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.

Stabilization Funds by State

The consulting firm Oliver Wyman has projected what each state would receive from the American Health Care Act (ACHA) State Stability Fund during calendar year 2018.  They are making some assumptions in the distribution but the they seem reasonable.  In 2018, the Fund would be 93.5% Federal money and 6.5% state matching money.  The goal would be to use these funds to take a significant amount of high cost risk out of the premium paying insurance pool and transfer those costs to the fund.  It is a reinsurance fund.

And since it is a reinsurance fund with external money, it will result in lower net premiums.  Alaska is an extreme outlier as they are a very high cost state with a single insurer.  The contiguous forty eight states have an average Stability Fund cash infusion of $91 per member per month (PMPM).  However that is not even distributed throughout the country.  There is significant variation from Iowa’s $45.68 PMPM to Wyoming’s $136.19 PMPM cash infusion.

The South overall is better off than the North while the Great Lakes and the Plains are seeing less of the Stability Fund flow to them.

CY 2018 State Stabilization Fund PMPM

Spreadsheet data is here. Massachusetts and Vermont excluded per Wyman’s calculations.  Alaska ($209 PMPM) and Hawaii ($100.90 PMPM) are excluded for visual presentation purposes.

Rulemaking and legislative possibility space on Cassidy Collins

I chased my kids through a museum yesterday.  Part of the day had them go through a butterfly’s life cycle and there were parts where grown-ups were just too big for it.  So I stepped aside and thought about health policy.  Specifically the proposed rule that widens the actuarial value bands from +/-2 to -4/+2.  A Silver plan under that rule could range from 66% AV to 72% AV instead of 68% to 72%.

We’ve looked at the distributional consequences of that rule last week.  Now let’s think about the legislative consequences.  The major distributional improvement is that low utilizing people who are not subsidized get slightly lower premiums.  Most of the work of that rule will be increasing out of pocket maximums for either un-subsidized but expensive individuals or subsidized individuals.

In some markets (Indianapolis is a likely target), the premium of the second least expensive Silver which sets the subsidy benchmark will decrease as plans go from 68% AV to 66% AV.  In those markets the benchmark premium (which no one besides Center for Medicare and Medicaid Services (CMS) and the Congressional Budget Office (CBO) cares about) will decrease.  The federal premium tax credit subsidy is calculated as the gap filler between an individual’s capability to pay which is a function of the federal poverty line (FPL) and the benchmark premium.  A lower benchmark premium shrinks this gap.  This will lead to a lower CBO score for the same number of people covered.

Some of the lower premium tax credit payments will be counter-balanced by higher cost sharing reduction subsidies but on net anyone who is making between 250% FPL and 400% FPL and is receiving a subsidy will see a smaller subsidy.

Why does this matter for Cassidy Collins?

Their plan is to take the entire pool of ACA money that a state would have received from the ACA and take a 5% haircut.  From that smaller pool of money, states could elect to continue with an opt-in ACA as is or move towards an opt-out HSA high deductible and catastrophic plan system in their alternative methodology.

This administrative rule shrinks the CBO score for the pool of money that states would be eligible for so it shrinks the pool of money available for Cassidy Collins by a few percentage points.  This is critically true for the alternative methodology as their plan spreads the same amount of money (after the 5% haircut) over a much broader population (subsidized, un-subsidized and un-enrolled) so the baseline plans that can be paid for with either just the subsidy OR the subsidy plus the same ACA individual contribution are far skimpier with far higher deductibles.  This rule will increase the deductibles that Cassidy-Collins would have to charge by several hundred dollars more per person.

ACA Element inventory

The ACA is a complicated law.  It has a lot of moving and interacting parts in it.  It also has parts that can be severed from the rest of the law without significant operational impact.  I want to conduct an inventory of the major elements that we will need to be familiar with during the second round of healthcare and health finance reform debate.  A basic understanding of what the different parts of the law do and how they play nicely with the other parts of the law will put you in good shape over the next couple of months.

I will break things down to the broadest stand alone structure and make comments as needed.

Read more of this post

Exchange Actuarial Value spreads and de minimis exploits

The ACA simplifies insurance by restricting the actuarial value of the plans that can be sold.  Bronze covers roughly 60% of expected pool costs, Silver covers roughly 70% of the expected pool costs, Gold covers roughly 80% of the expected pool costs and Platinum covers roughly 90% of the projected pool costs.  Cost Sharing Reduction (CSR) adds three more layers of coverage at roughly 73%, 87% and 94% of the projected pool costs to be covered by the insurer.  

However the law allows for the Secretary of Health and Human Services (HHS) through the Center for Medicare and Medicaid Services (CMS) to make rules that allow for de minimas variation from the targeted actuarial value.  CMS has had a consistent rule that a 2% variation in actuarial value is the maximum allowable wiggle room for a policy to be included in a band.  Therefore a Silver policy with no CSR could cover anywhere from 68% to 72% of the pool’s expected cost.  

This is an area of exploitation for premium tax credit benchmark strategic manipulation. The benchmark for all premium tax credits is the cost of the second least expensive Silver plan.  A large spread between the least expensive Silver plan and the benchmark Silver plan advantages subsidized buyers.  Most of my analysis of the Silver Gap strategy space has focused on network manipulation as an obvious source of creating a usable gap between the first and second least expensive Silver plans in a region.  My background is in network and provider configuration so this was my prism.  

However, the de minimis actuarial value variation in a band is another opportunity for aggressive gap creation.  In this scenario, a carrier with a low cost network and product type can use two different cost sharing structures to create two plans.  The first plan would have a minimal actuarial value of 68% while the second, benchmark plan would have an actuarial value of 72%.  

