Potential impact of new ACA rulemaking

Politico evidently got their hands on a leaked draft rule making document for the insurance exchanges. There are a couple of significant tweaks in the rules. The most important thing so far is that the draft document accepts the ACA as it is and works on the margins. It is not an attempt to blow things up. But let’s look at the details:

The administration is also looking to slash the 2018 enrollment period in half. It would run from Nov. 1 to Dec. 15, rather than through the end of January 2018 as the Obama administration had proposed.

The logic of this rule is that a December 15th end date means every policy starts on January 1st. This will do two things. First it will add more paid member months in the pool as the current open enrollment period has both February 1 and March 1 start dates. Secondly and more subtly, it will shift the enrollment of the healthiest cohort on average from a March 1 start date to a January 1 start date. The paid premium pool will be slightly healthier.

This is not a bad idea. It would be similar to what happens in Medicare. I would tweak it slightly. I would try to line up the ACA open enrollment period with the Medicare open enrollment period so that we develop a national window where everyone worries about next year’s healthcare at the same time.

HHS is also considering tough new rules around special enrollment periods, which insurers complain have allowed some Obamacare customers to wait until they get sick before signing up for coverage. All individuals who sign up outside the standard enrollment window will be required to provide documentation proving they’re eligible before coverage takes effect.

The logic of this change is that there are some people who have attempted to go off-Exchange to get a policy during a Special Enrollment Period and were denied because they could not document the qualifying event. They then went on-Exchange and attested to their qualifying event and got covered. Insurers in Covered California believe that the higher cost SEP enrollment added two to three points of cost to their base policies. Some of that makes sense as it is a narrowly self-selecting pool of very motivated buyers. It is much like COBRA in that regard. But this is an anti-gaming rule.

The aim of the rule is to drive more healthy people into the pool during open enrollment and make the cost of going uncovered higher. It will lead to fewer people getting enrolled during a SEP.

These two rules could probably go into place without significant opposition. The other proposals below the fold will face significant public, political and legal opposition.

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An early estimate of the impact of the 1/20/17 ACA executive order

I’ve been playing a bit more with the 2016 and 2017 QHP data in an attempt to figure out the incremental cost of the Trump Executive order.  I think 4.25% is a good lower estimate.

My data is still here:

Data and Methods

I again excluded Kentucky and Louisiana.  Kentucky was switching from Kynect to Healthcare.gov while Louisiana had a mid-year Medicaid Expansion.  I wanted to isolate the effect of the executive order from whatever the general trend in enrollment was.  I used the CMS enrollment snapshot for 2016 and 2017 that contained January 14th.  2016 was goes through January 16 while 2017 only goes through January 14th.  The 2016 report contains two extra days worth of data and more importantly, 2016 contains a deadline day as people who buy coverage by the 15th would see their policy start on February 1st.  We know deadlines spur enrollment.

CMS recognized this problem:

More than 8.8 million Americans were signed up for 2017 coverage through HealthCare.gov as of January 14, 2017. This compares to about 8.7 million sign-ups as of January 14 last year, as Americans continue to demonstrate strong demand for 2017 Marketplace coverage.

So on the 14th of each year, 2017 was running slightly ahead of 2016.  My data due to timing constraints will show 2016 running slightly ahead of 2017.   This is fine as the known flaw in the data favors the argument that the executive order had no impact.

So the question is what was the deviation from 1/15 to 1/31? If the Executive Order and the dropping of advertising and potentially elite knowledge networks disseminating anti-enrollment messaging or more likely fear, uncertainty and doubt about PPACA being a good play?

Analysis and Conclusion

2017 using my known flawed data was running .96% behind 2016 on the January 14th inclusive update.  2017 ended up running 5.25% behind 2016 on Healthcare.gov states.  The increment (using favorable to the null hypothesis data) slowdown in pace that can be attributed to Trump Administration actions is 5.25-.96 or 4.29% of enrollment was lost due to the executive order and other Trump administration actions such as shutting down some outreach and advertising in the last eleven days of enrollment.

4.29% is a minimal level of enrollment loss.  Using the January 14th pace, 2017 was running 1.1% ahead of 2016.  Charles Gaba is collecting data from the state based exchanges.  The state based exchanges ran their own marketing campaigns that did not get shut off on 1/20/17.  He is showing at least a 1.5% enrollment increase.  So more aggressive baselines can credibly argue that the Trump Administration actively discouraged 6% of the market from signing up.

A timeline to run

The Republican Party does not have the luxury of time to get their act together on health policy. They have maybe fifty days to get a coherent plan with the possibility of passage before external actors move to foreclose on the 2018 policy option space:

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Below is the Center for Medicare and Medicaid Services plan filing timeline.

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What Should Health Insurance Cover?

This is a basic health reform question, and one knock against the ACA has been that the benefits are too generous, which drives up the cost of premiums. This WSJ piece provides a good overview of the issue (and tradeoffs), and has a nice graph showing what proportion of individually sold insurance plans included benefits that are required by the ACA. Changes to the benefits required in the ACA could be made via rulemaking (the law describes categories of benefits that were detailed via rulemaking), Congress could reduce benefits in some “replace” or “tweak” of the ACA, or the issue could be devolved to the states, also via a replace or tweak bill. It is easy to criticize in health reform, but improvements are hard, because of the tradeoffs.

benefits-2-02-17

 

 

Subsidized market stability in 2018 amidst policy uncertainty

Last Thursday, CNBC highlighted a study by the Urban Institute and Robert J Woods Foundation about insurers worrying about political and policy uncertainty for their 2018 plan offerings for the Exchanges. As I see it there are three major sources of uncertainty. Will the Cost Sharing Reduction (CSR) subsidies be paid? If not, the insurers are gone in 2017. Will the individual mandate be enforced and if not, what will that do to risk pool size and composition? What other policies are coming down the pipe?

CSR is easy. If it is yanked, the insurers are gone at the end of the month it is yanked. That is not confusing me.

But the other two parts have me scratching my head a bit:

If Republicans repeal the Obamacare individual mandate without a concrete replacement plan, we could see another year of big price increases and insurer withdrawals for open enrollment in 2018, according to a new report. “The greater the uncertainty, the higher the rates,” said Sabrina Corlette, a Georgetown University research professor and one of the authors of the new report, which was published by the Urban Institute and the Robert Wood Johnson Foundation. “At a certain point you can’t even price high enough to account for the uncertainty and it’s at that point that the carriers say, ‘we have to get out,'” said Corlette.”

Here is where I am getting confused. I understand the model well enough. The combination of no pool participation mechanism through the granting of unlimited hardship waivers and policy uncertainty will drive many healthy individuals out of the market in the models that the actuaries run. The only people who will stay in the market for guarantee issued, community rated, no lifetime cap insurance are the people who really need the insurance because they are sick as hell. This is the classic death spiral. And insurers will pull out before they are on the tab for billions in losses as they set their premiums too low. This is the Washington State in the 90s story; this is the pre-ACA New York individual market story. I get the fear.

The big difference in the ACA story is the subsidies are attached that lower the consumer facing costs. I have been giving the exchange mechanics significant thought in better times and I want to revive that post It is very hard for a single carrier to lose money in this market structure when it offers the right configuration of products.

The basis of my response is that the federal subsidy structure makes it very hard for a carrier to continually lose money in a state if it is the only carrier. Let’s look at a few scenarios below the fold.
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State employee plan market power demonstration in Massachusetts

The Boston Globe is reporting on some very interesting news:

The state agency that spends more than $2 billion a year to provide health coverage to 436,000 public employees, retirees, and their families is pushing changes that would allow it to slash what it pays the most expensive hospitals, a drastic move to try to rein in health care costs.

The Group Insurance Commission voted unanimously last week to support capping its payments to health care providers at 160 percent of the rates paid by Medicare, the federal government’s insurance program for seniors….

