Friday, August 19, 2016

What if a public option were added to the ACA marketplace now?

Aetna's sudden sharp cutback in its participation in the ACA marketplace has renewed discussion of how the marketplace might be stabilized. The most obvious fix is to boost the subsidies and thus lower subsidized  enrollees' premiums and out-of-pocket costs. At present, Kaiser estimates that about 64% of people eligible for subsidies are enrolled in marketplace coverage. Many of the subsidy-eligible uninsured find the offered coverage unaffordable. If the marketplace were attracting 90% of those eligible the risk pools would be much deeper. That would in turn moderate the pending price hikes for the unsubsidized.

The premium hikes and large-insurer pullbacks have also renewed calls to create the public option -- a government-run plan competing on equal terms with private insurers in the marketplace. In the runup to the ACA's passage, progressives regarded the public option as a linchpin, an essential means of keeping private insurers from price-gouging. Its absence from the final bill was regarded as a major defeat.

What would be the likely effects of adding a national public option now, if it were politically possible? A few points:

1. Before risk adjustment and reinsurance are factored in, ACA-compliant plans were calculated to have paid out an average 110% of premiums collected in medical claims in 2014 and, for  the entire individual market 4th-largest health insurer HCSC* in 2015,, 117% .  Those negative loss ratios have driven average weighted average premium increases of 24% this year (though the increases will likely prove lower for the plans most people will buy). Those losses have led to exits and pullbacks that, according to Avalere Health, will leave 55% of rating areas nationally with two or fewer competitors (though that number disproportionately includes low-population areas, and so most buyers will probably have more choices).  In many regions, if a public option managed to significantly underprice the competition, it might well become the only option.

2. The strongest public option envisioned would pay Medicare rates to healthcare providers. The most successful marketplace competitors to date have been managed Medicaid companies that probably pay rates lower than Medicare. Unless a public option managed to spend sharply less on administrative expenses than private insurers like Centene and Molina, or operated with a higher MLR without losing money, it probably wouldn't undersell the marketplaces's current winners.

3. If a public option did manage to push premiums down, that would help the federal Treasury and those who don't qualify for premium subsidies. It would generally help subsidized buyers, however, only insofar as their coninsurance share was billed at the insurer's lower negotiated rates.  That is, you might have to pay 30% of a hospital bill that would be lower than the bill charged to a different insurer.  The main affordability problem for subsidized buyers lies not in the base price but in the subsidy and premium structure -- for example, if you earn 251% FPL (just under $30k for a solo buyer), the benchmark silver plan will cost 8.1% of your income and cover (theoretically) 70% of the average enrollees' medical costs.

A public option as generally conceived might help at the margins, particularly in rural regions and other regions where competition was poor. It might also drive out private competitors in regions where all insurers have incurred steep losses. It would less directly address the affordability problems faced by subsidized buyers than would an enrichment of the subsidies.

In early January of 2014, when, after a disastrous launch, the federal marketplace had been marginally functional for a few weeks, Harold Pollack interviewed Richard Kirsch, who had been national campaign manager from 2008-12 for Health Care for America Now (HCAN), a massive umbrella group formed by unions and progressive nonprofits to advocate for universal health care. Kirsch's book about the role of grass-roots advocacy in the ACA's passage centers largely on the fight to include a public option, which became the symbolic fulcrum of the fight for many progressives. In the interview with Pollack, however, at a time when the marketplace had gleaned its first couple of million enrollees, Kirsch fingered the subsidy structure, rather than the absence of a public option, as the law's chief flaw. In fact he foresaw pretty clearly where we're at now:
The biggest problems with the law are around affordability. The way the law is structured, coverage is still not affordable for many people. And again, people’s experiences of the law will be around affordability. So people will be glad to get coverage, but they will also live with high deductible-coverage and premiums that may still be difficult to pay.

In the legislative campaign, our biggest issues with the bill concerned affordability. A lot of the cost to people was made much worse by the president’s unfortunate (to put it nicely) decision to spend less on subsidizing people because he wanted to get the cost of the subsidies under the magic 1-trillion-dollar figure.

