I’m hearing a lot of the lazy “but what are the political implication” perpetual horse race questions from the media about recent developments surrounding the Affordable Care Act. That’s fun Inside-the-Beltway stuff, but in the mean time there are real people who are likely to be helped and hurt with matters as essential as their health. So, what I am not hearing enough of yet, however, are tough, substantive questions that get to the heart of whether the Affordable Care Act is going to be stillborn.
Here are some questions that I think intelligent journalists and blogger ought to be asking in light of recent developments with the Affordable Care Act. Getting answers in many cases may take persistent questioning and closer scrutiny of existing documents. In others, FOIA requests may be needed.
1. Actual v. Anticipated Age Distributions in the Exchanges
What is the age distribution by state and in the aggregate of persons who it is claimed have enrolled in Exchange-based plans under the Affordable Care Act? Once we have this data, we can compare it to (a) census data on the age distributions in the various states and (b) any prior estimates on what the age distribution of Exchange enrollees would be such as those described in this government document.
If there is a significant difference between the age distribution encountered thus far and the anticipated age distribution, that increases the probability of the ACA succumbing to an adverse selection death spiral.
This is so because, although the ACA permits some age rating, it damps the actual variation in expected claims from lowest to highest eligible ages down to a 3:1 ratio.
2. Actual v. Anticipated Metal Tier Distributions
What is the distribution of enrollees amongst the various “metal tiers” ranging from bronze through platinum? If the enrollees are flocking disproportionately to the platinum and gold plans, that suggests the people who are enrolling may be disproportionately unhealthy.
While those plans were expected to draw a slightly less healthy population, the government planned on there still being a significant number of healthy people in those pools.
According to data contained inside the government’s “Actuarial Value Calculator,”the predicted mean claim for bronze policies (across ages, genders, regions, etc.) was $4,977 per person whereas the predicted mean claim for platinum policies (again across ages, genders, regions, etc.) was $5,804. (Cells C88 in various tabs) I believe that significant selection of these more generous plans should give insurers (and insureds) concern about a death spiral materializing.
3. Where is additional “Risk Corridor” money coming from?
What the heck does this sentence mean in the letter from Gary Cohen, Director of the Center for Consumer Information and Insurance Oversight (pronounced suh-sy-o) to state insurance commissioners providing details on President Obama’s announcement that he would not be enforcing the Essential Health Benefit restrictions on certain non-grandfathered plans?
Though this transitional policy was not anticipated by health insurance issuers when setting rates for 2014, the risk corridor program should help ameliorate unanticipated changes in premium revenue. We intend to explore ways to modify the risk corridor program final rules to provide additional assistance.
To me, this sounds like the President is saying they will buy off the insurance companies in the Exchanges, who stand to lose as a result of the decision to starve them of mostly healthy insureds forced out of “substandard” nongroup policies. The President may be hinting that he will try to make them whole through providing more money under the Risk Corridors provisions of section 1342 of the Affordable Care Act, 42 U.S.C. § 18062.
As discussed in a prior blog post, this may in fact be possible, but it is not clear where the money is coming from. I suspect this issue may form a significant part of the conversations between insurance CEOs and President Obama that will apparently occur at the White House later today. If so, journalists need to push on where President Obama is finding the money and how much money are we talking about?
Journalists might also note in pursuing this matter that it has hitherto been assumed by the Congressional Budget Office that the Risk Corridors program would be a net zero. Here’s what they said in their Regulatory Impact Analysis of March 2012:
CBO did not score the impact of risk corridors and assumed collections would equal payments to plans and would therefore be budget neutral.
If, as I have argued, the assumption in the CBO document has always been doubtful and is now almost certainly false, again, where is the money coming from and could we be talking about tens of billions of dollars? Is President Obama going to (a) keep his promise and (b) pacify the insurers by just spending lots of money that was previously unbudgeted and undisclosed?
A shout out, by the way, to blogger Kathleen Pender for being one of the few to focus on this issue.
4. Are any insurers yet threatening to pull out?
Have any state insurance commissioners heard rumblings or worse about various insurers pulling out for 2014 or declining to take on any more enrollees, if that restriction is permitted? I suggested in a Houston Chronicle op-ed yesterday that such a development was likely, but I don’t know of evidence that it has yet occurred. I could imagine, for example, insurers who priced their policies high relative to others of the same metal tier in the same market wanting to exit.
They would want to do so because very few people are likely to select their plan and so there may be a lot of administrative costs for very little benefits and because the people who did select their plan may have done so because they believed the networks and coverages were more generous — something the less healthy would particularly care about. I could also imagine insurers who priced their policies low relative to others of the same metal tier in the same market wanting to exit.
If, as is feared, the pool of exchange insureds is older and sicker than projected, the victims are likely to be the insurers who price low and thus have the highest amount of business in the Exchanges.
5. How serious are the insurance industry groups and actuarial warnings?
Journalists should be pressing people like Karen Ignani, president and chief executive of America’s Health Insurance Plans, Corri Uccello, senior health fellow at the American Academy of Actuaries, Jim Donelon, President of the extremely powerful National Association of Insurance Commissioners, and others on how great they regard the threat of the Exchanges becoming destabilized as a result of the combination of minuscule current enrollments coupled with the competitive alternative that appears to have been created by President Obama’s announcement yesterday or by the Upton and Landrieu bills circulating in Congress that do roughly the same or more to starve the Exchanges of healthy insureds.
These individuals are issuing some fairly significant warnings about what is going on. Jim Donelon, for example, states:
This decision continues different rules for different policies and threatens to undermine the new market, and may lead to higher premiums and market disruptions in 2014 and beyond.
The American Academy of Actuaries, via David A. Shea, Jr., Vice President, Health Practice Council, warns:
- Premiums in the new 2014 insurance markets would have been higher if the ACA rules regarding cancelled policies had been relaxed.
- Approved premiums for 2014 are based on assumptions regarding plan cancellation requirements under ACA rules. The premiums approved for 2014 may not adequately cover the cost of providing benefits for an enrollee population with higher claims than anticipated in the premium calculations.
- Costs to the federal government could increase as higher-than-expected average medical claims are more likely to trigger risk corridor payments.
- Relaxing the plan cancellation requirements could increase premiums for 2015. Insurers cannot increase premiums in future years to make up for prior losses. However, assumptions regarding the composition of the risk pool would reflect plan experience in 2014.
This sounds very serious. Journalists ought to try to develop some statements from these people on the “order of magnitude” of the threats they see occurring as a result of recent developments.
Seth J. Chandler is a Professor of Law at the University of Houston at the University of Houston and author of acadeathspiral.org, where this post originally appeared.