Counterproductive cost sharing

The theory behind cost sharing is that it should deter ineffective care. In reality, it is a blunt and crude instrument that places barriers in front of effective care as well as ineffective care. I want to highlight two papers that look at the misaligned incentives of cost sharing in a pragmatic context.

The first examines IUD utilization. It found that the pre-ACA up-front cost-sharing deterred utilization:

Results: Overall, 5.5% of women initiated an IUD in 2011. After adjustment, IUD initiation was less likely among women with higher versus lower co-pays (adjusted risk ratio = 0.65; 95% CI, 0.64–0.67). Women who saw an obstetrician/gynecologist during 2011 were more likely to initiate an IUD (adjusted risk ratio = 2.49; 95% CI, 2.45–2.53).

IUD’s are fix it and forget it contraception. Once an IUD is inserted correctly, it is very difficult for it to fail. It gives significant female autonomy and over the long run of its effective use span, an IUD is less expensive and more reliable than oral hormonal contraception. The big problem pre-ACA with insurers discouraging IUD utilization is that there is a high initial up-front cost which means that a significant portion of the women would experience significant benefits from the IUD including the net cost savings compared to oral contraception after they had stopped paying premiums to the insurer that paid for the IUD. It is a churn problem.

There is another set of problems that come from inefficient cost sharing designs.  It is the non-adherance of effective and high value treatment problem  From one of the same authors, an examination of medication adherence for a long term cancer (Chronic Myeloid Leukemia (CML)) treatment regime that has impressive survival effects.

Over the study period, the mean copayment required for a 30-day supply of imatinib was $108 (SD, $301). Mean copayments varied widely, with patients in the lowest 25th percentile paying $17 and those in the upper 75th percentile paying $53. Importantly, the median copayment required across all years was approximately $30 per fill, but copayments ranged from $0 to $4,792. Over time, monthly copayments increased from an average of $55 in 2002 to $145 in 2010….
Among new users of imatinib, approximately 10% of patients with relatively lower copayment requirements and 17% of patients with higher copayments discontinued therapy during the first 180 days following treatment initiation (Table 2). There was a 70% increase in the risk of discontinuing TKIs among patients with higher copayment requirements (upper 75th percentile; aRR, 1.70; 95% CI, 1.30 to 2.22). Similarly, approximately 21% of patients with lower copayments were nonadherent to their TKI therapy ( 80% of days with drug available) versus 30% of patients with higher copayments. Patients with higher copayments were 42% more likely to be nonadherent to their TKI therapy (aRR, 1.42; 95% CI, 1.19 to 1.69)…..

Okay, there is a lot going on in that results section.  The important take-away is that cancer patients with higher co-payments are far more likely to be non-adherent.  This is financial toxicity, a concept advanced by one of my Duke Margolis colleagues, Dr. Yousuf Zafar.  The cost of treatment forces people away from getting the care that they need.

People don’t elect to have cancer.  It is not an episode that is immediately deferrable.  Once you’re told that you have cancer, treatment usually needs to get started quickly.  And the effective drugs are expensive.  At this point the idea of cost sharing as a means of shaping choices and avoiding preventable conditions goes out the window.  It is merely a burden sharing between the insurer and the individual.  It is just a financial shock with no positive incentive effect when an individual is hit with a dozen other life altering shocks at the same time.

If we are trying to design a system that minimizes non-adherence for financial reasons, we want to change the benefit design.   A theoretically attractive solution would be to offer no cost sharing on effective but expensive courses of treatment for diseases that are not immediately preventable. This would be a value based insurance design approach.  VBID encourages people to get effective care by making it comparatively less expensive than ineffective care or care for preventable episodes.

There is a problem with a VBID approach.  It is an ugly selection problem.  Let’s imagine that there are two types of plans offered.  The first is a standard plan design with high cost sharing for imatinib (Gleevac).  The other is a low or no cost-sharing design for imatinib.  Individuals who are healthy at the start of open enrollment period will choose the standard plan.  Individuals who have CML will go to the low cost sharing pool.  An individual who was healthy at open enrollment and then is diagnosed with CML during the first policy year will switch over.  This incentive structure makes the VBID pool extremely sick.

Sick pools are not show stoppers.  There are tools that can be used to compensate insurers with sick pools.  The most common is risk adjustment where money from either other insurers with healthy pools or the general government funds are sent to the insurers with disproportionate number of CML patients to cover the high and recurring costs.  And given that the VBID design is meant to encourage more people to take more of a very expensive drug, the costs will be higher than the baseline average CML patient cost.  Reinsurance tied to specific diagnosis could work as well.