But doing so didn’t change the debate at all; Republicans still called it a “trillion-dollar program.”  But it did mean lower subsidies for people, higher premiums, higher deductibles. It has resulted in making insurance less affordable, making the plan less popular. It’s going to shape a lot of the contours of the upcoming debate in the next few years of how we make the program work better.
That debate is now in focus. And progressives pretty much know what job 1 is. Unless Democrats miraculously take the House as well as the Senate, however (not to say the presidency), there will be no path to getting it done, and the marketplace will have to hobble along with administrative fixes.

As for my own private hobbyhorse -- an "all-public" exchange, in which government pays private health plans directly and thus implicitly (or explicitly) sets rates -- that could be done on a state level, via innovation waiver. New York's Basic Health Plan, a low-cost plan serving enrollees with incomes under 200% FPL established in accordance with an ACA provision, pays 120% Medicaid to participating insurers. What if it were available to anyone who wanted to buy in?


* The source article (at the link) originally had this figure for the entire market, then corrected. Given the 2014 MLR, it may not be too far off for the market as a whole in 2015.


  1. A public option will not be cheaper just by paying less to providers, at least not much cheaper.
    A public option would be cheaper if it uses real tax dollars to hold down premiums, just as Medicare does with its Part B premiums. The taxpayer cost for Part B has gone up from about $85 a month up to $104 per month over the past 5 years, even as total Part B spending has climbed must faster.
    A public option will be cheaper if it uses real tax dollars to ignore high claims experience. If the public option draws the least healthy enrollees, so what?
    I speak from some experience. By chance I am acquainted with one of the legislators in MN who introduced our Basic Health Plan 20 years ago. That plan continues to charge about $25-$50 a month to insureds, with modest adjustments for family size. The premium is determined politically, not actuarially.

  2. @bob.hertz

    "The premium is determined politically, not actuarially." This is exactly why I am against a public option !

    A public options will be subject to intense political pressure, from all relevant interest groups, to keep premiums and deductibles low and expand the benefit package to cover a wide range of health conditions and medications. It will quickly evolve into an expensive unfunded entitlement.

    I will much rather support an improvement of risk adjustment and reinsurance program for health insurers and a modification of the structure of the subsidy for individuals.

  3. Actually I agree with you Lans. I would like to see:

    a. risk adjustment, where all losses of insurers are covered

    b. subsidies based on gold plans

    c. subsidies at all income levels

    Do keep in mind that my changes would also cost in the billions -- though not as much as the public option. And my changes would somehow have to overcome fierce Republican opposition.

    1. I have been thinking about basic health plans as a public option.
      In MN, the basic health plan is backed up by a 2% tax on providers, and a 1% tax on all other health premiums.
      Without these taxes, the MinnesotaCare basic plan would have no reserves.
      If we take more people onto the basic plan, I think we would have to raise taxes. The taxes would come in large part from people who have good group coverage and will not benefit from the expansion of the basic plan. This will not be easy.

      I am puzzled as to how the basic plan can be so good! Let me explain.

      The average cost of the plan for 105,000 residents in MN is $5,200 a year. Let's call that $400 a month.

      I think that figure is community rated, but just for the heck of it let's say that we have a 50 year old male paying $400 a month. Assume he is 300% of poverty so he is paying the whole premium

      With the basic plan he gets a $36 annual deductible, co-pay of $50 for ER visit, $150 per hospital admission.

      Now let's go the ACA exchanges. With Centene, a carrier that you say pays Medicaid like rates, here is what a 50 year gets in Texas for $400 a month:

      a $4500 deductible, 20% coinsurance after the deductible, and no drug coverage until he meets the deductible. In other words, pure ACA crap (and I just gave you 2016 rates)

      Help me out, I am not being sarcastic. I just do not get it.

      The basic health plans would take over the entire individual market in two weeks!