When ACA individual market reforms fail and reprise de facto high risk pool

October 19th, 2016 No comments

The Minnesota Department of Commerce struck a deal with five health plans in the state’s individual market to prevent a market collapse. In June, Blue Cross Blue Shield announced that it was leaving the individual market, with 103,000 individuals left to find a new plan when open enrollment starts on November 1. It was feared that other plans would quickly follow suit. Given that BCBS had a broad network and notably higher risk profile, the remaining plans were not eager to take on new enrollees in a guaranteed issue environment. The agreement reached included caps on health plan enrollment and significant rate increases between 50-66.8 percent. Only one of the five plans, BCBS’s narrow-network HMO plan, Blue Plus, agreed to offer plans without an enrollment cap.

Source: Capping Enrollment To Save Minnesota’s Individual Market

A key element of the Patient Protection and Affordable Care Act’s reforms of the individual health insurance market is the formation of statewide risk pools comprised of those not covered by government or employer-sponsored plans. But as the Minnesota Department of Commerce notes in this news release, just five percent of Minnesota residents or 250,000 people don’t fall into these categories and make up the entire universe of the individual market.

When Affordable Care Act rules that permit health plan issuers to slice and dice state individual risk pools into county-sized rating areas where they can choose — or not — to offer a plan or plans are factored in, that universe is narrowed down. That effectively reduces the spread of risk for health plan issuers offering coverage in those rating areas if there are few issuers offering plans within them. Ultimately, the number of those in the individual market becomes too small to achieve effective spread of risk, even with the law’s individual shared responsibility mandate to have some form of health coverage in force. Especially in smaller states like Minnesota, where it appears from this Health Affairs blog post that rather than spreading risk across a larger population, the individual market is functioning more like a high risk rather than true insurance pool. That’s why Minnesota regulators accommodated health plan issuer concerns by capping enrollment — a defining characteristic of a high risk pool.

That’s a perverse development given the Affordable Care Act’s reforms of the individual market were specifically intended to restore the individual market to healthy functioning and obsolete state high risk pools that offered tightly limited coverage to those whose health status fell short of health plan issuers’ medical underwriting standards that existed prior to the reforms taking effect in 2014.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Individual market reform goals of spread of risk, affordability showing strains at extremes of age continuum

October 12th, 2016 No comments

Two fundamental policy goals of the Patient Protection and Affordable Care Act reforms of the individual health insurance market are improving the spread of risk – the essential risk pooling element of any form of insurance – and affordability. Each complements the other. Having more affordable forms of individual coverage brings more people into the risk pool. That in turn improves the spread of risk. Better spread of risk means health plan issuers can set premium rates lower because there are more premium dollars being paid in to cover the costs of those who need medical care. A virtuous cycle in economic terms.

Four years after most of the reforms began to take effect, it remains unclear if these two policy goals will be achieved, with strains appearing at both ends of the age continuum of working adults not covered by employer sponsored health plans. At the lower end are the so-called “young invincibles” who as this Heath Affairs Blog post posits are opting not to purchase coverage. Its authors suggest the Affordable Care Act’s age rating rules designed to make coverage more affordable for older adults deter young adults – who may not see the need — from enrolling in coverage.

That has frustrated the policy goal of achieving greater spread of risk by shifting the risk pool toward older adults, the authors write, reinforced by the law’s bar on medical underwriting that previously kept these older adults who tend to use more medical services out of the pool. Consequently, they note, the risk pool faces the danger of adverse selection, with a surplus of older adults who consume more medical care and too few younger adults who tend to use less.

But despite the age rating rules that stipulate that the relative weight of age in setting premium rates cannot exceed a three to one ratio between the oldest and youngest adults in the pool, older adults with household incomes exceeding 400 percent of federal poverty and thus ineligible for premium tax credits for coverage sold on state health benefit exchanges are facing an affordability crisis. Shela Bryan, a 63-year-old maintenance supervisor from Hull, Georgia, is a typical example. She’s shopping for coverage for 2017 and told Kaiser Health News:

“They cost a thousand, $1,200 [a month], and they have a deductible of $6,000,” she said. “I don’t know how they think anyone can afford that.”

There also a very real perception of poor value at work here that can deter older consumers from purchasing coverage. High deductible plans shift what’s known in insurance terminology as “first dollar” or “burning layer” risk to insureds. Consumers in age rating bands of 55 and older naturally wonder why they are being asked to pay so much for what is essentially catastrophic coverage. Particularly older adults who are relatively healthy and are committed to leading healthy lifestyles, knowing they are not bulletproof 29-year-olds anymore. Unlike other forms of insurance where an insured can earn lower premiums and discounts for mitigating risk, the Affordable Care Act prohibits use of such incentives that could improve the individual risk pool.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

An unvirtuous combination: Prevalence of chronic disease and consumer expectations spawned by decades of managed care

October 7th, 2016 No comments

The prevalence of chronic illness and the expectation built up over decades of managed care that health plans should cover office visits with no or little out of pocket costs are combining to drive up America’s health care costs – and health insurance premiums. People are visiting physician offices more often and want their wallets protected from paying for those visits.

Case in point is California’s health benefit exchange, Covered California. Its benefit standards for participating high deductible health plans require them to offer low, set co-pays for office visits at $35 for primary care doctors and $70 for specialists. The goal, as Covered California Executive Director Peter Lee told the Los Angeles Times, is to take the sting out of high deductibles that require people to pay the full cost of an office visit until they are reached. “No patient I know wants to pay $2,500 to see the doctor,” Lee told The Times, referring to a $2,500 high deductible plan. But there’s no proverbial free lunch. There’s a tradeoff involved. More office visits equal greater utilization and administrative costs — which in turn lead to higher premiums.

The thinking here appears to be to avoiding creating an economic disincentive for people to see a physician in order to catch a health problem before it develops into a more serious, costly condition. For some people, that may apply. But not for all if not most. The great majority of people are blessed with the ability to maintain good health by leading healthy lifestyles that include adequate exercise, sleep and a healthy diet. Unlike motor vehicles that require regular maintenance to stay road worthy, human beings do not require ongoing preventative maintenance in a doctor’s office. If the current policy that health coverage is to be an insurance product – and all indications it will remain so for most working age Americans barring a collapse of employer-sponsored health benefits – that policy should treat it as insurance.

Insurance is for large, unexpected costs. It’s not for maintenance. That’s why most insurance policies exclude coverage for losses arising out of neglected maintenance. That’s why they won’t pay a claim for a roof collapse if the roof not properly reshingled or for a blown engine due to missed oil changes.

Health insurance isn’t really something that can be purchased. It’s something all people can give to themselves by respecting their ability to maintain their own health in order to avoid needing medical care. That’s true health maintenance. It can’t be legislated via public policy. It must become a widespread cultural ethic that respects it and the need for people to invest in their own health.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Bill Clinton criticizes ACA gaps

October 5th, 2016 No comments

At a campaign event for his wife in Flint, Mich., Bill Clinton had praised the law for insuring millions of Americans, but noted that many middle-class Americans were still unable to afford coverage and talked up his wife’s plan to allow those close to retirement age to buy into Medicare.

“The people who are getting killed on this deal are small business people and individuals who make just a little too much to get any of these subsidies because they’re not organized,” he said. “They don’t have any bargaining power with insurance companies so they’re getting whacked.

“So you’ve got this crazy system where all of a sudden 25 million more people have health care and then the people who are out there busting it, sometimes 60 hours a week, wind up with their premiums doubled and their coverage cut in half. It’s the craziest thing in the world

Source: Bill Clinton’s Obamacare remarks put Hillary on the hot seat

The former president’s talking about shortcomings in the Patient Protection and Affordable Care Act relative to making health coverage more accessible and affordable for individuals and small employers. Regarding the former, I’ve referred to them as the “401 percenters” — those who exceed the household income cutoff of 400 percent of federal poverty for advance premium tax credits for individual qualified heath plans sold on state health benefit exchanges. There have been numerous accounts that even those with household incomes between 300 and 400 percent of federal poverty levels get too little in the way of subsidies to make coverage affordable or even worthwhile, federal income tax penalties for going bare notwithstanding.

As for Bill Clinton’s reference to small business, the Affordable Care Act envisioned small businesses organizing to gain some degree of bargaining power in the health benefit exchange’s Small Business Health Options Program known as SHOP. In theory, the SHOP was to enable small business to aggregate their market power, aided by the law’s creation of a single statewide risk pool for the small group market segment. In reality, it didn’t work out that way. SHOP turned out to be a flop, with little interest among small employers and insurance brokers in participating in the program.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Are state health benefit exchanges undergoing adverse selection?

September 30th, 2016 No comments

A trend worth watching is health plan issuers opting not to sell individual plans on state health benefit exchanges while continuing to offer them outside the exchanges. Health plan issuers withdrawing from exchanges for plan year 2017 cite high losses on exchange plans for the decision to withdraw.

This naturally raises questions as to why losses are higher on exchange plans compared to off exchange plans and whether the exchanges are prone to adverse selection and if so, why. It’s an area ripe for research by health policy and actuarial research organizations. It’s also critical to the future of the Patient Protection and Affordable Care Act’s health insurance market reforms given the central role of the exchanges to restore the individual market to functionality by making coverage affordable for low and moderate income households with advance premium tax credit and out of pocket cost subsidies. That combined with the law’s mandate the individuals be pooled into a single statewide risk pool were designed to improve the essential risk spreading function upon which all types of insurance is based. However, if the risk profile of exchange enrollees is inordinately poor compared to the individual state pool as a whole, it could explain why some health plan issuers have opted out of the exchanges.

One possible reason is the well-established positive correlation between socio-economic status and health status. Since the exchange population is by definition low and moderate income, that correlation could be a factor since the correlation predicts those with poorer health status are more likely to utilize medical services. Another possible contributing factor is an insurance concept known as morale hazard. Morale hazard arises when those with insurance coverage figure that since they are protected from loss, they don’t have to worry as much about a covered loss event or taking steps to prevent one. In other words, insurance can ironically increase the risk of loss because insureds become less vigilant to avoid one in the first place such as eliminating fire hazards in a dwelling or obeying traffic laws and driving carefully in the case of vehicle insurance.

The correlation between lower household socio-economic status and poorer health status may also reinforce morale hazard on the exchanges since those with the lowest incomes will have relatively minimal personal financial risk since they qualify for out of pocket cost sharing on some silver level plans.

When it comes to health, American society is fraught with morale hazard. It tends to place too little value on maintaining and supporting healthy lifestyles and regards medical services as a consumer commodity to be shopped and consumed. Particularly when someone else is paying for those services when packaged as a benefit or entitlement. That’s a formula for increased medical utilization with negative and potentially fatal implications not only for the exchanges, but for the nation’s health care system as a whole.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Health insurance needs risk management and loss control tools

September 21st, 2016 No comments

Risk management and loss control are established practices in the property/casualty insurance industry. An example in homeowners insurance is clearing brush and flammable materials away from structures to reduce the risk of loss due to fire. On the commercial side of the business, it might take the form of recommending an insured business replace old or damaged electrical wiring that could short out and cause a fire. Or reducing safety hazards at the job site that could lead to an injury and workers’ compensation claim.

These practices however haven’t been widely adopted in the health insurance industry. Notwithstanding s a consensus that engaging in health promoting behaviors such as getting sufficient sleep and exercise can mitigate the risk of lifestyle-related chronic metabolic and cardiovascular disease. These risk reduction factors are now measurable, thanks to the availability of wearable tracking devices over the past few years.

The health insurance industry should figure out the best way to use data from these devices to encourage sustained healthy lifestyle habits. If the data show, for example, that an individual is engaging in regular exercise and getting 7-9 hours of sleep most days, an employer-sponsored health plan could offer a premium discount. The discount is justified since an individual who demonstrably practices healthy lifestyle habits on a regular basis will likely be at lower risk to develop a chronic medical condition that could lead to a high dollar loss in the future. It recognizes that people are best situated provide health maintenance for themselves — not their medical providers – a critical distinction as the economics of health care are reaching a breaking point. It also recognizes that as long as the United States utilizes an insurance-based system of paying for much of the nation’s health care, there must be a partnership between health insurers and those they cover to reduce utilization to ensure money is there for those facing high, unexpected medical costs.

Large employer plans can already put this into practice. For the small employer and individual market segments, the addition of an optional rating factor (in addition to the permitted factors such as family size, age, location and tobacco use) under the Patient Protection and Affordable Care Act would be necessary. Given the particular concern health plan issuers have expressed over higher than expected losses in the individual market over the past few years, the impetus is there.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Employer-sponsored health coverage redefined in ACA era

September 14th, 2016 No comments

While employer-sponsored plans typically have much lower deductibles than the most popular plans found on the exchanges, more employees have deductibles, and those deductibles are increasing. Over all, employees have deductibles that are about 50 percent higher than they were five years ago. Four out of five covered employees pay a deductible, which averages about $1,500 each, Kaiser found. Employees who get insurance through a smaller company have deductibles that now average $2,100. Workers are also paying a greater share of the premiums, contributing $5,277 annually toward a family plan, nearly a third of the total cost.

