Monday, September 26, 2016

Mean vs.Median in post-ACA health insurance

This from Princeton's Paul Starr, speaking about the rise in deductibles in employer-sponsored health plans, rang a bell:
Since the ACA, there has been no overall increase in cost sharing. There are higher deductibles, but the ACA has also eliminated most annual and lifetime limits. It has provided for more complete coverage of preventive care.
So, people actually have benefited from the ACA in some ways. But I do not think they understand that...

I think many policy analysts, looking at this objectively, would say this is actually a very good shift. That it makes sense to cover those preventive costs. It makes sense to protect against catastrophic risks. The offset to that is that people have more exposure to routine medical costs up to their deductible. 
Actually, it rang two bells. I noticed this apparent paradox myself in a 2015 Commonwealth Fund survey of underinsurance: deductibles had risen, but the percentages of enrollees going without needed care or having difficulty paying medical bills hadn't. 

More to the point, though, it reminded me of the core claim in a study by Brookings' Loren Adler and Paul Ginsburg of the post-ACA individual market: that premiums are lower than they would have been absent the ACA (and lower than forecast by CBO, even accounting for this year's spike).
That claim rested on the roughly one third of enrollees in the pre-ACA individual market who paid above sticker price because they had pre-existing conditions. In assessing real pre-ACA costs, one could also factor in those who were priced out or barred outright from the individual market because of pre-existing conditions.

In both the ESI and individual markets, a similar tradeoff has occurred: the costs of the highest utilizers have been spread more than previously among the larger pool of healthy enrollees.  Mean costs have fallen or stayed flat. But for the median ESI enrollee, they've probably risen. And  the median premium  in the individual market has also risen -- though not for most subsidized buyers (about half the market, for whom the government picks up almost three quarters of the tab on average) and not for  the hefty percentage of the unsubsidized who have pre-existing conditions. 

In the ACA marketplace, I see two main flaws. First, the risks simply haven't been spread far enough. They should be spread more to taxpayers, via richer subsidies, including a cap on premiums as a percentage of income all the way up the income chain. That would in turn improve the risk pool because more people would opt in. 

Second, the cost of care is too high, because the marketplace was structured to leave insurers to negotiate payment rates with providers on the ESI model. It should have been set up more like Medicare Advantage or managed Medicaid, with government paying the insurers on a capitation basis tied to government rates, probably close to current Medicare rates.

Fixing the first flaw would probably be enough to make the market fat and happy, like Medicare Advantage, if more expensive to taxpayers than it should be. Fixing the second would be a strong blow for effective cost control, isolating ESI as the locus of inflated prices for medical care. Admittedly, that's half the market, but leaving it as the sole locus of inflated prices would at least be clarifying.

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