Could Health Insurance Bureaucracy Be a Good Thing?

Research Corner
October 3, 2023

Soleil Shah, MD, MSc, Research Reporter

Soleil Shah writes Tradeoffs’ Research Corner, a weekly newsletter bringing you original analysis, interviews with leading researchers and more to help you stay on top of the latest health policy research.

Ever had trouble getting a medication or procedure approved by your health insurer? Your care might have been subject to a process known as prior authorization that insurers use to ration people’s care. It’s a policy that people — especially doctors like myself — love to hate. But in this week’s Research Corner, guest author health economist Betsy Q. Cliff poses a provocative question: If not prior authorization, then what?

Give it a read and share your thoughts with us @SoleilShahMD or @betsyqcliff.

Could Health Insurance Bureaucracy Be a Good Thing?

Betsy Q. Cliff
Betsy Q. Cliff is a health economist and assistant professor in the Department of Public Health Sciences at the University of Chicago. Her research focuses on how the design of health insurance and insurance-related policies affects spending and health.

Health insurers are under fire from Congressadvocates and the federal government for restricting people’s access to medical care through a process known as prior authorization. Through this process, insurers approve or deny coverage of certain drugs or services on a case by case basis, depending on whether they perceive them to be medically necessary.

Prior authorization is often held up as the prime example of bureaucracy running amok in health care. It’s so maligned that the American Medical Association has a lobbying campaign specifically dedicated to changing it and, under pressure, major insurers have recently reduced its use.

So why do insurers use it at all?

One of the most comprehensive and interesting studies on the subject comes from a working paper published earlier this year. In it, economists Zarek Brot-Goldberg, Samantha Burn, Tim Layton and Boris Vabson examined prior authorization requirements put in place by Medicare Part D insurance plans, which cover people’s prescription drugs. The researchers measured the effects of these restrictions on drug spending, insurer and provider administrative costs, and prescriptions filled by patients.

Overall, the authors found prior authorization policies are highly effective roadblocks. They reduce by nearly one-third the number of patients who would otherwise take these restricted drugs. As a result, the private insurers who run Part D plans and the federal government that subsidizes this program save a combined $96 per enrollee per year overall. That might not sound like much, but if you add those dollars up across every enrollee in a plan, that amounts to significant savings not only for the insurer but also for the patients and taxpayers who ultimately share the bill for Part D drug coverage.

At the same time, the authors estimated these prior authorization policies also generate about $10 per enrollee per year in administrative costs for health care providers and insurers. In other words, from a financial perspective, the savings from this policy appear to far outweigh the hassle — by about $86 per enrollee.

The health effects of this policy are less clear. Among patients deterred from taking their desired drug, about half substitute a similar but unrestricted drug — but half receive no alternative drug. Troublingly, the authors found non-white patients and older patients were more likely to reduce their use of drugs with prior authorization requirements than white and younger patients.

Yet, whether the decrease in medication use is problematic depends on how essential the restricted drug is to someone’s health. In general, the authors find, classes of drugs shown to be extremely valuable for health — antidepressants, antidiabetics and drugs for high cholesterol, for example — are less often subject to prior authorization. But more research needs to be done here; other studies have shown reductions in medication use can have dire consequences.

The thing I appreciate most about this study is its clear-eyed look at the costs and benefits of an emotional subject: who decides which patients get what care. While the prior authorization process can certainly be improved — something the Centers for Medicare and Medicaid Services is trying to do — this study cautions against abandoning it entirely. Even with the headaches, prior authorization for some drugs or services may be better than the alternative.

Insurers’ other options for controlling their costs, such as slapping large co-pays on drugs or charging big premiums for more generous coverage, ration care based solely on what someone can pay. That can also have health consequences. Prior authorization, at least in theory, restricts care based on medical need.

Additionally, the prior authorization approach generally aligns with how the public — when asked to be social planners — have said they would favor benefit restrictions. In focus groups, members of the general public were asked to decide which benefits to restrict to keep health plans affordable. The public favored restrictions on care that had little or no clinical value and high cost brand name drugs. Those are generally the same categories of care that prior authorization restrictions target.

Of course, these focus group participants were designing policies in the abstract; it’s different when it’s your own health. But, for the purpose of creating health plans that are affordable and fair for everyone, we should be asking: If not prior authorization, then what?