Reverse reinsurance for COVID-19 treatment

Subscribe to xpostfactoid via box at top right. You'll get 2-3 posts per week, mostly re ACA.

The case for the federal government picking up the cost of all COVID-19 treatment for everyone, not just the uninsured, is compelling.* Benefits include:

• Eliminating inhibitions about seeking treatment, thereby helping to contain contagion as well as saving lives. 
• Avoiding a major channel of financial harm at a time when tens of millions are likely to suffer extensive financial harm.
• Establishing a unified database of treatment/results.
• Paying providers swiftly while eliminating price-gouging via balance billing (which enacted COVID-19 legislation has so far enabled at providers' behest).

At the same time, as we pile on trillions in federal debt with abandon, there's no reason that private insurers and self-funded health plans shouldn't pay their fair share.

A mechanism already exists to calibrate what constitutes such a "fair share." It's the statutory Medical Loss Ratio (MLR) that health plans are required to maintain. MLR is the percentage of premiums a plan spends on medical care for enrollees. The ACA-mandated minimum MLR is 80% for individual and small group plans and 85% for large group plans. If a plan spends below those thresholds on claims, it's required to rebate the employer (in group plans) or the enrollees (in individual market plans).

The cost of single payer: roughing it out

With sweeping ACA repeal apparently off the table for the moment, the Democratic imagination is turning once again toward some version of single payer, or Medicare for all.

I thought I'd try an overview from more than 30,000 feet -- say, from space -- of the tax revenue that might be required to move those now covered by commercial insurance into some kind of public insurance program.  That is, converting about a third of current total healthcare spending from private to public.  I hope this is not too general, or too vaguely informed, to be useful, but here goes...

1. According to the National Health Estimate, in 2015:

• Medicare spending was $646.2 billion, or 20 percent of total NHE.
• Medicaid spending was $545.1 billion, or 17 percent of total NHE.
• Private health insurance spending was $1,072.1 billion, or 33 percent of total NHE.
• Out of pocket spending was $338.1 billion, or 11 percent of total NHE.

2. Private health insurance covers more people than Medicare and Medicaid -- about 170 million (combining the employer and individual markets) vs. 120 million.* But it costs less in total -- about $1.1 billion vs. $1.2 billion.

3. At the same time, private insurance pays far higher rates to healthcare providers -- no one knows exactly how much more, but I've heard estimates in the 160% of Medicare range. Medicaid, in contrast, pays about two thirds of Medicare rates on average. [Update, 4/1: It's been pointed out to me that MEDPAC reports commercial rates for physician payments to be about 128% of Medicare -- that is, Medicare pays 78% of commercial rates on average. See p. 98 here. OTOH (added 4/4), a brand new CBO report estimates that commercial rates for hospital inpatient services average about 188% of Medicare, with wide variation. Hospital services accounted for a bit over $1 trillion in spending in 2015, compared to $635 billion for physician and clinical services.]

A question for healthcare economists (update)

I have a question for healthcare economists. Bear with me through a few bullet points to get there. [Note update at end: there's an answer of sorts in Kenneth Thorpe's analysis of Bernie Sanders' plan.]

• It's well known that the U.S. pays far more for healthcare -- per capita, per procedure, and as percentage of GDP --  than any of its developed-world peers. According to the OECD, the US spent 16.4% of GDP on healthcare in 2013. The next highest spenders, Holland and Switzerland, spent 11.1% of GDP.
  
• A main reason, if not the driving reason, is that in the U.S. healthcare payers are fragmented, diminishing their buying power. Private insurers and self-funded employers pay rates that may average 150-160% of Medicare rates.
  
  

What if all private health insurers paid 120% Medicare rates?

In my last post, I noted that some insurers fielding narrow networks plans in the ACA marketplace appear to be paying providers at rates as low or even lower than a strong public option would have. That left me wondering why those lower payment rates don't translate into much lower costs for plan holders willing to put up with the limited choice of providers. (One part of the answer may be that the ACA subsidy and benefit structure partly insulates subsidized buyers from the actual cost of care, potentially for worse as well as for better.)

The broader question is, what would be the effect on US healthcare if insurers generally paid a reasonable multiple of Medicare rates -- say, Medicare plus ten or twenty percent? And I just came across a short answer of sorts in a study that's having a swift impact on healthcare scholars' understanding of what drives healthcare prices. That's The Price Ain't Right? Hospital Prices and Health Spending on the Privately Insured, by Zach Cooper, Stuart Craig, Martin Gaynor and John Van Reenen,  which analyzes a huge new database of payments to hospitals for privately insured patients. Here is one conclusion that bears on the broad question: