Consider these two facts about current U.S. health insurance markets.
First, as Bruce Japsen reports in Forbes:
Next, per Robert Pear in the New York Times, Medicare Advantage is going gangbusters. While the ACA cut Medicare Advantage payments, and the CBO forecast that enrollment would drop by about 30% (in favor of traditional fee-for-service Medicare),
This raises the question: by what rationale, and in whose interest, did the ACA framers feel constrained to establish a "free" market for "private" insurance plans? Part of the original design was a "public option" that would compete with private plans. But why did any market participant need to be fully private -- that is, left on its own to negotiate rates with hospitals and doctors?
Put another way: why was the pricing dynamic that controls the employer-sponsored insurance market used as the template for the ACA marketplace? The ESI market is where prices paid for medical care are most out of control.
It seems that insurers are perfectly happy and prosperous competing in the markets where the government is the payer -- Medicaid managed care and Medicare Advantage. What if the ACA had offered all adults under age 65 who lacked access to employer-sponsored insurance a program something like the Basic Health Plans (BHPs) that the law allowed states to establish for people with incomes in the 139-200% FPL range? That is, a program rather like Medicaid, paying perhaps somewhat higher rates, and offering enrollees a choice of plans from among a handful of MCOs? (So far, New York and Minnesota are the only states that have established BHPs.)
That is, what if instead of a single public option, all the options were public, in the sense that they were paid by the government as MCOs -- but administered by private insurers?
Higher income enrollees could buy in on a sliding scale. Because payment rates would be more like those of our current public programs than like private ones, premiums and copays would be lower. Networks would be narrow, at least at first, as payment rates might be somewhere between those of Medicare and Medicaid.
The losers, as far as I can see, would be not insurers, and not enrollees, but healthcare providers, for whom one more segment of the overall market would be paying government rates. But the individual health insurance market is relatively small -- probably a bit under 20 million lives at present, potentially perhaps 30 million if plans were affordable enough to bring in those who are holding back at present. That's as compared to about 147 million in the employer sponsored market.
The other losers would be lawmakers and policymakers ideologically committed to free market economics. My question for them: Is the Medicare Advantage market not free enough?
Kaiser's Larry Levitt cautions:
Next question: could an individual state, via innovation waiver, create an "all-public" market, either for everyone within ACA subsidy range (139-400% FPL) or for every adult under 65 who lacks access to employer-sponsored insurance, regardless of income? Vermont geared up for full-scale "single payer" and found the cost too rich for its blood: What about single-payer-except-for-ESI? There need not be one public plan: the marketplace could be comprised of private insurers competing for MCO business, taking capitated payments set to a government benchmark.
As I've noted previously, Minnesota is considering extending eligibility for its BHP, MinnesotaCare, to 275% FPL (where it was pre-ACA). If the state does that, it will be probably 90% of the way toward Option A above: public option(s) only for the entire subsidy-eligible ACA market. (Probably not coincidentally, all MCOs and all insurers in the nongroup market in Minnesota are nonprofit.)
Is this alternate ACA universe viable? What am I missing?
Update , 2/17/16: LA Times columnist Michael Hiltzik picks up on my MCO vs. marketplace contrast and adds some useful information about insurers' commitment to the MCO business:
Update II, 2/17/16: In the WSJ, Anna Wilde Mathews reporting on insurers' losses in the exchanges, notes that MCOs Centene and Molina have been profitable there:
Update III, 2/24: In 2009, an influential NY nonprofit floated a plan for New York State pretty much exactly like what I've described above: a public plan, with a choice among MCOs, open to all who needed it. In 2015/16, New York took half this loaf by forming its BHP. I've described this plan and its relationship to the New York BHP at healthinsurance.org.
..and looking back at this, some further thoughts on "all-public" options:
A more affordable Affordable Care Act? 2/23/16 (focused on BHPs as model/vehicle)
The public option is inside out 7/13/16
Replacing the ACA with "something terrific" 11/12/16
Medicaid is cheaper. Ergo... 5/2/17
A Sparer means to universal health insurance 5/18/17
An American road to single payer 6/17/17
First, as Bruce Japsen reports in Forbes:
Though the nation’s health insurance industry is having a tough time turning a profit selling individual policies on the public exchanges under the Affordable Care Act, the health law’s Medicaid expansion is churning big profits.
