Will Medicaid drown in a high risk pool? (updated)

Update, 5/3/17: $100 billion over ten years for high risk pools, as speculated below? Ha ha ha -- a HRP patch has been proposed, and it's all of $8 billion over 5 years. That's after a $15 billion "invisible risk" fund was tacked onto a $115 billion state stability fund... the math outlined below still broadly applies. As Larry Levitt said of the $15b infusion, it's all chump change. And they're making the ACA look simple.
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Rumor has it that Republican leadership may lure "moderates" holding out against AHCA passage by throwing perhaps $100 billion over ten years into high risk pools. Moderates could then declare themselves satisfied that prospective individual market enrollees who have pre-existing conditions will have access to coverage.

Leaving aside the historic poor performance of high risk pools, this reinforces my fear that all the public hand-wringing about medical underwriting is a smokescreen, giving moderates cover to eventually sign onto a bill that still rolls back the Medicaid expansion and cripples all Medicaid via per capita caps.

In fact, the patchwork of funding grants slapped onto the bill via amendment  (pregnant women and addiction! invisible risk! more medical expense deduction!) can be used to obfuscate and only modestly soften the original AHCA's basic math: over ten years, $1.2 trillion in healthcare spending cuts offsetting $880 in revenue loss stemming from repeal of the ACA's taxes and mandates. In the original bill, the spending cuts include:

The pre-existing condition smokescreen

In a snappy summary by Axios's David Nather of  the latest AHCA stall-out, this caught my eye:

The holdouts are mainly worried about weakening coverage for sick people. Rep. Ryan Costello of Pennsylvania: "Protections for those with pre-existing conditions without contingency and affordable access to coverage for every American remain my priorities for advancing healthcare reform, and this bill does not satisfy those benchmarks for me."

What this tells me is that the moderates will ultimately go along with ending the ACA Medicaid expansion and girdling all federal Medicaid spending with per capita caps.  I have long worried that Republican relative moderates will go squish on Medicaid if AHCA damage to the individual market is moderated past a certain threshold.

Now more than ever, the bottom line remains what Andy Slavitt said it was two months ago:

Sing away the AHCA

For months, New Jersey activists have been staking out the local offices of New Jersey Rep. Rodney Frelinghuysen (NJ-11), a onetime Republican moderate pulled relentlessly right in recent years. While voting for almost all of the Trump agenda, Frelinghuysen stunned the world on March 24 with a pivotal statement against the AHCA on  grounds that the bill "would place significant new costs and barriers to care on my constituents in New Jersey. In addition to the loss of Medicaid coverage for so many people in my Medicaid-dependent state, the denial of essential health benefits in the individual market raise serious coverage and cost issues."

Noble words, but now Frelinghuysen is wavering -- with Ryan reportedly threatening to strip him of his treasured chairmanship of the House Appropriations Committee -- and Jersey progressives are going all-out to provide the counter-pressure, as in this petition.  With the AHCA risen from an unquiet grave, we are reviving old (month-old) arguments. So why not a months-old songbook? Here's one that I had to serenade solo in Morristown upon one freezing day. I can't say it's "sung to the tune of Hamilton's My Shot, but it's intoned to something like the rhythm of it:

Our Shot 

We are not throwing away our...SHOT
We are not throwing away our..SHOT
Ya know, we're just like Obama,
all action, no drama,
and we're not throwing away our..SHOT.

We're gonna stand outside your windows, Frelinghuysen
chantin singin make-all-kinda-noisin
until you let us freezin girlz and boyz in
to prove to you that Ryancare is poison --

The Kaiser misunderstanding

The Kaiser Family Foundation has a useful measure of how close to capacity the ACA marketplace is operating. Well, check that...Kaiser has two measures, and one has generated some confusion for some time.

The more useful measure is a national and state-by-state estimate of  Marketplace Enrollees Receiving Financial Assistance as a Share of the Subsidy-Eligible Population. For this, Kaiser combines analysis of enrollment data provided by CMS with Census data on income and insurance status. Importantly, Kaiser accounts for people whose income would qualify them for subsidies but who are disqualified by an offer of employer insurance, as well as people disqualified by immigration status.

