Health Insurance Crisis

With the coming end of medical insurance underwriting in 2014 under the Patient Protection and Affordable Care Act (PPACA), payers are retooling their business models to enable them to manage medical risk posed by high utilization patients.  These are people with complex, chronic conditions whose needs for care and medications rank them in the top one percent of all patients.  In risk management terms, these are “catastrophic” risks payers will soon no longer be able to avoid.  Instead, these patients will have to be managed to minimize utilization.  Daniel Malloy of the healthcare consultancy IMS Health explains in this New York Times article earlier this week:

Insurance companies will be required to enroll millions of new customers without the ability to turn them away or charge them higher premiums if they are sick. They will prosper only if they are able to coordinate care and prevent patients from reaching that top 1 percent, Mr. Malloy said. “The insurance model is fundamentally changing,” he said.

The Times article notes insurers are becoming increasingly sophisticated at identifying high utilization patients and those likely to develop serious complications. “It’s important to know who they are and manage their conditions,” Dr. Pat Courneya, the medical director for the health plan offered by HealthPartners, told the newspaper.

Managing costs posed by these high risk patients could also require a holistic medicine approach that treats the whole person — both body and psyche.  The Times article reports that “insurers are also still grappling with their understanding of human nature — why some people simply don’t take care of themselves or take their medicine or go to the doctor, even when it is clear that they should.”

The interim high risk pool created as part of the Patient Protection and Affordable Care Act (PPACA) to provide a market of last resort for people who buy their own health insurance but who can’t meet medical underwriting standards has become a catastrophic risk pool serving people with very high cost conditions.

According to a federal government report issued this week, those covered by the Pre-Existing Condition Insurance Plan (PCIP) are averaging annual costs more than double the $13,026 actuaries estimated in November 2010, The Washington Post reports.

A review of the report shows nearly 80 percent of claims costs are attributable to five medical conditions: cancer, cardiovascular disease, rehabilitative care and aftercare, and degenerative joint diseases.  The higher than expected costs indicate that after getting off to a slow start in 2010, the PCIP could spend all of the $5 billion the PPACA appropriated to it by 2014 when insurers must accept all applicants regardless of medical condition or history.  However, several factors are likely to moderate future enrollments.  They include high premiums, the requirement that applicants be medically uninsured for at least six months as well as pre-existing state run high risk pools already serving those deemed medically uninsurable by private insurers and health plans.

In 2011, some health insurers were conceding the individual market was failing, entering the dreaded death spiral of adverse selection.  But none went as far as Aetna CEO, Chairman and President Mark Bertolini at a Las Vegas conference this week in proclaiming the business model of health insurance broken and facing extinction.

“The system doesn’t work, it’s broke today” Bertolini was quoted as saying by HealthData Management in remarks to attendees of the HIMSS12 conference. “The end of insurance companies, the way we’ve run the business in the past, is here.”

A fundamental function of any form of insurance is underwriting the selection and rating of risks. With medical underwriting ending January 1, 2014 under the Patient Protection and Affordable Care Act (PPACA), it’s no wonder Bertolini sees the end of health insurance as we have known it.

The PPACA as well as other factors are forcing health insurers to reinvent themselves.  But as what?  Since Accountable Care Organizations (ACOs) being created by the reform law are risk sharing mechanisms that reward better patient outcomes and reduced treatment costs though more coordinated, more holistic patient care, Bertolini sees a role for insurers to help manage that risk.  “We need to move the system from underwriting risk to managing populations,” Bertolini was quoted as saying. “We want to have a different relationship with the providers, physicians and the hospitals we do business with.”

What about state health benefit exchanges created by the PPACA that open for business in 2014?  The exchanges are to serve as purchasing pools to help individuals and small businesses aggregate purchasing power to get better deals on health insurance than they would otherwise get negotiating on their own behalf.  If health insurance is becoming a thing of the past as Bertolini predicts, what will they be buying?  Bertolini foresees all-inclusive, branded “health systems” (perhaps similar to California-based Kaiser Permanente) that leverage health information technologies to put patients in charge of their health.

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.

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.

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.

The New York Times today reports on the trend of nurses continuing their educations to obtain doctoral degrees in nursing.  Physicians view the trend as another salvo in a longstanding scope of practice turf battle with nurses and some experts don’t see it doing anything to improve health care in the United States:

“Everyone’s talking about improving patients’ access to care, bending the cost curve and creating team-based care,” said Erin Fraher, an assistant professor of surgery and family medicine at the University of North Carolina School of Medicine. “Where’s the evidence that moving to doctorates in pharmacy, physical therapy and nursing achieves any of these?”

Perhaps not immediately.  It will be interesting, however, to watch the role of nurses as primary caregivers evolve as more Americans gain access to medical coverage as the Patient Protection and Affordable Care Act (PPACA) continues to be phased in over the next several years.   A major concern that there will be too few primary care and family physicians available to serve those who gain access to care under the PPACA.  In response, there could be a major shift in medical care in which nurses become primary care providers with medical doctors serving as surgeons and specialists (as many doctors already do) treating patients with multiple complex and rare medical conditions that exceed the training and expertise of nurses.