Monthly Archive: September 2016

Are state health benefit exchanges undergoing adverse selection?

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 or call 530-295-1473. 

Health insurance needs risk management and loss control tools

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 or call 530-295-1473. 

Employer-sponsored health coverage redefined in ACA era

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 or call 530-295-1473. 

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

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.

– – – –

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 or call 530-295-1473. 

%d bloggers like this: