Elizabeth Warren roars at health insurers, but her ACA 2.0 offers them a pretty sweet deal

Elizabeth Warren loves to bash insurers. Yesterday, she introduced a bill* that would radically improve the health insurance offered in the ACA marketplace. Reading the preamble to the bill's one-page summary, you'd think that problems of access and affordability in U.S. healthcare are solely a product of insurance company greed.

Leaving aside various hat-tips to the ACA, here's the indictment:

...today, too many patients still have to battle with their insurance companies just to see a doctor or get a prescription filled. Insurance companies draw networks so narrow that patients struggle to find a doctor or get an appointment.1 Patients find out when they get a bill in the mail that they unwittingly relied on an outdated provider directory and now owe hundreds of dollars in unexpected costs for out-of-network care. Insurance companies can drop doctors from their network in the middle of the plan year with no notice, suddenly jack up out-of-pocket costs for a cancer or MS drug, or rip up a plan at the end of the year and leave new mothers or patients dealing with a serious health condition scrambling to maintain access to their doctor.

Today, three out of every ten American adults with health insurance say they’re having a hard time paying their medical bills.6 Meanwhile, thanks to revenue from taxpayer-funded programs, insurance company profits are booming. The top insurers in the U.S. pull in nearly 60% of their revenue – more than $200 billion in 2016 – from Medicare and Medicaid, even as some of these same insurers claim they can’t afford to participate in the ACA exchanges.

It seems to me, however, that insurers would be happy in Warrensville. Here are the main ways the bill would change the terms under which insurance is offered:

• Subsidize everyone who buys insurance in the individual market**; reduce the percentage of income that people at every income level would have to pay for a benchmark plan (topping out at 8.5% of income); and reduce out-of-pocket costs in the benchmark plan at every income level (raising actuarial value to a range of 80-95%).
• Require insurers in the individual market to spend 85% of premium revenue on enrollees' medical expenses, up from the 80% required by the ACA.
• Require plans to offer provider networks as adequate as those required of Medicare Advantage plans (which can be pretty narrow; 35% include fewer than 30% of the doctors in their county of operation, according to the Kaiser Family Foundation).
• Require insurers who provide Medicare Advantage or managed Medicaid plans in a given area to offer marketplace in that area if insurer participation is inadequate.
• Ban balance billing for emergency care, albeit on terms that appear favorable to the insurer.

With subsidies at the level described above, the individual market would have the robust enrollment originally projected for the ACA marketplace. Insurers could file rate requests charging whatever they need to provide the required high-AV coverage and the required network adequacy. The higher Medical Loss Ratio cap squeezes the range in which profit can occur but not the likelihood of profit. While the plan does call for more aggressive rate oversight, regulators can't require insurers to offer coverage at rates that will put them in the red -- we've seen that in states with active insurance regulation.

If enrollees are subsidized at a higher level, insurers are subsidized at a higher level.

Does the bill contain any cost control measures at all? While it does not squeeze healthcare providers directly by capping the rates insurers pay them,  it does include balance billing rules that may be intended to serve as a de facto rate cap. Insures should like these too. Here are the rules for out-of-network payment (Section 403 (a):

‘‘(2) REIMBURSEMENT.—A group health plan 2 or health insurance issuer offering group or individual health insurance coverage shall reimburse an out-of-network provider providing emergency services  to an individual enrolled in such plan or coverage at 6 an amount equal to the greatest of—

‘‘(A) the median amount negotiated with in-network providers for the emergency service;

‘‘(B) the amount for the emergency service  calculated using the same method the plan or  issuer generally uses to determine payments for out-of-network services; or

‘‘(C) the amount that would be paid to a provider of services or supplier with respect to  the furnishing of such service under title XVIII of the Social Security Act.’’

If I understand right, (C) refers to Medicare rates. Thus, the insurer pays either its own norm -- in-network or out-of-network --  or Medicare rates.

As I noted with respect to a stricter out-of-network rate cap for insurance offered in the employer market in the Medicare Extra proposal put out by the Center for American Progress:

In a Sept. 2016 interview with me, John Kingsdale, a health insurance executive who was founding director of the Massachusetts Connector, the marketplace set up by Mitt Romney's ACA prototype, proposed using this kind of OON rule to shore up the ACA marketplace. He explained it like this:

"the rule would create a BATNA – a Best Alternative to a Negotiated Agreement – for everybody. That is, the Medicare rate. That’s the best a provider can do by refusing to sign up with an insurer, and the best the health plan can do by refusing to sign providers up – which means that the agreements are going to be negotiated based on something like those rates."

According to David Anderson, a Duke University research associate in health policy, the out-of-network payment rules in the Warren bill "do put some serious pressure on outlier payments.  I don't think it would be huge but it is some downward pressure on outlier pricing."

Fiery rhetoric notwithstanding, I'm not sure health insurers have anything to fear from Warren.

Warren outlined the principles embodied in this bill in a speech at the Families USA conference in January, which I discussed in some detail here.

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* The Consumer Health Insurance Protection Act, cosponsored by Maggie Hassan (D-N.H.), Bernie Sanders (I-Vt.), Kamala Harris (D-Calif.), Tammy Baldwin (D-Wis.) and Kirsten Gillibrand (D-N.Y.).

** Those who have a truly affordable offer of insurance from an employer -- less than 8.5% of income for a plan with a minimum actuarial value of 80% -- would be ineligible for individual market subsidies. The 8.5% limit would apply for family as well as individual coverage.