When employers drop coverage: Two brokers' perspectives on the individual market in the ACA era

I am shopping an article (update - it's up on SHRM.org) that looks at how small businesses that provide employees with health insurance are coping with the steady rise in costs -- slower since 2010 than in the five years preceding the passage of the ACA (coincidentally or not), but still relentless.

Below is an outtake. Two brokers spoke to me about their experiences helping individuals navigate the ACA exchanges or the off-exchange individual market after their employers stopped offering coverage . I decided that this topic didn't fit the scope of the main article, so here it is.

Roger Howell, president of Howell Benefit Services in Wilkes-Barre, PA, says that while most of his small group clients have renewed, a steady trickle drops coverage every year. When clients do drop coverage, they often hire his brokerage to help employees navigate the ACA exchange or the off-exchange individual market. He is troubled by the complexity of choices facing employees who are often accustomed to simply enrolling in their employer's plan.

HHS expected *more* low-income ACA buyers to select silver plans

In my multi-stage exploration of the data on ACA private plan buyers' metal level selections, I have been pleasantly surprised to determine with a fair degree of confidence that about 90% of shoppers on healthcare.gov with incomes under 200% of the Federal Poverty Level selected silver plans -- and so availed themselves of the Cost Sharing Reduction (CSR) subsidies available only with silver. For all ACA buyers on all exchanges, the figure is a few percentage points lower, since many state exchanges did a much poorer job than healthcare.gov in steering CSR-eligible buyers toward silver.

While CSR is available to buyers with incomes up to 250% FPL, the rate of silver plan selection (necessary to access CSR) falls off a cliff at 201% FPL. That's wholly rational, as CSR weakens as you move up the income scale. For those with incomes between 200 and 250% FPL, CSR bumps up the actuarial value of a silver plan -- that is, the percentage of the average plan holder's yearly medical costs paid by the insurer -- just three points, from 70% to 73%.  At lower income levels CSR is much more valuable, raising AV  to 87% (for incomes at 150-200% FPL) or 94% (for incomes under 150% FPL). Accordingly, in New York (one of the few states that breaks out metal level selection by income level), 89% of buyers with incomes under 200% FPL bought silver -- but just 59% of those between 200 and 250% FPL did.

With all this in mind, I was surprised to read* in the latest CBO updated ACA cost projections that the Department of Health and Human Services and the Joint Committee on Taxation have been surprised that more buyers eligible for CSR have not selected silver plans:

Outlays for cost-sharing subsidies over the 2015–2024 period are currently projected to be $39 billion less than previously estimated, primarily because CBO and JCT now expect that more people will forgo those subsidies by choosing to enroll in a bronze plan instead of a silver plan...

Will Republicans now learn to hate Medicare payment reform?

HHS and CMS yesterday announced a major expansion of efforts to move Medicare payments away from fee-for-service and toward so-called value-based and bundles payments. The ACA seeded this effort with a host of pilot programs, and the administration is looking to build on the momentum generated, as HHS Secretary Sylvia Burwell writes in the New England Journal of Medicine:

As we work to build a health care system that delivers better care, that is smarter about how dollars are spent, and that makes people healthier, we are identifying metrics for managing and tracking our progress. A majority of Medicare fee-for-service payments already have a link to quality or value. Our goal is to have 85% of all Medicare fee-for-service payments tied to quality or value by 2016, and 90% by 2018. Perhaps even more important, our target is to have 30% of Medicare payments tied to quality or value through alternative payment models by the end of 2016, and 50% of payments by the end of 2018. Alternative payment models include accountable care organizations (ACOs) and bundled-payment arrangements under which health care providers are accountable for the quality and cost of the care they deliver to patients. This is the first time in the history of the program that explicit goals for alternative payment models and value-based payments have been set for Medicare.

One worry about this initiative: phasing out fee-for-service has until now been a bipartisan goal. A bipartisan "doc fix" bill to update and reform the Medicare payment structure foundered only the question of how to pay for it - necessary because the status quo baked an unsustainable "Sustainable Growth Rate," established in 1997 and "patched" with a payment hike every year, into long-term budget projections.  The doc fix would have transitioned doctors to payments based on "performance scores" and, like the HHS/CMS initiative, encouraged formation of ACOs, medical homes and other structures purporting to foster coordinated care.

The ACA provision that should kill King, updated

[Update, 1/23: The ACA provision discussed below, which directs the federal as well as state exchanges to report to the Treasury tax credits provided to ACA private plan buyers, is treated in full in the government's respondents' brief against the King plaintiffs. The relevant paragraphs from the brief are posted at bottom.]
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July 29 - Ever since a three-judge panel of the D.C. Circuit Court found in Halbig v. Burwell that the ACA only authorizes subsidies to be paid for health insurance bought in state-run exchanges, not in state exchanges set up by the federal government, progressive reporters have been ransacking the record to  prove what they always knew: that the law's creators never intended to exclude federally run exchanges from the subsidy regime.  Today, Greg Sargent and Jonathan Cohn both published compelling circumstantial evidence to that effect.

It seems to me, though, that such circumstantial evidence should be unnecessary. The ACA includes a provision that ought to settle the issue -- on that the majority in Halbig egregiously misread. Health law scholar Timothy Jost highlighted the dispositive provision back in September 2011, two months after the IRS issued a rule spelling out that subsidies would be available through the federal exchange (at which point the brains behind the Halbig suit, Michael Cannon and Jonathan Adler, immediately began arguing in print that the IRS rule contradicted the ACA's text). With reference to the drafting error stipulating only that subsidies be credited through an exchange "established by a state," Jost asserted:

 we do not need to rely on the courts to correct this error. Congress corrected it itself.

Four days after Congress passed the Patient Protection and Affordable Care Act, it enacted the Health Care and Education Reconciliation Act of 2010. Section 1004 of HCERA amended section 36B(f) of the IRC to impose on exchanges established under section 1311(f)(3)—that is, state exchanges—and under section 1321(c)—that is federal exchanges, the obligation to report to the IRS and to the taxpayer information regarding tax credits provided to individuals through the exchange. In this later-adopted legislation amending the earlier-adopted ACA, Congress demonstrated its understanding that federal exchanges would administer premium tax credits.

In a subsequent post, Jost noted, "As a later-adopted statute, HCERA would take precedence over PPACA if there were a contradiction."

Bronze ACA plans are skimpy, but compared to what?

As a relative newbie to the wonderful world of U.S. health insurance, I have been troubled by the skimpy coverage of the lowest-tier bronze plans offered on the ACA exchanges. Mandated to cover 60% of the average user's yearly medical expenses (that is, to maintain an actuarial value of 60%), bronze plans carry an average individual deductible of over $5,000.*

On the plus side, only 20% of ACA private plan buyers in 2014 selected bronze plans, most of them probably in higher income brackets. By my estimate, over half of ACA buyers obtained plans with an actuarial value of 80% or higher, including about 90% of buyers with incomes under 200% of the Federal Poverty Level, who accessed Cost Sharing Reduction subsidies by buying silver plans. And while ACA coverage can have troubling limitations, from high deductibles to narrow networks, I just stumbled on information that indicates what an improvement the actuarial mandates constitute.

This 2012 study found that more than half of the health plans sold in the individual market in 2010 had actuarial values of less than 60%, and that 60% was the average AV of all plans sold on the individual market in that year.  Many of the "rate-shocked" holders of canceled individual market plans who hit the news in fall 2013 probably had plans that were skimpier than ACA bronze -- though a fair number may have been happy with plans that had coverage exclusions that did not affect them.

How is the ACA affecting employer-sponsored insurance?

I am working on a reported piece that looks at how employer-sponsored insurance (ESI) is changing and how it compares to insurance offered on the ACA exchanges [update: here it is]. The basic framework is provided by the Kaiser Family Foundation's 2014 Employer Health Benefits Survey.  Here are the premises as they now stand.  Informed input welcome!

