Tag Archive: market intervention

Obama administration’s messaging on ACA’s individual health market reforms lacking

The Obama administration is suffering a political pillorying this week on the imminent rollout of new market rules governing the individual health insurance market and the government-created health benefit exchange marketplace that began selling the plans October 1.

In large part, the criticism stems from weak messaging to communicate the reforms and why they are needed. There should be more emphasis on conveying these reforms affect the individual market where about five percent of Americans purchase their health coverage, clearly distinguishing these health plans from those purchased by employers that cover the large majority of Americans. As individual health plan issuers revamp and discontinue old plans to comply with the new market standards, the administration now finds itself having to defend its claims that most Americans could keep their current coverage when the individual market reforms take effect January 1, 2014. Viewed in the context of employer group coverage, that is generally accurate. But not necessarily so when it comes to individual coverage, an entirely different insurance product.

Perhaps more importantly, the administration and members of Congress who supported the 2010 enactment of the Patient Protection and Affordable Care Act need to more clearly explain why the law’s substantial government intervention in the individual market was needed in the first place. Administration officials have described the market as out of control from a regulatory standpoint, terming it like the “wild west.” But more fundamentally, the ACA aims to rescue this market because it was falling into oblivion. Individual plan issuers and those who buy this coverage were finding it increasingly difficult to get together in the marketplace on terms and pricing.

That market failure occurred because the market fell into a downward spiral where health plans became overly risk averse and excluded too many potential customers, restricting the flow of membership fees and premiums to pay claims. Plan issuers also violated a fundamental principle of insurance by splitting their customer base into small pools and were consequently unable to share the cost of claims across a larger group of customers. Finally, premiums for some individuals and families began to equal the cost of a mortgage payment and grew unaffordable. No market can function if potential customers cannot afford to buy the product or service being offered.

Whether the ACA can restore the individual market to healthy functioning remains to be seen, particularly given continued upward pressure on premiums from rising medical costs. The law’s market interventions could prove ineffective if too few young adults opt to buy coverage. Also if too many older people not yet eligible for Medicare who earn too much to qualify for tax credit subsidies for plans sold in the state health benefit exchange marketplace find premiums unaffordable and don’t buy coverage or request affordability exemptions from the individual mandate.

 


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 benefit exchanges: A market intervention mechanism aimed at preserving individual, small group health coverage

State health benefit exchanges mandated by the federal Patient Protection and Affordable Care Act of 2010 have been commonly described as online marketplaces where buying a health insurance policy or managed care plan can be done as easily as booking a flight or vacation.  Ease of purchase, however, is not the driving policy rationale behind the exchanges.  They came about in response to market failure in the individual and small group market segments, particularly in the former.  In insurance terms, market failure means the dreaded death spiral of adverse selection.

Insurance fundamentally is about spreading costs across a group of insureds, known as the insurance principle.  The principle is based on the law of large numbers.  If too few people purchase an insurance or health plan, the law of large numbers is violated and the insurance principle breaks down.  For those insureds left in the group, their share of the group’s costs – paid as premiums or membership dues – must be sharply increased.  The pool shrinks and only those most likely to use medical services remain since they need coverage, putting further upward pressure on premiums.

There is a limit what any insured can afford to pay.  Eventually market failure results and the insurance or managed care plan becomes economically unviable.  As plans close, the fewer remaining health plans pass along relentlessly rising medical care costs and the unvirtious cycle proliferates until the entire marketplace is at risk.  That was — and still is — the situation the individual and small group health insurance markets leading up to the enactment of the ACA in 2010.  Ultimately, health benefit exchanges are an attempt to preserve these markets by concentrating plan issuers and purchasers into a government-sponsored marketplace with incentives and disincentives for individuals to participate in the form of tax credit subsidies and tax penalties, respectively.

Whether the exchanges are able do so won’t be known for several years after the exchanges begin pre-enrolling individuals and small businesses for 2014 coverage starting in October 2013.  What is certain is the exchanges as insurance marketplaces – like the failed market they seek to remedy — are also subject to the insurance principle. They must attract sufficiently large numbers of individuals and small businesses if they are to successfully achieve the market aggregation solution that led to their inclusion in the ACA.

 


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. 

Ex-Obama advisers seek health care cost control – Yahoo! News

Under the proposal, the major public and private players in each state would negotiate payment rates with service providers such as hospitals. The idea is to get away from paying for each individual test and procedure. Negotiated rates could be based on an entire course of treatment. Payments would have to fit within an overall budget that could grow no faster than the average rise in wages.

The spending limits would be enforced by an independent council, but crucial details need to be spelled out. In Massachusetts, for example, budget-busting providers will be required to file plans with the state laying out how they’ll amend their spendthrift ways.

The federal government would provide grants to states interested in developing their plans.

Tanden joined a brain trust of former administration officials floating the proposal recently in the New England Journal of Medicine. The group included Peter Orszag (former budget director), John Podesta (transition director), Donald Berwick (first Medicare chief), Ezekiel Emanuel (Orszag’s health policy guru), and Joshua Sharfstein (former No. 2 at the Food and Drug Administration). Also on board was former Senate Majority Leader Tom Daschle, D-S.D., Obama’s first pick to shepherd his health care overhaul.

via Ex-Obama advisers seek health care cost control – Yahoo! News.

This item from the Associated Press dubs the initiative “Health Care Overhaul, Version 2.0,” with the goal of establishing a “first-ever budget for the nation’s $2.8-trillion health care system, through negotiated limits on public and private spending in each state.”

The proposal represents an expansion of the accountable care organization concept in the Patient Protection and Affordable Care Act’s Medicare Shared Savings Program (Section 3022 of the PPACA) beyond Medicare to encompass private payments.  It is a government led market intervention designed to shift the business model and economics of the health care industry away from the current model that rewards the provision of discrete medical procedures to an all inclusive, coordinated system of care. 

Arguably, the existing health maintenance organization (HMO) is based on the same principle.  But that hasn’t bent the so-called cost curve. The difference here is that the power of government would be brought to bear to hold down costs such as in Massachusetts. The Bay State recently enacted legislation that among other things, subjects providers to cost growth benchmarks. Those providers exceeding the benchmarks must file and implement a performance-improvement plan, with potential penalty up to $500,000 for failure to comply.  The New England Journal of Medicine has more details on the Massachusetts law here.

 


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. 

%d bloggers like this: