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Indiana General Assembly at 2023 State of the State address

Hoosiers are paying more for hospital care. Here’s how lawmakers want to solve the problem.

Jan 18, 2023

Update, May 16, 2023: Gov. Eric Holcomb has signed three Republican priority bills aimed at reducing health care costs. Read about the final versions of the bills here.

The Gist

Multiple studies show Indiana has relatively high health care costs — both when it comes to hospital costs and insurance premiums, which can mean that a large chunk of the money Hoosiers earn goes toward health care. 

Both House and Senate Republicans have made lowering those costs a priority this legislative session after sending a warning letter to hospitals last year asking them to address the high costs themselves. Plans include a proposal from House Republicans to impose fines on hospitals with high prices.

Lawmakers’ proposals are likely to be met with intense pushback from hospitals. 

What’s happening? 

Health insurance is less affordable in Indiana based on workers’ average annual pay than the U.S. as a whole, a report from the Nicholas C. Petris Center found. On average, premiums for an individual were 14.1% of a workers’ annual average pay in Indiana, compared to 11.2% in the U.S. as a whole in 2020.

Right now, the average employer-sponsored premium is $7,319 for a single person per year in Indiana. While that’s only $170 higher than the national average,  individual premiums would need to decrease by more than $1,500 per year in order to match the U.S.’s premium cost in terms of affordability. In short: Hoosiers are paying too much on monthly premiums, based on what they make.

Likewise, there is a larger gap between what Medicare pays for hospital services compared to what commercial insurance pays in Indiana than in all but six states, according to a study from the RAND Corporation, signaling a high-cost problem for Hoosiers when it comes to hospital care. 

A study from Harvard University professors arrived at a similar finding: Hospitals in Indiana, of all the states, would lose the second highest percentage of their revenue if commercial rates matched Medicare rates, based on 2017 numbers.

Health care expenditures per capita in 2020 in Indiana were higher than that of the U.S., according to a separate Petris Center report commissioned by the Legislative Services Agency. That statistic matters in a state with a reputation as a low-cost-of-living state with average pay that is significantly lower than that of the U.S. 

The Indiana Hospital Association (IHA) said some critics have become hyper-focused on only a small portion of the picture in a “deliberate misrepresentation to advance their agenda.”

“Hospital prices may be relatively higher, [but] they’re not nearly as high as some of our critics say,” said Brian Tabor, president of the IHA. 

For example, Indiana is below the U.S. rate for health care expenditures per enrollee when looking just at those that are privately insured, according to the Legislative Services Agency’s Petris Center report.

So why are prices high? 

A variety of factors impact health care costs, making it challenging to pinpoint just one silver bullet.

Hoosiers for Affordable Healthcare largely blame the insurance and hospital markets in Indiana, both of which are considered highly concentrated. Indiana’s health care system is dominated by six major hospital systems, and the top insurer in the market— Anthem

Blue Cross Blue Shield of Indiana, has an average market share of 44.9% across Indiana’s metropolitan statistical areas. 

“Prices are high in Indiana, because they can be,” said Matt Bell, a lobbyist for Hoosiers for Affordable Healthcare, “because there has not been significant push from the employer community to demand lower prices, because our hospitals are more consolidated than in other states and that has driven prices as we’ve consolidated, because our insurance market is dominated by one large player.” 

In its two reports, the Petris Center found that hospital mergers led to a 10.6% increase in the prices for inpatient admission at the merging hospital in Indiana, and each additional insurer in Indiana was associated with a 3.3% decrease in insurance premiums.

Likewise, from 2010 to 2018, the share of primary care physicians who were integrated with a hospital in Indiana increased from 33% to 60%, which drove up costs slightly, too. 

Tabor emphasized that hospital systems aren’t forcing hospitals or physicians to join the larger system; they’re making the choice on their own. 

“In almost all cases that I’m aware of, the conversations are initiated by these community hospitals that have been meeting with their board and have realized that they can’t recruit physicians, they can’t get the negotiating rates with equipment, supplies, other things like that,” Tabor said. “Joining a system is a way to keep the hospital open, and in some cases provide more services in the community.” 

Hospitals and insurance companies point the finger at each other for contributing to at least part of the price increases. 

“The biggest thing that we face from the insurance side, especially in our negotiations in reimbursement rates, is the consolidation of the hospital market, and the fact that you’ve now got basically five or six big systems that seemingly on a yearly basis are gobbling up the rest of the industry,” said Marty Wood, president of the Insurance Institute of Indiana. “So their bargaining power is enhanced tremendously each year as they grow their market share.”

Meanwhile, IHA in part blames insurance companies for higher health costs, and say the industry could be more transparent by sharing what dictates how much insurance companies charge. 

IHA also argues that investing in improving Hoosiers’ health, such as the large public health investment proposed by Gov. Eric Holcomb, would help reduce costs. 

Here are the bills House and Senate Republican leadership are pushing to try to address the problem:

Sen. Ed Charbonneau introduces multiple health care cost bills during the Senate Republicans' agenda unveil on Jan. 9, 2023. (Credit: Kaitlin Lange)

This bill would require health care providers to charge for services based on where the service is actually provided. Currently, health providers can charge more for a procedure if it’s performed at a hospital-owned clinic — as if it were being performed at a hospital — rather than an independent clinic. Drafted by Valparaiso Republican Sen. Ed Charbonneau, this bill would end that practice. 

Legislators killed a similar proposal in 2020 after hundreds of health care providers gathered at the Statehouse in protest and IHA warned the consequences could be catastrophic for hospitals. 

“I say this without exaggeration … It would close hospitals,” Tabor said last week. “It would force some to consolidate.”

Senate Bill 7 aims to increase competition, allowing more doctors to work where they choose in the state. The bill would prohibit noncompete clauses between physicians and their employers, which can limit doctors’ ability to continue to work in the region if they leave an employer, and also bans physicians from receiving an incentive for referring a patient to another doctor in the same network. 

“In certain parts of Indiana, large hospital networks have used these noncompete clauses to control the local market for physicians, hurting competition and driving up patient costs,” said Sen. Justin Busch, the Republican from Fort Wayne who is carrying the bill. 

Tabor argued that lawmakers already struck a good balance in restricting noncompetes when they passed a bill on the topic in 2020.

This bill from Charbonneau requires pharmacy benefit managers, the powerful intermediaries who negotiate drug prices between drugmakers and insurers, to pass on discounts to patients purchasing the medicine. Historically, pharmacy benefit managers have been able to keep the savings for themselves. 

Wood, of the Insurance Institute of Indiana, warned the proposal could increase the cost for health care plan consumers who don’t purchase those drugs. 

Under House Bill 1003, an employer would receive a tax credit for adopting a health reimbursement arrangement instead of a typical health insurance plan. 

The legislation, carried by Warsaw Republican Rep. Craig Snow, also attempts to level the playing field between insurance providers, prohibiting hospitals from giving an insurance company a discount that's more than 10% less than the price given to other insurance providers. IHA warns this could take away the ability of hospitals to negotiate. 

The final provision of the bill actually should provide relief to hospitals, limiting when prior authorization can be sought which may cut down on administrative costs. Those in the insurance industry say this provision could actually increase health care costs.  

House Bill 1004 is arguably the most hard-hitting bill of the bunch, in that it directly penalizes hospitals. 

If most nonprofit hospitals charge Hoosiers with employer-sponsored health insurance more than 260% of the Medicare reimbursement rate for services, the hospital would be financially penalized under this bill, carried by Carmel Republican Rep. Donna Schaibley. This wouldn’t apply to county-owned hospitals.

House Speaker Todd Huston
House Speaker Todd Huston speaks to the media. (Credit: Kaitlin Lange)

“I think it sends a really strong message that the Legislature wants to see lower prices, and I think it’s a very direct way to say, ‘You have a period of three years to lower your prices and if not, you’re going to pay for that,’” Bell said. “I think that’s bold.” 

In an effort to increase competition, the bill includes a tax credit for physicians who have an ownership stake in their own practice. The legislation also appears to limit the types of physicians hospitals can employ. 

Like Senate Bill 6, this bill also requires health care providers to charge for services based on where the service is actually provided; and similar to Senate Bill 7, it prohibits nonprofit hospitals from entering into physician noncompete agreements. 

The IHA has numerous concerns with the bill, including the use of the Medicare reimbursement rate to determine penalties, since that rate could shift. 

“We’re going to have to work with all the stakeholders,” House Speaker Todd Huston said when presenting the pair of House bills that aim to decrease health care costs. “But we’ll never lose sight of who we’re really working for, and our priorities are to lower costs for Hoosier patients and Hoosier employers.”

What’s next?

It’s still early in the process, which means the legislation could change dramatically. So far, none of the bills have been scheduled for a committee hearing yet, with roughly a month until the deadline.

Contact Kaitlin Lange on Twitter @kaitlin_lange or email her at [email protected]




Header image: Members of the Indiana General Assembly clap in response to legislative changes proposed during the 2023 State of the State Address on Jan. 10, 2023, at the Indiana Statehouse. (Credit: Ronni Moore)