Conservative tack on market-based reforms comes with high degree of political risk

Conservative economic ideology on reforming America’s health care system is that being a market — albeit an “unbelievably complex” one as President Donald Trump told governors gathered at the White House Monday — market-based reforms are the best and most appropriate remedy to achieve lower costs and better value care and outcomes. These goals are also central to the Patient Protection and Affordable Care Act. The law took a decidedly interventionist approach to making the health care market work on both the payer and provider sides, particularly with regard to individual medical plans. In an effort to save the market from collapse, the Affordable Care Act recast the marketplace rules based on a principle coined by healthcare economist Alain Enthoven called managed competition. Under managed competition, the rules of the game are designed to strengthen the sell and buy sides of the market and force sellers to play under market rules designed to reduce market manipulation and level the playing field. Creating state health benefit exchanges and subsidizing purchasers are intended to create a more robust market where plan issuers have to compete on value for a larger pool of buyers than might otherwise exist without the new rules. Those rules also required all plans to offer a core set of benefits to ensure a minimum level of value while leaving plans to offer five different levels of generosity, i.e. how much plan members must pay out of pocket before reaching statutory out of pocket maximums.

Central to market-based reforms is enhancing competition among sellers. The big question in the very complex, multi-siloed market of health care is to what extent competition is possible. Market competition isn’t a black or white, yes or no issue. Rather, competition is a matter of degree. Economists define a perfectly competitive market as one in which there are many sellers and buyers on relatively equal footing with real time access to information about the products or services offered and their price and value. Few if any markets are perfectly competitive. Using that standard, health care is far from a perfectly competitive market, especially so since most consumers don’t directly deal with their medical care providers as beneficiaries and members, respectively, of government and commercial medical plans that do so on their behalf. So far in fact that it is questionable that it can be reformed into a truly competitive market. Cost barriers to entry to new players are high, driving both payers and providers to consolidate, further eroding competition by reducing the number of sellers.

Because competition hasn’t effectively controlled the cost of health care, stakeholders are instead left to attempt to shift rising costs and blame for them to other stakeholders. Or reduce demand for health care by providing disincentives for utilization by forcing consumers to share more of the cost. Under the Affordable Care Act, that has taken the form of higher deductibles. Problem is those higher deductibles have not come with the customary tradeoff of significantly lower premiums. Premium rates have gone up along with the deductibles. That has led consumers and particularly those who purchase individual plans without subsidies to view their plans as “useless,” offering little or no value. That sentiment proved corrosive to the Affordable Care Act since they naturally felt ripped off. They were more than happy to vote for candidates in the November elections committed to scrapping a law they saw as giving them a lousy deal.

Today’s Los Angeles Times reports on political downside of shifting more costs onto consumers as a theoretical means of boosting competition to lower medical utilization and with it, demand stoking rising costs. Doing so runs the risk of irritating consumers even more, who will then take their anger out on their federal representatives in the upcoming midterm elections. Excerpts from The Times story:

Those are politically risky ideas, said Robert Blendon, an authority on public attitudes about healthcare at Harvard University. “Skin in the game has been never popular,” he said. “It may be an economist’s dream. But it’s never been something people say they want.”

“We believe in a patient-centered system, where individuals have the freedom to buy what they want and not what the government makes them buy,” (House Speaker) Ryan told reporters at the Capitol recently. “It’s really, really important to have choice and competition in healthcare because choice and competition lowers cost and increases quality.”

If Ryan were talking about another market like furniture or automobiles where consumers deal directly with sellers and make calm and rational purchasing decisions free of the anxiety that accompanies often painful, highly stressful medical issues, his vision of putting more power in the hands of buyers might be doable. That along with the reality that consumers are tied to government and commercial medical care plans that negotiate and set the terms and conditions of their medical care makes Ryan’s goal a very tall order.

To “401 percenters” Affordable Care Act isn’t

WASHINGTON (AP) — Michael Schwarz is a self-employed business owner who buys his own health insurance. The subsidized coverage “Obamacare” offers protection from life’s unpredictable changes and freedom to pursue his vocation, he says.Brett Dorsch is also self-employed and buys his own health insurance. But he gets no financial break from the Affordable Care Act. “To me, it’s just been a big lie,” Dorsch says, forcing him to pay more for less coverage.Schwarz and Dorsch represent two Americas, pulling farther apart over former President Barack Obama’s health care law. Known as the ACA, the law rewrote the rules for people buying their own health insurance, creating winners and losers.Those with financial subsidies now fear being harmed by President Donald Trump and Republicans intent on repealing and replacing the ACA. But other consumers who also buy their own insurance and don’t qualify for financial help feel short-changed by Obama’s law. They’re hoping repeal will mean relief from rising premiums.

