Employment, Health Insurance and Income Based Subsidies

The CBO Budget Outlook (2014-24) is out today, and much of the focus is on their revised estimate of the ACA’s impact on the labor market (Appendix C, pp. 118-27). CBO is projecting that “the ACA will cause a reduction of roughly 1 percent in aggregate labor compensation over the 2017-2024 period, compared with what it would have been otherwise” (p. 117). This is basically CBO’s estimate of the impact of the marginal tax rate on labor income created by the various policy structures of the ACA that Casey Mulligan has written about. As I wrote in this post, you get less of something if you tax it, so if that is not your goal (it is with tobacco taxes, for example) then you are left to decide whether the reduction is worth achieving an alternative goal(s). That can be a difficult question to answer, because you are trading off important things–labor market participation, rates of uninsured, and the system reform provisions of the ACA.

Is reduced labor market participation a sign that we should move away from the structure of the ACA? If yes, to where?

Republican Senators Burr, Coburn and Hatch introduced their health reform proposal PCARE last week to much fanfare (this contains links to my previous four posts on PCARE). Many Republicans were understandably glad that key leaders in their party had finally taken this step of offering a coherent health reform strategy. While the focus last week was on what PCARE would do to the tax treatment of employer sponsored health insurance and coverage rates, the CBO report should prompt those who are critical of the ACA’s labor market impacts to ask how PCARE would impact the marginal tax rate of labor? I asked Casey Mulligan on twitter last Saturday about this:

ScreenHunter_01 Feb. 04 14.14

Casey answered:

ScreenHunter_02 Feb. 04 14.17

While the numbers haven’t been run yet, Casey says that the marginal tax rate of labor income in PCARE will be similar to those in the ACA. Why is this? It is primarily because PCARE provides tax credits from 100% to 300% of poverty (the ACA goes from 100% to 400%).

The intuition of wanting to target and not waste precious resources that leads us to design means tested programs creates higher marginal tax rates on labor income. This reduces incentive to work more hours, and you get results like what CBO predicts for labor compensation (Casey predicts even higher impacts than does CBO). Casey expects a similar impact from PCARE, because of its means tested subsidy structure (it is worth remembering that it was the income based means test structure of tax credits in the ACA [Table 1, p. 48]  that created the largest work disincentive in Casey’s paper, not the employer mandate). The Republican reform plan PCARE shares this means tested structure.

Where does that leave us?

  • A consensus that the pre-ACA status quo is not acceptable
  • An expectation that the ACA will reduce work incentives
  • Strong reason to believe (someone needs to run the numbers) that the leading Republican alternative, PCARE, will do the same

It is relatively easy to sketch a distant health reform approach, be it left, right or center, if you can control all of the variables. However, you cannot control them all, and we can only begin to transition from where we are now. If we decide that minimizing negative work incentives is paramount, then means tested subsidies are a bad idea, and some sort of universal approach, or flat financing mechamism seems warranted; but that will undermine employer sponsored insurance rapidly if flat subsidies are large, or lead to concerns about what can be bought with them if they are small (The Patients’ Choice Act from 2009 had flat subsidies, that were small as compared to the cost of insurance).

If we decide that we want to minimize crowd out of employer sponsored health insurance and to minimize disruption, then that favors means tested subsidies, while seeking ways to keep employer sponsored health insurance as stable as possible (employer mandates). However, today we are worrying about the impact on the labor market of the ACA, that does just these things.

I am drawn to the question “how do you want your children (or grand children) to get health insurance in 20 years?” I think that a distant system in which employment is not a means of obtaining health insurance would be a better way to do it, and could lead to more risk taking in the economy. And the ACA as eventually modified in some way by the Republican PCARE proposal can be the first steps to this, assuming near continuous tweaking for the rest of my life. The alternatives to this muddled through approach strike me as politically impossible (big bang single payer, ESI level of flat subsidy provided to everyone), or are unknown to me.

