The fact that I was once the CEO of a health insurer may cause you to read this with some skepticism.
I invite and challenge your skepticism. And I will do my very best to keep this piece strictly factual and not stray into the ambiguities that necessarily accompany complicated matters.
So bear with me.
Health insurers are not popular. No one wants to go to the prom with us. We have been vilified by no less than the President of the United States. Heady stuff. Let us see if this vilification and what I call the cartoonization of insurers has served us well in the healthcare debate. I think it has not, because for reasons I hope to make clearer, it has taken the focus away from the real causes of our cost and quality nightmares.
Health insurance started in the Depression with the Blues, although they were not at first called that. They typically were formed by hospitals (the Blue Crosses) and physicians (the Blue Shields), so that some payment for services rendered might be, well, “insured.” Provider self interest cloaked in the public interest. Perhaps there was alignment. And there was a Depression going on after all.
At first, the role of the health insurer was strictly financial. The insurer financed all or a portion of covered health services, and far, far fewer services were covered then than today. That’s all an insurer did or was expected to do. It was not there to manage doctors or hospitals or patients or anything else. Originally, this financing was done through “indemnity” plans, which allowed patients to see anyone they wanted, and paid a set dollar amount per service or per day of hospitalization (e.g., $50/day of hospitalization). Thus, if you chose a more expensive provider, the difference was on you. Insurers back in the day did not negotiate reduced fees with providers (“fee discounts”). It was much more civil then.
A few observations from my travels and conversations in the marketplace:
About half of the enrollments are coming from people who were previously insured and half are not. When I try to gauge this, I go to carriers who had high market share before Obamacare and have maintained that through the first open enrollment. Some carriers have said only a small percentage of their enrollments had coverage before but health plans only would know who they insured before.
By sticking to the high market share carriers who have maintained a stable market share and knowing how many of their customers are repeat buyers, it’s possible to get a better sense for the overall market. Other conventional polls have suggested the repeat buyers are closer to two-thirds of the exchange enrollees.
The number of those in the key 18-34 demographic group improved only slightly during the last month of open enrollment so the average age is still high. The actuaries I talk to think this issue of average age is made to be far more important than it should be. It is better to have a young group than an old group. But remember, the youngest people pay one-third of the premium that older people pay.
The real issue is are we getting a large enough group to get the proper cross section of healthy and sick?
The bigger concern continues to be the relatively small number of previously uninsured people who have signed up compared to the size of the eligible group. The recent report released by Express Scripts reporting on very costly pharmacy claim experience from January and February enrollees is far more concerning than the average age.
To properly price the exchange health insurance business going forward the carriers have to sharply increase the rates.
A senior executive for Wellpoint, which sells plans in 14 Obamacare exchanges, is quoted in a Reuters article telling Wall Street analysts there will be big rate increases in 2015, “Looking at the rate increases on a year-over-year basis on our exchanges, and it will vary by carrier, but all of them will probably be double digits.”
If the health plans do issue double digit rate increases for 2015, Obamacare is finished.
There are a ton of things that need to be fixed in Obamacare. But, I will suggest there is one thing that could save it.
The health insurance companies have to submit their new health insurance plans and rates between May 27 and June 27 for the 2015 Obamacare open-enrollment period beginning on November 15th. Any major modifications to the current Obamacare regulations need to be issued in the next month to give the carriers time to adjust and develop new products.
If the administration goes into the next open enrollment with the same unattractive plan offerings costing a lot more than they do today, they will not be able to reboot Obamacare.
Simply, health insurance plans that cost middle-class individuals and families 10% of their after-tax income and have average Silver Plan deductibles of more than $2,500 a month are not attractive and people won’t buy them any more enthusiastically next fall than they already have. See: Obamacare: The Uninsured Are Not Signing Up Because the Dogs Don’t Like It
Doubling the fines for not buying in 2015 will only give the Democrats more political problems––and it doesn’t look to me like they are going to enforce the fines anyway.
Health insurance plan executives are now faced with a daunting decision. How do they price the 2015 Obamacare exchange plans?
Even if the administration announces they have signed-up about 6 million people by March 31, the number of people enrolling would be well below expectations––only about 25% of those subsidy eligible will have signed up by the deadline. An enrollment that small guarantees the risk pool is sicker and more expensive than it needs to be in order to be sustainable.
