Insurance no matter what variety assumes two kinds of risk. First, the underlying peril that could result in a covered loss, such as a windstorm or a fire in the case of homeowners insurance. Second, human hazards that can increase the risk of loss. For example, there’s moral hazard (such as filing a fraudulent claim to collect on the insurance by setting one’s house on fire) and morale hazard. What’s morale hazard? This definition is a good one:
A term used to describe a subjective hazard that tends to increase the probable frequency or severity of loss due to an insured peril. Morale hazard, as contrasted with moral hazard, does not imply a propensity to cause a loss but implies a certain indifference to loss simply because of the existence of insurance. For example, an insured’s attitude may be indifferent if a loss occurs because they have insurance. (Emphasis added)
The emphasized part is directly applicable to and has major implications for health insurance. In the context of health insurance, a clear example of morale hazard would be the failure to engage in health promoting behaviors and lifestyles. For instance, an individual with a family history and propensity to develop cardiovascular disease eating an unhealthy diet and not regularly exercising. Granted, that individual may not want to have a stroke or heart attack. But if they have the attitude that they can shift the risk of costly medical care should that happen to their health plan, they may be less motivated to adopt a lifestyle to help head off those eventualities.
As one strategy to stem rising costs, health plans must strike a balance between providing people the peace of mind that comes with having coverage for potentially financially ruinous medical costs while also motivating those they cover to take responsibility to avoid them.
This becomes especially critical starting this October, when health plans in the individual market must begin pre-enrolling applicants for coverage beginning January 2014 regardless of medical condition or history. No longer will plans be able to practice risk avoidance to control claims costs, rejecting those deemed too risky to cover or charging small employers higher rates based on the medical condition of their employees.
That leaves mitigation of morale hazard as their only remaining form of risk management. Large employers as well as smaller ones are looking to so-called “workplace wellness” programs as a form of addressing morale hazard, including contingent wellness programs that provide employees economic incentive to engage in health promoting behaviors to reduce the likelihood of their incurring major medical costs. Whether such programs have a meaningful impact remains to be seen given mixed outcomes such as reflected in this 2011 survey and a study published this week in Health Affairs.
With limited financial incentives available to both plans and employers to reduce morale hazard, it will likely take a big shift in societal attitudes to achieve a measurable reduction. For example, viewing both personal health and health coverage as a common social good that should be respected and preserved. If the resources to pay for health care are shared and finite – and they are – we should regard them as a societal asset that should be preserved. That change in outlook will also require us to re-examine our values and strive for balance in our lives that supports preserving our individual and collective health.
Like the Clinton administration’s comprehensive health care reform proposal of the 1990s, a key goal of the Obama administration’s Patient Protection and Affordable Care Act (PPACA) is having all Americans medically insured though public or private health plans. Since coverage gaps largely occur with private coverage, private market reform is central to the reforms of both administrations.
Since most working age Americans have employer-paid coverage, the Clinton administration’s reforms would have required all employers to cover their employees so that none had to obtain their own coverage in the individual market or be medically uninsured. Rather than the Clinton administration’s employer mandate, the Obama administration instead placed the mandate on individuals, requiring all Americans to have medical coverage by 2014. Key to the individual mandate in the PPACA is the law’s state health benefit exchanges to provide an insurance marketplace for small employers and individuals.
If the U.S. Supreme Court upholds the constitutionality of the individual mandate later this year, it could mesh well what some observers believe is a trend toward more temporary and self-employment. This trend has seen a significant boost in recent years as employers hire fewer people to do the same work or adopt processes that require fewer permanent staff. This in turn has led to growing numbers of temporary and self-employed people.
Since these workers aren’t covered by employer-provided plans and must obtain health coverage on their own, they will benefit from the exchanges where participating insurers will be required to offer coverage with minimum coverages and premiums determined using modified community-based rating versus medical underwriting. As 2014 draws closer, the exchanges could in turn encourage more to deliberately choose temporary and self-employment. Many who might otherwise work for themselves balk at the prospect of having to find health coverage in the existing individual market where they can be declined for pre-existing medical conditions and don’t benefit from group purchasing power the exchanges would provide. The exchanges and the PPACA’s mandates that all individuals have coverage and health plans and insurers accept all applicants regardless of medical history would significantly mitigate this disincentive for those considering self-employment.