Update: I am unsure of the magnitude of the disincentive effect of ACA v. PCARE (meaning, which one is more disruptive to labor market). Someone needs to run the numbers, and I have suggested to Doug Holtz-Eakin and Steve Parente that if they did this in a dispassionate manner, it would be a great service to the debate. I think the density of workers from 100-300% of poverty v 100-400% is important, and am also uncertain of how the high risk pool structure in PCARE and the tax treatment changes proposed in PCARE will impact these calculations.

Private Score of Burr, Coburn, Hatch Plan

Brad Flansbaum sent me a link to a private score of PCARE, the reform plan released on Monday by Republican Sens. Burr, Coburn, and Hatch. I don’t know the Center for Health and the Economy, though I do know several members of their advisory board and many of you will as well. I don’t have my own simulation model to be able to verify these sorts of results, and the CBO is the final word, but I will just assume that a group that has Uwe and Holtz-Eakin on the Board must be somewhat credible. There is much to be learned here, even if you assume this to be an overly optimistic score.

First off, lets just say that the rage machine that has been perfected to argue against the ACA could get plenty cranked up from the these results. There is a breathless Americans for Prosperity Ad running in North Carolina talking about a nice lady losing her doctor in an Obamacare plan, in health policy speak, due to the rise of the narrow network. Yep, this score says PCARE will have a slight increase in persons covered by 2023 compared to the ACA, but most of that arises from a shift of people into narrow network plans.

ScreenHunter_05 Jan. 30 09.02

Now narrow network plans don’t bother me one bit (I thought everyone wanted to reduce costs!), but the ad machine that is trying to give the Republicans the Senate in 2014 is demagouging something that is a feature and not a bug of the plan put forth by Republican Sens. Burr, Coburn, Hatch. They achieve coverage expansions via an increase in individual based coverage (up 30% by 2023) at the expense of employer sponsored coverage (down 2% by 2023) and Medicaid (down 11% by 2023). What impact does this shift have on access? They calculate a “Provider Access Index” that identifies the degree to which persons insured by different options can pick the providers they want and they say:

With respect to patient’s access to their providers of choice, the CARE Act is expected to achieve similar access to current law, based on the H&E Provider Access Index (PAI).[6] The proposal is projected to reduce the average PAI in the individual market, due to an influx of consumers enrolling in low-cost narrow network plans. However, that reduction is offset by a reduced reliance on Medicaid to insure the low-income population.

On premiums, the analysis says they will be generally lower in the non employer market, but most of the decline is among individuals and not families.

By 2023, the proposal is expected to yield substantially lower premiums than current law in individual insurance product categories with savings of 2 – 11 percent for single policies. H&E predicts that family policies will see a modest decrease ranging from 0.3 – 1 percent.

On the overall federal budget, they expect a 10 year reduction as compared to current law (ACA), a reduction of about $1.5 Trillion over 10 years. This is actually consistent with the co-sponors saying the plan will be “roughly revenue neutral” because of how large the federal budget is from 2014-2023 ($46.7 Trillion, see p. 8), the appropriate denominator to have in mind. For example, CBO’s budget forecast over the same period was reduced by ~$618 Billion just from their February, 2013 to June, 2013 estimates! It is illustrative to look at the components of the estimated deficit reduction from passage of PCARE over the 10 year window:

ScreenHunter_08 Jan. 30 09.49

Yep, most of the action is achieved by the capping of the tax exclusion of employer sponsored health insurance. You know what this would be called if this (good in my opinion) policy were to replace the cadillac tax in the ACA? A Trillion dollar tax increase (Ah-Trill-Yun! with scary music in the background). The Medicaid changes which will result in blood on the floor debate yield around $150 Billion in savings over 10 years, and the savings from medical malpractice reform are essentially a rounding error in the context of the 10 year federal budget.

So, this score says that PCARE will achieve similar levels of insurance coverage as the ACA by 2023, and will result in a reduction of the federal budget as compared to the ACA, primarily by shifting people into narrow network private insurance plans, and increasing taxes of persons with generous employer sponsored health insurance. It doesn’t analyze the generosity of benefits covered (at least that I can tell, but they had to make assumptions), nor does it identify the impact on out of pocket costs that will result in these coverage levels; these are important items to understand, especially given that there are no proposals about transitioning to different models of care and the like.

