Health Insurance Crisis

Like the Clinton administration’s comprehensive health care reform proposal of the 1990s, a key goal of the Obama administration’s Patient Protection and Affordable Care Act (PPACA) is having all Americans medically insured though public or private health plans.  Since coverage gaps largely occur with private coverage, private market reform is central to the reforms of both administrations.

Since most working age Americans have employer-paid coverage, the Clinton administration’s reforms would have required all employers to cover their employees so that none had to obtain their own coverage in the individual market or be medically uninsured.  Rather than the Clinton administration’s employer mandate, the Obama administration instead placed the mandate on individuals, requiring all Americans to have medical coverage by 2014.  Key to the individual mandate in the PPACA is the law’s state health benefit exchanges to provide an insurance marketplace for small employers and individuals.

If the U.S. Supreme Court upholds the constitutionality of the individual mandate later this year, it could mesh well what some observers believe is a trend toward more temporary and self-employment.  This trend has seen a significant boost in recent years as employers hire fewer people to do the same work or adopt processes that require fewer permanent staff.  This in turn has led to growing numbers of temporary and self-employed people.

Since these workers aren’t covered by employer-provided plans and must obtain health coverage on their own, they will benefit from the exchanges where participating insurers will be required to offer coverage with minimum coverages and premiums determined using modified community-based rating versus medical underwriting.  As 2014 draws closer, the exchanges could in turn encourage more to deliberately choose temporary and self-employment.  Many who might otherwise work for themselves balk at the prospect of having to find health coverage in the existing individual market where they can be declined for pre-existing medical conditions and don’t benefit from group purchasing power the exchanges would provide.  The exchanges and the PPACA’s mandates that all individuals have coverage and health plans and insurers accept all applicants regardless of medical history would significantly mitigate this disincentive for those considering self-employment.

Critics of employer-based health insurance (and single payer advocates) will likely point to this recent article by the California HealthCare Foundation’s California Healthline reporting on a recent UCLA Center for Health Policy Research report finding 670,000 Californians lost employer provided health insurance in 2008 and 2009.  The article quotes Shana Lavarreda, lead author of the report, describing the numbers as an indication that medical coverage among middle class Californians was significantly undermined by the economic downturn and resulting job losses.  “The uninsured here is less and less an undocumented [worker] problem, and now it’s more of a Main Street problem,” Lavarreda told California Healthline.

The report has implications for the Patient Protection and Affordable Care Act, which is predicated on all Americans being in a public or private managed care or health insurance plan by 2014 — with the bulk of private coverage employment-based.  The experience of California (and certainly other states) in the two years leading up to the enactment of the Act in 2010 shows that employer-based coverage — which had been eroding even prior to the recession with fewer small employers providing coverage — remains quite vulnerable to fluctuations in the economy that disrupt employment.

The Pittsburgh Tribune Review reports insurer Highmark Inc. will spend up to $500 million to develop a new network of doctors, community hospitals and outpatient locations in Western Pennsylvania in addition to the $475 million it has promised to prop up West Penn Allegheny Health System.  According to the newspaper, the network will include medical malls, ambulatory care centers, a health information exchange, partnerships with community hospitals and primary and specialty care centers.  The deal is pending approval from Pennsylvania regulators.

“We believe this investment on behalf of our customers is crucial to address the unsustainable increases in health-care costs that are making health insurance less affordable for our customers and the community,” explained Highmark spokesman Michael Weinstein.

While not mentioned in the story, another likely driver of this payer-provider consolidation is to ease the establishment of an accountable care organization (ACO) among the involved entities.

If the U.S. Supreme Court severs a keystone element of the Patient Protection and Affordable Care Act that mandates all Americans have public or private health coverage by 2014 but leaves intact another key provision requiring insurers and managed care plans to accept all applicants without medical underwriting, payers would experience adverse selection and premium rates would necessarily rise in response, making coverage less affordable.  That undermines a key objective of the 2010 law designed to reduce the number of people who are medically uninsured, the UCLA Center for Health Policy Research concludes in a research note issued this month.

The note determined this scenario would result in only a small reduction in the number of medically uninsured Californians by 610,000 or 13 percent of the eligible uninsured by 2019. Eliminating the minimum coverage requirement while leaving in place the PPACA’s modified community-based rating where coverage is guaranteed to all applicants would not allow payers to avoid covering less healthy individuals more likely to need expensive medical care.