A snapshot of health insurers’ Medicaid windfall under the ACA could be seen in the earnings reports of Wellcare Health Plans (WCG) and Centene CNC +0.20% (CNC), which both beat Wall Street’s fourth quarter 2015 earnings expectations. These companies are an important measure of whether health insurers can find financial success providing Medicaid coverage to poor Americans under the health law President Obama signed six years ago even as the other key part of the legislation has growing pains.Anthem and United Healthcare are in fact the nation's largest Medicaid managed care providers, or at least they were as of December 2014 among states that reported MCO-level enrollment. Centene, another large MCO, is underpricing UHC in major markets in the ACA private plan marketplace by putting up narrow networks in which it most likely pays providers rates similar to those it pays in its Medicaid plans.
Larger plans like Aetna AET +1.51% (AET), Anthem ANTM +1.31% (ANTM) and UnitedHealth Group UNH +1.08% (UNH) are also doing well in the Medicaid business, but their overall profit margins have been somewhat negatively impacted due to the private coverage on the exchanges.
Next, per Robert Pear in the New York Times, Medicare Advantage is going gangbusters. While the ACA cut Medicare Advantage payments, and the CBO forecast that enrollment would drop by about 30% (in favor of traditional fee-for-service Medicare),
In fact, more than 17 million people are now enrolled in such plans, up from under 11 million in 2010. Nearly one-third of Medicare beneficiaries have chosen private plans, offered by insurers like Humana and UnitedHealth Group, over the traditional fee-for-service Medicare program.Why do these programs make insurers happy? For one thing, since they're either free or near-free to enrollees (Medicaid) or usually the cheapest way to get comprehensive benefits (Medicare Advantage), they pull in a lot of (relatively) healthy members. Second, the rates they pay to providers are constrained by the rates the government pays them. In both markets, the government is the ultimate payer.
This raises the question: by what rationale, and in whose interest, did the ACA framers feel constrained to establish a "free" market for "private" insurance plans? Part of the original design was a "public option" that would compete with private plans. But why did any market participant need to be fully private -- that is, left on its own to negotiate rates with hospitals and doctors?
Put another way: why was the pricing dynamic that controls the employer-sponsored insurance market used as the template for the ACA marketplace? The ESI market is where prices paid for medical care are most out of control.
It seems that insurers are perfectly happy and prosperous competing in the markets where the government is the payer -- Medicaid managed care and Medicare Advantage. What if the ACA had offered all adults under age 65 who lacked access to employer-sponsored insurance a program something like the Basic Health Plans (BHPs) that the law allowed states to establish for people with incomes in the 139-200% FPL range? That is, a program rather like Medicaid, paying perhaps somewhat higher rates, and offering enrollees a choice of plans from among a handful of MCOs? (So far, New York and Minnesota are the only states that have established BHPs.)
That is, what if instead of a single public option, all the options were public, in the sense that they were paid by the government as MCOs -- but administered by private insurers?
Higher income enrollees could buy in on a sliding scale. Because payment rates would be more like those of our current public programs than like private ones, premiums and copays would be lower. Networks would be narrow, at least at first, as payment rates might be somewhere between those of Medicare and Medicaid.
The losers, as far as I can see, would be not insurers, and not enrollees, but healthcare providers, for whom one more segment of the overall market would be paying government rates. But the individual health insurance market is relatively small -- probably a bit under 20 million lives at present, potentially perhaps 30 million if plans were affordable enough to bring in those who are holding back at present. That's as compared to about 147 million in the employer sponsored market.
The other losers would be lawmakers and policymakers ideologically committed to free market economics. My question for them: Is the Medicare Advantage market not free enough?
Kaiser's Larry Levitt cautions:
Medicaid managed care works because you have a very large percentage of the overall market and nominal premiums. Once you start charging more substantial premiums, you end up with a skewed risk pool, which is the problem in many places in the non-group market.
Conversely, though, the individual mandate would be in place to perform the same function it's supposed to perform now: bring the healthy uninsured into the risk pool. And with lower premiums and out-of-pocket costs on offer, it might perform that function more effectively than it has so far.
As I've noted previously, Minnesota is considering extending eligibility for its BHP, MinnesotaCare, to 275% FPL (where it was pre-ACA). If the state does that, it will be probably 90% of the way toward Option A above: public option(s) only for the entire subsidy-eligible ACA market. (Probably not coincidentally, all MCOs and all insurers in the nongroup market in Minnesota are nonprofit.)