The limits would hit a “really small number of providers who are at the high end” of the pay scale, such as Partners HealthCare, UMass Memorial Health Care, Dana-Farber Cancer Institute, and others, Herman said….

The core of the fight is a big payer (the state employee plan) wants to use its market power to get a better rate from a set of powerfully concentrated providers who have used their market power to get very high rates historically.

One of my first posts at Balloon Juice was modeling the HHI interactions on pricing.

If the ratio of ratios is close to one, the providers and payers are evenly matched. If the ratio is significantly above one, providers have a market power advantage as the largest provider groups control a significant chunk of sub-markets that the payers need access to. If the ratio is significantly below one, the payers have market power. They can pressure providers to take low rates.

A good paper * just came out in Health Affairs by Roberts, Chernew and McWilliams that looks at the impact of a market power dynamics on pricing. They found the intuitively expected (when providers have power rates are high, when insurers have power, rates drop). More importantly, they were able to quantify the effect:

Using multipayer claims for physician services provided in office settings, we estimated that—within the same provider groups—insurers with market shares of 15 percent or more (average: 24.5 percent), for example, negotiated prices for office visits that were 21 percent lower than prices negotiated by insurers with shares of less than 5 percent. Analyses stratified by provider market share suggested that insurers require greater market shares to negotiate lower prices from large provider groups than they do when negotiating with smaller provider groups. For example, office visit prices for small practices were $88, $72, and $70, for insurers with market shares of

What does this mean?

The simplest model is that the Massachusetts state employee plan is one of the largest concentrated buyers of services in Massachusetts. It covers almost half a million lives. That is a big pool of people who pay on average, commercial based rates. It is one of the most attractive sub-markets for healthcare providers to service. The state employee plan is making a declaration that it will offer a single maximum price on a take it or leave it basis. The gamble is that the providers who are currently getting rates above that price will look at their next best alternative to fill their beds and realize that 160% of Medicare that gets paid quickly for a significant fraction of their beds is still much better than the next best alternative.

This is as much a political fight as an economics fight. My bet is that at least some of the high cost hospitals will make concessions and drop their rate significantly (remember the high cost hospitals already get significant upward bumps in their Medicare base rate compared to community hospitals a few miles away). One or two of the hospitals will hold out and run a parade of very sympathetic crying parents and sad looking kids in front of the media every five to ten days as well as running millions of dollars in TV ads.

But if we want to get healthcare cost growth under control much less hold spending constant as a fraction of GDP, reducing the relative prices of care will be a major effort. And that means driving more and more price points to lower multipliers of the Medicare base rate in addition to public health improvements and delivery reform efforts that lead to lower quantities of expensive services needed and consumed.

* Eric T. Roberts, Michael E. Chernew and J. Michael McWilliams “Market Share Matters: Evidence Of Insurer And Provider Bargaining Over Prices” Health Affairs 36, no.1 (2017):141-148 doi: 10.1377/hlthaff.2016.0479

The Case for Medicaid Expansion

I have a piece (caseformedicaidexpansion-1-23-17) in the latest issue of the North Carolina Medicaid Journal arguing for Medicaid expansion. I wrote it last fall and thought it was going to be out during the Fall. I updated it briefly earlier this month, by invoking a Meatloaf song. The piece is based on the ACA payment formula and the Urban Institute’s modelling of expansion uptake and costs that they completed late last Summer.

The looming Cassidy-Collins Senate replacement bill actually includes even more advantageous Medicaid expansion terms for States like North Carolina than the ACA had (appears to have 95% FMAP for long run instead of 90%).

If expanding insurance coverage is an important policy goal, there won’t be a more advantageous way for States to achieve that goal than a Medicaid expansion with favorable terms like those included in the ACA, or in the Republican health reform bill that seems to be picking up steam in the U.S. Senate. Much like the ACA, expect the Senate to set the terms for what can actually become law re health reform in Republican controlled Washington.