1. The ACA has not strongly driven premium increases or cost-shifting to employees in ESI  -- though employers offering more generous plans are  beginning to react to the Cadillac tax, which takes effect in 2018. While premiums, deductibles and out-of-pocket (OOP) expenses have risen steadily, premiums rose more steeply from 2004 to 2009 than from 2009-2014, and deductibles have risen more or less steadily. The phase-out of grandfathered plans that don't comply with ACA coverage rules has meanwhile proceeded steadily; in 2014, just 26% of workers covered by ESI plans were in grandfathered plans, down from 36% in 2013, 48% in 2012 and 56% in 2011.

2. All that said, the constant cost-shifting has hit employees at small firms particularly hard. On average, they pay deductibles almost twice as high as employees of larger firms (an average of $1797 for individual coverage at firms with 3-199 employees, vs. $971 at larger firms). A higher percentage of small-firm employees (3-199 employees) remain in grandfathered plans (35%  vs. 22% in larger firms).

Reagan Revolution rollback

Here's how Matt O'Brien, the Washington Post/Wonkblog economics reporter, characterizes Obama's new tax proposals:

The state of the union is pretty good, actually, but President Obama has an idea to make it better: taxing Wall Street and the super-rich to make middle-class work even more worthwhile. It's Piketty with an American accent.

Okay, that's a little bit of an exaggeration, but not a huge one. Obama's State of the Union, you see, will call for $320 billion of new taxes on rentiers, their heirs, and the big banks to pay for $175 billion of tax credits that will reward work. In other words, it's fighting a two-front war against a Piketty-style oligarchy where today's hedge funders become tomorrow's trust funders. First, it's trying to slow the seemingly endless accumulation of wealth among the top 1, and really the top 0.1, no actually the top 0.001, percent by raising capital gains taxes on them while they're living and raising them on their heirs when they're dead. And second, it's trying to help the middle help itself by subsidizing work, child care, and education.

Stepping back, it's amazing the extent to which Thomas Piketty's tome Capital in the 21st Century, published in the U.S. in January 2014, has focused the U.S. policy debate on income inequality. Some economists have been talking about rising inequality since the 1980s, but Piketty and his colleague Emmanuel Saez have more recently put the spotlight on the very top -- the top 1%, .1% and .01% (they first published major findings pointing that way in 2003, but post-crisis updates have been making news in recent years). The book put the trends on the front pages. Now Democrats, after a rather disastrous pause to protect red-state senators in the 2014 election, are putting inequality front and center in their policy proposals.

Maryland's low income ACA customers benefit from Connecticut's site design

Maryland's ACA exchange was a disaster last year, so the state started over, creating a freely offered clone of the highly successful Connecticut exchange. That's worked out very well.

Charles Gaba reports that Maryland is one of 18 states that have exceeded HHS's goal for private plan enrollments in 2015.  As of January 11, Maryland has enrolled 91,137 residents in private plans, versus 67,757 in the first open season that ended last April.

Equally importantly. the Maryland exchange has strongly boosted the percentage of plan buyers who selected silver-level plans and reduced the percentage that bought bronze -- the lowest level, with deductibles averaging over $5,000 for a single enrollee. In 2014, just 49% of Maryland private plan customers bought  silver, and 31% bought bronze. That's in contrast to 65% silver/20% bronze breakdown in the nation as a whole,and 69%/17% in the 36 states using healthcare.gov.  This year so far, Maryland's silver plan takeup has risen to 61%, while bronze takeup has dropped to 23%.* 

If King is upheld, what will Congress do?

Congressional Republicans, who have promised and failed to come up with a legislative alternative to the Affordable Care Act for five years, are now promising that they will have a replacement ready in case the Supreme Court upholds the plaintiffs  this June in King v. Burwell.  Here's Reuters:

Representative Tom Price, Republican chairman of the House Budget Committee, told a conservative forum that the high court's anticipated ruling in the case known as King v. Burwell could cause President Barack Obama's signature domestic policy to unravel quickly.

"We need to be ready, willing and able to move forward," said Price, a leading Obamacare critic who replaced Wisconsin Republican Paul Ryan as House Budget Committee chairman earlier this year.

“We believe we are going to get to that point. I believe the president is actually going to be open to a better way,” he added.

A ruling for the plaintiff in King would leave the body of the law intact, albeit in a vegetative state. The exchanges would still exist, though they would be completely dysfunctional in the states covered by Healthcare.gov. Governors and legislatures in those states would be responsible either for finding a way to continue to subsidize the premiums of tens or hundreds of thousands of state residents who have accessed coverage through Healthcare.gov, or for justifying the denial of subsidies to those residents.

Because the law would still be on the books, there is nothing to force the administration to negotiate a full "replacement" that would entail repeal (as in "repeal and replace"). That leaves the question: Are there possible amendments that would meet Republicans' alleged policy goals without shredding the ACA's coverage grant?  Under pressure of abruptly withdrawing coverage from 8 million Americans, is compromise conceivable?

Stuck with Billy Pilgrim

When I was very little, I watched all or part of a movie on TV -- I think with a babysitter -- that I remember as a kind of combination western and horror movie. A group of men entered some kind of cave or underground realm that trapped them for (I think...) the movie's duration in a kind of phantasmagoric horror. At the end, they finally get out, and there's a (I think..) long shot of them riding horseback through a (I think...) western landscape.  My companion-babysitter said at that point (I think...) "it's about to start all over again...they're going to go back in," or words to (I think...) that effect.

Two things about the near-static image I have of this film have stayed with me. One is that wormhole notion -- that the unwary protagonists are in a kind of chronological feedback loop, where they keep reliving the same horror over and over without knowing it. There's a Star Trek/Next Generation episode playing on that horror, beginning and ending with a poker round.

The ACA: Good policy, tough politics

Three charts may explain in part why the ACA is working as designed, improving life in America, and hurting Democrats politically.

First, Gallup's latest on the uninsured rate:



Next, an assessment of the redistributive effects of the ACA by Henry Aaron and Gary Burtless (via Bill Gardner) :

In Rhode Island, low-income ACA buyers chose silver

From Rhode Island comes fresh evidence that a very high percentage of lower-income private plan buyers nationwide who bought silver plans, and thus accessed the Cost Sharing Reduction (CSR) subsidies that reduce deductibles and out-of-pocket expenses (CSR is available only with silver plans).

I have been tracking, in states that publish or provide me with the info, the percentage of buyers with household incomes under 200% FPL who bought silver plans, because at under 200% FPL, CSR is really strong. Without CSR, a silver plan is mandated to cover 70% of the average plan holder's yearly medical expenses - that is, its actuarial value is 70%. For buyers with incomes under 150% of the Federal Poverty Level (FPL), CSR raises the AV to 94%. For those with incomes between 150-200% FPL, the AV goes to 87%. For those between 200-250% FPL, it's 73%.

The ACA's invisible deductible discounts

The healthcare Twittersphere was riveted yesterday by Robert Pear's spotlight on Harvard professors up in arms about comparatively modest deductibles and copays added to their excellent health plan.

The main underlying story, as Adrianna McIntyre pointed out, is that cost-shifting to employees is accelerating in employer-sponsored insurance, driven in part by the ACA's Cadillac tax on the most generous plans.

There's a second story, however, in Pear's use of the ACA exchanges as a foil to highlight Harvard employees' relative privilege. Pear contrasted the Harvard plan's 91% actuarial value with that of a silver ACA plan, which he said "typically" covers just 70% of the average user's medical costs. As I pointed out yesterday, only about 20% of silver plan buyers get plans with an AV of 70%. For the rest, income-based Cost Sharing Reduction (CSR) raises the AV -- to 94%, 87% or 73%, depending on the buyer's household income. Available stats indicate that over 60% of silver plan buyers are at the AV 87% or 94% levels.

The broader point here is that the apparent prevalence of high deductibles on the ACA exchanges is somewhat misleading. As has been widely reported, bronze plans single-person deductibles average over $5,000, and silver plans (unenhanced by CSR) close to $3,000. Moreover,if you take a spin on the shop-arounds offered by Healthcare.gov and most state exchanges, the first price quotes you'll see are for bronze plans with deductibles in the $5,000-6,600 range, since available plans are most often displayed sorted by premium, lowest first.

