Tag Archive: Patient Protection and Affordable Care Act

Morale hazard raised in debate on GOP debate on individual medical insurance

In 2013, I pointed out morale hazard as a major risk facing issuers of medical insurance. Morale hazard has now come up in the current debate among majority House Republicans on the Patient Protection and Affordable Care Act’s non-group medical insurance reforms. Here’s the context from a Yahoo News item:

Though the GOP leadership is insisting those with preexisting conditions will be covered under its bill, some individual lawmakers are telegraphing a different message. Rep. Mo Brooks, R-Ala., a member of the Freedom Caucus, told CNN Monday that the provision will allow those who have lived “good lives” to pay less for health care, by taking unhealthy people out of the insurance pool. “They’ve done the things to keep their bodies healthy, and right now, those are the people who have done things the right way, who are seeing their costs skyrocketing,” Brooks said.

Morale hazard is tied to the perception that medical care and insurance are consumable commodities. The more they are used, the greater likelihood of good health the flawed reasoning goes. In fact for most people, these resources are – and should — be used as little as possible. Fortunately that’s the case according to a recent Health Affairs analysis that found most Americans use few health care resources and have low out-of-pocket spending. The outliers who use a lot of care are driving medical utilization.

Some policymakers such as Rep. Brooks argue their premium rates should be medically underwritten to ensure they are proportional to the risk they pose. Or excluded from the insurance pool and placed in high risk pools that violate the basic insurance principle of risk spreading. The challenge is how to identify and distinguish these folks from those who have congenital predispositions to chronic medical conditions whose risk to insurers is far less prone to morale hazard as well as those who engage in health promoting lifestyles that reduce their likelihood of needing medical care for chronic conditions. Some have suggested the rapid growth in genomics along with wearable biometric monitoring devices provides a possible solution. Time will tell.


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. 

Complaints over high deductibles call into question future of individual medical insurance

President Donald Trump’s complaint that high deductible medical insurance plans are a bad deal because people can’t use them to cover medical expenses subject to the deductible reflects a fundamental conceptual conflict over medical insurance. Here is what Trump had to say in a Sunday interview with the CBS News program Face the Nation:

We’re going to drive down deductibles because right now, deductibles are so high, you never — unless you’re going to die a long, hard death, you never can get to use your health care–because the deductibles are so high.

Insurance is a mechanism to transfer and share risk. In the case of high deductible medical insurance plans, the risk is high medical bills exceeding the deductible amount is transferred to the plan issuer. The idea of the deductible is that the insured assumes some level of risk. It’s not intended to be “used” or otherwise consumed in exchange for paying a premium. In fact, this mindset can even drive up utilization since people will be motivated to burn through the deductible in order to get their plan to begin paying their medical bills.

Underlying this perception is the transition in the 1970s and 1980s from “major medical” coverage – a true insurance offering designed to cover catastrophic medical costs – to prepaid managed care plans. These are not pure insurance products but are hybrids. The plan assumes a degree of risk of catastrophic care needs such as a major injury or illness. But it also is designed to cover everyday primary care needs. The proliferation of managed care plans and particularly integrated plans where the plan’s own staff providers provide medical care naturally have led people to expect not to have to pay much if anything out of pocket for relatively lower cost care. To them, that’s consuming the coverage they paid for, particularly since the plans they purchased include primary care as they must under the Patient Protection and Affordable Care Act.

When their individual medical plan doesn’t permit that until they’ve racked up several thousand dollars of medical expenses, from their perspective their premium dollars have been wasted even though those premiums insulate them against the risk of large medical bills. However “large” is relative. In a period of declining widespread economic prosperity, medical bills of several thousand dollars that aren’t covered because they fall within the deductible limit are indeed seen as forbiddingly large. Ironically, they even lead to personal bankruptcy – something insurance is specifically intended to prevent.

Ultimately, public policymakers are faced with a question far larger than repairing or replacing the Affordable Care Act. The question is whether financing medical care with an individual or non-group insurance plan makes sense both from an actuarial and public perception standpoint. Or whether it should be a publicly financed mechanism paid though self-employment and income taxes.