Taking a look back in time through the lens of this proposal, I can’t help but thinking that Sens. Burr and Coburn missed a big opportunity in January 2010, by not throwing Sen. Olympia Snowe a lifeline (remember, she voted for ACA out of the Senate Finance Committee), which would likely have brought along Sen. Collins. Those four together could have gotten a lot once Scott Brown was elected. Instead they choose full opposition, and gross over-statements in their arguments against the ACA, especially given the proposal they now put forth. In the end, they helped to create and exacerbate the political culture that will make it so hard for their proposal to be given the subtle, and nuanced listen that it deserves.

Update: I am trying to get details of the model, assumptions and the like. I have requested it officially for the site that put out the score. I have also been talking on twitter with members of the Advisory Board. I think the model is an update of Steve Parente’s model (old one, paper likely behind new one). Will confirm/clarify as I get info.

Update 2: I confirmed that Steve Parente did the simulation. Here is a pdf of the paper linked above Parente.hesr_12036 behind the model, published in HSR. However, it is based on ACA uptake after SCOTUS ruling, so I am still trying to understand PCARE assumptions; Steve and I are going to talk.

Update 3: Loren Adler has 7 important questions/points in his twitter timeline about detail gaps in the private score. I have conversed quickly with Steve Parente via email, but don’t have enough yet to clarify. I will likely do so in another post when I understand more.

Burr, Coburn, Hatch Reform Plan

Republican Senators Richard Burr, Tom Coburn and Orrin Hatch released “The Patient Choice, Affordability, Responsibility, and Empowerment Act” today. I am going to call it PCARE. A few quick thoughts/highlights as I am running today (more later):

  • It acknowledges gravity, while making changes. While PCARE talks of repeal of the ACA, it locks in a good deal of the structure of the ACA, and addresses changes from that new status quo. For example, no lifetime limits (sec 201) is retained from the ACA, as is keeping people up to 26 on their parents health insurance, while the current 3-to-1 age banding premium regulation is replaced with 5-to-1 (now a 64 year old could not be charged more than 3 times what a 20 something could be charged;now they could be charged 5 times as much). Winner 20-somethings, loser 60-somethings. Eventually they say they plan to allow States to set these rules with a looser federal touch, meaning a state could decide to stick with the 3-to-1 premium banding by age, for example. I want to hear more about guaranteed renewability and related insurance market regulations as the 2nd full paragraph of page 2 is a bit slippery. For example, it contains this quote: “Insurance companies would also be banned from making unfair coverage terminations of health coverage.” (emphasis mine). What might “fair” ones be?
  • Continuous coverage provisions could provide lots of incentive for people to sign up. Section 202 seeks (I think) to replace the ban on pre-existing conditions as a forever standard with an “everyone has a chance to come in once” and then continuous coverage provides you with protection once you do so. This is more along some of the earlier individual mandate logic of responsibility.
  • Subsidies to buy private insurance (or health care directly) are pared back to 300% of poverty level. Down from the 400% of poverty max in the ACA, and the credit could be used to pay directly for health care under PCARE. They have dropped the Patients’ Choice Act flat tax credit for singles and families and gone to an age banded structure, with the table below being for those at 200% of poverty.

ScreenHunter_02 Jan. 27 14.31

Duke’s employer sponsored plan costs about $1,450 per month, so the tax credit for my age ($6,600) is less than half of that. At my income there would be no subsidy (as with the ACA), but the no subsidy level now will be around $35,000 for singles, and $65,000 for families. These credits will finance catastrophic levels of coverage compared to what most now have, but of course advocating catastrophic coverage with people paying more is a policy approach. Lets see if they own up to what this will purchase. I would love to see a comparison of OOP and premiums of what these subsidies will finance as compared to the ACA. However, this could mute some of the incentive to move out of employer sponsored coverage to exchanges that tax treatment of ESI changes proposed will kick off (see below). [update: a data driven comparison really is needed; Larry Levitt via twitter was pointing out many details will have to be clarified to allow this].