Is this alternate ACA universe viable? What am I missing?
Update , 2/17/16: LA Times columnist Michael Hiltzik picks up on my MCO vs. marketplace contrast and adds some useful information about insurers' commitment to the MCO business:
"Managed Medicaid continues to emerge as the ultimate long-term sustaining solution for states," United CFO Dave Wichmann told investors last month, adding that his company expected to compete for that business aggressively...
Anthem, which has been quietly grousing about the elusive profits in the exchange market, also has been buying up Medicaid insurers — acquiring Amerigroup, which operates Medicaid plans in 13 states, for nearly $4.5 billion in 2012, and Simply Healthcare, with nearly 200,000 Medicaid and Medicare members in Florida, for $1 billion last year.
Update II, 2/17/16: In the WSJ, Anna Wilde Mathews reporting on insurers' losses in the exchanges, notes that MCOs Centene and Molina have been profitable there:
There were some brighter spots; plans in a few states—notably California, which runs its own marketplace—produced profits. Some Medicaid-focused companies, such as Molina Healthcare Inc. and Centene Corp., have been profitable on the exchanges.As I've noted before, Centene and Molina are underpricing just about everyone in the ACA marketplace: their networks are very narrow, and the rates they pay providers are probably close to Medicaid rates.
Update III, 2/24: In 2009, an influential NY nonprofit floated a plan for New York State pretty much exactly like what I've described above: a public plan, with a choice among MCOs, open to all who needed it. In 2015/16, New York took half this loaf by forming its BHP. I've described this plan and its relationship to the New York BHP at healthinsurance.org.
..and looking back at this, some further thoughts on "all-public" options:
A more affordable Affordable Care Act? 2/23/16 (focused on BHPs as model/vehicle)
The public option is inside out 7/13/16
Replacing the ACA with "something terrific" 11/12/16
Medicaid is cheaper. Ergo... 5/2/17
A Sparer means to universal health insurance 5/18/17
An American road to single payer 6/17/17
great piece! I have been saying this for months on any blog that will have me, namely that the same insurers who avoid the exchanges are eager to participate in public programs....and those public programs have guaranteed issue, no exclusions, and community rating, all the things that insurers hate about the exchanges.
ReplyDeleteJust one objection to your great post.....I live in Minnesota, and taking Minnesota Care to 275% of poverty is fine but no solution to anything. 275% of poverty is about 29,000 of income for a single person. I think it is great to have a low premium, low deductible plan for this group, but this leaves out the entire middle class (in terms of the income it takes to be middle class in the Twin Cities or St Cloud or Duluth. Andrew, you do your best to be even handed but often you praise a program that only captures a slice of the near poor.
Thanks, Bob, and point taken about those over 275% FPL not getting a good deal. My point was that there's few people in subsidy range over 275% FPL, so going that high in MinnesotaCare serves about 90% of the ACA target market -- but it would also probably further raise prices for those left in the individual market. What about allowing buy-in to MinnesotaCare at all incomes, e.g. at cost with no subsidies? I know the MN legislature is not going to go there, but on the merits?
DeleteGreat suggestion on a buy-in program for Minnesota Care. (I have favored a Medicare buy-in for persons over 55 all along. Jeff Goldsmith had an article about this in 2009 in Health Affairs.)
DeleteWe might have to create a Berlin Wall along the Wisconsin border if we did that. Wisconsin premiums on and off the exchange are grotesquely high, due in part to Scott Walker's blowhard opposition to Medicaid expanson. The cheeseheads might want to move to MN just to get into MinnesotaCare.
I've always wondered why this sort of solution hasn't gotten more attention. Probably on cost grounds, but it seems like the more obvious advance on ACA isn't single payer but a move to *merge* Medicaid and the exchanges into a single public product that still allows private payers a la Medicare Advantage. This would move the system towards something like what Nixon proposed, or something close to the German system.
ReplyDeleteI wonder if a state like Hawaii, where the uninsured pool was already quite small, could implement something like this. I'd like to see this done nationally in conjunction with federalizing the entirety of the Medicaid funding stream (and also making a federal fallback for Medicaid administration, as the exchanges currently work).