Source: News from The Associated Press

This is one of the major weaknesses of the Affordable Care Act’s reforms of the individual medical insurance market. Naturally, households earning in excess of 400 percent of federal poverty and who don’t qualify for subsidies are going to be unhappy since they bear the full brunt of premium increases as health plan issuers try to stabilize the market segment under the the law’s provisions by raising premiums. It’s no surprise these 401 percenters as I dubbed them aren’t in favor of keeping those rules in place since from their perspective, they’ve gotten a raw deal other than appreciating the rule requiring plans to accept them regardless of medical history.

The situation also points up the problem of a means-tested scenario of providing medical coverage to those not covered by employer-sponsored plans or Medicare. It’s far from seamless under the Affordable Care Act. The law created multiple categories of benefits and costs for this cohort keyed to household income: 1) Medicaid; 2) Qualified Health Plans offered on state health benefit exchanges with subsidies based on multiple income tranches; and 3) Unsubsidized plans, typically sold outside of the exchanges.

A more elegant, unified scenario is sorely needed, particularly given more households now rely on earnings outside of formal employment arrangements that come with medical benefits or are employed by small employers offering little or minimal coverage.

Massachusetts governor proposes Medicaid “fair share” fee on employers not providing minimum medical coverage

In order to discourage avoidable enrollment in MassHealth and slow rising costs in the state’s Medicaid program, which now accounts for nearly 40 percent of state spending, Baker has proposed in his budget a $2,000 per employee “fair share” assessment on Massachusetts employers with 11 or more full-time equivalent employees (FTE), or employees that work 35 hours per week, whose health coverage does not meet certain requirements. The Baker Administration has argued that some of the increase in MassHealth spending is driven by employed individuals enrolling in MassHealth rather than employer-sponsored insurance, and Baker’s proposal aims to reverse this trend.

Source: 2017 Health Care Policy Debates Ramp Up in Massachusetts – Lexology

Aetna CEO, analyst offer differing assessments on health of individual market

Bertolini drew a portrait of the health insurance landscape caught in a deteriorating cycle. With too many sick people and not enough healthy ones buying insurance, he argued, the premiums have to keep going up. The more the premiums increase, the fewer healthy people want to sign up for care. They opt to pay the penalty instead of buying insurance with a massive deductible. That causes the balance of sick and healthy people buying insurance to worsen, prompting more rate increases and causing people – and insurers – to drop out.He said that Aetna’s heaviest utilizers of health care – the top 1 percent to 5 percent – are driving half of the costs in the exchanges.”My anticipation would be that in ’18, we’ll see a lot of markets without any coverage at all,” Bertolini said.But health policy experts argue that, so far, there aren’t clear signs that Bertolini’s assessment is accurate.

Cynthia Cox, associate director of a program focused on health reform and private insurance at the Kaiser Family Foundation said that in a true death spiral, the people buying insurance on the exchanges should be a progressively sicker group of people each year. Although the people buying insurance have been sicker than insurers projected, Cox said there isn’t evidence that the pool of people is getting sicker.One sign of a death spiral would be fewer young adults, who tend to be healthier, signing up — something that Cox says hasn’t happened. Another protection against a death spiral is that roughly 85 percent of the people who buy insurance through the exchanges are insulated from premium increases by subsidies, she said.

Source: Aetna CEO says Obamacare in ‘death spiral,’ debates leaving health care exchanges | OregonLive.com

Immediate ACA repeal rhetoric mooted as Trump administration issues rulemaking to reinforce law’s individual market reforms

With only about six weeks left to enact any comprehensive replacement for the Patient Protection and Affordable Care Act, the Trump administration has sent a clear signal it won’t happen this year by introducing proposed rules today reinforcing the law’s individual insurance market reforms rather than a wholesale repeal of the omnibus statute. The Market Stabilization rulemaking is a confidence building measure aimed at calming nervous individual health plan issuers as they plan their market participation for 2018 amid worries over adverse selection.