  • Transition to capped Medicaid amounts given to States. The Medicaid section (301, p. 5-6) covers lots of complicated territory and many more details are needed. However, I am going to grant the benefit of the doubt and say lets talk more about this. The parts of what they write that I like include acknowledging the distinct “sub programs” within Medicaid and the fact that they are not the same and do not have the same needs. The part I like the least is that for the dual eligibles and the disabled, the acute care financing stays the same, while providing a capped amount for the long term care costs of such persons to be given to the States, with the States retaining the responsibility for the remainder of the long term care. This locks in the two-payers problem with these sickest people in the nation, while shifting LTC burden to states. I am willing to listen here, but would rather Medicare federalize the acute care side of the duals if they want to shift LTC responsibility to states (there is lots of policy in that last sentence, I will clarify later).
  • Medical Malpractice reform. This is not a great place for federal intervention, and that has always been a problem for Republicans. However, their writing about it puts back in play a piece that has always been one of the political stepping stones to a health reform deal (I wrote this in 2009). The latest issue of Health Affairs has lots on Medical Malpractice, an issue that went nearly completely away for several years, which was a sign Republicans didn’t want a deal. It coming back means some of them want one. I included Medical Malpractice and patient safety (two sides of the same coin) in my white paper on N.C. Health Reform that I put out two weeks ago. Most of the action here will be state level.
  • Title VIII of PCA is dead. This makes me sad.What a strange chapter of health reform was the appearance of unelected boards in a Republican bill one month before the first version of HR3200 was passed out of the Commerce committee, and then unelected boards became such a rallying cry for Republican opposition to the ACA. It was also hilarious how none of the sponsors would own up to it being their idea, but I digress.
  • Cap the tax exclusion of ESI at 65% of an average plan’s costs and grow at CPI+1%. Sign me up; let’s replace the caddy tax in the ACA with this. I’ve written about this over and over. Keep in mind that this will be quite dislocating for employer sponsored health insurance. That is where I want to go down the road, but 3-5 Million people with cancelled indy policies just about ground health reform to a halt in November/December with an assist from a screwed up website. 165 Million people have employer sponsored health insurance, most of them have no idea that get tax free income from it, but all of them will be sure that they deserve it, once they find out they are going to lose some of it.
  • Sponsors/Politics. Interestingly, Bur and Coburn lost Paul Ryan and Devin Nunes in the House as co-sponsors (these 4 co-sponsored the Patients’ Choice Act). Burr and Coburn introduced the Seniors Choice Act in 2012, and those Medicare-specific reforms are not contained in today’s-released PCARE. Do they still support Seniors Choice Act? Senator Hatch last year introduced his own bill with a mix of things (his Medicaid ideas seem to have come through most clearly in PCARE). My political analysis goes two ways on this. First, if members of the House co-sponsor then people like me say mark up the bill and get a CBO score since they control the House, and they don’t want to do that (and Dems aren’t going to mark this in the Senate). It is a definite advantage to have a plan that is not subjected to such scrutiny. At the same time, when there is a deal someday, it seems almost certain to pop out of the Senate, just like the fiscal cliff deal did. Not sure when that will be, but this is a step towards that day, and I welcome it.

What Will Republicans do w ACA if they Clean Sweep?

Andrew Sprung asks wonks to weigh in on some questions regarding what Republicans will do with the ACA if they win the White House and both houses of Congress in 2016. He assumes that outright repeal then would be too disruptive, so wonders about many changes to sabotage the ACA. I have long been writing that both sides need a health reform deal, at least in part because some day Republicans will have all branches of government again, even if not in 2016. Brief answers to the questions Andrew poses:

Back to my reporting project: let me make it open source here. Wonks, politicos, and other interested parties: what do you think of the feasibility and likely effects of possible future Republican drives to, for example

1) repeal the individual mandate.