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. 

Non-group market faces decidedly mixed outlook for plan year 2018 — and possible demise in 2019.

Several recent positive developments point toward plan issuers staying in the non-group or individual market next year.

  • The Trump administration finalized its Market Stabilization rulemaking intended to build confidence among plans by affording them more predictability and reducing the possibility of consumer gaming that plans say have increased their loss exposure.
  • On April 7, Standard & Poor’s opined that the individual market is showing signs of stabilizing in its fourth year based on its analysis of Blue Cross Blue Shield plans that found loss ratios declined from 106 and 102 percent for 2015 and 2014, respectively, to 92 percent for 2016.
  • This week in a closely watched move, Anthem tentatively committed to the individual market in 2018, but warned it could change its mind or raise premium rates by 20 percent or more depending on the outcome of pending litigation over cost sharing reduction subsidies that the Patient Protection and Affordable Care Act makes available to households earning between 100 and 250 of federal poverty levels for silver actuarial value plans sold on state health benefit exchanges.

Which brings us to the negatives. If the litigation, House v. Price, is not resolved by early June, Anthem could execute the aforementioned steep rate increases and possible state market withdrawals. The likelihood is high. The reason is neither the House of Representatives nor the Trump administration has sufficient motivation to resolve the case. The House prevailed when the U.S. District Court where the case was brought issued a ruling one year ago agreeing with the House that the Obama administration unconstitutionally infringed on the House’s appropriation powers by funding the cost sharing reductions administratively.

The district court held the ruling in abeyance pending appeal by the administration. That decision is likely to become final and go into effect following a status conference with the parties late next month. The Trump administration isn’t likely to appeal the decision and would be happy to see a final ruling “blow up” the Affordable Care Act’s individual insurance market reforms in President Trump’s words. The House for its part isn’t likely to dismiss the case because it sees the ruling in its favor as an important precedent to check executive branch authority from impinging on its powers of appropriation.

In addition, Congress and the Trump administration are unlikely to moot the case by enacting their own health care reform legislation in place of the Affordable Care Act’s insurance market reforms in the current congressional term due to heavy reliance on the limited scope budget reconciliation process, intra-party squabbling, lack of bi-partisan support and the inability or unwillingness of the Trump administration to articulate clear guiding policy principles.

The loss of the cost sharing subsidies would blow a hole estimated at $10 billion in exchange finances. That could well prompt Anthem and other plan issuers to head for the exits just as their plans must be finalized for 2018. That could effectively end the exchanges and the individual market as a whole next year. The more likely scenario is the plans as Anthem indicated it would price in the loss of the cost sharing subsidies in their final premium rates.

That would keep the individual market alive and on life support for 2018. But it would face a possible demise in 2019, with shrunken statewide risk pools and increased risk of the dreaded death spiral of adverse selection. The number of covered lives would decline both inside and outside of the exchanges. Outside the exchanges, the 401 percenters – households earning more than 400 percent of federal poverty levels and ineligible for premium tax credit subsidies for qualified health plans sold on the state exchanges – would likely bolt from the individual market after getting notice of another 20 plus percent premium increase for the second consecutive year. (California’s exchange, Covered California, estimates the loss of reduced cost sharing subsidies would boost premiums for silver level plans double that amount, 42 percent on average and as many as 340,000 Californians would drop out of the individual market in 2018.) They will file for exemptions from the individual mandate based on unaffordable premiums, seek alternatives such as health sharing ministries or simply go bare in the hope the Internal Revenue Service under the Trump administration won’t enforce the individual mandate penalties for not having 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. 

California single payer bill would amalgamate federal, state health program funding

A California state lawmaker this week fleshed out proposed legislation that would create a single payer scheme of medical care financing in the Golden State named Healthy California. The proposed legislation would create Healthy California Trust Fund to fund medical care for all Californians and combine federal funding for health programs (Medicare, Medicaid, Children’s Health Insurance Program, Patient Protection and Affordable Care Act) as well as state funds. Waivers would be sought from the federal government as needed to redirect funding from the federal programs to the Healthy California Trust Fund.

