Risk adjustment in health insurance is at first glance, and second, among the driest and most arcane of subjects. And yet, like the fine print on a variable-rate mortgage, it can matter enormously. It may make the difference between a healthy market and a sick one.
The market for individual health insurance has had major challenges both before and after the Affordable Care Act’s (ACA’s) risk adjustment program came along. Given recent changes from Washington, like the removal of the individual mandate, the market now needs all the help it can get. Unfortunately, risk adjustment under the ACA has been an example of a well-meaning regulation that has had destructive impacts directly contrary to its intent. It has caused insurer collapses and market exits that reduced competition. It has also led to upstarts, small plans and unprofitable ones paying billions of dollars to larger, more established and profitable insurers.
Many of these transfers since the ACA rules took effect in 2014 have gone from locally-based non-profit health plans to multi-state for-profit organizations. The payments have hampered competition not just in the individual market, which has never worked very well in the U.S., but in the small group market, which arguably didn’t need “help” from risk adjustment in many states.
The sense of urgency to fix these problems may be dissipating now that the initial rush for market share under the ACA is over and plans have enough actuarial data to predict costs better. There has been an overall shift to profitability. But it would be a serious mistake to think that just because fewer plans are under water, the current approach to risk adjustment isn’t distorting markets and harming competition.
Amid fresh political rancor and legal machinations in the ongoing war over the Affordable Care Act (ACA), there’s a bright spot: Medicaid. At least for now.
This matters. True to predictions made by Obama and supporters when the ACA became law (2010), it has taken years and a lot of blood, sweat and tears to get to this moment.
As a reminder, the U.S. Supreme Court in 2012 ruled that states could opt out of the ACA’s Medicaid expansion—leaving each state’s decision to participate in the hands of governors and state lawmakers.
On June 7, after a 4-year pitched political battle, Virginia became the 33rd state (plus DC) to expand Medicaid under the ACA. The Virginia expansion is projected to encompass 400,000 low-income Virginians.
The state swung in favor of expansion after Democrats gained the governorship and more seats in the legislature in 2016. But, importantly, key moderate Republicans relented.
Four other non-expansion states could join Virginia over the next year or two. They are Maine, Idaho, Utah, and Nebraska.Continue reading…
In tribute to Uwe we are re-running this instant classic from THCB’s archives. Originally published on Jan 31, 2017.
Everyone knows (or should know) that forcing a commercial health insurer to write for an individual a health insurance policy at a premium that falls short of the insurer’s best ex ante estimate of the cost of health care that individual will require is to force that insurer into what economists might call an unnatural act.
Remarkably, countries that rely on competing private health insurers to operate their universal, national health insurance systems all do just that. They allow each insurer to set the premium for a government-mandated , comprehensive benefit package, but require that each insurer “community-rate” that premium by charging the company’s individual customers that same premium, regardless of their health status and even age (with the exception of children).
American economists wonder why these countries do that, given that in the economist’s eyes community-rated health insurance premiums are “inefficient,” as economists define that term in their intra-professional dictionary.
The Affordable Care Act of 2010 (ACA, otherwise known as “ObamaCare”) also mandates private insurers to quote community-rated premiums on the electronic market places created by the ACA, allowing adjustments only for age and whether or not an applicant smokes. But within age bands and smoker-status, insurers must charge the same premium to individual applicants regardless of their health status.
As fellow economist Mark V. Pauly points out in an illuminating two-partinterview with Saurabh Jha, M.D., published earlier on this blog, aside from the “inefficiency” of that policy, it has some untoward but eminently predictable consequences. It happens when healthier people disobey the mandate to purchase insurance, leaving the risk pools of those insured in the ACA market places with sicker and sicker individuals, thus driving up the community-rated premiums. As Pauly points out at length, a weakly enforced mandate on individuals to be insured can become the Achilles heel of community rating.
A bipartisan group of health policy experts has issued a call to action and well-thought-out consensus plan for insurance market stabilization and incremental reform.
The effort adds to the gathering momentum in Washington for urgent fixes to Obamacare, plus additional reforms that might bring conservatives into the fold and appeal across the partisan divide. What’s still unclear, however, is whether the Trump administration and Republican leadership in Congress will go along. Outward signs suggest they won’t, but this game is still changing by the day.
Though the process may not be “over” as of this writing, this has been the most catastrophically mismanaged federal health policy cycle we’ve seen in our lifetimes. In this post, I turn to Blumenthal and Morone’s 2009 analysis, The Heart of Power: Health and Politics in the Oval Office” for help in deconstructing the Trump Presidency’s politically costly health policy adventure.
Blumenthal and Morone distilled eight key lessons about how to manage the health care issue from the records of the post-Roosevelt Presidents’ health policy efforts. Attached to each lesson is a letter grade for Trump’s performance.
To succeed in health reform, President must “care deeply” about the issue.
Candidate Trump did not pretend to be a health policy expert, but the most potent applause line in his campaign speeches was his promise to the Republican base to “repeal and replace” ObamaCare. Trump complicated his task, perhaps without fully realizing it, by running way to the left of his base in promising not to cut Medicare and Medicaid and to give people better coverage for less money.Continue reading…
Tom Price, President Trump’s new Secretary of Health and Human Services (HHS) strode to the podium to the sound of applause.The two thousand medical administrators and physicians at the annual meeting of CAPG, a trade organization representing physician groups, heard him described as the most influential person affecting the 300+ participating groups that provide care for millions. Only the third physician to lead HHS, many hoped that the orthopedist and six term GOP congressman would bring new sophistication to the federal government’s healthcare programs.