They could repeal the individual mandate and replace it with the auto-enroll procedures envisioned by Paul Ryan’s Patients’ Choice Act, which was originally released May 20, 2009, about one month before the first version of HR3200 was passed out of the Commerce Committee. In fact, in 2011 I was wondering whether auto-enroll procedures might be a better risk pooling mechanism than the existing mandate, making this an obvious place for a deal if we ever got back to the policy.

2) Deregulate the exchanges , e.g., perhaps by a) abolishing the 3-to-1 age rating cap;

Sure they could get rid of 3-to-1. But, which way would they go? In my Duke provided insurance there is straight community rating and I don’t hear people complaining about it; 28 year old Assistant Professor pays same premium as a 64 year old. They could let the age rating go up, say to 5-to-1. It is possible that the 3-to-1 is not optimal, but it is unclear to me the preferred change. But keep in mind that 165 Million have employer sponsored insurance that is typically straight community rated.

b) repealing the ban on lifetime and annual caps;

This is imaginable, but with all the rhetoric of preferring more catastrophic coverage (more exposure up front), then it doesn’t really follow to then truncate the back end. Of course, the traditional Medicare program has benefit limits and caps, and no cap of out of pocket expenditures. I would be interested in seeing the relative impact of no lifetime limits, no pre-existing conditions/guaranteed renewal, benefit mandates, etc on premiums. I suspect this change will be judged as not worth it by Republicans and the insurance industry when the time comes for Republicans to drive the train.

c) allowing exclusions for services such as mental health or childbirth;

I could imagine a move toward providing catastrophic insurance that focused on defining the financial size of the deductible before insurance kicked in, and essentially bypassing the question of benefits by covering everything that was not experimental, for example. My guess is that this would sound better to my Republican friends the more theoretical it was, and that prenatal care and childbirth would end up being preferenced before a deductible was met once they had to pass legislation (update: or issue rule changes). Back to my employer sponsored plan at Duke: the benefits are the same for everyone, so plenty of people “who can’t have a baby” are cross subsidizing those who plan to do so. And not to belabor the obvious that seems to be lost in lots of discussions of this issue, but it takes two to make a baby (we professors can figure out these complicated things). Maybe men could take out fertility liability insurance if Republicans decided that all maternity/labor costs should be assigned to the woman having the baby?

d) allowing sales across state lines (in concert with eliminating or drastically reducing federal coverage guidelines); or by other means.

I think if you live in Manhattan and call up Blue Cross Blue Shield of Arkansas, they will be fine selling you a policy, so long as you come to Arkansas to use health care. Premiums are determined by benefits, contracts to provide care and the health risk of the insured. This is a much better applause line at a political rally than a policy, which will become clear once someone tries to write the legislation necessary to bring this about.

3) Foster adverse selection within the exchanges by deregulating plans sold outside them, e.g., repealing the requirement that insurers put all customers within a given state in one risk pool.

I have written positively about the Patients’ Choice Act, and think that it is the most comprehensive Republican plan put forth. Its biggest flaw (they could change this) is allowing tax credits to flow in and outside of exchanges, but altering pre-existing conditions inside them only. This won’t work and will lead to death spiral. Again, committing to the details, passing it through the Commerce Committee, CBO weighing in, etc. will likely be quite a shock for Republicans. They just don’t have experience in doing this. It is hard.

4) Reduce subsidies (“we can’t afford them”…).

Maybe so. But, then premium shock. There definitely could be some changing of the subsidy level to try and smooth out the impact of the existing subsidy structure on marginal labor income tax rates. Of course doing this will increase the cost of the bill. The goldilocks principle “its juuuuuust right” is elusive. Again, it is hard to get this correct.

5) Reduce federal reimbursement for Medicaid expansion; block-grant Medicaid.

