Fiscal Note & Local Impact Statement
123 rd General Assembly of Ohio
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BILL: |
DATE: |
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LOCAL IMPACT
STATEMENT REQUIRED: |
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CONTENTS: |
Prohibits health insuring corporations, sickness and accident insurers, and
third-party administrators from using "most favored nation"
contract clauses |
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STATE FUND |
FY 2000 |
FY 2001 |
FUTURE YEARS |
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General Revenue Fund |
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Revenues |
- 0 - |
- 0 - |
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Expenditures |
- 0 - |
Indeterminate effect |
Indeterminate effect |
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Other State Funds |
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Revenues |
- 0 - |
- 0 - |
- 0 - |
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Expenditures |
- 0 - |
Indeterminate effect |
Indeterminate effect |
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Note: The state fiscal year is July 1 through June 30. For
example, FY 2000 is July 1, 1999 – June 30, 2000.
* The potential effect on
governmental expenditures resulting from the bill depends primarily on a
complex interplay of market reactions to the events the bill could generate in
the health care marketplace.
·
State
employee fiscal year 2000 health benefits are already under contract, therefore
this should have no effect on state benefit costs this fiscal year.
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LOCAL
GOVERNMENT |
FY 2000 |
FY 2001 |
FUTURE YEARS |
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Counties |
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Revenues |
- 0 - |
- 0 - |
- 0 - |
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Expenditures |
Indeterminate effect |
Indeterminate effect |
Indeterminate effect |
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Other Local Governments |
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Revenues |
- 0 - |
- 0 - |
- 0 - |
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Expenditures |
Indeterminate effect |
Indeterminate effect |
Indeterminate effect |
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Note: For most local governments, the fiscal year is the calendar year. The school district fiscal year is July 1 through June 30.
* The potential effect on
governmental expenditures resulting from the bill depends primarily on a
complex interplay of market reactions to the events the bill could generate in
the health care marketplace.
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The bill prohibits: (1.)
health insuring corporation (HICs) policies, contracts, and agreements, (2.)
sickness and accident insurers, and (3.) third-party administrators (TPAs),
from using “most favored nation” clauses when contracting with providers or
health care facilities.
“Most favored nation” (MFN)
clauses come in many shades and can vary in practical application. In some
contracts for example they could represent an “equal rate clause”. Beyond the
shade or practical implementation, an MFN clause is a contractual provision
that requires a seller (provider or health care facilities) of health care
services to give the buyer (HICs, insurers and TPAs) the best price the
provider gives to anyone else.
This seeming simplicity of
MFN clauses masks the complex effects they may have on the market. The issue is
further complicated in health care when you consider, what constitutes a
market. In Ohio for example, a health care market may be considered to comprise
a central large city like Columbus and the immediate surrounding counties.
Likewise, Cleveland and its surrounding counties would be considered a
different market. Are these two “markets” substantially different that it makes
statewide analysis meaningless? We say no, but it makes analysis on a statewide
basis difficult.
To analyze the potential
effects of the bill on the state and local government benefit costs, we rely on
the principal theories stated as the basis for the Federal Trade Commission’s
(FTC) and the U.S. Department of Justices’ (DOJ) objection to MFN clauses:
First, they can discourage price competition among health insurers and the
entry of new insurers into the health care market – by discouraging health care
providers from offering selective discounts to insurers; second they can
facilitate price maintenance among health care providers – by inhibiting
innovation in the provision of services and the management of costs or
preventing price competition among providers.
The question to analyze in attempting to gauge the fiscal effects of the bill is: will the bill’s removal of these “barriers” result in increased competition and thus potentially lower costs or will it result in increases in reimbursement rates to providers? We at LBO currently do not believe we have acquired enough relevant information to make an informed estimate. In addition, LBO contacted the Department of Administrative Services for an estimate of the impact of the bill on health care premiums paid by public employers and subsequently state benefits costs, and at the time of writing this analysis, DAS could not provide an analysis. If additional information is forthcoming, LBO will provide an updated analysis.
q LBO staff: Ogbe O. Aideyman, Senior
Economist
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