The perfectly coiffed Secretary looked every bit the new man in charge of healthcare.Sadly, his resonant voice soon dashed any hope for substance.He might have commented on the essential U.S. healthcare quandary:A country with average household income of $56,000 can’t afford the $15,000 annual cost of health insurance for a family of four. Neither Republicans nor Democrats can conjure up inexpensive insurance that covers unaffordable healthcare services. What does the Secretary think?He sidestepped the issue, twice patting his audience on the back by touting the American health system as “the finest in the world.”Seriously?If Price had attended the morning session he would have heard that the U.S. spends about 6% more of its GDP on healthcare than average developed country.That extra $1.2 trillion amounts to more than twice the defense budget.Yet U.S. health outcomes for crucial measures like infant mortality and lifespan rank average or even worse.Yes, U.S. medical technology leads the world and foreign dignitaries still travel here for world class, high tech care.But shouldn’t the secretary of HHS understand that the measure of a healthcare system is the quality and accessibility of care provided to average citizens?Continue reading…
This Spring, California SB (Senate Bill) 562 proposed a single-payer healthcare financing system for California.Governor Jerry Brown was immediately skeptical, stating, “This is called ignotum per ignotius….In other words, you take a problem and say, ‘I’m going to solve it by something that’s even a bigger problem,’ which makes no sense.”And in early July, California Assembly Speaker Anthony Rendon tabled the bill calling it “woefully incomplete.”While true, that incurred the predictable wrath of single payor advocates.
Understandably, it’s difficult for supporters not to be enthusiastic about SB 562 given the conclusions reached by the Political Economy Research Institute (PERI) based out of the University of Massachusetts, Amherst.PERI has released a Study commissioned by the California Nurses Association (which has always favored single payor universal coverage) that projects reductions in healthcare spending by $37.5 billion a year!No small change there.
The Study reports that the proposed single payor system could provide “decent health care for all California Residents…” and while providing full universal coverage would increase overall system costs by about 10%, it “could” produce savings of about 18%.The savings supposedly will be realized through reduced administrative costs, reducing pharmaceutical reimbursement charges, and “a more rational fee structure for providers.”“More rational” usually means “reduced,” and that usually means primary care and mental health are the first in line to take it in the neck, given their limited negotiating leverage.
And it gets even better.There would be no premiums, copays, or deductibles.According to the Study, people could get treated whenever and wherever they want.And money will be saved.This is like heaven.
I told you so.I also told the POTUS in my open letter, but he did not read it.
Who could honestly believe the nation would support dumping coverage for 22 million people?As David Leonhard wrote recentlyop-ed in the New York Times: “They [Republicans and President Trump] had only one big weakness, in fact: They weren’t dealing in reality.”When faced with reality, it is interesting what a few good Senators with a conscience will refuse to do.
Success is never attained by taking shortcuts.We do not need reform of health care; we need to reboot the entire system.Special interests do not belong in the picture.They are incompatible with developing innovative solutions that place profits on the back burner.Congress is making this too difficult.They need to roll up their sleeves, go back to the drawing board, and start again.My suggestions:
Step 1:Every member of Congress should participate in a mock hospital admission as a patient, starting with presentation to the ER, being poked and prodded, having surgery if necessary, and staying overnight to recuperate.After your experience, you should be provided a “bill” on your way out the door and pay the balance by cash or check.
Step 2:Go see your own primary care physician for two reasons.The first is to have an annual exam and to connect with your constituents in the waiting room, solicit their comments, thoughts, or suggestions, and converse with office staff to understand their perspective.The second reason is to elicit feedback directly from your primary care physician.Listen for groundbreaking solutions to the perplexing boondoggle of caring for greater numbers at a lower cost.
Extra credit:Follow a primary care physician in a Health Professional Shortage Area (HPSA) for three days.Listen, engage, clarify, empathize, and most importantly absorb how monumental this undertaking of reforming health care will be.
Who knew healthcare could be so complex? The GOP proposal for health care reform rests on health savings accounts and high deductible health plans. The basic premise is that price opacity, and deep pocketed third party payers drive up the cost of health care. Giving patients dollars in health savings accounts they control should make them price sensitive, and thus help reduce the cost of healthcare. A recent analysis by Drs. Chandra and others provides an interesting perspective on the matter.
The researchers took a large self insured firm that required all of its employees to switch from an insurance plan that provided free healthcare to a nonlinear, high deductible plan. The switch worked. Health care spending was significantly reduced, but the concern was the mechanism by which spending was reduced. One would like to believe spending reductions related to price shopping, so patients were getting the same services just for cheaper. Unfortunately, it appeared that consumers reduced all spending regardless of whether it was worthwhile or not. Deciding what is worthwhile in healthcare is a complicated business that I will leave for another day but I agree with the general contention of the paper – giving a patient control over health care dollars does not make for a smart price shopper.
At long last, the Senate is poised to begin voting today on a measure to repeal and/or alter portions of the Affordable Care Act.
Much remains in flux regarding process and the substance of what will be voted on. According to multiple media sources today, Senate leaders latest strategy is to hold a vote on a narrower piece of legislation than those circulated in recent weeks.
The substance of such a measure—if indeed, it exists and is submitted for a vote—is unclear as of this posting. But it reportedly could contain just a repeal of the ACA’s individual and employer mandates and a few of the law’s taxes, such as the one on medical device companies.
This narrow, or “skinny,” bill would not have any provisions pertaining to Medicaid.
The idea, apparently, is to pass this initial piece of the puzzle—to get things going—and then to take up the larger and more controversial issues that have so deeply divided the Republican caucus.Continue reading…