As of  March 31, 2016*,  Kaiser estimated that 64% of those eligible for premium subsidies nationally were enrolled. State scores ranged from 92% in Florida, which has developed a culture of enrollment, with plenty of assistance available and advertised, to 31% in Colorado.** Kaiser estimated last October that 5.3 million of the uninsured were eligible for marketplace subsidies.

Tom MacArthur doesn't want you to know he's ready to uninsure millions

Defending his support of the ACA repeal bill, the American Health Care Act (AHCA), Rep. Tom MacArthur scolds a constituent who accused him of hypocrisy for "partisan finger-pointing." Yet MacArthur's rebuttal is riddled with obfuscations and errors.

1) MacArthur claims that a court found the ACA's Cost Sharing Reduction subsidies, which reduce out-of-pocket costs for low income enrollees, unconstitutional. Not true. A lower court agreed that if Congress does not allocate funds for those subsidies, as the ACA drafters intended and for which they budgeted, the executive branch lacks authority to pay insurers for them. If Congress allocates the funds, they are unambiguously legal. There is nothing inherently unconstitutional about them, and the Republican Congress's refusal to appropriate the budgeted funds is pure sabotage.

2) MacArthur implies that he's protecting the 11 million Americans and 500,000 New Jerseyans who gained coverage through the ACA's Medicaid expansion. Yet he supports repeal of enhanced federal funding for new expansion enrollees as of 2020. That effectively ends the expansion, as people typically churn in and out of Medicaid at short intervals. The Congressional Budget Office (CBO) forecast that if that cut occurs, the higher federal payments will apply to just 5% of enrollees by 2024.

Tom MacArthur's faith-based waiver for the AHCA

Representative Tom MacArthur, R-NJ, has taken the lead in advancing amendments to the AHCA designed to bring both the Freedom Caucus and the moderate Tuesday Group aboard.  For the moderates, MacArthur writes that there will be an additional $160 billion in funding over 10 years to increase tax credits for older buyers and preserve Medicaid coverage for new mothers (was that on the block?!) and addiction treatment. For the conservatives, an amendment has been published  that would allow states to opt out of prohibiting medical underwriting or requiring insurers to cover the ACA's Essential Health Benefits.

Actually, the amendment begins by purporting to restore EHBs, community rating and guaranteed issue, the prohibition on denying coverage or charging more to people with pre-existing conditions. But it then tacks round and enables states to seek "limited waivers" to amend the EHBs, community rating -- and medical underwriting, if the state establishes a high risk pool.

How are those waivers limited? There's the rub. Beginning in 2017, the Affordable Care Act enables states to seek waivers to change the structure of their ACA marketplaces, but requires that the state's alternative plan "provide coverage that is at least as comprehensive and affordable, to at least a comparable number of residents, as this title would provide; and that it will not increase the Federal deficit."

Trump logic, self-defined

A nation in which 40-plus percent of voters would choose for president a man who wildly insults anyone who criticizes or crosses him is a nation where emotional intelligence, let alone political judgment, is severely impaired.

Trump would presumably never admit, obvious as it is, that his insults and praise are determined purely by whether the party in question has been nice to him -- that "failed," "crooked," "cheating," "dumb" etc. simply means "criticized or crossed me."

Except that he just did:

Cutting off CSR is a war on the near-poor

Most coverage of the Trump administration's threats to stop paying Cost Sharing Reduction (CSR) subsidies focuses on the effect of withdrawal on insurers. And rightly so: insurers can't foot the bill for those subsidies on their own without massively raising premiums. If the federal funding is withdrawn, they will exit the ACA marketplace en masse.

It's worth stepping back to notice, though, that from an enrollee point of view, the marketplace can't function without CSR -- at least, not for the 50% of current enrollees who access strong doses of it. Without CSR, the marketplace wouldn't be even marginally serviceable for prospective customers with incomes below 200% of the Federal Poverty Level -- as 55% of uninsured Americans were in 2013, before the marketplace opened.

The average employer-sponsored plan has an actuarial value (AV) of about 82% -- that is, it covers about 82% of the average enrollee's medical costs. CSR raises the AV of a silver plan to 94% for enrollees with incomes below 150% FPL, and to 87% for enrollees in the 150-200% FPL range.& Over 60% of current marketplace enrollees are below the 200% FPL threshold, and about 85% of them select silver plans and so access the benefit, which is available only with silver.

