Texans are currently navigating a severe health care affordability crisis that is placing an unsustainable financial strain on families and employers, driven not by natural market forces but by the strategic consolidation of hospital systems across the state. As these large health networks merge and grow, they accumulate overwhelming market power, enabling them to demand exceptionally high prices from commercial health insurers. This market dysfunction is intentionally sustained through a series of restrictive clauses embedded in contracts, which are meticulously designed to stifle competition, undermine insurer cost-control measures, and ultimately prevent consumers from accessing more affordable and higher-quality care options. In response to this escalating problem, the state legislature took action, but the resulting law has proven to be an insufficient remedy for the deep-seated issues plaguing the Texas health care market.
The Contractual Chains of Market Control
The core of the affordability problem lies in a set of specific, anti-competitive clauses that dominant health systems strategically embed in their contracts with insurance companies, effectively allowing them to dictate market terms and suppress competition. One of the most potent of these is the “all-or-nothing” clause, which compels an insurer to contract with every single hospital, clinic, and affiliated physician within a health system’s vast network, or be barred from contracting with any of them. This tactic prevents insurers from creating more selective, efficient networks that include only the system’s high-value or cost-effective providers. Closely related are “anti-tiering” clauses, which directly interfere with an insurer’s ability to design tiered health plans. Such plans normally empower consumers by offering lower out-of-pocket costs for choosing providers in a preferred tier, which is typically based on better value. These clauses contractually force insurers to place the dominant system’s providers in the most favorable, low-cost tier, irrespective of whether they meet objective criteria for price and quality, thereby misleading consumers and neutralizing incentives for value-based care.
Further entrenching their market power, these dominant systems utilize additional restrictive provisions to limit choice and transparency. “Anti-steering” clauses, for instance, prohibit insurers from using any financial incentives or plan design features to encourage, or “steer,” patients toward competing providers, even when those alternatives offer better care at a lower price. This effectively locks both patients and their employers into the high-cost system. Another tactic, the “most-favored nation” clause, guarantees that an insurer receives the provider’s best rate. While this sounds beneficial, it simultaneously removes any incentive for competing insurers to negotiate a better deal, thereby establishing an artificially high price floor across the entire market. Finally, “gag clauses” have historically been used to forbid insurers from disclosing the negotiated prices and reimbursement rates, preventing employers and consumers from understanding the true cost of care. Although the federal Consolidated Appropriations Act of 2021 banned these clauses, reports indicate that compliance has been inconsistent, leaving the ultimate payers in the dark.
A Flawed Legislative Response
Faced with a growing crisis, the Texas legislature passed House Bill 711 in 2023, a move that came from a surprising consensus among lawmakers who typically favor free-market principles and oppose government regulation. There was a widespread acknowledgment that the state’s health care markets had become fundamentally anti-competitive and dysfunctional. Consequently, the legislation was framed as a market-based solution aimed at restoring fair competition rather than imposing heavy-handed government control. The bill achieved a partial victory by successfully banning four of the five key anti-competitive clauses: anti-steering, anti-tiering, gag, and most-favored nation clauses. This was seen as a significant step toward leveling the playing field and giving insurers and consumers more leverage to pursue value. The law’s passage was celebrated as a crucial intervention intended to dismantle the contractual architecture that sustained artificially high health care prices across the state.
However, the final version of HB 711 contained a critical and ultimately debilitating loophole. As a result of intense lobbying from powerful physician groups and physician-legislators, the law explicitly does not prohibit “all-or-nothing” contracting. Opponents of the ban argued that it posed an “existential threat” to providers and would grant health plans unchecked power to determine market winners and losers. This single omission has proven to be the law’s undoing, as it leaves dominant hospital systems with their most effective tool for compelling health plans to accept their entire, often overpriced, network of facilities and clinicians. By preserving this powerful negotiating lever, the loophole significantly undermines the law’s core intent. As long as insurers face the ultimatum of accepting an entire system or none of it, their ability to design innovative, high-value networks is neutralized, and their negotiating power remains severely constrained, rendering the bans on the other clauses far less effective in practice.
The Unchanged Landscape of Texas Healthcare
Two years after the law’s enactment, there is little tangible evidence that HB 711 has successfully reined in the escalating cost of health care in Texas. Payers and health care advocates report that dominant hospital systems continue to wield the “all-or-nothing” clause to maintain their market dominance, effectively negating the intended benefits of the other prohibitions. This reality is especially harsh in the state’s most consolidated markets, where the law’s provisions are rendered largely symbolic. For example, in nine of Texas’s metropolitan areas, just one or two health systems control 100% of the market. Without viable competitors, insurers have no alternative providers to build a network around or steer patients toward, making the bans on anti-steering and anti-tiering functionally useless. The data underscores this failure: Texas hospitals continue to charge employer health plans, on average, more than two-and-a-half times the rates paid by Medicare, with some systems billing over 300% of those rates.
The financial consequences for Texans have remained severe, cementing the state’s reputation for high health care costs. In 2023, annual premiums for employer-sponsored insurance soared to over $8,000 for an individual and nearly $24,000 for a family, a burden that has left many struggling. A recent Gallup poll reflected this widespread hardship by ranking Texas 50th in the nation on health care costs. Looking forward, health care advocates focused their efforts on the upcoming 2027 legislative session, with the primary objective of closing the “all-or-nothing” loophole. This step was widely seen as the most critical remaining barrier to enabling genuine market competition. However, it became clear that even this crucial amendment might not have been sufficient to curtail price gouging in Texas’s most monopolistic markets. For those regions, it was evident that the state would need to consider more direct regulatory actions to protect consumers and employers from the unconstrained power of entrenched monopolies.