Source: Workers Pay More for Health Care as Companies Shift Burden, Survey Finds

The Patient Protection and Affordable Care Act is predicated on the principle that the vast majority of working age Americans are covered by employer-sponsored health insurance (ESI). In the not too distant past, ESI could have been accurately described as an employee benefit since employees paid little or nothing for their coverage.

In line with the trend of the past several years to have employees share in the cost of their coverage, the Affordable Care Act redefined ESI as “employer shared responsibility,” referring to the law’s requirement that employers of 50 or more offer nearly all full time employees coverage providing minimum value. That’s a critical distinction that reshapes the traditional view of ESI.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

The states with the biggest Obamacare struggles spent years undermining the law

September 8th, 2016 No comments

As insurers exit Obamacare marketplaces across the country, critics of the Affordable Care Act have redoubled claims that the health law isn’t working. Yet these same critics, many of them Republican politicians in red states, took steps over the last several years to undermine the 2010 law and fuel the current turmoil in their insurance markets. Among other things, they blocked expansion of Medicaid coverage for the poor, erected barriers to enrollment and refused to move health plans into the Obamacare marketplaces, a key step to bringing in healthier consumers.

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There are many fewer options in states whose leaders have spent years working to sabotage the law.

Source: The states with the biggest Obamacare struggles spent years undermining the law

It is inaccurate to describe red states as “sabotaging” Obamacare. The ACA is a federal-state initiative that afforded a good degree of policy latitude to the states, with that freedom vis Medicaid expansion broadened by the USSC in NFIB v. Sebelius (2012).

The real issue is there is no policy consensus among the states re health care reform notwithstanding broad agreement that reform is essential. Also, the individual market poses enormous challenges re achieving spread of risk to ensure this market segment’s long term actuarial viability. Contributing to that challenge is a culture that does not value health promoting lifestyles and regards medical care and insurance as high cost consumer commodities.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Health Exchange Signups Fall Short – The Yeshiva World

August 28th, 2016 No comments

In February 2013, the Congressional Budget Office predicted that 24 million people would buy health coverage through the federally and state-operated online exchanges by this year. Just 11.1 million people were signed up as of late March.Exchanges are marketplaces where people who do not receive health benefits through a job can buy private insurance, often with government subsidies.“Enrollment is key, first and foremost,” said Sara Collins, a vice president at the Commonwealth Fund, a nonpartisan foundation that funds health-care research. “They have to have this critical mass of people so that, by the law of averages, you’re going to get a mix of healthy and less healthy people.”A big reason the CBO projections were so far off is that the agency overestimated how many people would lose insurance through their employers, which would force them into the exchanges. But there have been challenges getting the uninsured to sign up, too.

Source: Health Exchange Signups Fall Short – The Yeshiva World

There’s a strong element of irony here given the Obama administration’s stated position that health care reform should retain the employer-sponsored model that covers the majority of Americans under age 65. According to this report, it retained a bit too much  — to the detriment of a robust individual market the Patient Protection and Affordable Care Act insurance market reforms envisioned.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Federal study finds Medicaid expansion improves individual risk pool, reduces HIX plan premiums

August 27th, 2016 No comments

The HHS analysis uses 2015 data on HealthCare.gov plans and enrollment to assess how Medicaid expansion affects Marketplace premiums. It controls for differences across states in demographic characteristics, pre-ACA uninsured rates, health care costs, and state policy decisions other than Medicaid expansion, finding a 7 percent difference in Marketplace premiums holding these factors fixed.

States that expanded Medicaid coverage under the ACA have Marketplace risk pools comprised largely of individuals with incomes above 138 percent FPL, while non-expansion states have Marketplace risk pools that include more individuals below 138 percent FPL. Because lower-income individuals on average have poorer health status than those with higher incomes, a state’s decision not to expand Medicaid affects the Marketplace risk pool and, ultimately, Marketplace premiums. Issuers have noted that Medicaid expansion is one way that states can strengthen their Marketplaces.

Source: Medicaid expansion lowers Marketplace premiums by 7 percent

The upshot of this analysis is the actuarial health of the statewide individual health insurance risk pools would be improved taking into account the correlation between socio-economic status and health status and removing households earning between 100 and 138 percent of federal poverty from the pool by making that cohort eligible for expanded Medicaid.

Given that some health plan issuers have withdrawn from state health benefit exchange marketplaces citing lower population health status — and higher risk — than anticipated, it would be interesting to see if there’s a correlation between states that opted not to expand Medicaid eligibility and states where plans have exited exchanges for plan year 2017.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

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