Tag Archive: high deductible plans

Non-group segment clouded in uncertainty amid questions of market and actuarial sustainability

Four years after the start of open enrollment under the Patient Protection and Affordable Care Act’s reformation of the non-group medical insurance market, the market’s future is clouded in uncertainty. The biggest questions are whether it can sustain itself as a market and as a functional risk pool.

First the market. Alarm bells are being sounded that that the segment will undergo buy side market failure as households with incomes exceeding 400 percent of federal poverty levels that don’t qualify for premium subsidies on state health benefit exchanges will no longer be able to keep up with large premium rate increases. This is complicated by the fact that these households perceive low value in high deductible plans that have become commonplace. Their expectations of fair value are under assault by high premiums for high deductible plans. The expectation is high premiums should have an inverse relationship with out of pocket costs such as deductibles and co-insurance as they historically have. That’s no longer the case.

Many of these 401 percenters ineligible for premium assistance have income tax incentives to continue to purchase non-group plans. For all of them, there is the stick of the tax penalty for going without coverage. For the many that are self-employed, there is the carrot of being able to deduct premiums from taxable income on their Form 1040. Both of these incentives however can only go so far if premium costs are unaffordable. The perception of poor value due to high plan deductibles might be enough to push a vacillating 401 percent plus household to make the decision to go without coverage and pay the tax penalty instead. Particularly if that self-employed household has dependent children or is comprised of adults over age 50. Premiums hit these households particularly hard since household size and age are two key premium rating factors in the non-group market.

The out migration of the 401 percenters combined with the reluctance of under 30 “young invincibles” to purchase a plan and instead pay the tax penalty would shrink and distort the non-group risk pool, calling into question its actuarial sustainability. The primary members would be adults aged 30-50 and a declining number of those over age 50 who are high utilizers of medical care eligible for premium subsidies though the exchanges or willing and able to pay rising premiums in the off-exchange market. With these populations, there may not be enough people in the pool to achieve a sufficient spread of risk among high and low utilizers to keep the segment from falling into adverse selection, further accelerating premium rate hikes.

The aversion of the young invincibles to comprehensive standard non-group plans would be reinforced under a Trump administration that’s exploring relaxing the rules governing short term “gap” policies. That liberalization would create a large degree of parity between short term and standard non-group plans. Both would have annual terms and be renewable. That would shrink the individual risk pool by providing a lower cost replacement for non-group plans for young adults and those who use little medical care, even when tax penalties for lacking comprehensive coverage are taken into account.

In sum, these factors leave the non-group market segment vulnerable to a relatively rapid unwinding over the next three or so years.

 


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. 

First step toward bending medical utilization cost curve is not equating medical care with health care

The Republicans’ primary strategy is to shift more expense to individuals through high-deductible plans and Health Savings Accounts. They hope people will seek services less often if they have to pay more for it. That’s a prescription for illness.

Source: Partisan battles shouldn’t afflict good health care | The Sacramento Bee

This assumes medical care is subject to the economic principle of price elasticity that holds demand for a product or service moves inversely to its price. But medical care isn’t a commodity like food, clothing and shelter. It’s not consumed on a regular basis throughout life. People generally use it only when they need it, not because they want to buy it at the mall. In addition, the vast majority of people tend toward health with healthy lifestyles and don’t require preventative care.

To begin bending the medical utilization cost curve, the first step is to not regard it as a consumer commodity. The goal is to avoid having to need medical care in the first place by taking good care of our health. That’s truly preventative care. Medical care isn’t a substitute for health care — something only people can give to themselves. Reducing its cost or making it more accessible won’t automatically translate to lower overall spending on medical care.

 


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. 

Key factors driving perception of poor value in individual health insurance market

The law “requires you and each member of your family to have qualifying health care coverage (called minimum essential coverage), qualify for a coverage exemption, or make an individual shared responsibility payment when you file your federal income tax return,” the tax agency says on its website.