UPMC Health Plan in Pittsburgh is an example of the foregone opportunity.  Plan 16322PA0050104 is the least expensive Silver in zip code 15219.  It has an actuarial value 71.53%.  Plan 16322PA0050103 Is the benchmark Silver.  It has an actuarial value of 71.5%.   These values are from the 2017 PUF URRT Worksheet 2.   Both plans are at the high end of the allowed actuarial value range.  They are both using the same network and the same EPO plan type.  The extreme similarity means the premiums minimally differ.  Healthy, low income individuals will not be seeing a significantly better deal on the least expensive Silver after the subsidy than the same value proposition for the least expensive Silver.  

If UPMC Health Plan elected to offer a their lowest priced offering a 68% Silver** plan with a comparatively higher cost sharing structure and concurrently lower actuarial value  and then offered 16322PA0050103 as the benchmark Silver, the almost four percent actuarial value spread would, all else being equal, lead to 4% to 5% reduction in premium for the least expensive Silver plan compared to the current case.  The lower premium will mildly advantage most non-subsidized buyers as their option space will have expanded.  It will significantly advantage low income, subsidized buyers who previously were marginally deciding to not buy at the current price points.  These individuals are highly likely to be comparatively healthy and profitable for a carrier and their decision to opt out of the market and pay either the individual mandate tax or claim an exemption leads to a less healthy risk pool.  

Carriers who have a dominant position at the lowest price Silver Plans without proximate competition due to either their sole carrier status or the lack of low priced, narrow network competition should seek to offer a significant actuarial value spread as allowed by the de minimis variation in order to improve the risk pool by including more comparatively healthy and low cost subsidized buyers.  

** Plan ID 76179IN0110008 (68.1% AV) and 54192IN0040001 (68.8%)   are good examples of 68% AV Silver plans.


Reinhart/Rogoff and holy crap!

I don’t consider myself a deficit scold, but did write a book called Balancing the Budget is a Progressive Priority and worry about things like the Debt:GDP ratio more than most who would self identify as progressives. When asked at myriad speeches, presentations and the like the past 3 years how much debt:GDP is too much, I have many times said something like “no one knows for sure, but when you are getting around 100% of public debt:GDP you will harm economic growth.” This diddy was based largely on an influential paper by Carmen Rinehart and Kenneth Rogoff that showed that nations’ whose debt:GDP was above 90% had average economic growth of -0.1% annually. It appears this widely cited (this is an understatement of how influential it has been) conclusion was based on a coding error and the correct rate of growth with the code corrected should be 2.2% GDP growth according to a new paper. As Matt Ygelesias says, this will almost certainly change nothing about the policy debate because most people are so locked into their ideological positions at this point (there were also so questionable exclusions of data for certain countries; the original study is a cross-national look at debt:GDP and economic growth).

My first thought is WOW, what a big error. As several have said on twitter today, it also gives me a pit in my stomach…..making a mistake like this in a published paper is the professor/analyst version of having the dream in which you have to take the final exam but you never went to the class.

The data and the facts are important. I am sure there will be more post-mortems, but this looks to be a huge case of a false fact having a big impact on an important debate.

update: fixed a typo

The Future of the UNC System: should a campus be closed?

This is the third in a series about the Future of the UNC System. Past posts:

In a political/media sense, the debate seems to be boiling down to whether a campus or campuses (of the 16 colleges, 1 high school) in the UNC System should be closed. During the budget-crisis-driven cuts of the recession, Erskine Bowles, then President of the overall UNC System said that if the General Assembly continued to make cuts, that the system would be forced to consider whether it made more sense to eliminate one or more campuses, instead of cutting them all by large amounts. Many interpreted this as a ‘shock therapy’ of sorts to dissuade the General Assembly from further cuts. In the current debate, some Republicans are saying that we need to consider eliminating a campus or two, and that Erskine noting it as an option proves it is a bipartisan notion.

Erskine Bowles can speak for himself about what he meant then.

For me, the debate about the funding level of the UNC system and whatever considerations flow from that need to be informed by the answers to some basic questions first. Here I pose a few of the key questions, without providing an answer.

  • How many undergraduate credentialed students should the UNC system produce each year?
  • What is the value to the state of undergraduates who earn degrees from research as opposed to more teaching-focused universities?
  • How many professional students (Medicine, Dentistry, Law, Nursing, etc.) should the system graduate per year?
  • How many doctorally-trained (non professional; Ph.D.) students should the system graduate per year?
  • What is the relative importance to the State of undergraduate v. professional v. doctoral education?
  • How do we as a State value the research that is produced in UNC system schools?
  • What should the ‘service’ component of a faculty members job description look like? How does this differ for land grant versus other UNC System schools (if at all)?

In the end, we have to decide whether our production of students, research and service is going to stay steady as projected, or increase or decrease. Once that general decision is made (that requires taking all the questions above seriously and many more) then you can have the ‘close a campus v. cut them all debate.’ Or maybe we should invest more.

These are big questions that are tremendously important. I know that people within the UNC System think about them and have plans and projections. Somehow, we need to have a meaningful, statewide conversation about these issues. The duly elected General Assembly holds the purse strings for the funding of the UNC System, which is as it should be. It is quite possible they are not the best body to answer the questions above (and the myriad detailed questions below these). However, they will have to appropriate the money to fund whatever system we will have going forward.

We need a process that explicitly states resources available and then asks the University system to work within that, making clear what is lost by lowered levels of spending, or what could be gained from increases. This sort of marginal analysis is key to identifying the appropriate level of investment. Give and take is required, and the case will have to be made that investments in the UNC system have been, and are worth it going ahead. The last step (funding) is rightly the General Assembly’s alone. However, playing this out blow by blow in an overtly partisan fashion which seems to be where we are headed is bad for our State.