Not quite the Harvard plan, but....

The NYT's Robert Pear reports that Harvard profs are up in arms because a small deductible and copays have been added to the university health plan, taking the actuarial value all the way down to... 91%.

Pear contrasts this to the 70% AV mandated for silver ACA plans, the "most popular" metal level. Which is fine, except...more than half of silver plan buyers qualify for Cost Sharing Reduction (CSR) at a level strong enough to take the AV up to 87% or 94%, depending on income level.

I have a post coming up on healthinsurance.org that teases out of enrollment stats published by New York State and HHS the likely percentages of ACA private plan buyers who access the higher levels of CSR, and the overall percentages of direct ACA beneficiaries who have obtained high-AV insurance.

The broader point: clunky or overly complex as the ACA's subsidy and means-tested benefit formulas may seem, they do work broadly to keep out-of-pocket costs relatively low for low-income beneficiaries.

Hope you'll tune in to the healthinsurance.org piece.

Update: The New York enrollment numbers also show that only 18% of silver plan buyers in the state had no CSR at all. I tend to discount the value of CSR to buyers with income between 200-250% FPL, for whom CSR boosts the silver plan AV to just 73%.  But it's really inaccurate to say that silver plans "typically" cover 70% of costs. That's probably true for less than a quarter of silver plan buyers.

In which Obama rhetorically contains the Islamic State

Remember the brouhaha late last summer over Obama's rapidly evolving language with respect to the aim of military action against the Islamic State? Was the plan that we did not entirely have yet merely to contain the rapidly expanding monstrosity, or rather to "degrade and destroy" it? Over the course of a frenetic couple of weeks, the messaging settled on an implicit extended timeline, in which the administration vowed to "degrade and ultimately destroy" IS. 

The qualifier "ultimately," I noted at the time, became Obama's linguistic tool of choice to bridge the chasm required to build or buy some kind of viable ally or basis for a political solution in Syria -- a process not yet begun. Remember "we don't have a strategy yet"? That was Obama's maladroit way of signaling that U.S. military action in Syria would be limited for want of a viable ally.

In an interview with NPR's Steve Inskeep on Dec. 29, in an almost throwaway subordinated clause, Obama rang a new variation on that formula with the same key qualifier:

And on the international front, you know, even as we're managing ISIL and trying to roll them back and ultimately defeat them...

...and the sentence moved on to Afghanistan. Thus was the problem rhetorically contained in a roundup sentence. But Inskeep, to his credit, didn't leave it there: he returned to the repressed at the very end of the interview. And there Obama bid at once to give the danger its due and, so to speak, contain it within the country's broader to-do list.

Tapped out in Kentucky, cont.

Yesterday, I took a look at what induced David Elson, a 60 year-old advanced diabetic in Louisville, Kentucky earning $28,000 "in a good year,", to sign up for an ACA health plan with a $350 monthly premium. At that income level (which was almost surely overstated), a benchmark silver plan would have cost him about $180 per month. His tale has been recounted in depth twice by Abby Goodnough in The New York Times.

Why sign up for a plan that cost twice as much as the benchmark? The short answer was that Mr. Elson was trying to keep his doctors -- most importantly, his kidney specialist. That locked him into just one provider, Anthem Blue Cross, and the high premium plan he chose was an alternative to cheaper Anthem plans with higher deductibles and copay-coinsurance combinations that may have cost him more. The problem was that it was always obvious that he could not afford that premium -- one of his providers said as much in Goodnough's March 2014 article -- and he never paid it. His kidneys failed this fall, and he ended up first in charity care and then -- as of today, Jan. 1 -- on Medicare.

As I pointed out yesterday, not only an alternative silver plan offered by another insurer but even a handful of gold and platinum plans with lower premiums and deductibles than the one he selected were available to Mr. Elson in 2014. Trying to keep his doctors came at a price he could not pay.

Today I want to look at one more factor that framed the choices faced by Mr. Elson -- prompted once again by commenter Bob Hertz. That's age-rating.