. use. The American Benefits Council, via Reuters, estimates that self-funded plans provide insurance to about 93 million Americans annually. SCOTUS argued that ERISA protected disclosure and record-keeping under federal law, and that in this instance it trumped the data collection law that Vermont had put on its books.

Image source: Flickr user Vic.

As for health plans that aren't self-funded, they could still fall under the scope of Vermont's and the other 17 states' data collections laws. However, the data collected could prove mostly useless since a lot of people are insured through self-funded plans. What could happen, as noted recently by The Los Angeles Times, is that workers in industries that tend not to self-insure may be overcounted in these databases, while undercounting industries that do self-insure, thus failing to capture the real dynamics of healthcare pricing and medical needs across the United States.

What this means for you
Without beating around the bush, SCOTUS missed an enormous opportunity to strike a blow against the opaqueness of the healthcare industry's pricing practices. Ruling in favor of Liberty Mutual Insurance means the likely continuation of the status quo of self-insurers not reporting what they actually pay on medical claims, despite often striking deals with large-chain hospitals, drug developers, and medical device manufacturers at price points that are well below wholesale or reported costs.

Then again, if you're an investor in the healthcare sector, this is probably great news for you.


Image source: Flickr user COD Newsroom.

The obvious beneficiary would be large-scale insurers that would rather their medical claims data not become public knowledge. Think about a giant like UnitedHealth Group (UNH 0.73%), which is struggling mightily with its Obamacare marketplace plans. UnitedHealth forecast that its cumulative losses from its Obamacare plans between 2015 and 2016 could near $1 billion. However, it has a vast network of commercial plans and Medicare Advantage revenue to fall back on, where pricing remains largely opaque and behind the scenes. Even if UnitedHealth takes its lumps with Obamacare, it'll remain healthfully profitable thanks to its other dealings.

But it's not just insurers who are secretly rejoicing SCOUTS' decision. National hospital chains like HCA Holdings (HCA 4.17%) are probably pleased with the verdict as well. Hospitals like HCA Holdings that offer specialized, high-cost care (in some instances) would likely be reluctant to share the cost of that care with consumers. It's practically impossible to get a comprehensive and transparent cost comparison among hospitals within a large city, let alone within a state. With many insurers likely not being required to hand over that data, large-scale hospitals can breathe a sigh of relief.

For people like you and I, SCOTUS' ruling means once again accepting that mid-to-high single-digit percentage medical cost inflation may remain the norm for some time to come.

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