The biggest block to a block grant that is simply designed to limit federal costs and say “tag, you’re it” to states will be all 50 Governors, regardless of party. There are some more nuanced policies that focus on the different “parts” of the Medicaid program that I would actually support over the long run (more state responsibility for acute care insurance for states, federalizing the cost of the dual eligibles). I suggest this as a long term strategy in North Carolina. The focus of health reform is now in the States, and I suspect that will continue.

update: I fixed some typos and clarified a few things.

Taxes and Tradeoffs

I got several interesting emails about my post on Casey Mulligan’s paper on the impact of the ACA on labor markets, so I thought I would elaborate a bit.

If you tax something, you get less of it. So, there are only two reasons I can think of to levy a tax.

  • you want less of something (excise taxes on tobacco)
  • you want to raise money to redistribute via government to obtain an outcome that markets didn’t reach

The second point means there is always a tradeoff. Is the outcome I seek (increased health insurance coverage, a larger military, minimum social security benefit for the elderly, interstate highway system, cancer research, etc) worth the distortion or inefficiency that I will inevitably create by taxing and redistributing money worth it? Note that I am saying that every dollar of government spending is inherently redistributional. If not, there must be a tax that is levied and then returned in the exact share to those who paid it. I don’t think such a tax/spending pattern exists. This doesn’t mean you cannot dispute the legitimacy of a given tax or of a spending priority, but that first and foremost that is an argument that the distributional outcome to be obtained by governmental redistribution is not worth it, not that it is redistributional.

Casey Mulligan focuses on the marginal tax rate of labor income, and says that the labor market will not return to pre-crash levels until we lower this marginal rate. His work shows an increase in this tax rate due to the expansion of unemployment insurance during the economic crisis, and from the provision of subsidy to purchase health insurance in the ACA; all of this on top of the explicit tax code. At the conference, Casey noted that doesn’t mean that extending unemployment insurance is necessarily the wrong policy at a given point. This surprised me given my reading of his blogging, but it showed that he was engaging in the tradeoff; something could be warranted in the short run, that exacerbates a longer run concern. There is plenty of art involved in getting questions like this right.

What would be useful for policy making would be to take the detailed data/programming machinery that Casey has assembled and model different means of financing health insurance coverage expansions, and showing how they may differentially impact the marginal labor income tax rate. In particular, quantifying the degree to which the intuition in creating a policy like the ACA “we have to reduce the cost of subsidy” actually increases the impact on incentives for full time or part time work. What is the crossover point at which more subsidy is worth it when evaluating the policy from a labor market perspective?

Asking these questions and being interested in the answers doesn’t mean that you you to buy into the degree to which labor market behavior will be changed due to the ACA. The predictions from Casey’s paper should be made, but in the end, that is an empirical question that we should have more information on in the coming months and years.

update: I forgot I wrote this in November.

Increase in Marginal Labor Income Tax Rates Under the ACA

I was a discussant of Casey Mulligan’s paper Average Marginal Labor Income Tax Rates Under the ACA at the UNC Tax Symposium hosted in Chapel Hill, NC by Doug Shackelford this past Saturday. His figure 3 summarizes changes in the marginal tax rate of labor income over the past 7 years, accounting for both explicit and implicit taxes for someone with median wages. For example, in 2014, there is an increase in the marginal rate due to a reduction in work incentive that occurs for someone with median wages because premium subsidies are based on a income-linked sliding schedule–an implicit tax on earning more because you lose insurance subsidy as you earn more income. The paper also identifies increased implicit incentives to work more, for example, the fact that exchange subsidies cannot flow to those below 100% of poverty.

ScreenHunter_01 Jan. 21 16.15

All of the impact is not due to the ACA; it is the cumulative effect of all explicit and implicit taxes on labor income. For example, the increase from 2012 to 2013 was due to the ending of the payroll tax holiday. The increase from 2013 to 2014 is the onset of the ACA subsidies that increase the marginal tax on labor income as noted above. The step up in 2015 shows the incremental impact of the employer shared responsibility penalty, aka employer mandate, that was delayed in 2014. The dashed red line shows what the effective marginal rate would be if the emergency unemployment compensation was allowed to expire at the end of 2013, which is precisely what has happened, so the dashed 2014 line is what exists today, with an increase next year if the employer mandate goes into effect (I predict the employer mandate penalty never takes effect, just like in Massachusetts).