But dramatically increasing the rates will only assure even fewer healthy people will sign up for 2015 and some of those who signed up for 2014 will back out over the higher rates. This is what a “death spiral” looks like.
The administration has confirmed that the individual policies that were supposed to be cancelled because of Obamacare can now remain in force another two years.
For months I have been saying millions of individual health insurance policies will be cancelled by year-end––most deferred until December because of the carriers’ early renewal programs and because of President Obama’s request the policies be extended in the states that have allowed it.
The administration, even today, as well as supporters of the new health law, have long downplayed the number of these “junk policy” cancellations as being insignificant.
Apparently, these cancelled policies are good enough and their number large enough to make a difference come the November 2014 elections.
As a person whose policy is scheduled to be cancelled at year-end, I am happy to be able to keep my policy with a better network, lower deductibles, and at a rate 66% less than the best Obamacare compliant policy I could get––presuming my insurance company and state allow it.
But for the sake of Obamacare’s long-term sustainability, this is not a good decision.
The fundamental problem here is that the administration is just not signing up enough people to make anyone confident this program is sustainable.
Late last Friday after the financial markets closed, the Centers for Medicare and Medicaid Services (CMS) issued its annual notice of 2015 payments to private insurers who sell Medicare Advantage plans to seniors. Its determination that a 3.55% cut is in order was spelled out in a complicated 148-page explanation of its methodology.
The net impact of changes to “coding intensity” adjusted for geographic variation essentially means insurance companies would see a 1.9% cut in their payments per Avalere’s calculations.
But there’s more to the story than the Medicare Advantage payment adjustment. The difference between last year’s Round One rate negotiation and this year’s Round Two is significant.
Medicare Advantage (MA) plans enroll 28% of seniors. It is popular: enrollment increased from 5.3 million in 20104 to 16 million today—a 9% increase last year alone. MA plans are required to offer a benefit “package” at least equal to Medicare’s covering everything Medicare allows, but not necessarily in the same way.
Some health plans sold through the Affordable Care Act’s (ACA) health insurance marketplaces use “narrow networks” of providers: that is, they limit the doctors and hospitals their customers can use.
Go to Doctor A or Hospital A and the plan will pay all or most of the bill. Go to Doctor B or Hospital B, and you may have to pay all or most of the bill yourself.
The narrow network strategy emerged long before the ACA, during the managed care era in the 1990s, and insurance companies and large, self-insured employers have used narrow networks ever since to control health care costs.
In fact, for the first time, the ACA creates new consumer protections requiring that insurers provide a minimum level of access to local providers. A number of states have exceeded these federal standards using their discretion under the new law.
Nevertheless, some consumer advocates and ACA critics still find narrow networks objectionable. Narrow networks mean that some newly insured people are no longer covered for visits to previous providers, or, if they didn’t have a doctor before, are limited in their new choices. Not infrequently, narrow networks exclude the most expensive doctors and hospitals in a community, including some specialists and academic health centers.
More expensive doctors and hospitals are not necessarily better, but for patients with a rare or complex health problem, such restrictions can be problematic.
Welcome to the world of competition in health care, because that is what narrow networks are about. Narrow networks are used by competing plans to control health care costs, and perhaps improve quality as well. In fact, if you don’t like narrow networks, you’re saying, in effect, that you don’t like competitive solutions—as least under current market conditions—to our health system’s problems.
Rumors have been circulating in the marketplace all week that the administration was thinking of extending the individual health insurance policies that Obamacare was supposed to have cancelled for as much as three more years.
Those rumors have now come out into the open with Tom Murphy’s AP story on Friday.
That the administration might extend these polices shouldn’t come as a shock. My sense has always been that at least 80% of the pre-Obamacare policies would ultimately have to be canceled because of the administration’s stringent grandfathering rules that forced almost all of the old individual market into the new Obamacare risk pool.
But with the literal drop dead date for these old policies hitting by December 31, 2014, that would have meant those final cancellation letters would have had to go out about election day 2014. That would have meant that the administration was going to have to live through the cancelled policy nightmare all over again––but this time on election day.
