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.

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.

Underlying the enactment of the Patient Protection and Affordable Care Act (PPACA) in 2010 was a fundamental policy choice that rejected the idea of cutting out private “middle man” health plans and insurers in order to make coverage more accessible and affordable by adopting a Canadian-style single payer model in which the government pays all medical bills.  Or have a government-run insurance plan compete with private payers — the so called “public option.”  The Obama administration rejected these deprivatization schemes as too radical and instead chose to build upon the existing system largely based on working age people and their families having private health coverage paid for by employers.

Two recent surveys by benefit consulting firms Towers Watson and Mercer suggest however the foundations of that system could ironically erode under the PPACA if employers drop their group insurance and managed care plans and opt to have their employees purchase coverage in the individual market.  One of the major motivators, this AP article suggests, is the creation of health benefit exchanges designed to make it easier for individuals and families to buy their own coverage.

Given steep medical cost inflation that has rapidly accelerated the cost of covering workers over the past decade, at least some employers see “opting out” of providing health coverage as their cost control “nuclear option” despite the adverse tax implications and penalties they would incur by not covering their employees.

The implications of the Towers Watson and Mercer surveys are controversial and are drawing caveats from administration officials, particularly insofar that the benefit exchanges won’t open for business until January 2014.  With more than two years until then, it’s hard to draw any firm conclusions regarding what employers will actually do when the exchanges become operational.  But benefits consultants warn that it won’t take many employers to start a trend of opting out as the AP story notes:

Benefits consultants say most companies, especially large employers, will continue to offer coverage because they need to attract and keep workers. But that could change if a competitor drops coverage first.

Michael Turpin, a national practice leader at broker and consultant USI Insurance Services, said one of his clients plans to drop coverage as soon as any competitor does. The client, a major entertainment industry company he declined to identify, will be at a financial disadvantage if it doesn’t.

“In those industries … if somebody makes the first move, the others are going to follow like dominoes,” Turpin said.

If that happens, the PPACA will have the unintended consequence of radically altering the employer-based system of health care coverage in the United States, moving it instead toward one based in individuals purchasing their own coverage.

Los Angeles Times business columnist David Lazarus wrote last week about one of the biggest challenges to making medical care more accessible and affordable: rampant medical cost inflation.  It will stoutly challenge the “affordable” part of the Patient Protection and Affordable Care Act (PPACA).  Lazurus writes:

It’s a problem that affects all of us. As hospitals jack up prices to get more money from insurance companies, insurers in turn hike premiums for all members to cover their rising expenses. It’s a vicious cycle that exacerbates the unaffordability and inaccessibility of treatment in the United States.

It’s also a phenom that’s not responsive to competitive market forces to hold down the price of medical care and prescription drugs.  A competitive market has two elements.  One, many buyers and sellers.  Two, competitive markets afford ample opportunity for buyers to shop around for the best deal.   Most markets for medical care and medications have the first attribute but not the second.  People who are sick or injured or facing conditions that threaten the quality of their lives and life itself aren’t inclined to question the cost.  Especially when insurers and managed care plans are picking up most of the tab.  As prices increase, payers pass through the higher costs to their insureds and plan members.

Of course, that can only go on for so long before premiums become so high they precipitate adverse selection, with healthier people dropping coverage and leaving payers covering sicker, costlier individuals.   By requiring everyone to have some form of public or private health coverage, the PPACA hopes to stave off adverse selection and put more dollars in the coffers of insurers and managed care plans to cover those increasing medical and drug costs.  However, without some mechanism to hold down the rising price of medical utilization — lowering demand through healthier lifestyles, for example — the PPACA’s insurance mandate may only buy a little time before we’re facing a more widespread health insurance crisis.

Kaiser Health News (KHN) provides a roundup of federal and state options to regulate health insurance premiums.  Reading between the lines, however, the story is really about a larger issue: regulatory action to hold down the cost of medical care that underlies the actuarial basis of premiums.  Either indirectly by giving insurance regulators more authority to approve or reject filed premium rates or more directly as KHN reports:

Tired of complaints that underlying costs are the problem, but hearing no consensus from the health-care industry on how to solve it, Massachusetts Gov. Deval L. Patrick (D) introduced a broad proposal to overhaul the way health care is paid for. Part of the proposal would allow regulators to reject premium increases if insurers pay hospitals, doctors and others more than a limit set by the state.

Either way, to providers it smells like price controls.  In California, that prospect has doctors so alarmed that they’ve allied with their traditional payer adversaries to oppose pending legislation (Assembly Bill 52) that would give the Golden State insurance and managed care plan regulators prior approval authority over health insurance rate filings and allow them to bar the use of rates deemed excessive, inadequate, or unfairly discriminatory.

Massachusetts Gov. Patrick’s concept bears watching and could have national implications insofar as that state’s health care reform served as a template for the federal Patient Protection and Affordable Care Act (PPACA).

The Sacramento-based Center for Health Improvement (CHI) recently hosted an informative seminar on risk adjustment components of the Patient Protection and Affordable Care Act to help health plans and insurers manage and balance medical risk once they must begin accepting all applicants regardless of pre-existing medical conditions starting Jan. 1, 2014.  (Background and a webcast of the seminar are available at the CHI webpage.)

Medical underwriting that can make obtaining affordable coverage difficult for many prospective insureds in the individual and small group market segments ends on that date. The framers of the PPACA put in place these risk adjustment mechanisms to ensure balance and stability in the individual and small group insurance marketplace when it arrives.  They are intended to avoid adverse selection — when medical claims costs and premiums rise in a self-reinforcing manner and threaten insurers’ ability to spread risk among healthier people, threatening the solvency of the insurance pool — as well as cherry picking.  The latter term refers to insurer risk selection aimed at weeding out people who could incur high medical bills and attracting healthier insureds less likely to file costly claims.

The PPACA provides three risk adjustment techniques for health plans and insurers.  Two are of limited 3-year duration, intended to ease the transition from medical underwriting to community-based rating during the period of Jan. 1, 2014 to Jan. 1, 2017.  They include reinsurance designed to help cover the cost of actuarially unexpected, very high cost claims that could lead to overall higher premiums, and risk corridors.  Risk corridors are an equalizing mechanism that subsidizes insurers incurring disproportionally high claims costs and inversely, surcharges those that incur lower than expected claims costs.

The ongoing mainstay risk adjustment mechanism — risk adjustment — also employs a similar redistribution mechanism for insurers and health plans that shifts funds from insurers and plans enrolling low risk insureds to those with more risky, sicker insureds.  Risk adjustment employs dollar weighted risk differentials assigned to each insured that take into account that person’s likely medical treatment costs going forward based on their medical diagnoses and conditions.

The American Academy of Actuaries has prepared an excellent primer on the three risk adjustment components of the PPACA.

Panelist John Bertko of the Centers for Medicare & Medicaid Services’ (CMS) and director of special initiatives and pricing for the center for Consumer Information and Insurance Oversight, summed up a key goal of the PPACA’s risk adjustment mechanisms: a means of sharing the growing burden of chronic disease across payers come 2014.  It remains to be seen just how great that burden will be in 2014 as the cost of treating chronic, complex diseases such as diabetes and heart disease in an aging population continues to trend upward.  While the PPACA’s risk adjustment mechanisms can help allocate these costs across payers, the overall increased cost will ultimately have to be borne by everyone covered by health plans and insurers in the form of higher premiums.

The Associated Press reports a two-year-old initiative by Blue Cross Blue Shield of Michigan that provides patient-centered preventative care based on a “medical home” treatment model is proving to be a good investment, producing savings double the $35 million invested by the insurer in 2010.

The initiative involving 2 million lives embodies a conceptual rethinking of the current “sick care” medical treatment model in which multiple fee-for-service providers treat symptoms and co-morbidities of chronic conditions.  Instead of these patients merely counseled to make lifestyle changes, a multi-disciplinary team coordinated by a primary care physician develops a comprehensive care and prevention program.  Patients are provided a large degree of ongoing guidance and coaching to help them permanently adopt healthier lifestyles and reduce high cost medical care utilization.

The Patient Protection and Affordable Care Act (PPACA) requires the U.S. Department of Health and Human Services (HHS) to develop reporting requirements for health insurers by March 23, 2012 on how patient health outcomes are improved through the use of medical homes as well as more effective case management, care coordination, and chronic disease management.  Last month, HHS launched a 3-year pilot program to test the use of the medical homes for high cost Medicare and Medicaid patients as authorized by the PPACA.

Section 3502 of the PPACA also provides for grants to states, state-designated entities and Native American Tribes to establish community-based interdisciplinary teams to support primary practice-based medical homes.

A critical success factor for the medical home model is boosting the supply of primary care and family physicians.  The current fee-for-service model has created strong financial incentive for physicians to instead pursue lucrative specialty practices.  That means over the long run, moving toward a more preventative, health maintenance-based medical treatment model will require changing the underlying economics of medicine as it’s currently practiced in the United States.