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Why medical care payment reform is a wicked problem

May 29th, 2017 Comments off

“You can have a picture of what the final system would look like,” says Katharine London of the University of Massachusetts, coauthor of a series of studies of a Vermont single-payer plan that eventually was abandoned. “But the biggest hurdle for single-payer is how you get from here to there.” That journey involves persuading voters that the system they’re so enthusiastic about in the abstract will function to their advantage in reality. That’s a hard task. “People by and large like the health insurance they have,” in part because most people have limited or infrequent interactions with the healthcare system, Gruber says. “They’re not willing to give up something they like enough for something unknown.”

Source: The challenges in setting up a California single-payer system are daunting — but not insurmountable – LA Times

Jonathan Gruber –who consulted on the drafting of the Patient Protection and Affordable Care Act — is right on the money in his analysis. The pie chart below showing all forms of medical coverage in the nation’s largest state illustrates why medical care payment reform is such a wicked problem. Yes, it’s byzantine with all those slices of the pie covering different groups of people. But the people covered within each slice are generally satisfied with their coverage and thus not inclined to give up their slice in order to put everyone into one big pie of single payer where a governmental entity would pay all medical bills. That especially applies to employer group medical benefit plans that provide the bulk of private sector coverage to those under age 65.

 

Public sources account for 71% of healthcare revenues in California, including 60% from federal progSource: UCLA Center for Health Policy Research. Public Funds Account for Over 70 Percent of Health Care Spending In California. August 31, 2016.
 


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. 

Administration, Congress would leave CSR subsidies in limbo in latest court filing

May 22nd, 2017 Comments off

President Donald Trump and House Republicans have decided not to blow up the Obamacare health insurance markets just yet. In a filing to a federal appeals court Monday, the Justice Department and lawyers representing House Republicans have requested another 90-day delay in the proceedings from a case challenging the legality of payments made to health insurers serving low-income customers. “The parties continue to discuss measures that would obviate the need for judicial determination of this appeal, including potential legislative action,” attorneys for both parties wrote to the appeals court.

Source: Trump Decides Not To Blow Up Obamacare — Yet | HuffPost

If the U.S. District Court of Appeals grants this request, the legal uncertainty over the reduced cost sharing subsidies for silver actuarial value (AV) plans sold in state health benefit exchanges would potentially continue for the rest of the summer. As the article notes, those subsidies could be cut off at any time by the Trump administration and an appeal in the case, House v. Price, dropped. That would leave intact a U.S. District Court ruling one year ago finding the subsidies cannot be allocated by the executive branch without congressional appropriation. Neither the Trump administration nor the current Congress are committed to keeping the exchange market functional and have little motivation to resolve the matter.

These circumstances will likely prompt plan issuers to increase plan year 2018 premium rates as a precaution as rate filings are due to state regulators in the next month since the Affordable Care Act would continue to require them to offer more generous coverage than standard 70 percent AV silver plans for households earning below 250 percent of federal poverty levels and purchasing though the exchanges. At least one plan issuer, Anthem, has indicated it would have to boost premiums by at least 20 percent to cover the potential loss of the CSR subsidies.

A second consecutive year of double digit premium increases could threaten the actuarial viability of the state non-group market risk pools since those eligible for little or no advance premium tax credit subsidies would likely flee the market. Particularly if the Trump administration doesn’t enforce the ACA’s individual mandate, making that option more appealing.

Some state regulators including California and most recently New Mexico have asked plan issuers to file two sets of premium rates, one assuming continuation of the subsidies and another without them.

 


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. 

Return to high risk pools implies failure of ACA’s single statewide risk pool

May 16th, 2017 Comments off

The return to state high risk pools encouraged by Trump administration executive action and as proposed in the American Health Reform Act pending in the Senate — mechanisms phased out with the Patient Protection and Affordable Care Act reforms of the non-group segment effective in 2014 — carries with it a critical implication. Specifically, the individual market even with single statewide risk pools mandated by Section 1312(c) the Affordable Care Act are too small —  in some less populous states at least — to achieve a sufficient spread of risk. Therefore, the logic implies, individuals with conditions who use largely disproportionate amounts of medical care must be excluded from the statewide pool and cordoned off in high risk pools in order to maintain the pool’s actuarial viability and ward off adverse selection in the individual market.