The UCLA research note effectively concurs with an amicus curiae brief in the Supreme Court case filed by health insurers and plans who contend the PPACA’s coverage mandate is designed to work in conjunction with community-based versus individual medical underwriting and therefore cannot be excised from the law.  “The result would be a ‘marketwide adverse-selection death spiral’ that would thwart rather than advance Congress’s goal of expanding affordable health care,” they warn.

As to be expected from the Kaiser Family Foundation, the organization has prepared a thorough and excellent report on the status of state health benefit exchanges two years before the deadline established in the Patient Protection and Affordable Care Act (PPACA) for the exchanges to open for business.

Political uncertainty related to the pending U.S Supreme Court decision this year on the constitutionality of a keystone component of the PPACA — the requirement that all Americans be covered by or purchase some form of health insurance including from state benefit exchanges  — has some states sitting on the sidelines.  Other states are operating on the assumption the PPACA is good law until the Supreme Court rules otherwise and are attending to the complexities of getting their exchanges ready for business come January 2014.

Click here for the Kaiser Family Foundation report.

The Obama administration last week filed its brief supporting the Patient Protection and Affordable Care Act’s (PPACA) requirement that every American be covered by public or private health insurance effective Jan. 1, 2014.  Opponents of the requirement, referred to in the administration’s brief as the “minimum coverage provision,” contend it’s an unconstitutional exercise of Congressional authority over commerce and taxation.

The minimum coverage provision is the keystone of the PPACA and the product of a political tradeoff leading up to the 2010 enactment of the legislation to address what the brief terms “a crisis in the national health care market.”  The provision was aimed at quelling opposition from health insurers who opposed the PPACA’s requirement to shift from their existing medical underwriting risk selection model to a community-rating model that requires all applicants be accepted and charged standardized premiums regardless of their medical histories.  Unless everyone is required to be in the insurance market in some form or another, payers argued, they would be exposed to adverse selection because only those who needed coverage would purchase it, driving up claims costs.  That would lead to adverse selection since the insurance pool would have a disproportionate number of sick people needing costly medical treatment while healthier people who go without coverage don’t contribute premiums to cover those costs.

The administration argues in its brief that this results in cost shifting in which those who have coverage end up paying additional premium dollars to pay for the uncompensated care of the uninsured, many of whom cannot obtain affordable coverage due to pre-existing conditions.  “The Act breaks this cycle through a comprehensive framework of economic regulation and incentives that will improve the functioning of the national market for health care by regulating the terms on which insurance is offered, controlling costs, and rationalizing the timing and method of payment for health care services,” the brief states.

In sum, the administration asserts, the market needs community rating to sustainably provide coverage to all Americans.  But it cannot work without what effectively functions as a community insurance requirement.  Everyone gets in the pool regardless of medical history — and everyone pays to enter.

A proposed California ballot measure would limit hospital charges to 125 percent of total patient care expenses beginning August 1, 2014.  The measure, the Fair Healthcare Pricing Act of 2012, has been submitted to the state Attorney General for a title and summary, the first step before proponents can begin gathering voter signatures to place it on the ballot.

Here’s a fact sheet from the measure’s proponents, the Service Employees International Union/United Healthcare Workers West.

The California HealthCare Foundation’s CaliforniaHealthline reports today on an about face by California’s Pre-Existing Condition Insurance Plan (PCIP) that could be a warning of things to come for other state high risk pools.

California’s PCIP was among the first state pools to open for business under a provision of the Patient Protection and Affordable Care Act (PPACA) that created interim high risk pools to provide temporary coverage at standard market rates until insurers and managed care plans must accept all applicants starting Jan. 1, 2014.  The PPACA allocated $5 billion to subsidize the pools since by definition they are an adverse risk selection mechanism and aren’t likely to cover claims costs solely with insureds’ premium dollars.

After getting off to a slow start in 2010, federal and state officials grew concerned that too few people were signing up for coverage.  So this summer, the Obama administration opened the tap wider on the $5 billion interim high risk pool subsidies, reducing premiums effective July 1 in two dozen states where the federal government runs the pools.  California’s PCIP soon followed, reducing premiums by as much as 20 percent to attract more enrollments.  The tactic worked, but perhaps too well.  Previously believing there were too few enrollees, California’s Managed Risk Medical Insurance Board (MRMIB), which oversees the PCIP, is now apprehensive too many will come aboard and sink the ship.

