Exchange subsidies, narrow managed care networks credited for stabilizing individual market

May 19th, 2016 No comments

Before the majority of the individual market reforms of the Patient Protection and Affordable Care Act took effect in 2014, the individual health insurance market was mired in a death spiral of adverse selection and rapidly rising, unsustainable premiums. Now those reforms have brought stability to the market, with little risk of the market segment destabilizing, concludes a McKinsey & Company analysis. (h/t to Liz Osius of Manatt).

Key to achieving that stability are subsidies offered households with incomes not exceeding 400 percent of federal poverty levels and health plans’ use of managed care plans and narrow provider networks. The brief notes that an estimated 69 percent of households in the individual market qualify for premium and out of pocket cost sharing subsidies.

The individual market has little risk of entering a classic insurance ‘death spiral’ as long as the federal government continues to offer subsidies to those with incomes below 400% of the federal poverty level. Given the unique regulatory conditions of this market, the key determinants of its stability are not the traditional factors (risk and cost of care for this segment), but rather the ongoing subsidy payments.

McKinsey & Company’s review of plan issuer profitability correlated narrow networks with comparatively better loss experience and profitability compared to plans with wider networks as well as the ability of these plans to set lower premium rates. “The combination of the improving relative pricing of narrowed networks and their superior financial performance suggests that they may be emerging as one sustainable element of exchange plan design,” the McKinsey issue brief states.

Although the individual market has regained stability, profitability remained elusive in the first two years of the major reforms:

Our initial perspective, based on emerging financial results reported for 2015, is that aggregate losses in the individual market may have doubled from 2014, with post-tax margins between –9% to –11% (Exhibit 6). The larger losses are most likely the result of two primary factors: higher year-over-year medical loss ratios (MLRs) (around 4.5% to 5% margin reduction) and lower reinsurance payments (another 3.5% to 4% margin reduction).

 


The Affordable Care Act is the most comprehensive overhaul of America’s health care payment and delivery system since the enactment of Medicare and Medicaid more than 50 years ago, posing significant challenges for public policymakers and health system stakeholders. Pilot Healthcare Strategies can help with insightful policy research and analysis, strategic consulting and project management services. For an initial consultation, email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Exchange plan subsidies face second major legal threat

May 16th, 2016 No comments

Subsidies for qualified health plans (QHPs) sold on state health benefit exchanges are facing another significant legal threat, less than one year after the U.S. Supreme Court ruled in King v. Burwell that advance tax credit premium subsidies are available for all state health benefit exchanges, including those states that opted to allow the federal government to operate the exchange. The plaintiffs in that case unsuccessfully argued the language of Section 1311(d)(1) of the Affordable Care Act narrowly defined an exchange as a governmental agency or nonprofit entity that is “established by a State.” In King, the Obama administration argued and the high court agreed that read in the broader context of the law, the tax credit subsidies are intended to apply in all exchanges.

Citing King, the administration similarly contends in United States House of Representatives v. Burwell that context is key relative to Section 1402 of the Affordable Care Act. That section provides for supplemental subsidies in addition to advance premium tax credits for households earning between 100 and 250 percent of federal poverty levels. The additional subsidies limit out of pocket costs for households at that income level enrolling in a silver level QHPs — the most commonly selected metallic plan design. In House of Representatives, plaintiffs argue their funding is not a continuing appropriation and thus requires an annual appropriation as part of the federal budget.

The administration claims taken in the larger context of the Affordable Care Act, Section 1402 is ambiguous and must be read in context with Section 1401 that funds the advance tax credit premium subsidies via Section 36B of the Internal Revenue Code. The two funding mechanisms are intended to work tandem to make individual coverage more affordable to low income households, the administration posits. Disallowing funding for the supplemental cost sharing subsidies as the House seeks while leaving it intact for premium tax credits would produce an absurd outcome, it maintains.

In a ruling issued May 12, U.S. District Court judge Rosemary M. Collyer agreed with the House, finding the supplemental cost sharing subsidies must be annually appropriated. “Far from absurd, that is a perfectly valid means of appropriation” Collyer wrote, finding paying them for qualified silver QHP enrollees violates the Constitution’s allocation of spending power to Congress without a proper appropriation approved by Congress and the president.

The administration is expected to appeal Collyer’s ruling to the First U.S. District Court of Appeal. Because the unusual case involves a dispute between the legislative and executive branches over the power of Congress to appropriate funding under the Constitution, it’s possible it could go directly to the Supreme Court. In any case, Collyer’s ruling won’t likely have an impact on QHPs offered on the exchanges in 2017 given Collyer stayed the House’s requested injunction against further administration spending for the cost sharing subsidies pending appeals. The change in administrations in 2017 will also blunt the impact of the ruling given the next administration and Congress could opt amend or repeal the Affordable Care Act such as to moot the case.

