Sunday, September 04, 2016

My take on the ACA marketplace

FWIW, here is a sort of global take on the ACA marketplace, its place in U.S. healthcare delivery, and how I'd change it if I could (unless those who are better informed convinced me otherwise).

1. The experience of basically every wealthy country in the world in distinction from the U.S. suggests that the sine qua non of effective healthcare cost control is some form of government rate-setting -- that is, government control over or oversight of a more or less uniform pricing schedule for medical services and drugs. Whether the government pays providers directly, sets rates for private insurers, or provides oversight  as insurers collectively negotiate rates, some uniformity and oversight is essential to keep healthcare providers from dividing and conquering payers.

2. The ACA marketplace leaves insurers to negotiate their own rates, as in the much larger employer market, but with pricing pressures that render the market viable only for those that pay government rates -- e.g., insurers whose primary business has been managed Medicaid.

3. To the extent a public option became part of a viable market, it would a) pay providers something close to Medicare rates, and b) implicitly license  private insurers to pay comparable rates -- as they would tell providers, "we can't compete if we pay you more than the PO."

4. A better way to control rates in the individual market would be to let government set rates more directly either paying private insurers on a capitated basis pegged to government rates or establishing by rule the rates insurers pay providers -- as in Medicare Advantage (which works the first way), and managed Medicaid plans (which employ both systems).

5. If the entire individual market for health insurance were run by insurers paying rates somewhere between Medicaid + 20% and Medicare +5% (a big difference, and I don't know what the point of viability would be), that market might a) be big enough to create a viable risk pool, and b) be big enough to induce most doctors and hospitals to participate. It would be bigger than the Medicare Advantage market, which currently has 17.6 million enrollees. The individual market currently has about 20 million enrollees; the Kaiser Family Foundation estimates its capacity at 27 million.

6. For-profit insurers are very happy to participate in both the Medicare Advantage and manged Medicaid markets.

7.  The chief impediments to establishing an individual market structured like Medicare Advantage or managed Medicaid are 1) extreme anti-government ideology, and 2) healthcare provider lobbies, which don't want another 25-30 million Americans -- say, 7-9% of the population -- insured by entities paying government rates for their healthcare.

8. In our political system, these impediments are presently insurmountable.

9. Ain't that a shame.

10. Via ACA innovation waiver, a blue state could establish a marketplace with the state as ultimate payer as described above. New York could do it by offering a buy-in to its Basic Health Program, the Essential Plan (which pays Medicaid + 20%),, to anyone who needed it, with a sliding scale of subsidies extended up to 400% FPL.  That would probably destroy the state's individual market as currently constituted. But since 14 insurers participate in the Essential Plan, would that be any great loss? If the EP were the whole individual market, more doctors and hospitals would probably sign on. This year's premium price spike creates a window of opportunity, because federal funding is based on the projected cost of providing premium subsidies in the current ACA marketplace. [Update, 9/21: It's been pointed out to me that New York's Medicaid rates are very low -- averaging 57% of New York-area Medicare rates for physician fees, according to Kaiser estimates. Perhaps the EP would have to pay better than Medicaid +20% to attract a broader network. ]

An afterthought: The most successful insurers in the marketplace so far, e.g., Medicaid managed care companies Centene and Molina, are probably paying something very close to Medicaid rates Hence their networks are very narrow.  If, as seems to be the case, narrow networks prove to be the only viable competitors in the marketplace. those networks might ultimately become less narrow, as low rates become going rates for the individual market.  But that process could take a while, and in the interim, too many people might stay out of the market, further pushing up premiums.

Related: The public option is inside out
              A More Affordable Care Act


  1. Andrew
    The problem with the top EPs in NYS are, 1) they are Mcaid-oid companies or 2) They are not, but their product in this space looks like it. Opening them up will be a hard sell. I live here. I can tell you the places folks would have to go and the docs they would see would be a non-starter. You would pick up some people who need care and will be the pay premiums, bu then you get into the risk sorting problem. I think your idea is great, but its getting through the ceiling with more money to get the MCOs who will offer narrow networks, but for more attractive providers.

    1. Thanks for this, Brad. I'd like to hear more about the EP if you're inclined to tell me - email address in the bio in the right margin. I know a couple of young adults in the EP, but they're healthy and just glad to get the low premium.

    2. Your point #6 needs expansion. It is true that for profit insurers are glad to participate in Medicare Advantage and managed Medicaid.

      But that is because they bear virtually no risk! If claim costs exceed premiums, the government makes adjustments. The premiums come in from the government on a regular basis. In Medicare especially, people stay in the program all year.

      The ACA is hurting right now, because insurers will no longer get assistance to cover any losses, and because the risk pool is shifting constantly.

    3. Agreed, Bob, that government help with risk, or lack thereof, is a major part of insurers' problems with the marketplace. Democrats shot themselves in the foot by making two of the three programs temporary and by not ensuring funding for the risk corridors. But Medicare Advantage has only one of the three Rs, risk adjustment. The short-term nature of many ACA enrollments is an unavoidable difference, though maybe some SEP tightening will help a bit.

    4. SEP tightening will not change the enormous fact that Medicaid managed care has zero problems collecting premiums...I think the "premiums" are just sent to the insurer by the government every month. Medicare Advantage must tap seniors' bank accounts, but seniors are more affluent and vastly better organized than participants in the exchanges.