Tag Archive: spread of risk

Reforms creating winners and losers among consumers jeopardize viability of individual market

As the new congress and the Trump administration look to put in place their own brand of reform of the individual medical insurance market, they face a delicate task not unlike defusing a bomb. Cut the wrong wire or throw the wrong switch and the market could quickly go critical and explode. Just ask House Speaker Paul Ryan, who is facing significant and immediate blow back to his party’s reform proposal released earlier this week in the form of a budget reconciliation bill that restructures the individual market rules and Medicaid.

The individual market was intricately rewired by the Patient Protection and Affordable Care Act of 2010 to bail it out of an adverse selection death spiral and restore it to healthy and predictable functioning on both the sell and buy sides. Implicit in the reforms is the recognition that despite employer sponsored plans covering the vast majority of working age people and their families, both employment and employer sponsored coverage aren’t as prevalent as they once were.

A policy keystone of the Affordable Care Act is a commercial market should offer accessible, affordable coverage to those not covered by existing government plans or though employer sponsored plans. Plan issuers in the individual market must also have assurance their plans will remain actuarially viable so they can continue to offer them. Hence, the law’s disliked individual mandate requiring those not covered in other plans to get coverage in the individual market to promote a larger risk pool and the spread of risk necessary for any insurance product.

The House Republican proposal has quickly drawn criticism that rather than improve the consumer access and affordability, it will make individual coverage more affordable for some and less affordable for others. Creating winners and losers when it comes to affordability is perilous because without widespread affordability, there is a potentially smaller universe of individuals and families in the risk pool. Fewer belly buttons to use an insurance industry term means less spread of risk. Less spread of risk is never good when it comes to insurance, no matter what variety: homeowners, life, auto, commercial — you name it.

This is the essential challenge policymakers face. They have to ensure broad affordability of individual coverage to head off both adverse selection borne of out poor spread of risk as well as buy side market failure due to unaffordable offerings. People won’t buy a product they cannot afford. That’s simple economics. And without widespread affordability, the risk spreading mechanism of insurance will sooner or later break down and the market will collapse.

If policymakers determine they are unable to achieve long term viability in the individual medical insurance market, they’ll need to consider other means of providing access to medical care for the large and growing cohort of people not covered by employer sponsored plans. That includes reviewing how other nations provide medical care to their citizens and determining best practices that could be employed in the United States.


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. 

Honoring basic insurance principles proves challenging in state individual health insurance markets

A growing number of Minnesotans are tapping tax credits through the health law that discount premium costs on the policies. But eligibility for subsidies depends on income, and there’s growing evidence that those who don’t qualify for tax credits or have other affordability problems are fleeing the market. On Thursday, the Minnesota Council of Health Plans released numbers that show 80,000 fewer residents covered in the individual market now than a year ago, a decline of 30 percent. The current tally of 190,000 will likely drop further, insurers say.A shrinking market is a bigger problem for insurers than a drop in revenue. People with costly health problems tend to maintain even expensive coverage, knowing it’s a better deal than paying the full cost of health care. So, a shrinking market at a time of skyrocketing premiums leads insurers to conclude that healthy people are leaving the mix.

Source: Health insurers say they need insurance protection from big claims – StarTribune.com

The Patient Protection and Affordable Care Act aims to improve the spread of risk and honor the law of large numbers — bedrock principles that underpin all forms of insurance — by pooling most everyone not covered in the three main pillars of health coverage (Medicare, Medicaid, employer-sponsored coverage) into a single risk pool in each state. But even putting everyone in a given state into a single, statewide risk pool may not be enough in states with fewer residents as this account illustrates. When there are too few “covered lives” in the pool in insurance industry lingo, the risk spreading mechanism of insurance gets stressed and the pool threatened by adverse selection. That occurs when a relatively small number of people incur large claims costs as the case here in Minnesota.

Since the individual market is comprised of only a relatively small segment of the population nationwide given the dominance of the big three pillars of health coverage, honoring fundamental insurance axioms may only be possible in states with large populations such as California, New York, Texas and Pennsylvania.


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. 

The states with the biggest Obamacare struggles spent years undermining the law

As insurers exit Obamacare marketplaces across the country, critics of the Affordable Care Act have redoubled claims that the health law isn’t working. Yet these same critics, many of them Republican politicians in red states, took steps over the last several years to undermine the 2010 law and fuel the current turmoil in their insurance markets. Among other things, they blocked expansion of Medicaid coverage for the poor, erected barriers to enrollment and refused to move health plans into the Obamacare marketplaces, a key step to bringing in healthier consumers.

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There are many fewer options in states whose leaders have spent years working to sabotage the law.

Source: The states with the biggest Obamacare struggles spent years undermining the law

It is inaccurate to describe red states as “sabotaging” Obamacare. The ACA is a federal-state initiative that afforded a good degree of policy latitude to the states, with that freedom vis Medicaid expansion broadened by the USSC in NFIB v. Sebelius (2012).

The real issue is there is no policy consensus among the states re health care reform notwithstanding broad agreement that reform is essential. Also, the individual market poses enormous challenges re achieving spread of risk to ensure this market segment’s long term actuarial viability. Contributing to that challenge is a culture that does not value health promoting lifestyles and regards medical care and insurance as high cost consumer commodities.


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. 

Multiple factors skew plan year 2014 enrollment toward older population

The Patient Protection and Affordable Care Act seeks to achieve a better spread of risk in state individual health insurance markets by requiring heath plan issuers to accept all applicants for coverage without medical underwriting and treating all enrolled individuals as part of a single statewide risk pool effective January 1, 2014. In addition, the law bars individuals from “going bare” without any form of health coverage under pain of a tax penalty. This provision is largely aimed at young adults who aren’t covered under their parents’ plans and are less likely than older people to incur high medical treatment costs. To broaden the pool to include them, the ACA also imposes a flatter premium pricing structure so that older individuals can be charged a maximum of three times the rate charged young people.

Policy wonks worry too few young adults will enroll in coverage, leading to an actuarially unsustainable risk pool overly populated by higher cost older individuals. Those concerns are underscored by early reports on state health benefit exchange enrollment such as this Wall Street Journal item indicating initial exchange enrollees tend to be older. While the WSJ story characterizes the trend as unexpected, I think it’s entirely expected since the greatest pent up demand likely exists among older individuals not yet eligible for Medicare and who have gone without coverage – in many instances for years – due to unaffordable premiums or rejection by health plans based on their health histories.

Socio-economic factors are also likely to initially hinder the goal of getting sufficient numbers of so-called “young invincibles” into state risk pools to better balance out risk for plan issuers. The vast majority of working age Americans continues to equate health coverage with employment. This is probably even more the case with young adults more dependent on employment income than older adults who have more education and work experience and thus in a better position to sustain themselves though self-employment. Over the short term, going without coverage while seeking a job with health benefits (and paying the modest $95 first year tax penalty) may factor as a rational financial calculation for many unemployed young adults, particularly when money is tight and there’s little to pay for individual health coverage.


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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