Thursday, December 19, 2019

Michael Bloomberg's healthcare plan eats its own tail

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Michael Bloomberg's just-released health coverage plan would do some good if enacted. It's introduced, however, with a false premise.

Deeming "a Medicare-like public option" the "first step," the plan outline pronounces:
A public insurance option would improve consumer choice and increase competition in the private insurance market, pushing down everyone’s premiums. People of modest means who buy the public option would be eligible for the same subsidies that would apply on the health insurance exchanges.
As students of the ACA marketplace know, however, within the marketplace structure, when base (pre-subsidy) premiums shrink, the premiums paid by subsidized enrollees tend to go up. That's because the subsidies are designed so that the enrollee pays a fixed percentage of income (rising with income) for the benchmark (second cheapest silver) plan. If you buy a plan that's cheaper than the benchmark, your subsidy goes further (and these days, thanks to silver loading*, may cover the whole premium). When premiums go down, price spreads between the benchmark and cheaper plans tend to shrink, reducing discounts for the cheapest silver plan and for bronze plans. If a public option reduces premiums, as Bloomberg promises, it will increase them more often than otherwise for subsidized buyers. Ditto for reinsurance, proposed to reduce premiums another 10%.

While Bloomberg is light on details, he would cap premiums as a percentage of income for all who are subsidy-eligible -- presumably no matter how high their income is. Thus virtually anyone** who enrolls in the marketplace, including the public option, would be subsidized.  Reduced premiums would be good for the federal treasury. But they wouldn't be particularly good for enrollees. The marketplace would be an ouroboros, eating its own discounts -- unless those treasury savings on premiums are plowed into richer subsidies.

To some extent, they are. Bloomberg would cut the top price paid for the benchmark plan from just under 10% at present to 8.5% of income, and presumably remove the income cap on subsidy eligibility, currently 400% of the Federal Poverty Level. The reduction of base premiums via public option and reinsurance would make that subsidy expansion more affordable for the federal treasury.  But there's nothing in the plan about improving the sliding subsidy scale below the cap, or about reducing out-of-pocket costs enrollees are liable for -- both key weaknesses of the current marketplace. Key details about the public option are also missing -- would it pay Medicare rates to providers? (key to reducing government costs). Would providers who accept Medicare have to accept the public option? (key to providing an alternative to the narrow network plans prevalent in the current marketplace).

One type of minimalism in the plan could be a virtue: it targets voters' specific concerns in a way implicitly urged by the Kaiser Family Foundation, rather than committing Democrats to another titanic fight for a comprehensive system overall.  The targeted measures include a garden-variety Democratic prescription drug cost control program;  removing the ACA income cap on marketplace subsidies;  adding a hearing/vision/dental option to Medicare and dental coverage to Medicaid; cap out-of-pocket costs in Medicare prescription drug plans;  and, covering those left in the cold by red states' refusal to accept the ACA Medicaid expansion;  and capping out-of-network charges at 200% of Medicare (a provision lifted from Buttigieg) -- controlling balance billing.

But it's also minimalist in a bad way, leaving out key details, looking hastily slapped together. The extent to which it would increase affordability is not clear.

Update, 12/20: For whom would coverage be more unaffordable if Bloomberg's plan were enacted?  Well, the plan would cap premiums for a benchmark plan at 8.5% of income. At present, a benchmark plan costs slightly more than 8.5% of income at 260% of the Federal Poverty Level, or $32,500/year for an individual. Premium eligibility is capped at 400% FPL ($49,960/year individual); at that income level, a benchmark plan costs 9.78% of income. Bloomberg lifts the cap, so any individual or household with income over about 260% FPL (just about the national median, FWIW) who lacks access to other insurance would benefit.

* Silver loading is the byproduct of Trump's October 2017 cutoff of direct federal reimbursement to insurers for the Cost Sharing Reduction (CSR) subsidies they are required to provide to low income marketplace enrollees who select silver plans. Faced with the cutoff at the brink of open enrollment for 2018, most state insurance departments allowed or encouraged insurers to price CSR into silver premiums only. Since premium subsidies, designed so that the enrollee pays a fixed percentage of income, are set to a silver plan benchmark (the second cheapest silver plan), inflated silver premiums create discounts for subsidized buyers in bronze and gold plans. When the benchmark silver premium drops more than other plans, those plans become more expensive for subsidized enrollees.

** Presumably, Bloomberg would not extend subsidies to those who have access to affordable insurance outside the ACA marketplace (which would include a public option) -- I assume that because the plan does not promise this. Nonetheless, since employer sponsored insurance is heavily subsidized, it's unlikely that many of those whose employers offer insurance would enroll in the marketplace or public option. With the 400% FPL cap on eligibility eliminated, virtually all enrollees would likely be subsidized.

1 comment:

  1. I would hit the ground in prayer if the 'targeted measures' of the Bloomberg plan could be adopted. Extending subsidies, capping Part D drug costs, adding dental to Medicare, and expanding Medicaid in the stingy red states would benefit millions of persons.

    Of this causes a little discomfort to the current beneficiaries of silver loading, I say big deal. These beneficiaries have done quite well in the past few years, while those over the subsidy cliff have been absolutely hammered.