A key part of the funding under the measure is federal approval of a waiver under Section 1332 of the Affordable Care Act that allows states to set up their own medical care financing schemes using federal dollars that would otherwise be available under the ACA such as subsidies for health plan premiums and out of pocket costs in the non-group market and expanded Medicaid eligibility. Vermont took a similar tack with a single payer plan but ultimately concluded it would require substantial state funding to an extent the program would not be politically feasible.


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 essential challenge succinctly stated — and a path forward for those not offered employer health benefit plans

The two major issues that face us in healthcare reform are the cost of care and the payment mechanism for that care. Any proposed solution that does not meaningfully impact the cost of care (like Obama’s Affordable Care Act) cannot succeed in the end. Similarly, a proposed solution that does not include a practical method of assuring payment for that care (like Ryan’s American Health Care Act) does not provide a real opportunity to resolve the existing problem.

The question becomes, then, whether there is a way to impact both cost of care and method of payment, and I believe there is an option which meets these criteria: Medicaid should be offered to anyone wanting to be covered, with income-tiered premium contributions starting at a selected percentage of the Federal Poverty Level, and Medicare (and supplemental Medicare Advantage plans) should be able to be purchased by everyone 50 and over.

Source: AHCA? Obamacare? Isn’t there a better way forward? | Bruce Gilbert | Pulse | LinkedIn

The first paragraph sums up the enduring global challenge facing policymakers better than just about anything I’ve read in the blizzard of news and commentary of the past two weeks leading up to yesterday’s collapse of the House health care reform reconciliation bill.

In the second paragraph, Gilbert lays out a path to incorporate the working age population not covered by employer-sponsored benefit plans into the large government silos of Medicare and Medicaid. A seasoned insurance professional who has worked in both the public and private sectors including a stint as executive director of Nevada’s health benefit exchange, Gilbert rightly points out insurance (no matter the type) depends on the law of large numbers and spread of risk these programs offer.

The non-group individual market will continue to be challenged to comply with those basic principles regardless of whether the Patient Protection and Affordable Care Act or a successor reform plan is law since the long term viability of non-group medical coverage is ultimately governed by market dynamics and not public policy. Policymakers should be thinking about an alternative model like Gilbert suggests should the non-group market enter a terminal phase — which could very well happen over the course of the next two 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. 

Fate of 2018 individual market could turn on plan issuer response to proposed Market Stabilization rulemaking

With efforts to enact a successor to the Patient Protection and Affordable Care Act bogging down in the legislative process as health plan issuers must soon make decisions on their participation in the individual market and state health benefit exchanges for plan year 2018, much could ride on the Trump administration’s pending Market Stabilization administrative rulemaking and whether it will instill sufficient market confidence among plan issuers worried about losses and adverse selection. Indeed, the outcome of the rulemaking could well determine whether an individual market exists at all in many states next year as Congress debates changes to the Affordable Care Act’s commercial medical insurance market reforms but also the scope and financing of the six-decade-old Medicaid program.

The Department of Health and Human Services is fast tracking the rulemaking and currently reviewing about 4,000 comments received by the March 7 comment deadline. The scope of the rulemaking would directly apply to plans offered on state health benefit exchanges in states where the federal government operates the exchange or provides the online enrollment platform. As for the dozen states that operate their own exchanges, HHS states in the proposed rulemaking it understands those exchanges may not be able to implement the rule in 2017. It asked for comment on an appropriate transitional period for state-based exchanges and whether the rule should be optional for them. HHS also sought comment on how the rulemaking should apply to plans sold outside the exchanges.

The proposed rule is aimed at reducing the likelihood of enrollee gaming and adverse selection by requiring verification of eligibility for special enrollment periods and supporting continuous enrollment. It would more closely conform individual coverage to employer-sponsored and Medicare coverage by establishing the plan year 2018 open enrollment period as November 1 to December 15, 2017. The rulemaking would require those seeking to enroll outside this period to provide documented evidence of life events such as a change in family status or loss of employer-sponsored coverage. It also would make it easier for health plan issuers to collect lapsed premium payments from the prior year upon renewal, liberalizes the actuarial value definitions of all but silver plans as affords states and plan issuers greater leeway for determining provider network adequacy.

“Continued uncertainty around the future of the markets and concerns regarding the risk pools are two of the primary reasons issuer participation in some areas around the country has been limited,” HHS stated in the preamble to the proposed rule. “The proposed changes in this rule are intended to promote issuer participation in these markets and to address concerns raised by issuers, states, and consumers. We believe such changes would result in broader choices and more affordable coverage.”

While the rulemaking is intended to provide a degree of certainty to plan issuers, it can’t provide a full remedy. The lack of quick legislative progress on an ACA successor has increased the likelihood a federal court ruling finding executive branch funding of out of pocket cost subsidies for silver plans sold on the exchanges unconstitutional will take effect. Implementation of the ruling is temporarily on hold pending legislative action. With both inter and intra party legislative gridlock on health care reform, the Trump administration is far less likely to appeal the decision, allowing it to stand.


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. 

Macroeconomics underlie debate over ACA successor

Set in the larger context, the current policy debate over a successor to the Patient Protection and Affordable Care Act is grounded in the long term macroeconomics of declining widely shared prosperity and how much federal and state government should chip in to finance the medical care of more lower income households. These are households:

  • Hard hit by the 2008 economic downturn that reduced middle class economic security as the nation seeks a new post-industrial, post-WWII prosperity economy.
  • Not covered by generous employee benefit plans that were commonplace in decades past while at the same time more working age Americans are self-employed and thus ineligible for employee benefit plans.
  • Currently eligible for subsidies for plans sold on state health benefit exchanges and potentially for Medicaid if they live in a state that adopted the Affordable Care Act’s liberalized Medicaid eligibility guidelines.

Members of these households at the low end of the income scale are often lack stable incomes and have members in poor health who utilize a lot of medical services, reinforced by negative social determinants of health. That has contributed to a multi-billion dollar black hole of Medicaid as the program enrollment expanded dramatically, owing to the Affordable Care Act’s expanded eligibility rules.

In a letter to state governors last week, the Trump administration last week explicitly acknowledged the underlying economic challenges contributing to burgeoning Medicaid enrollment. The administration cast Medicaid as complimenting programs to assist low-income adult beneficiaries “improve their economic standing and materially advance in an effort to rise out of poverty,” adding that “[T]he best way to improve the long term health of low income Americans is to empower them with skills and employment.” The letter encourages state Medicaid program proposals “that build on the human dignity that comes with training, employment and independence.”

Heavy medical utilization has also led commercial non-group plan issuers to set premiums so high that those households that purchase non-group coverage are being clobbered by high premiums that rival monthly housing costs. Adding to the sticker shock is the lingering memory of the more generous plans of the HMO salad days of the mid-1970s to the early 2000s as well as individual plans that came with relatively high deductibles in exchange for low premiums. That tradeoff that has since greatly diminished with both premiums and deductibles high, stoking righteous anger against the Affordable Care Act’s non-group market reforms as well as resentment of those who qualify for Medicaid or substantial subsidies for exchange plans.

Simmering beneath the strum und drang of payer side policy is a coming pricing crisis on the provider side. With payers and households feeling pinched and even bankrupted by the cost of medical care and with dollars to pay for it in shorter supply and potentially being more restricted in the current administration and Congress (as well as by employers looking to cut employee benefit costs), substantial pressure will build on providers to reduce what they charge for services. That pressure will take on one or both forms as either falling demand based on the economic principle of price elasticity that holds as prices increase, demand falls — with high out of pocket costs aiding that dynamic. Or government expanding beyond Medicare its role as price arbiter or becoming a monopsony. It would easy to rationalize the latter since under the current split system of payers and providers negotiating reimbursement rates, price signals don’t pass directly between the providers and consumers of medical care and affords individual consumers little in the way of meaningful bargaining power.