That cuts against a core assumption of the Affordable Care Act — that by having all individuals and family members in a given state treated as one large risk pool, a sufficient spread of risk would be achieved. In addition, the law’s premium stabilization programs and an ongoing risk adjustment mechanism to compensate health plan issuers who take on members with costly, complex chronic conditions would act as buffers to ensure the actuarial integrity of the pool and reduce the likelihood of adverse selection. The proposed revival of high risk pools would suggest that’s not the case and the amount of medical care utilized by some pool members is so costly that it skews an entire state’s risk pool.

This in turn leads to a far larger implication. If 5 percent of the pool population account for 50 percent of the costs — or 1 percent accounting for 20 percent to use another expression of the ratio cited in this National Institute for Health Care Management data brief — then medical care may not be an insurable risk due to insufficient spread of risk. If that’s the case, it could result in plan issuers ceding most or all of the loss risk to the government as is currently the case in Medicare and Medicaid managed care. Notably, Aetna CEO Mark Bertolini reportedly suggested just that, according to this account at Reason.com, with nominal insurers taking on the role of plan administrators handling “back room” transactions:

The government doesn’t administer anything. The first thing they’ve ever tried to administer in social programs was the ACA, and that didn’t go so well. So the industry has always been the back room for government. If the government wants to pay all the bills, and employers want to stop offering coverage, and we can be there in a public private partnership to do the work we do today with Medicare, and with Medicaid at every state level, we run the Medicaid programs for them, then let’s have that conversation.

Note the second condition in Bertolini’s statement: If employers want to stop offering coverage. Complain as they may about rising premiums in group coverage, there’s no indication that the highly entrenched employee benefit model of covering medical care for the non-elderly is going to be abandoned by employers anytime soon. Even if the Affordable Care Act’s mandate on employers of 50 or more to offer coverage is repealed given favorable tax treatment of employer-sponsored medical care plans.

 


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. 

Proposal: taxpayer funded primary care

May 11th, 2017 Comments off

In the United States, community health centers could be funded directly by the government based on population, not fee for service. They would provide a broad, well-defined range of services, including primary care, with weekend and evening hours, telemedicine, basic pharmaceuticals and education for management of chronic illness. Mental health care would be provided, including management of drug addiction. And they could serve as a base for managing crises such as epidemics and bioterrorism events. Anyone could use a community health center without income verification, free. People could still use private primary care providers, but they would have to pay for them, directly. Insurance would be reserved for emergencies, through inexpensive catastrophic coverage. Even Medicaid and Medicare could eventually be moved into a catastrophic-only model.

Source: What Spain Gets Right on Health Care – The New York Times

A couple of likely criticisms come to mind. First, would

Second, proposal is likely to face the major obstacle confronting proponents of single payer coverage, wherein the government covers both primary and catastrophic care: the entrenched employer-sponsored medical insurance benefit model that has been in place since the 1940s. Given

 


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. 

House Passes AHCA. Next step is to the Senate… with a whole new bill. | Michael Lujan | Pulse | LinkedIn

May 5th, 2017 Comments off

Source: House Passes AHCA. Next step is to the Senate… with a whole new bill. | Michael Lujan | Pulse | LinkedIn

In this piece, Michael Lujan does a good job outlining the basic insurance principles. The problem however in the non-group market goes deeper than a failure to understand the relatively simple rules that govern all forms of insurance. Paying for medical costs shifted away the major medical risk insurance model to the prepaid model that came with the rise with HMOs and managed care organizations in the 1970s and 1980s.

Hence, consumers don’t see medical risk sharing in the same way they view other forms of personal insurance intended to protect against accidental or unexpected large losses such as life, homeowners and auto. The managed care model of bundling in relatively low cost primary care has furthered that perception. Consequently, consumers chafe at basic insurance functions such as underwriting and being asked to pay deductibles and otherwise assume a degree of risk. To them, it appears as a take away — “unusable” coverage that reduces value in their eyes, especially as premiums rise.

Unless consumers of individually sold medical plans see them as insurance and something only to be used when needed to cover large, unexpected medical costs, the segment will continue to struggle regardless of reform efforts such as the current House bill. It would restore another insurance basic with medically underwritten premium rating for states that opt to allow it for individuals who have not maintained continuous coverage provided the state has established a high-risk pool or participates in a federally-sponsored high-risk pool.

As long as consumers are reluctant to be insured in the conventional insurance sense for medical risk and insurers are reluctant to cover it, the long term viability of the non-group market remains in question.

 


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. 

Morale hazard raised in debate on GOP debate on individual medical insurance

May 3rd, 2017 2 comments

In 2013, I pointed out morale hazard as a major risk facing issuers of medical insurance. Morale hazard has now come up in the current debate among majority House Republicans on the Patient Protection and Affordable Care Act’s non-group medical insurance reforms. Here’s the context from a Yahoo News item:

Though the GOP leadership is insisting those with preexisting conditions will be covered under its bill, some individual lawmakers are telegraphing a different message. Rep. Mo Brooks, R-Ala., a member of the Freedom Caucus, told CNN Monday that the provision will allow those who have lived “good lives” to pay less for health care, by taking unhealthy people out of the insurance pool. “They’ve done the things to keep their bodies healthy, and right now, those are the people who have done things the right way, who are seeing their costs skyrocketing,” Brooks said.

Morale hazard is tied to the perception that medical care and insurance are consumable commodities. The more they are used, the greater likelihood of good health the flawed reasoning goes. In fact for most people, these resources are – and should — be used as little as possible. Fortunately that’s the case according to a recent Health Affairs analysis that found most Americans use few health care resources and have low out-of-pocket spending. The outliers who use a lot of care are driving medical utilization.

Some policymakers such as Rep. Brooks argue their premium rates should be medically underwritten to ensure they are proportional to the risk they pose. Or excluded from the insurance pool and placed in high risk pools that violate the basic insurance principle of risk spreading. The challenge is how to identify and distinguish these folks from those who have congenital predispositions to chronic medical conditions whose risk to insurers is far less prone to morale hazard as well as those who engage in health promoting lifestyles that reduce their likelihood of needing medical care for chronic conditions. Some have suggested the rapid growth in genomics along with wearable biometric monitoring devices provides a possible solution. Time will tell.

 


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. 

Complaints over high deductibles call into question future of individual medical insurance

May 2nd, 2017 3 comments

President Donald Trump’s complaint that high deductible medical insurance plans are a bad deal because people can’t use them to cover medical expenses subject to the deductible reflects a fundamental conceptual conflict over medical insurance. Here is what Trump had to say in a Sunday interview with the CBS News program Face the Nation:

We’re going to drive down deductibles because right now, deductibles are so high, you never — unless you’re going to die a long, hard death, you never can get to use your health care–because the deductibles are so high.

Insurance is a mechanism to transfer and share risk. In the case of high deductible medical insurance plans, the risk is high medical bills exceeding the deductible amount is transferred to the plan issuer. The idea of the deductible is that the insured assumes some level of risk. It’s not intended to be “used” or otherwise consumed in exchange for paying a premium. In fact, this mindset can even drive up utilization since people will be motivated to burn through the deductible in order to get their plan to begin paying their medical bills.

Underlying this perception is the transition in the 1970s and 1980s from “major medical” coverage – a true insurance offering designed to cover catastrophic medical costs – to prepaid managed care plans. These are not pure insurance products but are hybrids. The plan assumes a degree of risk of catastrophic care needs such as a major injury or illness. But it also is designed to cover everyday primary care needs. The proliferation of managed care plans and particularly integrated plans where the plan’s own staff providers provide medical care naturally have led people to expect not to have to pay much if anything out of pocket for relatively lower cost care. To them, that’s consuming the coverage they paid for, particularly since the plans they purchased include primary care as they must under the Patient Protection and Affordable Care Act.

When their individual medical plan doesn’t permit that until they’ve racked up several thousand dollars of medical expenses, from their perspective their premium dollars have been wasted even though those premiums insulate them against the risk of large medical bills. However “large” is relative. In a period of declining widespread economic prosperity, medical bills of several thousand dollars that aren’t covered because they fall within the deductible limit are indeed seen as forbiddingly large. Ironically, they even lead to personal bankruptcy – something insurance is specifically intended to prevent.

Ultimately, public policymakers are faced with a question far larger than repairing or replacing the Affordable Care Act. The question is whether financing medical care with an individual or non-group insurance plan makes sense both from an actuarial and public perception standpoint. Or whether it should be a publicly financed mechanism paid though self-employment and income taxes.

 


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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