At AV 94%, CSR generally reduces the deductible of a silver plan to the $0-250 range, and at AV 87%, to the $500-1000 range. Deductibles for silver plans without CSR average over $3,500 in 2017.

The AHCA, Paul Ryan's ACA "replacement" bill, is grossly inadequate to the needs of lower income customers, not only because its premium subsidies don't adjust for income and don't adjust adequately for age, but because it also does not adjust exposure to out-of-pocket costs according to income. That's a main reason why, for someone with an income below 150% FPL, the ACA picks up between 2 and 5.5 times as much of the total cost of healthcare (premium plus out-of-pocket expense) as does the AHCA. Because subsidies are available to people higher up the income scale in the Ryan plan, the individual market would shed lower income enrollees and pick up higher income ones should the bill be enacted (it would also shed older enrollees and pick up younger ones).

Of index investing and traditional Medicare

For some time, a kind of inverted analogy between index fund investing and Traditional Medicare has been flickering round the edges of my mind, so let's see where it leads.

I was very impressed by a forecast I heard almost exactly eight years ago (Suzanne Duncan of the IBM Institute for Business Value)  that within 20 years, 85-90% of assets under management would be invested in passive vehicles -- that is, index funds or institutional equivalents. And in fact, in 2015, passive funds accounted for a third of U.S. mutual fund assets, up from a quarter three years prior.

For individual investors, and for most institutional investors, the shift to passive investment makes excellent sense. It's almost impossible for a portfolio of actively managed funds to beat an index portfolio over time. Just today, the Wall Street Journal reports, "Over the 15 years ended in December 2016, 82% of all U.S. funds trailed their respective benchmarks, according to the latest S&P Indices Versus Active funds scorecard."  And of course, index funds retain a huge fee advantage, since they don't have to pay managers for their acumen -- the funds change their investments automatically to mirror a predetermined basket of equities or bonds.

Someone has to make active decisions that determine prices, however, thereby creating the indexes that passive investors rely on. That means investing in research, complex mathematical analysis, and, sometimes at least, intuition born of lived experience.  What happens when the indexed values are produced by managers investing, say, just 5% of all assets under management? Isn't that a rather small brain moving a dinosaur? Is a smaller herd of decision-makers likelier to stampede in destructive directions?

Conversely, Medicare Advantage -- what you might call actively managed healthcare for seniors -- is grabbing a growing share of the Medicare market, now up to 32% of the whole, up from 22% in 2008.

New Jerseyans with pre-existing conditions, by Congressional District

Seeking to win buy-in from the Freedom Caucus for Paul Ryan's ACA repeal bill, the American Health Care Act, Republicans are considering removing protections for people with pre-existing conditions. According to an HHS analysis, over 130 million Americans, or 51% of the non-elderly population, have pre-existing conditions that could have made it impossible for them to obtain coverage in the pre-ACA individual market for health insurance -- or that, more precisely, "could have resulted in denial of coverage, exclusion of the condition, or higher premiums for individuals seeking individual market coverage before the ACA protections applied" (see Note 1 below).

Building on that analysis, which broke out the frequency of pre-existing conditions by age group, the Center for American Progress has produced estimates of the percentage and total number of people with such conditions in every Congressional District in the country (based on the age breakout in every district, not on regional health differences).

Charles Gaba has begun mapping the percentage with pre-ex conditions in each district (usually close to  50% ) to marketplace enrollment, estimating how many would be at risk from medical underwriting should guaranteed issue be repealed.  Since it will take the Gabacus a while to reach New Jersey, I've produced a breakout for the state, with a couple of methodological variations:

Oklahoma points the way to healthcare peace

Last week, Paul Howard and Yevgeniy Feyman of the Manhattan Institute highlighted a point often missed about the Freedom Caucus's latest demands for the AHCA, Paul Ryan's so-far-rejected ACA repeal bill:

The Washington Post reported that Freedom Caucus Chairman Mark Meadows said one “solid idea” that emerged at the meeting was allowing states to ask for waivers from Obamacare regulations like essential health benefits. The idea has sound roots, ironically, in the Affordable Care Act.

Health and Human Services Secretary Tom Price holds broad authority over administration of the Affordable Care Act, including the power to give additional flexibility to states and insurers under the law. Section 1332 of the ACA allows HHS to offer “state innovation waivers” for that allow states to waive some (but not all) of Obamacare’s insurance regulations in return for a block grant of ACA funding. States that want to keep the ACA status quo could do so, while Republican-led states could go in a different direction...

If Republicans had created the ACA marketplace...

As House Republicans paint the fingernails of the AHCA zombie with a little reinsurance gloss, let's take a 20-second irony timeout.

An amendment layered into the zombie AHCA yesterday would create an "invisible risk" program, funded with  $15 billion for the years 2018-2026, that would pick up costs above a certain threshold (as yet undefined for enrollees in individual market health plans.

That program would exist "within" the AHCA's Patient and State Stability Fund (PSSF) program, which allocates $115 billion over nine years for states to spend as they will to stabilize their markets. State options, as summarized by Avalere Health, include "providing financial assistance for high cost individuals, incentivizing insurer participation in their markets, reducing the cost of insurance, promoting access to preventive services, and reducing out-of-pocket costs for patients." The $15 billion allocated to the "invisible risk" fund is additional. Thus, $130 billion is allocated to stabilize markets from 2018-2026.

As was immediately obvious when the AHCA text was released, the ACA marketplace's problems would essentially be over if Republicans allocated $100 billion ( later raised to $115 and now to $130 billion) for states to use to stabilize their markets.  At least, its problems would be over in states that chose to take their allocation and provide the required match, which does rise over the funding period. And all states would probably do so if the marketplace were no longer a focus of Republican hatred.

Single payer by inches?

File this under Half-baked Ideas and What's a Blog For?....

Dave Anderson, Louise Norris and I were noodling about stability funds, reinsurance, high risk pools, and the probably minuscule chance that Republicans would demand something acceptable in exchange for coughing up some federal "stability" money for states without repealing the ACA when a thought emerged...

What if the federal government undertook to foot the bill for all truly catastrophic claims -- say, those over $200,000 a year -- for all insurers, paying Medicare rates for care?

For hospitals and doctors, that would mean status quo ante payments for patients already on Medicare; a severe haircut for patients covered by commercial insurance; but a corresponding bump-up for patients on Medicaid. The rate (Medicare plus or minus a bit) could be calibrated to net out even, or a bit less than even in exchange for giving providers the certainty of getting major claims paid.

The tradeoff would be reduced rates for commercial insurance in exchange for a universal tax increase -- say, added to the Medicare payroll tax. In FY 2015, the 2.9% Medicare tax yielded $234 billion, so perhaps every additional 1% would yield another $80 billion, adjusted for growth and inflation.  If the reinsurance brought down commercial rates, that should translate into lower premiums and out-of-pocket costs for employees and/or higher wages.

Kaiser and me, on average AV

Drew Altman, president and CEO of the Kaiser Family Foundation, wrote on March 22 that under Ryan's ACA repeal plan, the average deductible in the individual market for health insurance would rise $1550 from current levels in the ACA-compliant market.

That was based on an estimate that the average actuarial value in the current market is 72%, vs. a norm of 65% that CBO calculated for Ryan's bill. Actuarial value (AV) is the percentage of the average user's yearly medical costs covered by plan. It's calculated according to a formula mandated by the ACA.

The 72% average AV figure jumped out at me, because in April 2016 I calculated the average weighted AV in the individual market as 75.5%.  Altman's piece cites an average AV in the ACA marketplace of 79%.That's exactly what I initially calculated, though I later bumped my estimate to 80%, based on likely silver plan selection by enrollees eligible for Cost Sharing Reduction at different income levels (see note at first asterisk, here).

The difference in the overall estimate appears to stem from estimates of metal level selection (bronze, silver, etc., with AV set by statute at each level) in off-marketplace enrollment, which is something of a black box. I used unsubsidized enrollees in the ACA marketplace as a proxy and calculated their average weighted AV at 68.7%.  According to an as-yet unpublished methodology note forwarded to me, Kaiser appears to have relied on 2016 data from the online broker eHealth, which included  a metal level breakout among their customers indicating an average weighted AV of 65.8%: