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.
The other payoff would be a little demonstration project for a blended, or universal payment rate: up for Medicaid, down for commercial rates.
Then, the reinsurance umbrella could be dropped a bit every time the nation got in the mood, or to the degree the initial trade-off seemed worth it.
I realize there are substantive proposals out there for universal catastrophic insurance (or for everyone not on Medicare or Medicaid), with a supplementary market for insurance to cover costs below that threshold. This is less disruptive - though of course, significant new taxes in the U.S. are always disruptive (and who knows, maybe universal catastrophic would work well, if affordable insurance were available below the catastrophic threshold).
I am skipping here the hard work of figuring out the national costs of catastrophic claims, however defined. But let me note that a disproportionate share of them are already paid through Medicare, wh ich accounts for 20% of national health expenditure overall. According to a report by the Agency for Healthcare Research and Quality (AHRQ), "People 65-79 (9 percent of the total population) represented 29 percent of the top 5 percent of spenders. Similarly, people 80 years and older (about 3 percent of the population) accounted for 14 percent of the top 5 percent of spenders." The top 5 percent of spenders, in turn, account for about half of total healthcare spending. Then there's the 9 million people under 65 on disability Medicare. Medicaid doubtless also has a high share of patients with catastrophic costs, whereas those insured through their employers are the healthiest of the major insured population groups.
UPDATE 4/6/17: Serendipity! An amendment layered into the zombie AHCA today (introduced by Reps Gary Palmer, R-AK and David Schweikert, R-AZ) would create something like a very limited version of the proposal above for the individual market: an "invisible risk" program, funded with just $15 billion for the years 2018-2026, that would pick up costs above a certain threshold for patients with certain defined (expensive) conditions. Insurers would cede a portion of the premiums for qualifying individuals. Why this would be more efficient than simply picking up claims of any sort above a certain dollar amount I don't get, but this is one more reinsurance variation, adopted by Maine and more recently Alaska. According to Timothy Jost, the funding is not enough to have a significant impact, though untapped funds from the AHCA's broader Patient and State Stability Fund (PSSF) program might also be used for this purpose.
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.
The other payoff would be a little demonstration project for a blended, or universal payment rate: up for Medicaid, down for commercial rates.
Then, the reinsurance umbrella could be dropped a bit every time the nation got in the mood, or to the degree the initial trade-off seemed worth it.
I realize there are substantive proposals out there for universal catastrophic insurance (or for everyone not on Medicare or Medicaid), with a supplementary market for insurance to cover costs below that threshold. This is less disruptive - though of course, significant new taxes in the U.S. are always disruptive (and who knows, maybe universal catastrophic would work well, if affordable insurance were available below the catastrophic threshold).
I am skipping here the hard work of figuring out the national costs of catastrophic claims, however defined. But let me note that a disproportionate share of them are already paid through Medicare, wh ich accounts for 20% of national health expenditure overall. According to a report by the Agency for Healthcare Research and Quality (AHRQ), "People 65-79 (9 percent of the total population) represented 29 percent of the top 5 percent of spenders. Similarly, people 80 years and older (about 3 percent of the population) accounted for 14 percent of the top 5 percent of spenders." The top 5 percent of spenders, in turn, account for about half of total healthcare spending. Then there's the 9 million people under 65 on disability Medicare. Medicaid doubtless also has a high share of patients with catastrophic costs, whereas those insured through their employers are the healthiest of the major insured population groups.
UPDATE 4/6/17: Serendipity! An amendment layered into the zombie AHCA today (introduced by Reps Gary Palmer, R-AK and David Schweikert, R-AZ) would create something like a very limited version of the proposal above for the individual market: an "invisible risk" program, funded with just $15 billion for the years 2018-2026, that would pick up costs above a certain threshold for patients with certain defined (expensive) conditions. Insurers would cede a portion of the premiums for qualifying individuals. Why this would be more efficient than simply picking up claims of any sort above a certain dollar amount I don't get, but this is one more reinsurance variation, adopted by Maine and more recently Alaska. According to Timothy Jost, the funding is not enough to have a significant impact, though untapped funds from the AHCA's broader Patient and State Stability Fund (PSSF) program might also be used for this purpose.
This is not my expertise, but I believe that before the ACA, private insurers could buy reinsurance for large claims rather easily.
ReplyDeleteAnyways, I have done some calculation of what catastrophic health insurance would actually cost.
When I run the numbers, a commitment to pay all costs over $10,000 for one person always seems to cost about $2,000 a person. (see Chris Conover, Dana Goldman, and others)
If you adjust the $10,000 for family income, i.e. a family making only $30,000 would have a lower ceiling, the cost of the program increases.
If there are 35 million persons in the individual market, including the uninsured but not counting those eligible for Medicaid, then a catastrophic program would cost about $70 billion a year.
That is a 1% increase in the Social Security tax. Would that fly? Maybe not.
Looking at the CMS 2018 AV calculator, paying all costs over $10,000 for everyone in Silver would cost $2225. It'd be more for Gold, less for Bronze.
DeleteOf course, at Medicare rates it would be less. How much more does private insurance pay than Medicare? Like 50% more?
$2225 per enrollee, I meant to say.
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