Sunday, February 22, 2015

Conservative reform of the ACA: cutting strings at different ends

When those few conservatives who would genuinely like to see affordable health insurance available to all Americans -- and the many Republican office holders who pretend to -- float alternatives to the Affordable Care Act, they talk about making insurance more affordable, about offering more choice and flexibility to insurers and hence to customers.

Giving insurers more flexibility generally means three things. First, reducing or eliminating the ACA's federally mandated Essential Health Benefits (EHBs) -- which include mental health, drug treatment, childbirth and children's dental coverages that many people might plausibly protest they don't need. Second, allowing sale of plans with lower actuarial values -- the percentage of the average user's annual medical costs paid by the plan -- than the ACA allows. The law sets a floor of 60% AV in both the employer and individual markets and, in the exchanges, establishes silver-level 70% AV plans as the benchmark to which subsidies and Cost Sharing Reduction subsidies (boosting AV for lower income buyers) are tied. Third, widening the allowable price variation according to the plan holder's age and allowing price variation according to sex.

There's much less here than meets the eye.
The EHBs are the right's favorite whipping boy -- because they're a graphic mode of federal regulation (though much discretion is left to the states in fleshing them out) and because it's easy to spotlight 50-something couples who don't need coverage for childbirth.  But as I've noted before, the EHBs account for only a small percentage of the ACA-driven rise in the unsubsidized base premium of the average individual market insurance plan. The main factor in that base premium price hike is guaranteed issue -- the ban on refusing to sell insurance or raising its price for buyers with preexisting conditions.  According to estimates prepared for the State of California by Milliman in 2013, EHBs would raise premiums by 4.8%; guaranteed issue, by about 26.5%. Research on actual ACA premiums conducted by a team led by University of Pennsylvania health economist Mark Pauly identified guaranteed issue as the primary cause of cost increases averaging 14 to 28% in 24 states.

On to actuarial value. Prior to ACA implementation, average AV in the individual market was below 60%, the floor established by the law and provided by all the bronze-level plans in the ACA private plan exchanges. If you think an AV of 60% is too generous, take a "bronze shop" through the nation on  Per-person deductibles and out-of-pocket maximums are in the $5,000-6,600 range. In many if not most cases, no benefits (such as moderate co-pays for doctor visits) kick in before the deductible is reached, excepting the free preventive services mandated by the ACA. These plans provide essentially catastrophic protection for those who have any assets at all to lose. Some affluent, healthy people like them, especially when combined with a tax-sheltered Health Savings Account. But they're close to worthless for low income people with no assets (most of whom fortunately don't buy them). Yet Republicans (and some red state Democrats) are clamoring to put plans offering even skimpier coverage on the menu -- in the name of "affordability."

Another conservative talking point is to widen "age banding," so that insurers can charge a 64 year-old five times as much as a 21 year-old, instead of the 3-to-1 maximum set by the ACA. That's a zero-sum game -- winners and losers either way -- but I'd argue the ACA tilted the field in the right direction. Unsubsidized premiums for older buyers are punishing enough at 3-to-1, and the vast majority of uninsured young buyers are eligible for subsidies or Medicaid. As for gender-based underwriting, that too is a zero-sum decision, and arguably it makes sense to spread the costs of care in pregnancy and childbirth as widely as possible.

It's said that arguing about whether to go to bed early and rise early or go to bed late and rise late is arguing which side of a string to cut -- either way, you have the same length of string. There's an element of that truth in the debate over the design of for-profit health insurance plans -- except that there's multiple strands of variable lengths going into a spool of benefits, the ultimate combined "length" or value of which is the actuarial.value.

One major variable is how much string we should carry for each other -- and in the form of guaranteed issue, there's an unacknowledged near-consensus on that front. Burden-sharing also figures to a degree in the shape of the mandated benefit package, but to a relatively minor degree. Age and gender rating really are clean string-cutting variables.

There is one key variable that the ACA did tilt away from insurers in favor all plan holders, and that's the medical loss ratio -- the percentage of premiums that insurers must spend on medical care for plan holders. The ACA raised the mandatory minimum to 80% in the individual and small group (small business) markets and 85% in the large group market. Prior to ACA implementation, fewer than half the plans offered in the individual market met the law's threshold, according to the Kaiser Family Foundation (most employer-sponsored plans did meet the standard). That is a clean gain for buyers in the individual market. In the pre-ACA market, the loss ratio could be as low as 55%. in some states The Republican battle cry, "let insurers sell plans across state lines," paired with the drive to abolish federal regulation of the insurance market, is a call to make that lowest common denominator a de facto national standard.

There is one more variable in the cost (and cost-sharing) of insurance that the ACA can't cure, at least not quickly. That's the prices that insurers must pay for medical services and hence pass on to plan holders within the constraints of the mandated loss ratios.  Those prices are the highest in the developed world. Hence "affordable" subsidized plans with $6,600 deductibles. Over time, if the ACA's cost control measures and new measures that build on them work, those punishing prices will moderate, as a percentage of GDP and of the average family's income.

I'm skeptical myself that measures such as bundled or  value-based payments will make much of a dent without some form of uniform pricing, whether set by government or by "all-payer" negotiations. Shifting more cost to consumers -- giving them more "skin in the game," a principle beloved by conservatives -- probably has reduced national spending, but at the cost of burdening tens of millions with medical debt and driving them to eschew needed care. "Skin in the game" has become a pound of flesh for too many -- and that cost-shifting doesn't bring down prices, just spending. Plan design won't help on this front, unless it's finely calibrated enough to steer people away from unnecessary or overpriced care while incentivizing needed (e.g., effective and chronic) care. Innovations tending in this direction would not be helped by favored Republican policies such as looser benefit design standards or lower actuarial values.

1 comment:

  1. Great column, thanks.
    Two quick points:
    a. what do you think of the argument that we should let health insurers underwrite again, which will lower premiums by 26.5% for the healthy, and then have federally funded high risk pools for the uninsurable? or just let the uninsured buy into Medicare for a subsidized premium? On the surface this seems like a win-win, but only if Republicans will really fund the high risk pools with federal dollars.
    b. A key phrase in your second to last paragraph is "the prices that insurers must pay for medical services".....My impression is that the actual dollar amounts that insurers pay providers, when the claims are finally settled, are not always so terribly high. In other words, the hopsital posts their ridiculous chargemaster price of $10,000 for a procedure, but the insurer actually pays $2,000. And the $2,000 may not be a whole lot more than Medicare pays or Germany pays. (obviously there are outlier situations where I am wrong.)
    Anyways, my point is this: I agree that 'affordable plans with $6,000 deductibles" are horrible. But the causes may be more subtle.