Saturday, March 09, 2013

Learning to love Obamacare, cont.

Recently, conservative healthcare policy commentator Avik Roy pivoted from a long history of denouncing the Affordable Care Act to acceptance of its status as law of the land and thence to a happy vision of a marriage between Obamacare and Ryancare, whereby seniors are progressively migrated onto the ACA's exchanges, and Medicare's remaining "public option" (traditional Medicare) becomes available to non-seniors on the ACA exchanges.

This pivot highlights the Heritage Foundation pedigree of the ACA: Democrats embraced "premium support" and healthcare exchanges because the combo seemed the only form of universal healthcare provision that Republicans could support; Republicans promptly demonized the effort even as they proposed migrating its structure into Medicare. In any case, the ACA exchanges should indeed serve as a proving ground for the dubious notion that managed competition among insurers will reduce healthcare costs.

A recent article by two partners at Mercer Health and Benefits, a major HR consultant, highlights another effect of the ACA that should cheer conservatives.  The ACA's coverage mandates, Tracy Watts and Eric Grossman assert, have raised the cost of coverage and so led more employers toward a form of health insurance that shifts more costs to policyholders and possibly lowers them overall:

In our research and interviews with HR executives, we see a trend toward more companies making consumer-directed health plans, or CDHPs, their default or core plans, and better communicating the advantages of the CDHP option, from which employees can buy "up" to higher benefit levels. As companies figure out their optimal mix of part-time/full-time employees in order to ensure productivity and balance the costs associated with the ACA, they can also take advantage of plan design strategies that can reset benefit values fairly and effectively.
CDHPs are high deductible plans coupled with tax-favored health savings accounts, to which some employers contribute as they do to 401ks, in which policyholders lay aside funds to pay for care up to the deductible. That certainly makes policyholders more cost conscious. Whether it induces them to forgo needed care is an open question and probably varies according to plan design, income and personality. In any case, conservatives love CDHPs.  Perhaps the tradeoff between imposing on employers coverage rules such as no annual or lifetime coverage caps and coverage of children up to age 26 on the one hand, and hence driving them to offload more first-dollar costs on employees on the other hand, is an acceptable one.

The Mercer article, focused on how the ACA is changing the healthcare landscape for employers, is quite informative, and also seems to be something of a commercial for a recent market develop that I had not heard of: private healthcare exchanges (which Mercer offers to employers).  Loosely speaking, any employer who offers a choice of healthcare plans might be said to be offering an "exchange," but the exchanges described here are more turnkey: the employer apparently buys in, offers employees access to a pre-fab menu, and stays out of benefit design and management (thus also outsourcing ACA compliance). More to the point, like the first iterations of Ryan's Vouchercare, it seems to enable employers to off-load rising costs on their employees -- though the extent is unclear:
An emerging option.. is to offer health insurance through private exchanges providing access to range of health plans. The private exchange landscape is growing quickly, as a number of players, including Mercer, have introduced private marketplaces for both large and small firms with as few as 100 employees.

It's worth noting that the use of a private exchange can facilitate the transition to a defined-contribution approach to providing benefits coverage. This transition mirrors the defined-benefit-to-defined-contribution revolution in retirement plans over the last 15 to 20 years. A DC approach shields the employer from the open-ended costs of traditional arrangements and gives the employer direct control over future cost increases.

While moving to a DC approach may solve an employer's cost issues, if it simply shifts increasing costs to employees, many will consider it sub-optimal. Private exchanges will operate much like markets do in other sectors of the economy. Since health plans and other benefit providers will be competing for the consumer's business, the market forces of innovation and price competition will be in play.

Many employees are currently over-insured for health coverage. A private exchange with compelling decision support and access to other benefit products that enable employees to manage their risks will help drive adoption of medical plans that will be less expensive and have a slower rate of cost increase.

Importantly, the employer's role changes when it provides benefits through a private exchange. Today, employers control most aspects of their benefits programs -- which benefits are made available, details of the plan design, which carriers/vendors are offered, and so on. With a private exchange, employers still will determine how much they will pay toward benefits and how to allocate that money among their employees.

But they will rely on the exchange sponsor to provide most or all benefits management functions, including handling the compliance complexities of the ACA. An end-to-end consumer experience -- ranging from employee education to decision support tools, shopping and customer-service enhancements -- also will be the responsibility of the exchange sponsor.
There is a limit to the cost-offload, in that under the ACA employer-sponsored plans must limit out-of-pocket costs to $6,050 for an individual and $12,100 for a family.  There is also a built-in faith in the competition fairy. In any case, this is one more species of ferment stirred up by the ACA -- one more realm of experimentation that at least has the potential to lower costs.

The Mercer article highlights one broad fact about the ACA: by ending illusory coverage -- that is, health "insurance" that can leave patients liable for tens or hundreds of thousands of dollars in healthcare costs, via caps and exclusions -- the ACA raises the apparent cost of insurance, by insuring that it is insurance.  At the same time, some of the ACA's coverage mandates are probably wasteful -- e.g., free annual checkups, which have no apparent beneficial effect on people's health.  Personally, too, while I think that contraceptive coverage should be mandated, I don't see why it should be free. Practically everyone in America manages to pay for monthly cell phone service; why shouldn't we all pay something for contraception?

Medicare for all, or Obamacare for seniors? Or both?
Can the Competition Fairy control healthcare costs?
One big happy future family: Romneycare, Obamacare, Ryancare

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