The rulemaking comes just 10 days after President Trump said in a televised interview his administration’s comprehensive successor to the Affordable Care Act would take the rest of 2017 and likely into next year to finalize and move through Congress. That’s realistic considering the Affordable Care Act contains ten titles and runs more than 2,000 pages. It will take time to determine which to keep, which to amend and which to eliminate — and attract sufficient support from across the aisle for any overhaul.

The proposed rule would more closely conform individual coverage to employer-sponsored and Medicare coverage by establishing the plan year 2018 open enrollment period as November 1 to December 15, 2017. The rulemaking would require those seeking to enroll outside this period to provide documented evidence of life events such as a change in family status or loss of employer sponsored coverage. It also would make it easier for health plan issuers to collect lapsed premium payments upon renewal, liberalizes the actuarial value definitions of all but silver plans as well as network adequacy standards.

The proposed rule also indicates the federal government plans to revise the timeline for the certification of qualified health plans (QHPs) sold on state health benefit exchanges and rate review process for plan year 2018. “In light of the need for issuers to make modifications to their products and applications to accommodate the changes proposed in this rule, should they be finalized, we would issue separate guidance to update the QHP certification calendar and the rate review submission deadlines to give additional time for issuers to develop, and states to review, form and rate filings for the 2018 plan year that reflect these changes,” the Centers for Medicare & Medicaid Services (CMS) stated. Comment on the proposed rule is due March 7, 2017.

The issuance of the proposed rule renders moot campaign rhetoric leading up to the November 2016 elections to immediately repeal the Affordable Care Act and highlights the lack of a ready Republican plan to replace the law. The party’s opposition is less about genuine policy differences but more about ongoing hard feelings arising from the process (versus substance) of the Affordable Care Act’s enactment in early 2010 that essentially steamrolled then minority Republicans. With no clearly articulated GOP policy alternative, there cannot be a true policy debate.

Congress and the administration have incentive to back off the immediate repeal talk given the likelihood they’d face political blow back from payers and providers vexed by the enormous uncertainty of gutting the law without a clear replacement as well as constituents fearing their coverage might be disrupted. The political consequences of inchoate policy outweigh any immediate policymaking in Congress, particularly since unhappy voters could punish some members of Congress in the 2018 mid-term elections.

In addition to this proposed rule, expect Congress to make a rapid appropriation to stave off another issue threatening the stability of the individual market stemming from ongoing hard feelings over the law’s enactment its implementation by the Obama administration: House v. Burwell. An appropriation is necessary because a federal court ruled in that case funding for out of pocket cost sharing subsidies for low income households purchasing silver plans on state health benefit exchanges requires an appropriation by Congress and that the required appropriation is absent. The House of Representatives challenged the constitutionality of the Obama administration’s funding of the subsidies without an explicit appropriation by Congress. Implementation of the federal court ruling is on hold until at least this month as it’s not expected the Trump administration will pursue an appeal.

Honoring basic insurance principles proves challenging in state individual health insurance markets

A growing number of Minnesotans are tapping tax credits through the health law that discount premium costs on the policies. But eligibility for subsidies depends on income, and there’s growing evidence that those who don’t qualify for tax credits or have other affordability problems are fleeing the market. On Thursday, the Minnesota Council of Health Plans released numbers that show 80,000 fewer residents covered in the individual market now than a year ago, a decline of 30 percent. The current tally of 190,000 will likely drop further, insurers say.A shrinking market is a bigger problem for insurers than a drop in revenue. People with costly health problems tend to maintain even expensive coverage, knowing it’s a better deal than paying the full cost of health care. So, a shrinking market at a time of skyrocketing premiums leads insurers to conclude that healthy people are leaving the mix.

Source: Health insurers say they need insurance protection from big claims – StarTribune.com

The Patient Protection and Affordable Care Act aims to improve the spread of risk and honor the law of large numbers — bedrock principles that underpin all forms of insurance — by pooling most everyone not covered in the three main pillars of health coverage (Medicare, Medicaid, employer-sponsored coverage) into a single risk pool in each state. But even putting everyone in a given state into a single, statewide risk pool may not be enough in states with fewer residents as this account illustrates. When there are too few “covered lives” in the pool in insurance industry lingo, the risk spreading mechanism of insurance gets stressed and the pool threatened by adverse selection. That occurs when a relatively small number of people incur large claims costs as the case here in Minnesota.

Since the individual market is comprised of only a relatively small segment of the population nationwide given the dominance of the big three pillars of health coverage, honoring fundamental insurance axioms may only be possible in states with large populations such as California, New York, Texas and Pennsylvania.