When it comes to the cost of health insurance, most people are only interested in one thing: the dollar amount that comes out of their paychecks.
But it’s what isn’t listed on those pay stubs that interests WSB’s Stuart Craig.
“Employers in the U.S. actually contribute about 80% of most people’s health care premiums, so most of us are shielded from seeing the full cost of our health insurance,” says Craig, an assistant professor of risk and insurance.
There might be more going on behind the scenes than you think, especially as costs associated with health care have soared significantly in recent decades. How employers respond to these increasing costs, and how that ultimately impacts employees in a variety of ways, is at the crux of Craig’s research.
Because the majority of Americans receive insurance through an employer-sponsored arrangement, health care pricing in the U.S. is an especially complicated dance—and Craig says the prices we actually pay aren’t typically set with the end consumer in mind.
“They get set in a business-to-business negotiation between hospitals and insurance companies,” says Craig. “A lot of what I’m doing is trying to model these negotiation environments to understand what features of them result in certain kinds of prices.”
Most recently, he turned his attention to hospital mergers as a way of measuring the various impacts of rising health care costs. In the past 20 years, more than 1,000 hospital mergers have taken place across the U.S., with previous studies suggesting prices tend to increase when insurance companies have fewer hospitals to negotiate with.
Using claims data from several large health insurers, combined with additional data from federal sources and agencies, Craig and his co-authors found that the average hospital merger led to price increases of 1.2% within two years. That, in turn, caused a complex and troubling domino effect in labor market outcomes, like reduced earnings and job losses, among those primarily earning between $20,000 and $100,000 annually.
“I’m all about research that helps everyday working people.”
—Stuart Craig
More specifically, Craig notes that a 1% increase in premiums caused both payroll and employment at non-health care firms to be reduced by approximately 0.4%. At the county level, these price hikes caused a reduction in per capita labor income and income tax receipts, while causing a rise in unemployment and unemployment insurance payments.
Following the downstream effects even further, the data ties these findings to adverse health outcomes: Craig’s study shows that one in 140 individuals who become separated from the labor market after health care prices increase will die by suicide or from a drug overdose.
“It’s deeply frustrating to think that the price increases we’re looking at have such a negative outcome on the very people that the system is set up to help,” Craig says.
While Craig isn’t trying to demonize all mergers, he notes that research like his could potentially be utilized by policymakers and federal regulators to better predict which mergers may result in price increases and adverse outcomes—and which ones might also need antitrust enforcement.
“The price increases we observe seem to be largely driven by a subset of mergers between hospitals that are in direct competition before the merger. By blocking these anticompetitive mergers, you could reduce health care prices or health care price growth without harming people or making health care worse,” he says. “Really, there’s merit to studying where these prices come from, whether they represent value for consumers, and if there are ways to ensure people are protected from business practices that raise prices without creating value. I’m all about research that helps everyday working people.”