CaliforniaHealthline’s David Gorn explains:

 The threshold for the number of Californians who might participate in PCIP was estimated at about 23,000 people. Since a few more than 5,000 people signed up in that first year – and new enrollees came on board at a rate of roughly 500 a month – it seemed that the program was financially stable and able to take on more participants.

But after the first year, state officials got their first real claims data to test that estimate, and the amount required by recipients was much higher than expected. That 23,000-person threshold estimate was reduced to 6,800 Californians.

That means (given current enrollment of 5,290 including last month’s bump of 726 new subscribers), there’s now only room for a little more than 1,500 new enrollees (which is about two months’ worth of enrollees, given October’s bump of 726 new subscribers).

Unless the federal government pumps more money into the program.

In other words, more people are enrolling, but bringing with them high medical utilization costs that challenge the ability of the MRMIB to keep the PCIP solvent until 2014 when it will no longer be needed.  Other states may soon experience a similar conundrum:  fulfilling the PPACA’s mandate to have the interim high risk pools serve markets of last resort that must accept applicants without medical underwriting while having enough money to pay for their care.  And manage to do so for nearly four years.

A little more than one year ago, this blog discussed how the interim risk pools could become a catastrophic coverage pool for those requiring very high cost care and threaten to rapidly draw down the $5 billion appropriated for them in the PPACA.  This may well be happening now.

Premiums for employer-provided health insurance rose by 50 percent from 2003 to 2010 as employers passed on high costs to workers, boosting their annual share of premi­ums by 63 percent over the seven-year period, according to a report issued this week by The Commonwealth Fund.  That’s much faster than overall inflation and wage growth during the period.  The numbers reflect an affordability crisis confronting health insurers given the rate of growth of premiums is taxing the ability of employers and individuals to pay them at the same time the nation struggles to regain economic growth.

The report looks to a combination of insurance market reforms, payment incentives and delivery system changes to potentially reduce insurance costs by an average of 1 to 1.5 percent­age points per year over the next decade.  But even with the higher savings figure, coverage would remain costly, putting the average national family premium at $16,912 in 2015 and $20,620 by 2020, the report estimates.

While not specifically called out in The Commonwealth Fund report, the premium increase data underscore the enormous social cost of the poor health habits of many Americans — unhealthy diet and lack of adequate exercise and sleep — that underlie chronic conditions such as heart disease and diabetes that in turn drive up medical costs.  Insurance market reforms alone can’t address those factors that according to the Preventative Medicine Research Institute account for 75 percent of health care costs that can be prevented by lifestyle changes.

California as the United States is facing an affordability crisis when it comes to purchasing health coverage and care.  Many argue that the best response to bend the cost curve that’s increasingly placing them out of reach for employers and consumers is revamping the current health care system away from the “auto mechanic” model.  In that paradigm, patients are charged incrementally for each visit to the shop and “repair” they need.  Reformers promote an alternative system that provides incentives for health care providers to keep people healthy and relatively free of the effects of chronic disease that account for a large majority of health care spending, particularly as people age into their senior years.  If they are in less than optimal health in early adulthood and middle age, they’ll end up as very costly medical cases in future years.

“It is not possible to develop a medical system that is adequately efficient to resolve California’s affordability crisis if a large percentage of people are developing diabetes—and conditions that often come along with obesity such as depression—in their 30s and 40s,” argues Micah Weinberg of the Bay Area Council in the organization’s report released this month, Roadmap to a High-Value Health System Addressing California’s Healthcare Affordability Crisis.

“Our current food environments and the individual choices we make are creating a tidal wave of disease that our medical system cannot handle effectively and equitably,” Weinberg asserts. “Californians, therefore, must become much more engaged in improving their own health and taking personal responsibility for bringing down their own lifetime healthcare costs so that resources are preserved for those truly in need.”

Weinberg is essentially promoting a new social ethos relative to health care.  One that regards health care as an expensive, finite resource and not a limitless commodity that can be easily modified to respond to consumer demand and market forces.  If we as individuals over utilize health care as the result of poor lifestyle choices, that collectively incurs a major societal cost and worsens the plight of those who need care for illnesses and injuries they could not have avoided.