The health insurance plans hate the idea of another three-year reprieve. They have been counting on the relatively healthy block of prior business pouring into the new Obamacare exchanges to help stabilize the rates as lots of previously uninsured and sicker people come flooding in.
With enrollment of the previously uninsured running so badly thus far, getting this relatively healthier block in the new risk pool is all the more important. The administration’s now doing this wouldn’t just be changing the rules; it would be changing the whole game.
Republicans, and a few vulnerable Democrats, had essentially called for this last fall when legislation was floated in both the House and Senate with the “If You Like Your Policy You Can Keep It,” proposals. At the time, the administration and Democratic leaders rightly said if this sort of thing would have been made permanent it would have a very negative impact on what people in the new pool would pay––and on their already high deductibles and narrow networks.
At the beginning of this post I asked, Is Obamacare unraveling?
First, as I have said before on this blog, the law’s reinsurance provisions will mean Obamacare can keep limping along for at least three years. And, even making this change won’t alter my opinion on this. It will just cost the government more reinsurance money to keep the carriers whole.
By asking if it is unraveling, what I really wonder about is the whole sense of fairness in the law and the expectation that everybody needs to get the Democrat’s definition of “minimum benefits” whether they want them or not.
President Obama rarely shies away from an opportunity to tout successes in U.S. health care, but in last night’s State of the Union oddly omitted any mention of the new and optimistic report about U.S. health spending from actuaries at the Centers for Medicare and Medicaid Services (CMS).
The finding: from 2009 through 2012, health care spending in the U.S. grew at the slowest rate since the government started collecting this data in the 1960s.
The actuaries found that in 2012 spending “stabilized,” growing by 3.7 percent in 2012, and health care accounted for a slightly smaller percent of GDP than the prior year, 17.2 percent versus 17.3 percent in 2011.
Perhaps an actuarial report proclaiming stable growth doesn’t make for much of an applause line for a State of the Union speech. But for confessed policy wonks like me, it’s as good as a Hollywood blockbuster.
So get out your popcorn, here are five Hollywood moments in the report.
1. Ninja Combat
When the report came out in early January, the Obama administration quickly ascribed the good news to Obamacare. But, lo and behold, the actuaries wielded their slide rules like weapons.
They respectfully disagreed with their president, pointing out that few of the provisions in the health reform law were actually in place during the slow-growth years in question. The actuaries conclude that most of the cost stability results from the economic recovery process.
Given the silence in the State of the Union, they may have been given the last word on the subject.
Quick: If you had to chose a limited number of measures to gauge success of the Affordable Care Act, what would you choose? Would it be the number of persons who have enrolled in healthcare.gov?
The number of persons who have paid for their insurance and have coverage? The number of young people with coverage? The degree of spin used by the White House?
The U.S. House of Representatives thinks it’s an important topic. They just passed legislation requiring weekly updates on the operation of healthcare.gov.
But here is one proposed measure that can help cut through the maze of competing claims and partisan spin:
The percent of persons with either 1) “silver” or 2) “bronze” plans who have gone two or more months without paying their insurance premium.
Why, you ask? The silver and bronze plans, because their monthly premium is lower, will attract a disproportionate number of persons who were previously unable to afford health insurance and are now newly insured.
According to this just published JAMA article, even if their monthly premiums are fully or partially subsidized, these lower-cost insurance plans cover only up to 60% to 70% of medical expenses.That means cost sharing that can be excess of $6000 and $12,000 for individuals and families, respectively.
By ROBERT LASZEWSKI
If the Obamacare health insurance exchanges are not able to get a good spread of risk––many more healthy people than sick––the long-term viability of the program will be placed in great jeopardy.
Given the early signs––far fewer people signing up than expected, enormous negative publicity about website problems, rate shock, big average deductibles, narrow provider networks, and a general growing dissatisfaction over the new health law––it is clear to me that this program is in very serious trouble.
But that trouble would not necessarily transfer to the health insurance plans participating on the state and federal health insurance exchanges.
Obamacare contains a $25 billion federal risk fund set up to benefit health insurance companies selling coverage on the state and federal health insurance exchanges as well as in the small group (less than 50 workers) market. The fund lasts only three years: 2014, 2015, and 2016.