Governments must decide whether and how private firms should provide health insurance in their countries. Private provision of health insurance occurs not only in the US but also in several European countries, including Switzerland, Germany, and the Netherlands. The US, however, is unique in offering a mix of public and private health insurance programmes.1 The largest segment of the US population (49%) in 2022 enrolled in private health insurance plans sponsored by their employers. Public health insurance programmes include, among others, Medicare for elderly and disabled individuals (15%) and Medicaid for people with a low income (21%). Medicare offers beneficiaries the choice of enrolling in fee-for-service, government administered health insurance or plans that are funded by the government but administered by private health insurance firms (see box for further details).
Glossary of terms
Durable medical equipment—Medical devices and equipment that must be prescribed by a healthcare professional and are designed for reuse, usually in the home, and are appropriate for patients with certain medical conditions. Examples of durable medical equipment include wheelchairs and scooters, walkers and canes, hospital beds, oxygen equipment, and blood glucose monitors. Within traditional Medicare, Part B provides coverage for some durable medical equipment.
Fee-for-service—A payment model in which healthcare providers receive payment for each service, test, or procedure rendered to a patient. These fees may be administratively set or determined through negotiations between healthcare providers and payers (ie, insurance companies or government administered health insurance programmes). Traditional Medicare, which applies to government administered health insurance programmes including Medicare Part A and Part B, operates largely through a fee-for-service system.
Medicare Advantage (Medicare Part C)—A health insurance programme in which the US government pays fixed amounts for each enrolled person per period of time to private health insurance firms to pay for and administer medical and drug benefits to Medicare beneficiaries. Medicare Advantage plans include coverage of Medicare Part A and Part B services, and many plans also include prescription drug coverage (otherwise available through Medicare Part D). Beneficiaries have the option of enrolling in Medicare Advantage or traditional Medicare.
Medicare Part A—One of the two main components of the traditional Medicare health insurance programme in the US. Part A provides coverage for inpatient care in a hospital, skilled nursing facility care, nursing home care, hospice care, and some home health care.
Medicare Part B—One of the two main components of the traditional Medicare health insurance programme in the US. Part B provides coverage for outpatient medical services, preventive services, and some other medical services. Examples of covered services include doctor visits, laboratory tests, diagnostic screenings, durable medical equipment, physician administered medications, and ambulance services.
Medicare Part C—Medicare Advantage.
Medicare Part D—A voluntary outpatient prescription drug coverage programme (non-physician administered medications) in the US for people with Medicare and offered through private health insurance plans that are approved by and contracted with the federal government. Beneficiaries choose between standalone prescription drug plans to supplement traditional Medicare or a Medicare Advantage plan that includes prescription drug coverage.
Physician administered medications—Medications administered by a healthcare provider in an outpatient setting. These medications are typically injected or infused. Within traditional Medicare, Part B provides coverage for physician administered medications.
Physician services—A term that encompasses medical services provided by healthcare professionals. Within traditional Medicare, Part B provides coverage for many physician services, including, for example, doctor visits, surgical procedures performed in an outpatient setting, diagnostic tests, preventive services, and durable medical equipment.
Prior authorization—A process by which providers must obtain coverage determination from insurers for specific medical services before they are provided to patients. Through this process, insurers assess the necessity of medical services before they are provided.
Traditional Medicare—The original government administered health insurance programme in the US, which primarily serves elderly people. It consists of two parts: Medicare Part A (hospital insurance) and Part B (medical insurance). Traditional Medicare primarily operates as a fee-for-service system.
To address the challenge of constraining healthcare spending, private insurers may employ different tools from those used by governments. One controversial tool that health insurers use for managing care in the US is prior authorization (PA), a process by which insurers assess the necessity of medical services before they are provided. As with other utilization management techniques used by insurers, PA could serve to curb wasteful spending if it discourages care that is of low value; such low value care seems to be common.2 Two features distinguish PA from other tools that insurers use to reduce spending, such as patient cost sharing or denials of submitted claims. First, PA is prospective, requiring the determination of coverage before a patient receives costly services. Second, PA targets particular treatments or diagnostic services, especially high priced medications, or procedures. Although PA has been used since the 1980s, the practice has recently prompted controversy. Provider groups, scholars, and policy makers have expressed concerns that PA is administratively burdensome345 and can discourage appropriate care.6789 In the past year, several proposals to regulate PA have been advanced in Congress, state governments, and federal rulemaking.1011121314
Despite widespread policy interest in PA, research on the extent and effects of PA is lacking. PA requests and services deterred by PA are rarely identifiable in standard claims datasets for tracking healthcare use. Existing studies provide an incomplete understanding of the scope of PA policies. A recent analysis of PA requests to private health insurers in the US, for example, did not account for the services that were deterred by PA.15 Accounting for deterrence is important, as PA requirements may result in fewer requests and therefore lower denial rates over time.16 Thus, it remains unclear how often physician services require PA and to what degree PA policies vary across insurers. Answers to these questions could inform ongoing policy debates. Substantial variation in PA policies would imply disagreement among insurers about which services are susceptible to overuse. Services uniformly subject to PA, however, would reflect a consensus among insurers that these services may be susceptible to overuse, thereby implying that these services could be potential targets for interventions that aim to reduce low value care. Furthermore, if PA requirements were found to be extensive, this finding could inform ongoing policy reform to focus PA on low value services and to avoid administrative effort where the costs exceed benefits.
Understanding PA is particularly important for Medicare policy because the use of PA differs between government and privately administered insurance in the US. Several countries offer public health insurance with options to purchase substitutive or supplemental private coverage. The US is unique in offering publicly subsidized options to enroll in traditional Medicare, the government administered insurance that covers hospital care (Part A) and physician services (Part B), and the privately administered alternative to traditional Medicare, called Medicare Part C or Medicare Advantage. PA is minimal in traditional Medicare,17 which imposes coverage restrictions primarily through retrospective denials of claims. In contrast, private insurers can require PA in both Medicare Advantage and Medicare Part D prescription drug plans.18 Unlike PA policies for prescription drugs, however, the PA policies for physician services have not been well characterized across insurers.1920 In this study, we measured and compared the scope of PA policies for physician services, including physician administered medications, among five health insurers that collectively serve most of the Medicare Advantage market, quantifying differences in PA across insurers, physician specialties, and clinical service categories.