Some consumers who buy insurance on the exchanges still feel vulnerable. Deductibles are so high, they say, that the insurance seems useless. So some feel that whether they send hundreds of dollars to the I.R.S. or thousands to an insurance company, they are essentially paying something for nothing.

Obama administration officials say that perception is wrong. Even people with high deductibles have protection against catastrophic costs, they say, and many insurance plans cover common health care services before consumers meet their deductibles. In addition, even when consumers pay most or all of a hospital bill, they often get the benefit of discounts negotiated by their insurers

Source: Health Law Tax Penalty? I’ll Take It, Millions Say

Perception as political pundits often say is reality, particularly so when it comes to pocketbook issues. At the root of this perception is the more generous HMO plans that came about in the 1970s and 1980s that offered little or no out of pocket costs. That conditioned consumers to think of health insurance as pre-paid medical care rather than an insurance product. High deducible plans by comparison are predicated on a basic principle of insurance: to cover the risk of high and unexpected costs — and not to protect consumers from paying out of pocket to see a medical provider for routine care.

So not surprisingly, plans that come with high deductibles are seen as a poor value since consumers aren’t going to see any of their premium dollars returned to them unless they need high cost care such as hospitalization. Back in the pre-HMO days of the 1950s and 1960s, hospitalization and other “major medical” costs as health insurance policies were termed then was the main point of coverage and not primary care physician office visits. Hence, those policies came with high deductibles that were only triggered by high cost care.

A closely related perceptual problem with the return of the major medical model and high deductibles relates to high premiums for high deductible plans. That violates the established expectation of a tradeoff for accepting higher deductibles in exchange for lower premiums since less first dollar risk is being assumed by health plans. This is a huge issue for consumers in the individual market in age rating bands 50 and older but whose household incomes exceed 400 percent of federal poverty levels, thus disqualifying them for tax credit subsidies offered for coverage purchased through state health benefit exchanges. It has led to proposals such as allowing fifty somethings to buy into Medicare earlier than the minimum eligibility age of 65.

 


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

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

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. 

Paying cash and negotiating price: Will it reduce the cost of health care and coverage?

Many of us now have high-deductible health insurance plans, which makes us “cash-pay” patients until we meet our deductibles. According to a Health Affairs health policy brief, high deductible plans are now much more prevalent in both individual and group markets.The higher the deductible, the lower the monthly premium. If you have a high deductible plan and don’t consume much medical care, you are most likely a cash pay patient. You might even avoid medical care because of the out of pocket cost. I know I have.I talked with a friend yesterday who has a $9,000 deductible. She has a torn meniscus. She is avoiding the surgery because she isn’t even close to hitting her plan’s deductible. I suggested she try asking for a “cash pay” price from her surgeon and the hospital or surgery center where her procedure would be performed. Negotiating cash pay prices for medical treatment has become a common practice. Often a cash-pay price for medical care can be much less than what you’d have to pay if you haven’t met your deductible.

Source: How cash-pay patients can beat high-deductible plans

The strategy of paying cash for medical care to get a better price originally appeared in The Los Angeles Times and is getting legs elsewhere such as here. That’s the way it was back in the 1950s and 1960s where people had “major medical” insurance that covered only large and unexpected medical care needs such as auto accidents and heart attacks. Everything else was paid on a cash basis.

Going forward, it bears watching to see if this gains momentum among those covered by high deductible plans. If it does, it could create downward pricing pressure on non-emergency medical procedures including primary care visits that aren’t preventative care and thus subject to out of pocket cost sharing.

Ditto high deductible plan rates. If more people pay providers directly rather than engaging in the paperwork exercise with their health plans for care falling well below their annual deductible, that reduces the administrative burden on the issuers of high deductible plans. As well as providers willing to negotiate a cash price knowing they’ll get paid sooner with less paperwork.

There’s an added bonus for high deductible plan members. At one time, having a high deductible plan meant a broader choice of providers. No longer the case with today’s narrow networks. Paying cash can potentially substantially widen the provider network to any provider willing to accept cash as payment in full for services.

 


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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