The other option is to mandate benefit designs that are based on VBID principles for high cost diseases. States could do this on their individual and fully insured group markets but they can’t touch the ERISA regulated employer sponsored self-insured segment.  We would still have a serious churn problem as people with expensive chronic conditions would still be moving between ESI and Exchanges and given the differences in after treatment incomes, these people will be far stickier to their preferred option than healthy people.

Benefit design right now is complex, confusing and ineffective at promoting health in the CML case.  Any changes will also be complex and confusing but hopefully more effective at enabling better health.



** Pace, L. E., Dusetzina, S. B., Fendrick, A. M., Keating, N. L., & Dalton, V. K. (2013). The Impact of Out-of-Pocket Costs on the Use of Intrauterine Contraception Among Women With Employer-sponsored Insurance. Medical Care, 51(11), 959-963. doi:10.1097/mlr.0b013e3182a97b5d

*** Dusetzina, S. B., Winn, A. N., Abel, G. A., Huskamp, H. A., & Keaton, N. L. (2013). Cost Sharing and Adherence to Tyrosine Kinase Inhibitors for Patients With Chronic Myeloid Leukemia. Journal of Clinical Oncology. Retrieved August 4, 2017.

The Senate bill confuses already confused consumers

The Senate’s Better Care Reconciliation Act (BCRA)[1] is a significant modification to the current Patient Protection and Affordable Care Act (PPACA)[2] exchange structure in a variety of ways.  One major change is the designation of the benchmark plan which determines the level of subsidy that the federal government provides to individual buyers on a health insurance marketplace.  There are two elements of note.  The first is that the benchmark plan is now a plan with a calculated actuarial value of 58%.  This is a significant change from the current benchmark plan with a calculated actuarial value target of 70%.  More importantly for this post is the benchmark plan in the BCRA is the median qualified plan.

Research has shown that consumers can be overwhelmed by too much choice[3].  Dominated choices can and often will be selected.[4]  Buyers have frequently confused the value proposition of Gold and Bronze plans based on prioritizing either more out of pocket maximum protections or lower monthly premiums. [5] Buying and using insurance is a complex task with significant uncertainty and cognitive demands.  The BCRA subsidy attachment system creates incentives for insurers to further increase complexity.

Within PPACA the incentive for insurers to clone plans with minimal meaningful differences between them only applies to the insurer which controls the least expensive Silver plan in a county.  This single, low cost, insurer faces a decision as to whether or not to design a second plan with the same actuarial value in a slightly different cost sharing structure in order to guarantee that this single carrier controls both the least expensive and the benchmark Silver point.  All other insurers plan offering decisions are made independent of subsidy attachment point manipulation purposes.

The BCRA creates a broader and more complex strategic design problem for carriers.  Every entry in the benchmark category influences the benchmark price.  Once an insurer has built a network and performed the basic actuarial calculations, modifying a basic plan design by altering co-insurance slightly or decreasing deductibles while increasing co-pays to achieve a constant actuarial value is a fairly low cost action.  A high cost carrier can introduce an isomorphic plan design to increase the benchmark and asymmetrically decrease the relative post subsidy price of its preferred offerings.  Low cost carriers have an incentive to offer one more plan to lower the benchmark and make its offerings more attractive compared to higher cost peers.

Counties with multiple insurers will face an unstable equilibrium.  Every insurer will have an incentive to add a marginal, incremental plan to be offered on the BCRA exchanges in order to move the subsidy attachment point closer to their preferred position.  Once this arms race begins, consumers will be asked to differentiate miniscule differences between dozens of plans offered by two or more insurers.  Common heuristics such as evaluating a plan first on the inclusion of a specific doctor or hospital in network and then examining a subset of plans based on maximally acceptable premium with the final decision step based on minimizing deductible will be corrupted.  Plans can be offered with low deductibles but higher maximum out of pocket exposure with a cost structure that significantly advantages or disadvantages certain types of consumers.  Insurance buyers will face decision fatigue and be overwhelmed with almost meaningless choice.

There are two possible solutions.  The first is for the Department of Health and Human Services to update stringent meaningful difference regulation.  Current regulation[6] allows carriers to offer multiple plans built on the same network ID and same plan type (HMO, POS, EPO, PPO) with fairly minor differences in cost sharing.  Stronger meaningful difference regulation would restrict carriers to offer only a single cost sharing design per network ID and plan type dyad.  The second is for the Senate to modify the benchmark.  Every participating carrier would place their lowest cost plan in the benchmark set and the median plan from the benchmark set would be the benchmark plan for the county.