The Interim High Risk Pool created by the enactment of the Patient Protection and Affordable Care Act’s (PPACA) one year ago has not changed the underlying dynamics of the individual health insurance market and consequently appears to be having a negligible impact on reducing the ranks of the medically insured.
The pool, formalized as the Pre-Existing Conditions Insurance Program (PCIP), was created to provide temporary coverage for those with pre-existing conditions who don’t meet minimum medical underwriting standards of insurers and managed care plans. It goes away on January 1, 2014, when the PPACA outlaws medical underwriting and requires payers to accept all applicants regardless of medical history.
So far, few have signed up for the plan. As prior to the PCIP, younger people who would be eligible for PCIP enrollment pay lower rates for coverage but tend to go without. Older folks in their 50s and early 60s who want coverage are finding PCIP rates out of reach. An added deterrent, other observers note, is the requirement that applicants for coverage be continually uninsured for at least six months.
“The PCIP is a great health plan and the out-of-pocket maximum is low,” Barry Cogdill, president of Business Choice Insurance Services in San Diego, told SignOn San Diego. Nevertheless, he added, PCIP premiums are too expensive for many. “That’s why health care reform happened,” Cogdill explained. “The individual market has been the Achilles’ heel of the health insurance market. You end up with a lot of uninsured people.”
It appears many in this circumstance who aren’t covered by group or government plans will remain so. Whether they will be able to find affordable coverage when state health benefit exchanges designed to aggregate purchasing power of individuals and small employers open for business in January 2014 remains to be seen.
A month ago, the Associated Press reported state Pre-existing Condition Insurance Plans (PCIP) set up this year under the Patient Protection and Affordable Care Act’s (PPACA) are not attracting the flood of applicants some some feared would quickly deplete the $5 billion the PPACA for appropriated for them. The PPACA’s appropriation for the Interim High Risk Pool is to provide coverage for people in the individual health insurance market with pre-existing medical conditions who because of the conditions can’t get coverage in the standard market until insurers must accept all applicants starting Jan. 1, 2014.
The New York Times last week did its own story on the lackluster enrollments in the mostly state-run PCIPs. While sign ups may be slow for a variety of reasons — the bad economy probably chief among them — the PCIPs seem to show the biggest initial appeal to those who have costly conditions requiring expensive treatment such as the cancer patient profiled in the Times story.
If early trends continue, the PCIPs could end up becoming more of a catastrophic coverage pool for those requiring very high cost care, known as high severity losses in insurance terminology. Such high severity losses could threaten to rapidly draw down the $5 billion allocated for them in the PPACA just as easily as too many people turning to PCIPs to get individual health coverage.
The Associated Press (via Yahoo! News) reports the Patient Protection and Affordable Care Act’s (PPACA) Interim High Risk Pool designed to cover people in the individual health insurance market with pre-existing medical conditions isn’t getting much interest. In several large states including California, there have been less than 500 applicants for Pre-Existing Condition Insurance Plans (PCIP) since coverage became available around July 1. Under the PPACA, the coverage is intended to serve as a stopgap until insurers and health plans must accept all applicants starting Jan. 1, 2014.
Sabrina Corlette, a Georgetown University research professor, told the AP the premiums are being set too high with the exception of Pennsylvania. That state charges a flat $283.20 (plus additional co-pays and coinsurance) monthly premium for its PA Fair Care PCIP regardless of the age of the applicant. Keystone State officials opted to use this form of rating — known as community-based rating contemplated under U.S. Health and Human Service Department regulations governing PCIPs — versus age-based rating employed by most other state PCIPs. “While other states have reported their high-risk plan applications are trickling in, Pennsylvania’s response to PA Fair Care has been brisk,” the Pennsylvania Department of Insurance announced in a September 30 news release. The news release notes the program is initially capped at 3,500 enrollees with enrollment on a first-come, first-served basis.
Since premiums in the individual market for those without pre-existing conditions have gone up around 20 percent this year, it’s not surprising that age-based rates in state PCIPs for those who do have pre-existing medical conditions are substantially higher than Pennsylvania’s. “I think there’s some sticker shock going on,” Corlette told the AP.
Likely heightening that shock is people’s constrained finances in the current troubled economy. Other observers blame tepid initial enrollments in state PCIPs on the PPACA’s requirement high risk pool applicants be medically uninsured for at least six months. That’s more likely to describe people in their 20s and 30s who tend to have fewer pre-existing conditions than the middle-aged. Self-employed individuals in their 40s and 50s with pre-existing medical conditions aren’t as likely to go bare for such a long period and are more inclined to seek coverage than so-called “young invincibles.”
The Patient Protection and Affordable Care Act’s Interim High Risk Pool — aimed at making medical coverage available at standard market rates for those with preexisting medical conditions until insurers and health plans are required to accept all applicants regardless of preexisting conditions in 2014 — will likely run out of money before then.
That’s the conclusion of a recently issued paper by the National Institute for Health Care Reform. The paper warns that while 5.6 million to 7 million Americans may qualify for the pool, the $5 billion the Act allocated may be enough to cover only 200,000 people a year. “Policy makers will need to tailor eligibility rules, benefits and premiums to stretch the dollars as far as possible,” the paper recommends.
There are multiple factors that could affect demand for the $5 billion set aside to subsidize Interim High Risk Pool coverage as well as cover administrative costs of operating the pool. Individual market premium rates are trending upward so even the standard rates required to be charged those in the pool (insurers charge nonstandard, surcharged premium rates to individuals with certain controlled preexisting conditions) could as this blog previously noted end up roughly equal to current nonstandard rates. In a struggling economy, those higher premiums would reduce the incentive for people to sign up for coverage.
The other unknown is how the states ultimately implement the Interim High Risk Pool and how the 35 states that have high risk pools in place coordinate (or don’t) their pool rules with those of the new, temporary federal program. Some states have already indicated they will be opting out of the federal program, which means the feds will designate a nonprofit organization in those states to administer the Interim High Risk Pool there.
In those states as well as states that have indicated they intend to integrate their high risk pools with the federal program, there could be disparities between the new pool and existing state high risk pools that could create incentives for individuals to go uninsured (individuals must be uninsured for at least six months to qualify for coverage via the Interim High Risk Pool) in order to obtain more generous, lower cost coverage than their state high risk pools offer. That would accelerate the drawdown of the $5 billion set aside for the program.
High risk health insurance pools to cover Americans with pre-existing medical conditions who fall short of medical underwriting standards of individual market insurers and managed care plans must be in place within 90 days of the March 23 enactment of the Patient Protection and Affordability Act. That mandate was put in place by H.R. 3590, Subtitle B, Section 1101.
Going forward, several aspects bear watching. Among them is how states — the majority of which already have high risk pools in place — implement the pool in their jurisdictions and conform their existing high risk pools to the new federal requirements.
In the interim before the high risk pool mechanism ends Jan. 1, 2014 and health insurance purchasing exchanges that must accept all applicants regardless of pre-existing medical conditions start up, a key question will be the number of people who actually sign up for high risk coverage. The number in large part will be driven by the size of the premiums.
California’s high risk pool, the Managed Risk Medical Insurance Program (MRMIP), is required by statute to set premiums 125 to 137 percent of standard market rates and has an annual coverage cap of $75,000 and a lifetime limit of $750,000. Currently the program covers just 7,100 Californians — a tiny fraction of the 1 million potentially medically uninsured Golden State residents projected by Harbage Consulting in 2008.
MRMIP has been limited on the supply side by enrollment caps due to limited funding and on the demand side by relatively high premiums. HR 3590 requires premiums to be established at a “standard rate for a standard population” that can vary based upon age, an important factor considering a large segment of medically uninsurable are between 50 and 64 years old. For the oldest members of the pool, premiums are limited to four times those charged the youngest members of the pool.
Standard rates however are on an upward trajectory as evidenced by a sharp increase being implemented for indemnity-based policies by California’s dominant player Anthem Blue Cross. Those rates if ultimately approved by the California Department of Insurance would be as high as those previously charged those in the MRMIP pool. For many, they would likely prove unaffordable. Particularly in a tepid economy that some economists predict won’t fully recover until the high risk pools are slated to end in 2014.
The upshot is HR 3590’s temporary high risk pool may not make much of a dent in the number of medically uninsured not covered through employment-based insurance or government insurance programs.