Here are the slides UNCtaxconference.1.18.14 that I showed at the conference that contain some suggestions (such as evaluating the effective tax rate at different income levels), criticisms (not accounting for the loss of the tax subsidy one forgoes when exiting ESI for exchange subsidies) and the broader policy framing that I think the paper deserves. On the whole I think this paper that makes a heroic effort to provide tangible estimates of the intuition that is obvious if you have a subsidy the declines with increasing income, or which drops to zero with small changes in income (going from 400% of poverty to 401%). The equally obvious solution if your goal is to minimize the marginal tax rate of labor income is to provide a more uniform subsidy, but pressure to reduce the cost of the subsidy is what lead to the structure in the first place, so there is a tradeoff at work.

Of all the suggestions I made to Casey the one I most wish he would follow would be to analyze the impact on marginal labor income tax rates of different means of financing the ACA. For example, do away with employer mandate and finance it via a VAT or sales tax? A straight payroll tax? Capping of the tax exclusion of ESI and moving over time to end it? Etc. It would be fascinating to see the mix of alternatives that could finance the existing subsidy structure, not as a means of his saying he supported that structure, but to demonstrate the impact of the different options on the effective tax rate on labor income, which Casey cares deeply about. Finally, a flatter subsidy could be evaluated that would help to demonstrate the tradeoff between increased cost of a subsidy, and the impact on labor income tax rates.

Such a paper would be extremely valuable.

Premiums higher where less competition: what can be done?

Austin Frakt links to Peter Gosselin who provides the following analysis of premiums by number of insurers in States with federally run marketplaces; they are lower with more competition:

Plenty of caveats and this is an early look, but it shows higher premiums in States like North Carolina with little competition among insurance companies. This is an old story in North Carolina, where only two insurers are selling plans in the marketplaces, and only Blue Cross Blue Shield is selling in all 100 counties.

A couple of thoughts:

  • This shows the limits of what the ACA can do in a short period; in States with a dominant insurer prior to the ACA (like BCBS NC, with about 75% of group sales, and 90% of individual ones), they are likely to have a similar situation afterwards.
  • While N.C. certainly has little competition among insurance companies, there is some evidence that too many choices leads to sub-optimal consumer choices, at least for Medicare Advantage beneficiaries, especially those with cognitive limits. We certainly don’t have too many insurance companies selling plans, but a state-run exchange could take a closer look at the optimal number of plans; a quick look shows BCBS NC offering 24 plans in my zip code in Durham for family coverage when I put in our information. Duke University’s employer provided insurance, by comparison, provides only 4 choices of plan.
  • Health insurance premiums in North Carolina’s federally run marketplace are almost certainly higher due to the decision of the State not to expand Medicaid, which keeps cost shifting a larger concern. There is likely both an actual impact of this, as well as what I would call a “negotiating impact” of this in which an insurer will appeal to this issue to justify higher rates (as will providers when negotiating rates with said insurer). I’d love to see a precise estimate here, but I don’t have one to offer.
  • What can be done? One answer is to incentivize new insurers to enter the North Carolina marketplace. I am not really sure how to do this. Another possibility it to add a public option that is based on ability to set prices, most simply achieved via Medicare. This could be especially important in more rural parts of the State where developing a provider network from which to bid in the exchange would be particularly hard for newcomer companies. Note: I don’t think a public option is worth doing sans rate setting, at least to start. Another, more distant possibility (meaning it would require modification of the ACA) is that in some States that appear to have a “natural monopoly” or maybe just a few sellers of insurance, they could come to be viewed like public utilities and therefore have rates regulated, presumably by a more robust state-based exchange mechanism.

I am not sure what the health system will look like in 10 years, but the move ahead with the ACA is the event that broke the logjam that was the status quo.