These design modifications lower consumer confusion and will minimize strategic manipulations of the subsidy formula which will lead to more effective and efficient markets.

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A cheat sheet to read the Senate version of AHCA

The Senate healthcare and tax cut bill is expected to drop soon. Here is a cheat sheet on how to read it.

1) Reconciliation places severe constraints on the bill

a) The Parliamentarian is most likely going to be stripping out significant, non-germane to the budget, items that were in the House bill.
b) $1 billion in savings must come from each of two committees (HELP and Finance).
c) Anything the Senate passes must meet or beat the $119 billion in budget window deficit reduction that the House AHCA was scored at.

2) Three major pots of money

a) Tax cuts
b) Individual market changes
c) Medicaid cuts to pay for tax cuts

3) Follow the money
Any extra dollar used to pay for a slower Medicaid termination has to come from either Medicaid on the back-end, fewer tax cuts or lower individual market changes. Anything used to up subsidies on the individual market has to come from itself, faster/steeper Medicaid cuts or fewer tax cuts. Anything that ups the tax cuts must come from the individual market or Medicaid…etc.

4) Index rates matter
Slower terminations but lower index rates on per capita caps is a budget gimmick. It gives a little bit of money in the 10 year budget window but leads to massive cuts in the out years against the current counterfactual.

5) Market design and incentives matter

a) Look at where the work disincentives apply

a1) Medicaid expansion where the FMAP disappears once a person churns out once
a2) Medicaid expansion to individual market transition without CSR as people move from high AV low premium insurance to low AV high premium insurance if they earn a dollar too much
a3) 350% FPL instead of 400% FPL

b) How does the individual market function without a mandate and without the patient and state stability funds?

Where to expect higher deductibles this fall on

The Silver plans are supposed to be 70% Actuarial Value (AV). AV is the percentage of costs for the pool that the insurer covers. 70% AV means the insurer pays roughly 70% of the costs, and the people in the pool pay roughly 30% in cost sharing. There are lots of different ways to arrange the cost sharing but that is a detail.

Under the Obama administration, there was a de minimas variation rule where a plan could be called Silver if it was between 68% and 72% AV. The Trump administration released a new rule that changed the allowed variation for a Silver plan to range from 66% to 72% AV.

The out of pocket maximums are likely to increase significantly in the highlighted counties below:

The highlighted counties have a Silver plan with a 2017 AV between 68% and 68.05%. I figure that companies are more likely to do what they were doing, reaching for the lowest possible AV if the rules are relaxed. Counties where the lowest AV was above 70% are, in my opinion, less likely to see their incumbent carriers race to the bottom as they already had not shown that proclivity. This is most of Oregon and significant chunks of Pennsylvania and Illinois with a few random counties elsewhere.

The distributional consequences are complex. Lower AV values, all else being equal, means lower premiums. The insurers pay less in claims. It is a good deal for the federal government as the premium of the benchmark Silver will either be constant or decrease so advanced premium tax credits will decline. It is a win for healthy people who are not subsidized as they weren’t going to hit the previous, lower out of pocket maximum anyways so they save 3% in premiums. It is a wash for people with Cost Sharing Reduction (CSR) subsidies as the CSR holds constant. It is a wash for subsidized buyers who don’t get CSR but who are healthy and were going to buy Silver anyways. It gets complex for those buyers who wanted to buy another metal band as county specific pricing variations will be altered. Bronze plans will be slightly more expensive and Gold/Platinum plans will be up in the air as to their relative price.

The worst off are the Silver buyers who are not receiving CSR assistance and who are likely to be sick. They are picking up more out of pocket. Non-subsidized buyers will get a slight improvement in lower premiums but all that plus more will go back out the door via higher cost sharing. Subsidized buyers won’t see the slight improvement in premiums. They will only see higher cost sharing.

Finally, the Tableau that I was using to play with this idea is below.

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Hidden good news in the BCBS-NC filing

Blue Cross and Blue Shield of North Carolina just filed their initial rates for the ACA individual market for 2018. The headline will be that they are asking for a 22.9% average rate increase. The second headline is that they assume that Cost Sharing Reduction subsidies will not be paid. That assumption drives 61% of the rate increase. The SERFF filing is here.