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 American Health Care Act isn’t Trumpcare. It’s a big bargaining chip.

The House budget reconciliation bill that makes radical fiscal tweaks to the Patient Protection and Affordable Care Act is not Trumpcare. Rather, it’s a major element of the Trump administration’s negotiation strategy to replace the Affordable Care Act as President Trump promised during the presidential campaign last year. Having business but no public policy background, Trump approaches policymaking as a sale and negotiation. Various analyses such as this one in today’s New York Times have concluded older people – who vote in greater numbers than younger ones — will come out a lot worse under the House reconciliation bill than the Affordable Care Act’s means tested (versus age-based) premium and out of pocket cost subsidies.

Those electors are pissed at that prospect and they’re showing up at Congressional district town halls to let their representatives know. Majority Republicans in Congress and the Trump administration know they are – and that they vote — and apparently intend to leverage that circumstance. The Republicans are essentially telling minority Democrats play ball and give us some support on a broader omnibus reform measure to succeed the Affordable Care Act, or else we’ll push this albatross of a reconciliation bill through since you lack the votes to filibuster it in the Senate. Without some Democratic support, any omnibus reform measure introduced as a regular (and not budget reconciliation) measure could be talked to death in the Senate by opposition Democrats.

It short, it’s a high stakes game of partisan chicken. The GOP is effectively saying to the Dems, unless you work with us and call off the Senate filibuster dogs, we’ll both potentially face the wrath of the voters in the 2018 midterm elections. The Trump administration is also developing a BATNA (Best Alternative to a Negotiated Agreement) if Democrats won’t come to the table. It’s the administration’s proposed Market Stabilization rulemaking intended to bolster the individual health insurance market and keep plan issuers in the market for plan year 2018.


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. 

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. 

Quick look at House budget reconciliation recommendations on Affordable Care Act

The committee print of recommended legislative provisions to amend the Patient Protection and Affordable Care Act using the Congressional budget reconciliation process is out today. The budget reconciliation measure marks the beginning of the Trump administration’s efforts to overhaul at least Titles I and II of the Affordable Care Act. Health and Human Services Secretary Tom Price indicated additional legislation will be necessary in a letter to the chairmen of the two House committees processing the reconciliation bill, The Washington Post reported. Here is a quick roundup of its provisions:


  • Establishes per capita state plan funding formula.
  • Ends expanded Medicaid eligibility option for states at the end of 2019.
  • Provides $2 billion annually from 2018 to 2022 to non-expansion states for higher federal cost shares, allocated based on the number of state residents earning less than 138 percent of federal poverty.
  • Requires states to make eligibility determinations every six months.

Other provisions

  • Repeals reduced cost sharing subsidies for silver actuarial value qualified individual health plans for households earning between 100 and 250 percent of federal poverty.
  • Establishes a $100 billion “Patient and State Stability Fund” for years 2018 through 2026 to assist states cover high risk individuals and reimburse health plan issuers for claims exceeding $50,000 and up to $350,000 starting in 2020. States would be required to contribute to the fund, with the amount increasing each year.
  • Authorizes individual and small group health plan issuers to levy a 30 percent premium surcharge for individuals who fail to maintain continuous medical coverage.
  • Increases the allowable spread for age as a premium rating factor between the oldest and youngest plan members to 5 to 1 from the current 3 to 1.
  • Repeals the annual fee on health plan issuers.
  • Eliminates income-based advance premium tax credits paid to health plans for exchange purchased plans effective January 1, 2020 and instead authorizes age-based tax credits, payable in advance to health plans.
  • Zeros out the penalties for noncompliance with the individual and employer shared responsibility mandates effective January 1, 2016.
  • Increases the maximum annual health savings account contribution to the amount of the annual deductible and out of pocket limitation.

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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