According to this Urban Institute analysis, if Collyer’s ruling ultimately becomes the law of the land and the Affordable Care Act remains intact, it would force health plans to substantially increase premiums for silver plans in order to recover the lost federal funding for cost sharing subsidies since they would remain under the ACA’s requirement to offer silver QHPs with reduced cost sharing to eligible households. That premium increase would in turn boost advance premium tax credit subsidies that are pegged to the premium rate for the second lowest cost silver QHP offered on exchanges, according to the analysis.

States could also reassess their options under the ACA if the cost sharing subsidies remain unfunded given that a significant percentage of exchange enrollees rely upon them. They could opt to cover most of this population under “basic health plans” per ACA Section 1331 for low income households earning up to 200 percent of federal poverty and not eligible for Medicaid. They also have the option to waive the cost sharing subsidies under Section 1332 of the law affording states wide latitude to fashion their own state health plans provided they meet certain conditions of coverage and don’t entail additional federal funding.

 


The Affordable Care Act is the most comprehensive overhaul of America’s health care payment and delivery system since the enactment of Medicare and Medicaid more than 50 years ago, posing significant challenges for public policymakers and health system stakeholders. Pilot Healthcare Strategies can help with insightful policy research and analysis, strategic consulting and project management services. For an initial consultation, email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Sorry, We Don’t Take Obamacare – The New York Times

May 16th, 2016 No comments

The goal of the Affordable Care Act, which took effect in 2013, was to provide insurance to tens of millions of uninsured or under-insured Americans, through online state and federal marketplaces offering an array of policies. By many measures, the law has been a success: The number of uninsured Americans has dropped by about half, with 20 million more people gaining coverage. It has also created a host of new policies for self-employed people like Ms. Moses, who previously had insurance but whose old plans were no longer offered.Yet even as many beneficiaries acknowledge that they might not have insurance today without the law, there remains a strong undercurrent of discontent. Though their insurance cards look the same as everyone else’s — with names like Liberty and Freedom from insurers like Anthem or United Health — the plans are often very different from those provided to most Americans by their employers. Many say they feel as if they have become second-class patients.

Source: Sorry, We Don’t Take Obamacare – The New York Times

A primary goal of the Affordable Care Act when enacted was to tame the “Wild West” landscape of individual health coverage and put it more on a par with employer-sponsored coverage. And to provide more peace of mind to those having individual coverage.

It did so by defining essential health benefits and minimum actuarial value of individual plans. According to this New York Times story, that hoped for relative degree of parity has yet to be achieved, with employer-sponsored plans that cover the majority of working age adults remaining preferred by providers.

 


The Affordable Care Act is the most comprehensive overhaul of America’s health care payment and delivery system since the enactment of Medicare and Medicaid more than 50 years ago, posing significant challenges for public policymakers and health system stakeholders. Pilot Healthcare Strategies can help with insightful policy research and analysis, strategic consulting and project management services. For an initial consultation, email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Improving primary/urgent care consumer experience as a means of risk selection in individual market

The Patient Protection and Affordable Care Act’s reforms of the individual health insurance market are intended to create a large, risk diversified pool with the individual mandate and prohibition on health plan medical underwriting. A related goal is to enhance competition among health plan issuers based on value and price rather than risk selection – selecting for populations more likely to have lower medical utilization. In addition, the Affordable Care Act’s risk adjustment mechanism — whereby health plan issuers with plans having fewer members with high risk chronic health conditions transfer funds to those with higher numbers of members with such conditions – is designed to disincentive selecting members who tend toward lower medical utilization.

However, as this Money item suggests, market forces may be in play that could work against shifting the market away from risk selection as a means of competition. How? By creating a health plan bundled with a consumer friendly front end primary/urgent care clinic that targets Millennials and young families. These plans – Zoom and UnitedHealth’s Harken Health unit — compete by offering a superior primary and urgent care consumer experience. Along with convenience and transparency and more personalized care and healthy lifestyle support. Since their target demographic is less likely to be suffering from costly chronic health conditions or require hospitalization, the overall risk profile of their plan memberships will likely be superior to those of other health plan issuers.