There is subtle good news in the rate filing. Another 13% of the rate increase is driven by the reinstitution of the 3% Health Insurance Premium tax. That is a one time hit that is to be baked into the cake of future rates. This means only 26% of the entire rate increase or roughly five percentage points is due to increased medical costs or service utilization. Trend and morbidity is under control. Below are segments of the consumer justification.

5% trend is a healthy trend. That is a the trend of a market that is fairly stable and reasonably priced.

There are a few other North Carolina notes for the individual market. Aetna is withdrawing. This should allow Blue Cross and Blue Shield to play aggressive subsidy attachment pricing strategies. Subsidized buyers have the chance of seeing excellent deals on the Exchanges if BCBS-NC prices in the same manner as BCBS-Tennessee prices in their single carrier counties.

Summarizing the AHCA CBO score

The Congressional Budget Office (CBO) released their analysis of the American Health Care Act (AHCA).  The AHCA is the bill that passed the House that is a combination repeal of significant elements of the Affordable Care Act, partial replacement of some of the health care provisions, and a major tax cut.  The CBO scored a draft of the bill in March before it was pulled from the House floor.  They did not have the opportunity to score the amended bill that passed the House.

  • Medicaid is still getting changed from an entitlement that is responsive to changing needs to a block grant
  • 23 million people will lose coverage compared to current law projections
  • The MacArthur/Upton waivers are expected to destroy the individual markets that cover 15% of the country
  • Most of the premium decreases are due to older and sicker people being priced out of the market
  • Pre-existing condition protection is effectively destroyed by splitting the risk pool.

The MacArthur/Upton waivers were the amendments that significantly changed the bill.  These waivers allow states to fully opt out of the insurance regulations of the ACA and allow for full underwriting of health premiums.  The CBO believes that these incentives will split the pool and make it virtually impossible for individuals with expensive illnesses to be able to afford the premium.

The AHCA is a policy choice that will, in some states, effectively restore the 2009 status quo in the individual insurance markets even if there is language that prohibits denial of offering a plan due to health status.  It will not contain any ability to make that offered plan affordable.  It is a de facto underfunded high cost risk pool instead of a de jure denial of coverage.

Opt-out plans and the AHCA framework

There has been talk that the Senate is talking about auto-enrollment as the Senate Republican caucus is chewing over the AHCA bill that the House passed. I think there are two major show stoppers to auto-enrollment in a Senate Republican reconciliation bill.

Let us assume that any auto-enrollment process looks something like that in Cassidy-Collins. That bill contained significant language that most likely would be ruled as not germane to the revenues or expenditures. It sets up significant number of rules and requirements for what an auto-enrolled plan had to cover.

More prosaically, I am having a hard time seeing this work if we use the auto-enrollment proposal in Cassidy-Collins and the subsidy levels in the current AHCA ($2,000 for 29 and under, $2,500 for 30-39, $3,000 for 40-49, $3,500 for 50-59, $4,000 for 60+) as any reasonable estimate of uptake would cost a tremendous amount of money.

The challenge of grafting Collins-Cassidy auto-enrollment into the AHCA is one of funding. The CBO projected that the AHCA would leave 24 million more people uninsured compared to current law. That would leave 52 million people uninsured according to the March 2017 CBO analysis. There are approximately 11 million undocumented immigrants of which some have health coverage through some means. Let’s work with 42 million people under the AHCA would be eligible for a credit.

Right now the AHCA has a net deficit savings of $150 billion dollars over ten years. That will decrease when CBO releases a revised score. But let’s keep things simple. If we assume an average $3,000 subsidy and an opt-out rate similar to Medicare Part A (<1%) an opt-out program costs $125 billion dollars per year or $1.25 trillion dollars over ten years. An opt-out program forces the AHCA to either reduce the value of the monthly subsidy to a trifling average amount ($30 per person per month) or actually make the AHCA a healthcare bill and get rid of all the tax cuts. And even then, the actuarial value of the coverage that can be funded with the AHCA credits is much lower than the the actuarial value of the ACA plans.

Universal coverage at any level that is greater than giving people three aspirins and telling them to rub some dirt on it is expensive. It is a legitimate debate as to whether or not we want low actuarial value catastrophic plans with near universal coverage in all states through an opt-out plan or scattered results ranging from higher actuarial plans in Massachusetts to one in five people in Texas still being uninsured due to opt-in plan and state policy choices. Those are legitimate questions but unless the Senate completely junks everything in the AHCA, opt-out plans don’t fit in any context that is defined by the AHCA.