Friday, December 18, 2015

Narrow networks: a crooked path to affordable healthcare?

Richard Mayhew has a post suggesting that even a strong public option in the ACA exchanges would generate only "marginal pressure to reduce prices." In a competitive market, it might not undersell all commercial plans, and in a non-competitive market it might be able to field only a very narrow network -- most providers wouldn't opt in. Be that as it may, one claim brought me up short:
Mayhew Insurance is in a competitive market region for the Exchanges.  The lowest priced Silver plans offered by all of the insurers in this region are narrow network HMOs where the providers get paid Medicare rates plus 5% to Medicare plus 10%.  The public option would be just another plan that is in the cluster for the 2nd Silver subsidy point.
In other words, there are insurers on the exchanges who are paying providers no more than a strong public option would pay. In fact it's been suggested to me that the lowest-priced insurers in the marketplace probably pay something closer to Medicaid rates than to Medicare.

This is one of those scratchpad posts, put up as I explore further. If you see any faulty assumptions, please let me know.

I have for some time understood that the U.S.'s every-payer-for-itself healthcare payment system is the main driver of our uniquely high cost of care. If Medicare rates or something close to them were universal, healthcare would be affordable.

My main question: if many insurers in the ACA exchanges are paying rates close to Medicare or even Medicaid, why isn't coverage in those markets at least more affordable?--at least, for those willing to put up with really narrow networks?  New York and Minnesota offer Basic Health Plans to residents with incomes up to 200% FPL that have minimal premiums and copays. If those plans were offered on a sliding scale to residents at higher income levels, presumably they would pay much less than subsidized private plan buyers in the exchanges -- including those in plans that are not paying providers more than the BHPs do.

The answer lies in part, I think, in the ACA subsidy structure, which fixes actuarial values at each metal level and virtually mandates that buyers will pay the quite-high fixed percentage of their income deemed "affordable" by the subsidy schedule -- unless they buy bronze plans with sky-high deductibles. When the cut-rate providers undersell those with broader networks,  the federal government benefits more than the individual buyers, who simply get smaller subsidies.

Another piece of the puzzle is that the cut-rate providers may not be providing full actuarial value (AV) in what I would call real terms. AV -- the percentage of the average user's yearly costs paid by the insurer -- is calculated not against the rates the particular insurer pays, but against a one-size-fits-all Actuarial Value Calculator based on "trended pre -ACA PPO data for 'standard' population," as actuary Rebecca Stob kindly informed me this morning.  Milliman has estimated that the range of permissible AV for a silver plan when calculated according to the insurer's actual costs is almost double that of the official AV.

Still, an ACA-compliant insurer must spend 85% of collected premiums of members' medical care. My impression, from spot-checks, is that the premiums of the cheapest silver plan providers like Ambetter and Molina are 10-20% below those of competitors. If some cut-rate providers are paying half as much for care as those fielding broader networks (say, 110% of Medicaid vs. 220%), why aren't their deductibles and out-of-pocket maximums radically lower?  Ambetter has super-high deductibles -- $4,500 or $5,500 for silver plans without Cost Sharing Reduction subsidies. Molina's silver deductible is more typically $2,000, which is low for the marketplace. Both do offer significant services before the deductible is reached. But still, the benefit structure is way skimpier than I would think their low provider payment rates would suggest.*

Inadequate networks are a real problem in some marketplace plans, and in some employer-sponsored plans as well.  Tighter network adequacy requirements, from HHS and from the NAIC, may put some upward pressure on prices. Nevertheless, the existence of plans that are paying such low rates strikes me as a kind of marker, signalling the potential to deliver more affordable care. My impression is that our chief challenge in the U.S. is to get to something like uniform all-payer rates, by hook or crook. That some non-government payers are there may be a sign of hope.

To be continued....

* One leveling factor is the ACA's risk adjustment program. Rebecca Stob pointed out to me that Ambetter had to pay large amounts in risk adjustment -- and those dollars count toward the 85% that plans must spend on medical expenses. Narrow networks tend to attract healthier customers, as sicker people are more likely to have doctors and facilities that they rely on.

1 comment:

  1. Thanks for another provocative piece. Your analysis may be missing an important element -- the risk pool. To state my point in very general terms:
    the cost of a health insurance plan is not determined only by its fee schedule. The cost is also determined by the risk pool of who it insures. An insurance company can pay very stingy rates to doctors, but if it gets a lot of enrollees with expensive conditions, the ultimate premiums will not be all that low.

    This was a flaw in the 2009 arguments for the public option. Supporters claimed that if the public option paid low rates to providers and was non-profit, then the public plan would have cheaper premiums. It just is not that simple.