Universal health insurance: A civilized society's single checkout line

This from Richard Mayhew triggered a flash image connected to a pet peeve:

Insurance (of any sort) has two major economic value propositions.  First, it pools risk so that unpayable costs become payable.  This encourages productive risk taking in the face of tail risk. Secondly, because of the pooling function, it reduces the variance faced by any individual in the pool.   Lower variance means more predictability which means less uncertainty.

The image is the single checkout line* in a New York Whole Foods, complete with lights signaling which of about 20 registers are free. That is, there's one line for all registers -- as at the post office, Barnes & Noble and elsewhere.

The pet peeve is large retail stores with lines at each register. There's a little anxiety cost for me in having to choose a line by eyeballing. It feels like defeat if someone in the line I've chosen asks to have the price of an item checked or uses a credit card that doesn't work.

The thought is that true universal health insurance is the unified checkout line of civilized life. What the single line does with customers' time, universal insurance does with money: spread the losses. More checkout counters equals a deeper risk pool. When there's twenty registers, the effect of one person's fifteen minute delay gets spread widely among the customers on the one line.  Ditto with one person's long-term kidney dialysis or diabetes management or multiple chemo rounds in a deep enough risk pool.

Tom Price will probably cut your health insurance subsidy in half

Last week, I noted that the federal government pays a bit more than two thirds of total medical costs for the average traditional Medicare enrollee. That is, the government pays about 85% of the premium(s) for insurance that covers a bit more than 80% of the average user's annual medical costs (that latter percentage is known as a health plan's actuarial value). Subsidies for those who chose Medicare Advantage plans are comparable.

In a followup post, applying the same calculation to subsidized enrollees in the ACA marketplace and prospective enrollees in HHS Secretary nominee Tom Price's ACA repeal-and-replace plan, I came up with the following total subsidy values:

Traditional Medicare:  85% of premium paid for AV 81% coverage = 69% of costs

Subsidized ACA marketplace: 73% of premium paid for AV 81% = 59% of costs (highly variable)

Tom Price ACA replacement: 59% of premium paid for AV 60% coverage = 35% of costs

Does competition help ACA marketplace customers? Mayhew's Tennessee test

In 2015, I spent some time tracking the effects of "CSR discounts" in select ACA marketplaces -- that is, discounts on the Cost Sharing Reduction subsidies offered to low income enrollees (i.e., most enrollees to date) when they buy silver plans -- and only silver plans.

Since the ACA's income-based premium subsidies are set according to the price of the benchmark second cheapest silver plan in a given area, a "CSR discount" is available when the cheapest silver plan has a significantly lower premium than the benchmark.  Such a discount lowers income shoppers' temptation to buy bronze plans, which are much cheaper but have sky-high deductibles and no CSR.

Large CSR discounts are not the norm in the ACA marketplace, but they're not rare either. I found some evidence, across California and in two adjacent CA counties, that where the discount is significant, silver plan selection rises.

My interest stemmed from a concern whether most low income buyers in the marketplace were likely to obtain coverage adequate to their needs --   in shorthand, obtaining plans with deductibles in the $0 to $750 range (the range CSR-enhanced silver plans for those with incomes up to twice the poverty level) rather than in the $5000 to $6850 range (typical of bronze plans). Richard Mayhew, a health insurance professional, shares that interest but also homes in on the effects of various price configurations on insurers' health. With two thirds to three quarters of insurers in the ACA marketplace posting losses there, and a quarter of last year's participating insurers exiting the market, that concern must be shared by all who want to see the marketplace function as designed.

United Healthcare is a major MCO, but its large-market ACA plans don't reflect that

In the ACA marketplace, insurers whose core business has been Medicaid managed care, most notably Centene and Molina, have increasingly underpriced the competition in markets where they compete. These insurers field narrow networks and probably pay little more than Medicaid rates to providers.

United Healthcare, the nation's largest health insurer, has made waves by reporting large losses in the ACA marketplace and threatening to withdraw from it.  Yesterday Richard Mayhew posited that UHC's complaints mainly reflect the extent to which the giant has gotten its clock cleaned in the marketplace -- offering more extensive networks than competitors, charging much higher rates in many key markets, and thereby likely attracting sicker enrollees who place a premium on provider choices.

Mayhew's main source is an Urban Institute analysis of 2016 rates, mainly focused on 81 ACA rating regions that account for 47% of the country's population. Urban's John Holahan and Linda Blumberg found that in 2015, UHC sold plans in 36 of those 81 regions, but offered the cheapest or second-cheapest silver plan in only eight of them. In 2016, UHC is in 48 regions, and offers cheapest or second-cheapest (benchmark) silver in just 15 of them.

In marked contrast, Medicaid managed care providers, led by Centene (fielding the Ambetter brand) and Molina, are playing in 48 of the 81 regions this year and offering cheapest or second-cheapest silver in 44 of them. That up up from 36 out of 44 in 2015.

Narrow networks: a crooked path to affordable healthcare?

