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Your AHIP Quiz Question of the Day

This is something that’s been puzzling me for a few weeks. We all know that insurers are very good at  making sure that they insure healthier risks than average. In the individual market they do this openly, by underwriting against poorer risks. Those “risks” (who are most of the people with the really tragic stories) end up uninsured or in massively over-stretched state major risk pools.

But there’s a market in which insurers already operate that has guaranteed issue and no underwriting—just the reforms that AHIP is saying that it’ll accept as part of a universal coverage plan. And in that market the same process goes on. That market is of course Medicare in which Medicare Advantage plans are so good at risk selection that their being paid 12% more than what the standard FFS program would pay for the care of those self-same patients. Essentially private insurers are able to game the system by taking the more profitable patients and leaving the less profitable (and sicker) ones in the public plan.

As far as I can tell the regulation that AHIP is promoting would put them in a similar position to the role they play in Medicare in the commercial insurance market. But without a place to dump the people they don’t want to insure.

So here’s your quiz. If insurers need a place to risk-select against which they know will have to take the patients they don’t want, why is AHIP opposing a public plan?

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aboomerJohn R. GrahamActuaryKevin CounihanMargalit Gur-Arie Recent comment authors
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aboomer
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aboomer

Insurance companies should not be allowed to “risk select.” And insureds should not have to pay for doctors’ so-called administrative costs. Government insurance should be designed not to pay any administrative costs, just the health care. And the government insurance should be free to all citizens. That’s why we elected President Obama. Nobody should make a PROFIT on people’s sickness. That is sick. We need single payer, here’s your pay: take it or leave it. I am totally on the same wave length as Matthew Holt.

John R. Graham
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Last night, my house was burgled and torched, which stressed me out so much that I crashed my car on the way to work this morning. I don’t have either car or homeowner’s insurance, so I immediately started shopping around this morning. Do you believe it? Nobody would offer to cover either my car or my home! Why are property & casualty insurers allowed to “cherry pick” like this? All sarcasm aside, what Matthew Holt calls “cherry picking” is actually called “insurance”. So, what we call health “insurance” in most markets in the U.S. (Medicare, Medicaid, small group in most… Read more »

Actuary
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Actuary

Of course AHIP is opposing a “public plan”, whatever that is. Tough to compete against a competitor who sets and enforces the rules in their favor. The real question is why would we spend another trillion to reduce the uninsured by 13 million (CBO estimate)? Isn’t the deficit excessive as is? Random thoughts on MA: The Chief Actuary of Humana was on MedPac until recently, so I wouldn’t call them “lefties”. As to MA profitability, UNH picked the counties where reimbursement exceeded cost and exited counties where the profit margin was thin (or none). The insurers have benefited greatly from… Read more »

Nate
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Nate

First Aon is not an insurer they are a broker so you are wrong there. http://www.insurancenewsnet.com/article.asp?a=top_lh&id=45951 PacifiCare’s SecureHorizons unit has 705,000 senior members. United has 320,000. In total, PacifiCare has 3 million members and United has 23 million. If you care to link to something besides your memory we can settle that point. “but if private plans were losing so much money on their Medicare business in the last decade at the same time as overall commercial enrollment was falling, why did their stock prices go through the roof in between 2003 & 2007?” I have never once said they… Read more »

Matthew Holt
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I’m pretty sure Kevin is talking about entire admin costs including those of the providers dealing with private plans. His numbers came from a recent study I cant remeber but they’re close enough to numbers in a California study in Health Affairs a while back However there are for sure various health plans which do have MLRs in the 50%s and below…I guarantee you that a full examination of Mega Lifes & Health books would show you something like that — and my guess is that Tonik’s ain’t far behind. After all if the parent company (Wellpoint) is averaging in… Read more »

Nate
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Nate

The coordinated care does save money, only a couple percent though. In order to eliminate waste you need aggressive rationing, few MA plans or private HMOs are in a position to do that anymore. Specific to MA plans there is considerable mobility in the population, if a MA plan managed care to control cost members would leave to another plan or FFS where they could get the care they felt they needed, which we all know is 30% more then they really do. It’s hard to understand market forces when you only read about this stuff in books and papers.… Read more »

jd
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jd

Kevin, please provide that study. I am sure it does not say what you think it says. The only way those admin numbers are close to true is if they include more than just the health plan admin cost, but also admin for provider and employers in their dealings with health plans. I have studied this at length using numerous sources. Private health insurer admin costs average somewhere between 12% and 15% (including broker payments). Profit is between 3% and 5% on average. Thus, total overhead is less than 20%. You can take that to the bank. For large groups… Read more »

Kevin Counihan
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Kevin Counihan

I suspect the potential administative advantage of a public plan over the private health plans may be greater than a “couple of points.” According to a recent Kaiser Foundation study, the administative cost for individual/non-group coverage administered by private plans is roughly 41% on average. Broker commissions which average @20% of premium in the first year (and scale down dramatically in the 2nd and subsequent years) comprise a significant percentage of this admin. cost. The same study stated that admin. expenses for small group (<50 subs) averaged 24%. Presumably, a public plan could administer coverage for significantly lower expense in… Read more »

Matthew Holt
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Oh, and Medicare FFS actually does pay for residents and other stuff who do things to Medicare and other patients, Medicare Advantage plans don’t. So it’s not clear to me why that should be taken out of the calculation.

Matthew Holt
Guest

Nate. FFS Medicare is a basket case with huge amounts of overtreatment and terrible care. The “Coordinated care” the private plans provide is supposed to save money. Why do the plan need more money for it? They should be able to provide care for 30% less, yet they need more And you can quote the lefties at Commonwealth,I was quoting MedPAC… And you finally confess that back in the dark days of 1993-2002 Medicare Risk HMOs creamskimmed. Why do think they wont do that to the first iteration of a public plan? And please to explain to me why if… Read more »

Margalit Gur-Arie
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Nate, how does the HCC weight factor in the payments to MA plans? From what I understand, the base amount per beneficiary is multiplied by the HCC score, so if you “judiciously” code all your beneficiaries, you can make a boatload of money on top of the benchmark rates. Is that cost factored in when comparing MA to FFS?

Nate
Guest
Nate

52 “Medicare Advantage in 2007,” Centers for Medicare & Medicaid Services, p. 19. As CMS has noted, “Before MedPAC or the Commonwealth Fund compared payments made to MA plans to estimate Medicare FFS amounts, each group reduced the FFS amounts to carve out payments for certain teaching hospital expenses (i.e. indirect medical education (IME))while leaving similar IME payments in the MA side of the equation. In both the MedPAC and Commonwealth analyses, IME costs were removed from estimated FFS costs to reflect the current double payment for IME (one going to hospitals, and one included in plan payments) on the… Read more »

Nate
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Nate

In fairness there was one area of abuse that was egregious that was stopped years back. When MA first came out the people most liekly to join were young and healthy retirees. In the early days a plan could start, enroll healthy people then 5 years later when they started getting sick pull out of the market and out them back into traditional. That was fixed YEARS ago though and pulling out of a market now means you are out for a long time. “MA plan payments reflects MA benefits. Medicare Advantage is often criticized because its plans are “overpaid”… Read more »

Nate
Guest
Nate

Lets approach this another way, I have sold Medicare Supps and Advantage plans, that is from the point of taking the app to submitting it and getting the approval. Please explain to us the mechanism by which an insurer cherry picks risk. Having enrolled sick people in MA plans I say there isn’t a way. Having read some articles by other people that have never actually sold a policy at any time in their life you say there is. Just explain to us how it is done and the argument will be resolved.

jd
Guest
jd

Thanks for clarifying, Matt.
For what it’s worth, I left a sentence unfinished in my first post. It should have been:
Regional non-Blue insurers built on a network model rather than integrated delivery system (maybe 20% of the overall private market) will probably disappear if a public plan is created. They are slowly disappearing anyway.