 


The Affordable Care Act is the most comprehensive overhaul of America’s health care payment and delivery system since the enactment of Medicare and Medicaid more than 50 years ago, posing significant challenges for public policymakers and health system stakeholders. Pilot Healthcare Strategies can help with insightful policy research and analysis, strategic consulting and project management services. For an initial consultation, email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Departure of most loss and risk leveling mechanisms poses major test for ACA individual market reforms

A major test of the Patient Protection and Affordable Care Act’s individual market reforms begins with health plans effective next year — plan year 2017. That’s when two of three mechanisms designed to prevent big spikes in plan premium rates are set to go away. Their goal is to provide a degree of premium stability for plan years 2014 through 2016. They do so by balancing the spread of risk and losses among all health plan issuers, particularly given the uncertainty with the move to modified community-based rating in place of medical underwriting of individuals and families starting in 2014.

Gone will be reinsurance for plans sold through state health benefit exchanges to protect plan issuers from exchange enrollees who incur very high medical costs. Also going away is the risk corridors mechanism under which individual and small group plans whose members incurred costs exceeding 103 percent premiums collected receive subsidies from plan issuers having losses below 97 percent of premiums. Left in place for 2017 and later years is the loss leveling mechanism known as risk adjustment — whereby health plan issuers with plans having fewer members with high risk chronic health conditions transfer funds to those with higher numbers of members with such conditions.

Two big questions going forward 2017 post are 1) whether the risk adjustment mechanism alone will keep premiums from shooting upward as plan issuers signal robust premium increases are in the works for 2017 and 2) whether risk adjustment will ward off adverse selection against exchange plans by leveling risk among plans sold both within and outside the exchanges given health plan complaints of high losses on exchange plans.

Over the longer term, a looming question is to what extent for profit health plans will continue to offer individual plans in the exchanges given their function as voluntary marketplaces. “All indications are that … most insurance plans on the exchanges are yielding zero percent at the very most,” notes Vishnu Lekraj, senior equity analyst with Morningstar.

 


The Affordable Care Act is the most comprehensive overhaul of America’s health care payment and delivery system since the enactment of Medicare and Medicaid more than 50 years ago, posing significant challenges for public policymakers and health system stakeholders. Pilot Healthcare Strategies can help with insightful policy research and analysis, strategic consulting and project management services. For an initial consultation, email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Observations and questions on exchange plan losses

Reading media accounts of health plan issuer complaints of losses on plans sold through state health benefit exchanges, one might think all individual plans are sold through the exchanges. That false perception has implications for gauging the success of the Patient Protection and Affordable Care Act’s individual market reforms since the exchanges are only one element of them. Other key components affect all individual (and small group) plans regardless of whether they are sold on the exchanges or outside of them such as modified community based rating barring medical underwriting of individuals and pooling all individuals and small employers into single state risk pools.

The tendency to view the individual market as one and the same with the exchanges appears driven at least in part by too little data on the off-exchange individual market as compared to exchange qualified health plans. Even though the number of off-exchange plans exceeds those sold on the exchanges in many states, “[th]e lack of transparency about this market will be a growing problem for consumers and regulators,” noted Joel Ario of Manatt Health Solutions and Katherine Hempstead of the Robert Wood Johnson Foundation at the winter meeting of the National Association of Insurance Commissioners (NAIC).

Another aspect of the complaints of exchange plan losses hasn’t been covered in any detail. While some health plan issuers say exchange plans are a money loser due to high medical utilization, they could also dislike having to meet additional compliance and plan administration requirements for exchange participation that makes them unattractive. Particularly if they don’t also offer Medicaid managed care plans serving a demographic more closely aligned with those who purchase coverage through the exchanges.

Finally, more examination and reporting are needed on what’s driving reported losses among plans sold on the exchanges. The frequently reported rationale is it’s because exchange plans enrolled people who are “sicker than expected.” Sicker with what, exactly? Are the losses being incurred by those eligible for cost sharing subsidies in silver plans given that most exchange plans purchased are higher deductible bronze and silver-rated plans? Are those enrollees not eligible for out of pocket cost sharing burning through the deductibles with high cost care such as outpatient surgeries and hospitalization?

 


The Affordable Care Act is the most comprehensive overhaul of America’s health care payment and delivery system since the enactment of Medicare and Medicaid more than 50 years ago, posing significant challenges for public policymakers and health system stakeholders. Pilot Healthcare Strategies can help with insightful policy research and analysis, strategic consulting and project management services. For an initial consultation, email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Citing Losses, UnitedHealth to Pull Back From Obamacare – The New York Times

April 19th, 2016 No comments

The UnitedHealth Group, one of the nation’s largest health insurers, told investors on Tuesday that it continued to lose hundreds of millions of dollars selling individual policies under the federal health care law. The company said it planned to pull out of the majority of states where it offered coverage and would offer policies on the public exchanges in “only a handful of states” for 2017.UnitedHealth, which was a late and seemingly reluctant participant in the public exchanges, surprised investors last year when it announced its sizable losses, now estimated at more than a combined $1 billion for 2015 and 2016, because of its poor performance in the public exchanges. Policy analysts have been watching UnitedHealth closely as an indicator of whether the new individual market developed under the Affordable Care Act is sustainable.Addressing investors, Stephen J. Hemsley, the company’s chief executive, continued to offer a pessimistic view. “The smaller overall market size and shorter term, higher risk profile within this market segment continue to suggest we cannot broadly serve it on an effective and sustainable basis,” he said.

Source: Citing Losses, UnitedHealth to Pull Back From Obamacare – The New York Times

Health plan issuers were supportive of the Patient Protection and Affordable Care Act’s individual and small group market reforms including public health benefit exchanges when the law was being enacted six years ago. The thinking was the reforms would stabilize these troubled market segments and grow the individual segment in particular by aggregating and subsidizing purchasers via the exchanges. Apparently the numbers aren’t adding up for UnitedHealth per Hemsley’s complaint that the individual market is too small and churn too high.

This development comes at the same time UnitedHealth is revamping its approach to the individual and small group segments with its Harken Health subsidiary. According to media accounts, UnitedHealth will continue to offer Harken Health plans in some state health benefit exchanges from which it is withdrawing other individual plan offerings.

 


The Affordable Care Act is the most comprehensive overhaul of America’s health care payment and delivery system since the enactment of Medicare and Medicaid more than 50 years ago, posing significant challenges for public policymakers and health system stakeholders. Pilot Healthcare Strategies can help with insightful policy research and analysis, strategic consulting and project management services. For an initial consultation, email fpilot@pilothealthstrategies.com or call 530-295-1473. 

UnitedHeathcare’s Harken Health redefines the HMO in the age of Obamacare

April 4th, 2016 No comments

AUSTELL, Ga. — UnitedHealthcare is betting $65 million that it can profit by making primary care more attractive.With little fanfare, the nation’s largest health insurer launched an independent subsidiary in January that offers unlimited free doctor visits and 24/7 access by phone. Every member gets a personal health coach to nudge them toward their goals, such as losing weight or exercising more. Mental health counseling also is provided, as are yoga, cooking, and acupuncture classes. Services are delivered in stylish clinics with hardwood floors and faux fireplaces in their lobbies. Harken Health is available only in Chicago and Atlanta, where it covers 35,000 members who signed up this winter on the Affordable Care Act’s insurance exchanges. UnitedHealth still sells traditional plans in those cities, too.

Source: UnitedHealth wagers $65 million on ounce of primary-care prevention

This individual and small group health plan offering appears primarily aimed at boosting health literacy and appreciation for healthy lifestyles among those new to health insurance following the expansion of coverage under the Patient Protection and Affordable Care Act. Since this cohort can be frequent users of care and who because they lack pre-existing provider relationships tend to rack up costly emergency room visits for non-emergent care, Harken Health aims to reach them — and reduce ER visits — by offering unlimited primary care visits without out of pocket costs.

An apparent goal here is that by improving health literacy of its members and instilling in them an appreciation for maintaining healthy lifestyles — key health determinants — Harken Health will build a long term relationship that will pay future dividends in avoided high cost care. It’s redefining the health maintenance organization for the Obamacare era.

 


The Affordable Care Act is the most comprehensive overhaul of America’s health care payment and delivery system since the enactment of Medicare and Medicaid more than 50 years ago, posing significant challenges for public policymakers and health system stakeholders. Pilot Healthcare Strategies can help with insightful policy research and analysis, strategic consulting and project management services. For an initial consultation, email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Proposed Minnesota legislation would allow Basic Health Plan on state exchange to expand rural choice

March 31st, 2016 No comments

Area legislators believe they have found one possibility for cutting premiums and adding coverage to health insurance for those in rural Minnesota.They’ve introduced a bill to request a federal waiver so that MinnesotaCare, the state-run health insurance plan for low-income individuals and families, can be sold on the state exchange to those above the current income limit. Any new enrollees would pay a premium based on a statewide calculation that considers MinnesotaCare as other privately offered health insurance plans are.“In the metro area, there are a lot of insurance carriers who provide multiple products,” said Sen. Kathy Sheran, DFL-Mankato. “In the rural area, where we are more remote and there are fewer customers to be pursued, there are fewer providers of those products.”

Source: Legislators want MinnesotaCare open to all | Local | southernminn.com

This is an interesting development (h/t to Manatt’s Liz Osius) given that many state exchanges struggle to offer much in the way of choice among qualified health plans (QHPs) in their rural rating regions. This bill would allow a special state insurance plan authorized under Section 1331 of the Patient Protection and Affordable Care Act known as a Basic Health Insurance Plan (BHP) for individuals under age 65 with household incomes between 133 and 200 percent of the federal poverty level (FPL) and ineligible for Medicaid (which tops out at 138 percent of FPL in states that opt to expand Medicaid eligibility) to be offered on Minnesota’s state health benefit exchange. MinnesotaCare is the state’s BHP. The preamble to federal rules issued earlier this year governing federal funding for BHPs recognizes their utility as adjuncts to exchange QHPs and Medicaid plans:

BHP provides another option for states in providing affordable health benefits to individuals with incomes in the ranges previously described. States may find BHP a useful option for several reasons, including the ability to potentially coordinate standard health plans in BHP with their Medicaid managed care plans, or to potentially reduce the costs to individuals by lowering premiums or cost-sharing requirements.

Despite this language suggesting flexibility, it remains to be seen whether the federal government would grant a state innovation waiver under Section 1332 of the Affordable Care Act allowing MinnesotaCare to be offered on the exchange if the legislation is enacted. Section 1332 provides program flexibility on exchange requirements but does not extend to BHPs under Section 1331.

 


The Affordable Care Act is the most comprehensive overhaul of America’s health care payment and delivery system since the enactment of Medicare and Medicaid more than 50 years ago, posing significant challenges for public policymakers and health system stakeholders. Pilot Healthcare Strategies can help with insightful policy research and analysis, strategic consulting and project management services. For an initial consultation, email fpilot@pilothealthstrategies.com or call 530-295-1473. 

California exchange mulls flexing market power to enforce hospital care quality

March 21st, 2016 No comments

California’s insurance exchange is threatening to cut hospitals from its networks for poor performance or high costs, a novel proposal that is drawing heavy fire from medical providers and insurers.The goal is to boost the overall quality of patient care and make coverage more affordable, said Peter Lee, executive director of the Covered California exchange.“The first few years were about getting people in the door for coverage,” said Lee, a key figure in the rollout of the federal health law. “We are now shifting our attention to changing the underlying delivery system to make it more cost effective and higher quality. We don’t want to throw anyone out, but we don’t want to pay for bad quality care either.”

“California is definitely ahead of the pack when it comes to taking an active purchasing role, and exclusion is a pretty big threat,” said Sabrina Corlette, a research professor at Georgetown University’s Center on Health Insurance Reforms. “There may be a dominant hospital system that’s charging through the nose, but without them you don’t have an adequate network. It will be interesting to see how Covered California threads that needle.”

Source: California Insurance Marketplace Wants To Kick Out Poor-Performing Hospitals | Kaiser Health News

State health benefit exchanges aggregate individual and small group health plans and purchasers in order to facilitate a more functional market and make health coverage more accessible and affordable. When they actively negotiate with health plan issuers on terms and conditions for exchange participation as Covered California does, they in effect become super payers relative to providers since they can leverage their market power to establish quality standards for medical care covered by participating plan issuers. Covered California now wants to exercise that power relative to hospitals. That dynamic disrupts the traditional contractual relationship between plan issuers and providers and both are initially reacting to the proposal by telling Covered California to butt out.

Hospitals operate in a market that tends to be oligopolistic in metro areas and monopolistic in less populous areas. In California’s expansive geography, it has a mix of both. Georgetown University’s Sabrina Corlette points up the tension between enforcing quality standards on hospitals and the realities of the hospital market relative to ensuring an adequate number of hospitals exist in exchange plan provider networks. The California exchange has a large degree of purchasing power. But in a market with few sellers and many buyers (plan members in a given rating region), sellers have a natural advantage relative to determining price and quality.

 


The Affordable Care Act is the most comprehensive overhaul of America’s health care payment and delivery system since the enactment of Medicare and Medicaid more than 50 years ago, posing significant challenges for public policymakers and health system stakeholders. Pilot Healthcare Strategies can help with insightful policy research and analysis, strategic consulting and project management services. For an initial consultation, email fpilot@pilothealthstrategies.com or call 530-295-1473. 

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