King v Burwell is a total win for the ACA

Chief Justice Roberts saved the ACA again, this time with a 6-3 ruling (Kennedy also joined the liberals) that says that tax credits can flow to persons in states that did not set up their own exchange, but who buy private coverage via healthcare.gov.

The case does not depend upon the so-called Chevron doctrine (where the executive branch of the govt is granted discretion when there is ambiguity in how to read a law).  Instead, the majority says that because tax credits (and therefore the ability of people to afford health insurance) is such a fundamental part of the law, that the plainest reading of a narrow section of the law couldn’t be read to mean that tax credits are not not available in all states, regardless of the type of exchange through which they get coverage.

This is a complete victory for the Obama Adminstration. A reporter just asked me “what does the North Carolina General Assembly need to do now?” Answer: they can keep doing what they have been doing on health care for quite a while: nothing.

I hope that they will not continue to do this, and that our state will work out a way to put together a reform of our Medicaid program (that I am in favor of), as well as a means of expanding insurance coverage (that I am also in favor of). Here is a concrete idea for how to do this that I put forth in January, 2014.

There have been some statements that they were holding back due to the uncertainty caused by the looming King v Burwell case. There is no longer any uncertainty on that front.

How many insurers will sell on the North Carolina Federal Exchange?

The NY Times has a story on an analysis from the White House on how many private insurance companies will sell policies on the federal exchanges beginning in October 2013 (for coverage beginning Jan 1, 2014). The federal Department of Health and Human Services will fully run the insurance marketplace (exchange) under the auspices of the ACA in 19 States, including North Carolina (because our General Assembly and Governor decided they would rather the federal government do this; it was our choice).

The big idea behind exchanges is to provide the uninsured and those working for small businesses the opportunity to comparison shop for health insurance plans, hopefully harnessing competition to reduce the premium while improving quality. So, a key issue is how many insurance companies will decide to offer coverage in each State. The map below shows that many states have a long way to go to have even the chance of competition in the individual insurance market; North Carolina is one of the States shown in red below which means that one insurer had at least 50% of this market in 2012.

ScreenHunter_01 May. 31 09.01

Blue Cross Blue Shield of North Carolina (BCBSNC) has a virtual lock on the individual purchase market in North Carolina, with over 90% of such policies being sold by them, and they are the leader in the group purchase market as well, though there have been signs of momentum toward other insurers in some local markets in recent years. The White House analysis says that 75% of the states in red are adding at least one insurer that is newly selling individual coverage as part of that States exchange; it is not clear whether North Carolina is one of these States.

The big idea of consumers making choices is one of the more common ideas in American culture. In health insurance, there are relatively few people who are doing this, with most receiving an insurance plan arranged by an employer, or being covered by Medicare or Medicaid. The ACA is beginning en experiment to change that calculus ever so slightly, starting this Fall.

Parsing the details of catastrophic health plans

On Friday evening May 24, 2013, an exchange broke out on twitter about catastrophic health insurance plans. It is worth thinking through the details of such a shift, because while catastrophic insurance is often thought of as a simpler approach to health reform, there are many details that would require government action.

I think the Friday discussion began with Megan McArdle (@asymmetricinfo) lamenting that the ACA would kill catastrophic health plans, met with a variety of responses about the relatively large out of pocket maximums that someone could have with a Bronze exchange plan and the existence of the catastrophic under 30 ‘invincible’ plans. Megan correctly pointed out that having, say a $10,000 out of pocket maximum (within a benefit structure where some care has no co-pay, while other care does) is not the same as having to pay the first $10,000 in care before a 0% cost share (all paid by insurance) kicks in, even if the result was the same out of pocket expenditure. The point being that it would take a very different amount of total health care utilization to reach the $10,000 plateau in those two scenarios. Fair enough, lets look closer.

Megan suggested that her preferred solution would be an insurance plan whereby everyone would be responsible for all the cost of care up to 15-20% of adjusted gross income, with 0% cost share above that. She suggested we could keep Medicaid and/or premium support for private gap insurance for the poor, thus providing something closer to first dollar coverage below a certain amount. I have suggested that a political deal between the ‘two sides’ would have universal catastrophic coverage with a deductible of $10,000 for individuals, $15,000 for families, with income based premium support to purchase ‘gap’ insurance. These two ideas are similar, and if you could get a political consensus to do this (which seems impossible) the policy details should be tractable. However, I think the details are more complicated than Megan implies. A few questions/thoughts for any such plan.

  • How do you define benefits? Many proponents might say “you don’t” that is the point; the consumer decides what care is needed. Does this mean my gym membership counts toward the deductible? How about my bike? How about an expensive carbon fiber bike? You need a practical way of identifying what expenses count toward fulfilling the maximum out of pocket amount. That is determining benefits.
  • How will the unit price for care be determined? If you had all payer rate setting this would be easy. Most wanting a catastrophic approach will want the prices to be determined by the interplay of providers and patients. That is actually a lot easier to say than it is to bring about in practice….there will be tremendous transaction costs if each person is trying to negotiate a separate price for care. Forcing providers to publish prices would help, but it would be a non-trivial shift to move from a system in which most prices are either dictated or negotiated up front by third party payers and providers, and then applied to patients. I realize that is part of the point, but this will be hard.
  • Where will the catastrophic insurance come from? This is actually the hardest part of such a proposal. In my book, I suggested using Medicare as the catastrophic insurance vehicle and Medicare prices in the deductible, but of course there are other ways to do it. However, they aren’t as simple as many think and will  involve lots of government. For example, here is Martin Feldstein arguing against the ACA on October 8, 2009 by putting forth a catastrophic insurance scheme in the WSJ. A key reason he advocates his plan instead of the ACA, “All of this [his plan] would happen without involving the government in the delivery or rationing of health care.” But, look at the government actions that would be necessary on the insurance side of his plan. 1. Repeal the tax exclusion of employer sponsored insurance. 2. Won’t some regulation be required to ensure that the $3,500 voucher to be provided for the purchase of private catastrophic plans will guarantee that such coverage will be available to all? Presumably a federal regulation, especially as the proposal is linked to a federal tax reform. 3. Dr. Feldstein further proposes a federal ‘health care credit card’ that would ensure that patients can finance the care they need, and that also ensures that providers will get paid. Consumers would simply ‘run a tab’ and Dr. Feldstein notes that the federal government could then garnish wages given how much information the IRS will have in this tax credit based system to ensure that these bills are eventually repaid.

Anyway, Megan and I have proposed fairly similar things as a way forward (universal coverage, but only for catastrophic coverage, with ways to deal with the poor). It is a simple idea, that is far more technically difficult to bring about than many imagine. These details are a key part of the counterfactual that is “replace Obamacare with a catastrophic insurance plan.”

update: revised for clarity in a few places.

More on catastrophic options in the ACA

Joanne Kenen (@JoanneKenen) and Paul Houchens (@PaulHouchens) were tweeting about the Basic Health Plan (BHP) option provided to states for enrolling persons under 200% of the poverty level, pointing to this op-ed by Micah Weinberg raising questions about the wisdom of California’s plan to use a BHP for such persons. Micah’s most basic worry is that putting all Californian’s below 200% of poverty who are eligible for exchange subsidies into a BHP will pull out a large number of persons from the health insurance exchange (where consumers pick between Bronze, Silver, Gold or Platinum levels of cover, from different insurers) reducing the chance for competition between insurers for business to work.

One of the primary arguments for the BHP is to allow for unified insurance coverage (same insurance company) for a family that would be eligible for different plans. For example, at 150% poverty, a mom who was pregnant and a child would both be eligible for Medicaid, while the dad would not, but would be eligible for premium subsidies to defray the cost of private insurance sold in the state-based exchange. Paul Houchens tweeted out this document from Tennessee evaluating the use of the BHP v. other bridge product options available to states to unify family insurance coverage. This interesting document further expands on worries of providers (in Tennessee anyway, see pages 3-4) of low-income folks choosing the Bronze (catastrophic) level of private insurance coverage, which would have the lowest premiums but very high cost sharing, therefore not ameliorating the “bad debt” problem as viewed from the provider side of things. Several thoughts:

  • The ACA has catastrophic coverage options available and always has.
  • I have always thought of the BHP route as a baby step toward a state moving away from Medicaid for persons who were not dual eligibles or long term disabled, and eventually enrolling low income persons in private, subsidized insurance. A key issue is how/whether the federal BHP subsidies will be risk adjusted; there is still reg work to be done.
  • The point of the op-ed is that removing such a large number of persons from exchanges could lessen the effects of competition between insurers on premiums. Alternatively, it could actually lessen the “average” premium if the morbidity of those in exchanges was less after removing persons below 200% of poverty. The relative impact of (1) morbidity of the entire pool and (2) competition on premiums in the exchange would seem to differ by state. The degree of spread around the average could also differ.
  • I have further thought that BHP might be more likely to be taken up by “cold feet” states and/or states with one dominant insurer where concerns about lack of competition (because there weren’t many insurers offering products). However, the California story is not that one and it seems to be safety net providers calling for it. Perhaps in a “next round” of ACA implementation after the election that could ensue, and the lack of regs being finalized may be a source of flexibility.
  • Estimating the relative impact of a BHP on an exchange needs to be done with counter-factual of how many low income persons will choose the Bronze level of coverage if they purchase coverage in the exchange. This would differ by state, I am sure.

Lots of work to do at both the federal and state level. Wonder when North Carolina will get started? Update: Bradley Flansbaum sends this NEJM piece my way on BHP, Bronze level, and continuity.

More on Obamacare not biggest tax increase ever

My earlier post really just pointed out how small the tax is that one owes if they choose not to purchase insurance. [anyone who knows anything about the federal budget would laugh hysterically at that one–it would raise $9 Billion in 2022 which is like standing on a pier and spitting into the ocean when viewed against the size of the federal budget, and the fact that CBO says having this tax in place would double the uptake of health insurance in the ACA shows that it is a relatively small tax that produces large benefits if you think expanding insurance coverage is a benefit.]

However, to measure increase, you really have to compare different tax bills in terms of the percentage increase in GDP.

If you take ALL the taxes (not what was declared a tax by the Supremes) raised to offset the spending (subsidies for private insurance, Medicaid expansions), the ACA falls in the middle of post World War II bills that raise taxes. Austin made the chart.

It costs money to expand insurance coverage to ~32 Million people. Here is Goldman Sach’s interepretation of the ACA, that has been around since April 2010, that clearly shows taxes and Medicare cuts to pay for expansion of health insurance.

More on North Carolina’s Medicaid Choice

Harold Pollack has a nice piece on the choice facing Red States regarding the ability to opt out of the Medicaid expansion in the ACA. He includes a map of Congressional districts that were considered “whip districts” for Democratic Representatives for the March 2010 vote on the ACA in the last Congress (in N.C. you can see that Mcintyre, Kissell and Shuler all voted no).

The point of the map is that most of the Dems who voted against the ACA represented districts with relatively high rates of uninsurance, so their no vote could be understood as being against the self interest of the people they represented. Of course, these Representatives voted no because the ACA was unpopular in their district, and they were mostly within states with strong Republican rule (in N.C. this was just before Republicans took control of the state House and Senate in Nov. 2010, at least partly due to anger about the ACA).

The ruling by the Supreme Court that states can now opt out of the Medicaid expansion in the ACA with no financial penalty to the state’s existing Medicaid program sets up a very important, and clarifying choice for North Carolina and other states. I think that is good, because we need to move beyond the general political equilibrium of the past 50 years or so in which much of the political establishment in the South railed against the evils of the federal government, while the net flow of federal money is roughly from the Blue states to the Red ones (with Texas being an exception (link for map below; interesting N.C. only analysis showing that 30 years ago N.C. was a net donor state).

States shaded as white above pay more in federal taxes than they receive in federal dollars, so are “net donor” states. Darker states are “net recipients.” North Carolina received $1.08 in federal expenditures for every $1.00 in federal taxes paid in 2005 (latest year I could find this analysis).

There will never be an easier way for states to greatly expand health insurance coverage to low income residents than via the implementation of the ACA (between 560,000-700,000 North Carolinians could be covered via the Medicaid expansion, with the federal govt paying 100% of the cost for the first 3 years, and 90% for the next 7). I realize that many have deeply held philosophical objections to federal programs and there are long term funding uncertainties, so I am open to hearing suggestions from my fellow North Carolinians about a better way to expand health insurance coverage in our state.

I suspect that deciding whether North Carolina will take the Medicaid expansion or not will become a key issue in all General Assembly races as well as a central one for the Gubernatorial one in November, as it should be. I am not sure what we will decide, but it strikes me as good and correct that if we as a state decide we are opposed to a federal program to address a public policy problem, that our opposition in this case will not only be rhetorical and noisy, but consequential and real. My guess is we will have more such real choices in the future.

This is an important decision for our state.

update: revised slightly.

Uninsured Tax is a Bit Less Than Largest Tax Increase in History

The “uninsured tax is the biggest tax increase in American history” meme is cranking up. CBO has the facts.

They estimate the tax paid by uninsured individuals who fail to purchase health insurance (called Penalty Payments for Uninsured Individuals above, but ruled a tax by SCOTUS yesterday) will equal $54 Billion over 11 years. For perspective, the total of all Federal income and payroll tax receipts for the federal government in FY2012 will be around $2.8 Trillion dollars (1 year). So, $54 Billion over 11 years –what the Supreme Court said yesterday was a tax–is somewhat short of the largest tax increase in American history. The aggregate amount in 2015 will be $3 Billion.

And keep in mind that CBO’s scoring of what would happen if the individual mandate (and the tax) were removed–16 Million fewer persons with insurance coverage, or about half of the net insurance coverage expansion to be achieved by implementing the ACA.

Update: Austin Frakt sends this from Paul Van de Water at CBPP on the same topic. His piece is clearer than mine–about 2 in 100 Americans would face the uninsured tax. The other 98 in 100 would be insured one way or another, or would be exempt from the tax. However, as noted above, CBO says the mandate and tax is key to expanding coverage.

There is a new flourish of “Obamacare” as the worst thing ever, etc pieces. In one sense I admire the tenacity with which Conservatives have bounced back from a defeat. However, I would love to see at least some of the energy Conservatives/Republicans are putting into this effort diverted to saying what they are for. After all, they have had 27 months since the ACA was passed. For example, I would love to see the Commerce committee mark up Jim Capretta and Tom Moffitt’s replace idea (or anything for that matter that was illustrative of their vision for the nation), see what CBO thinks and so on. If they actually then got that to the House floor and passed it, then someone might take the replace part of repeal and replace seriously. They could say on day 1 with a Republican Senate and President Romney we will pass this.

At this point, my conservative health policy friends mostly remind me of post-modern literary scholars–only deconstruction.