Richard Mayhew has a post suggesting that even a strong public option in the ACA exchanges would generate only "marginal pressure to reduce prices." In a competitive market, it might not undersell all commercial plans, and in a non-competitive market it might be able to field only a very narrow network -- most providers wouldn't opt in. Be that as it may, one claim brought me up short:

Mayhew Insurance is in a competitive market region for the Exchanges.  The lowest priced Silver plans offered by all of the insurers in this region are narrow network HMOs where the providers get paid Medicare rates plus 5% to Medicare plus 10%.  The public option would be just another plan that is in the cluster for the 2nd Silver subsidy point.

In other words, there are insurers on the exchanges who are paying providers no more than a strong public option would pay. In fact it's been suggested to me that the lowest-priced insurers in the marketplace probably pay something closer to Medicaid rates than to Medicare.

This is one of those scratchpad posts, put up as I explore further. If you see any faulty assumptions, please let me know.

Saved from the Medicaid Gap

Prompted in part by my observation last week that at least a third of Florida's 1.4 million private plan enrollees on healthcare.gov would have been Medicaid-eligible if the state had accepted the ACA Medicaid expansion, Richard Mayhew poses a question (or rather, elaborates on one posed in a comment on my post):

Liberal technocrats have been assuming that the states which refuse to expand are giving up massive amounts of money and thus economic growth by refusing to expand Medicaid will eventually expand.  However, are we accounting for the additional cash flow coming in as premium and cost sharing subsidies for people making between 100% and 138% Federal Poverty Line.

Leaving aside the financial question, we can make some reasonable estimates as to what percentage of those who would have been eligible for Medicaid had their states not refused the expansion are now in subsidized private health plans purchased on healthcare.gov. (All but one of the states that refused the expansion use the federal exchange).

On one side of the equation, we have Kaiser's state-by-state estimates of how many people fall in the Medicaid gap -- that is, have household incomes under 100% of the Federal Poverty Level (FPL) but are shut out of Medicaid in their state. On the other side is the number of subsidized private plan buyers in non-expansion states who have incomes in the 100-138% FPL range -- those who would have been eligible for Medicaid if their states had accepted the expansion.

Scrap the ACA's awkward dual subsidy system?

I have devoted a lot of blog space to trying to figure out what proportion of low-income private health plan buyers on ACA exchanges have availed themselves of powerful Cost Sharing Reduction (CSR)  subsidies by buying silver plans -- silver being the only metal level at which CSR is available. I'd like to step back and ask knowledgeable readers: why is CSR sold separately, so to speak? 

As the ACA is now constructed, these subsidies are vital for buyers with incomes under 200%  of the Federal Poverty Level in that they lower out-of-pocket costs to something approaching affordability. For those with incomes under 150% FPL, CSR raises the plan actuarial value to 94%, better than most employer-sponsored plans. That generally puts the deductible in the $0--500 range. For those in the 150-200% range, CSR raises actuarial value to 87%. Deductibles might run $0 (rarely) to $1500.

The catch is that silver plans for CSR-eligible buyers can be expensive -- $118 per month for a single person earning $23,000 -- whereas bronze plans can be almost free, particularly for older buyers. But bronze plans usually carry deductibles over $5000; their actuarial value is just 60%. For a lot of low-income buyers, a lot of bronze plans are close to worthless.

Troubled by that bronze temptation, I proposed once that CSR attach to bronze plans as well, at proportional levels.  Richard Mayhew, an insurance professional involved in plan design and a blogger at Balloon Juice, has done me one better, proposing that CSR be integrated into the cost of plans at all metal levels. Richard's sketch -- which he floats as a potential "innovation waiver" proposal for a blue state -- is below.

Minnesota's "public option"

Ever since I read in fall 2013 that ACA bronze plan deductibles average over $5,000 per person, I have been concerned about the availability of such essentially catastrophic coverage at tempting low premium prices to low income ACA buyers -- who we now know are the vast majority of ACA private plan buyers (83% of buyers on healthcare.gov have household incomes under 250% of the Federal Poverty Level).

Hence my preoccupation with Cost Sharing Reduction subsidies, available only with silver-level plans, which reduce out-of-pocket costs to less prohibitive levels.  A silver plan has an actuarial value of 94% for buyers under 150% FPL and 87% for those at 200-250% FPL. But silver plans are expensive for low income people. The benchmark second-cheapest silver plan costs 4% of income for buyers with incomes in the  138-150% FPL range and about  6% for buyers with incomes at 150-200% FPL. That's a lot --  $118 per month for a single person earning $23,000. And  a plan at that price may still carry a per-person deductible as high as $1,500 for those in the 150-200% FPL range.

The ACA allows for a more truly affordable option, but only one state has taken it -- in fact, has long had it. That's Minnesota, which since 1992 has had a program similar to Medicaid, MinnesotaCare, serving residents with incomes up to 200% FPL.  As of Jan. 1, 2015, MinnesotaCare was approved as a Basic Health Plan (BHP) under the ACA -- that is, a state-run plan serving residents with incomes between 138%  and 200% FPL (those below 138% qualify for Medicaid, known in Minnesota as Medical Assistance). Under ACA rules, the federal government pays 95 percent of the ACA subsidies to which enrollees in the plan would have been entitled if they enrolled in private QHPs.