Where to expect higher deductibles this fall on Healthcare.gov

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 Healthcare.gov 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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Time & Motion Study of Community Based Palliative Care

We have a new paper (open access) in the Journal of Palliative Medicine, providing a Time and Motion study overview of the care delivery model at the heart of our CMMI HCIA-2 innovation award with Four Seasons Hospice in Western, North Carolina (Janet Bull, who is also President of the American Academy of Hospice and Palliative Medicine and I are the co-PIs of the project).

This figure provides an overview of the palliative care model that we are providing across setting (~5,000 patients will enrolled by the end of Summer, 2017, and we just received Medicare claims records for the first 2+ years of the project, so should have preliminary cost findings in the Fall).



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.

House Republicans Pass AHCA

House Republicans passed AHCA, their version of repeal and replace of Obamacare, 217-213. The Republican controlled Senate declared it dead on arrival and set about to write their own bill. Here is past blogging on earlier versions of AHCA; they did not wait for a CBO score before voting, but the prior score estimated that 24 Million people would lose coverage as compared to the ACA baseline, and the most important policy points of AHCA 1.0 and zombie AHCA remain

  • Tax cut for persons with AGI greater than $200,000
  • $890 Billion (~25% cut) in Medicaid that existed prior to ACA
  • Ending of Medicaid expansion in the ACA

The new parts of AHCA related to the individual insurance market, devolving waiver responsibility to the states related to pre-existing conditions, under funded high risk pools, etc. They are mostly incoherent as a policy whole and won’t survive the Senate.

A few thoughts on all this.

  • Its shocking that after 6 or 7 years of ‘repeal and replace’ as the unifying theme of a party that this is the best they can do, both in policy and process terms. Health Policy is just not the Republican Party’s thing–sorta like the 1980s Oklahoma football team trying to throw the ball. But they spilled so many words they had to do something.
  • The Medicaid changes are by far the most consequential part of the bill. I have written lots about changing the state-federal relationship on Medicaid and think it is a big part of an eventual (inevitable) deal on health reform. But AHCA’s Medicaid provisions are just “tag, you’re it” flexibility to the States.
  • The rage of progressives/left/supporters of the ACA shows the asymmetry of health policy for the two sides. It is our ‘main thing’ and Rs in the House were willing to pass anything, just to say they had passed something. And the clarity of the ACAs ending of pre-existing conditions and lifetime limit provisions gives way to long, complicated answers under AHCA that end with, ‘well, its complicated and really depends upon that state in which you live.’ Here are two examples addressing the question of whether rape would be a pre-existing condition under AHCA (probably not; and more of same–there is some info in the length of the analysis required to answer the question).
  • After the football spike is over, I think if Rs actually pass a health reform law, it ends exactly like the ACA did–with the Senate jamming the House. Whatever passes the Senate, if anything, will define Trumpcare if there is to be such a thing.


Network construction in an underwritten world

If you loved credit card companies and how they all were headquartered in South Dakota to take advantage of their very lender friendly laws before the passage of the CARD Act, you will love the health care vision of Rep. Jim Jordan.

The vision is that the House Freedom Caucus/MacArthur Amendment is attached to the AHCA. The AHCA passes the House and Senate without major modification. At least one state opts for the waiver to allow for medical underwriting and gutting essential health benefits by replacing a federal standard with a state standard. A minimal essential health benefit package could still include prescription drugs but only require generic drugs and very common, low cost brand drugs. Specialty drugs including most chemotherapy agents, cystic fibrosis treatments, Hep-C cures and coagulation disorder treatments could be excluded from the minimally required list.

A second bill would also be passed that would allow for insurance to be sold across state lines. And that gets us to the individual health insurance market looking like the pre-CARD Act credit card market. Most states may still require guarantee issue and community rating but the states mandating these restrictions either will not have any in-state insurers offering products in the individual market or their locally regulated individual market effectively work as a high risk pool.

Matthew Fiedler at Brookings has a good analysis on the race to the bottom in an opt-out state:

In brief, healthy people would have a strong incentive to “opt out” of the community-rated pool and instead pay a premium based on health status. With healthy enrollees opting out of the community-rated pool, community-rated premiums would need to be extremely high, forcing sicker individuals—including those with continuous coverage—to choose between paying the extremely high community-rated premium or being underwritten themselves. Either way, people with serious health conditions would face prohibitively high premiums. As a result, community rating would be eviscerated—and with it any meaningful guarantee that seriously ill people can access coverage.

And if a state elects to operate a waiver in an environment where insurers can choose the state of regulation, that state will effectively gut community issue across the country.

But.. but… but… what about networks?

That is a common argument as to why selling across state lines would not be attractive. In the current world of  guarantee issue and community rating, this is a strong defense. Networks are tough to assemble and expensive to build. We know there is a chicken or an egg problem. Large membership is needed to get good provider rates.  Good provider payment levels are needed to offer attractive premiums that leads to large membership numbers.  A new insurer trying to move into a new state has to build a network. And it has to build a network by either going super skinny or by being willing to lose significant money for several years to buy membership.

But that is under guarantee issue/community rating rules. Networks are not a blocking force for cream skimming carriers.

If an insurer wants to expand out of its home region in Rep. Jordan’s vision, they can either build a network organically or they can rent a network. Rental networks are very common. They are how regional carriers offer national emergency room coverage. They are how smaller carriers offer very high end specialty care. The provider are paid at a very high level. Some rental network contracts are full usual and customary, others are full billed charges, some offer a discount on one of those two benchmarks and others are 500% of Medicare. These are expensive networks where regional carriers work very hard to minimize the number of claims paid to that network.

If a minimally viable network can be rented even at an extremely high per unit rate, and the plan can medically underwrite to only offer coverage to people who will never use the skimpy, practically inadequate, high cost network, this works as a business model.

If an individual has a complex medical condition during the contract year, the insurer has significant claims expense but since the network is extremely unattractive to individuals with complex care needs, the one time catastrophic expense will leave the plan at the next open enrollment if they can afford to do so or if they are in a policy that does not have guarantee renewability.

This is effectively the Assurant business model from the pre-ACA status quo. They aggressively underwrote policies to only include healthy people, they offered very low rates and access to a very expensive to them network and seldom payed a claim as their covered population just did not use services.

Networks are not a barrier to entry for carriers that think they can aggressively underwrite.