Health Insurance

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How with health reform affect small, medium and large size businesses

August 24, 2010 in Health Insurance, Health Reform | 2 comments

How will health reform affect small, medium and large size businesses?  Linda Blumberg answers this question in this RWJ policy brief.  Blumberg summarizes the legislation as follows:

“Small employers, those with fewer than 50 workers, will face no new requirements but will have new insurance options made available to them through the new health insurance exchanges. These new options have the potential to save money for small businesses that wish to offer insurance to employees.

Medium-size employers, those with 50 to 100 workers, will have access to these new coverage options as well, but may face some financial penalties if their modest income, full-time workers obtain federal subsidies due to a lack of affordable coverage available through the workplace. New coverage sold to small and medium-size groups will be subject to regulations that will make insurance more affordable to groups with higher than average health care needs. Healthier groups will share in these costs more than they do today.

The vast majority of large employers (more than 100 workers)…are the least likely to be significantly affected by health care reform. However, they may experience greater employee participation in their current insurance plans and will face penalties if their full-time workers obtain subsidized coverage through the exchanges.”

This spreadsheet summarizes how key provisions will affect each of these three types of businesses.

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Trends in Employer-Provided Benefits

August 6, 2010 in HC Statistics, Health Insurance | 2 comments

PricewaterhouseCoopers recently conducted a survey of about 700 companies to determine the latest trends in employer-provided benefits.  The survey, conducted in early 2010, assessed the level of health insurance, retirement, and other benefits provided by firms from over 30 industries.

Today, I will focus on the results with respect to the health insurance.  Broadly, PPOs are still the most popular plan, but high-deductible plans are gaining ground.  Further, there is a general trend towards increased cost sharing both for in-network  and out of network care.  An increasing number of firms also utilize wellness (76%) and disease management (68%) programs for their employees.

The table provides a more detailed summary of the trends in employer-provided benefits between 2008 and 2010.

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Over the last 15 years, Income Inequality has decreased?

June 2, 2010 in Economics - General, Health Insurance | 6 comments

Many economists have lamented that income inequality has grown over recent decades.  Although it is true that wage inequality has increased, compensation inequality may not have.  When I mention “compensation inequality,” I refer to the total package of compensation that a worker receives.  This includes wages, health insurance, 401(k) benefits, and other non-wage forms of compensation.  In previous posts, I have mentioned that once health insurance is taken into account, inequality may in fact be shrinking.

A recent NBER working paper by Burkhauser and Simon (2010) also shows that inquality is in fact decreasing once one taking into account health insurance costs.  This chart provides information on changes in income and total income between 1995 and 2008.  Income includes only raw wages, but “total income” also takes into account workers compensation in the form of health insurance.  The authors use this evidence to claim that “…ignoring the value of health insurance coverage will substantially understate the level of economic well being of Americans and its upward trend and overstate the level of inequality and its upward trend.”

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Estimating the elasticity of health insurance offering for firms: Part II

May 25, 2010 in Health Insurance, Taxes | 1 comment

How does the price of health insurance affect the probability that a firm will offer health insurance to their workers?  A previous post provides a variety of estimates of the elasticity of firm health insurance offering with respect to premiums.  A more recent article by Gruber and Lettau (2004) needs to be added to this mix.

This paper uses data from the 1983-1995 National Compensation Surveys to determine that “there is a moderately sized elasticity of insurance offering with respect to after-tax prices (-0.25), and a larger elasticity of insurance spending (-0.7). We also find that the elasticities are driven primarily by small firms, for whom the elasticity is larger.” Additionally, the authors claim that if the tax subsidy to employer-provided health insurance were eliminated, 15 million fewer workers would be offered health insurance.

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Explaining Any-willing-provider and Freedom-of-choice laws

May 7, 2010 in Managed Care, Regulation | No comments

Hellinger (1995) defines any-willing-provider (AWP) and freedom-of-choice (FOC) laws.  These laws have been enacted by a number of states.

“AWP laws require managed care plans to accept any qualified provider who is willing to accept the terms and conditions of a managed care plan. These laws do not require managed care plans to contract with all providers. However, they do require managed care plans to explicitly state evaluation criteria and ensure “due process” for providers wishing to contract with the plan.”

“FOC laws permit an enrollee to obtain reimbursable health care services from any qualified provider even if the provider has not signed a contract with the managed care plan. These laws often compel managed care plans to pay the same amount to a nonnetwork provider chosen by an enrollee as they pay to a network provider. Yet this does not guarantee that an enrollee will incur the same out-of-pocket costs. Enrollees who obtain all of their care from non-network providers pay the fixed copayment per service (or a fixed percentage of covered charges) their plan requires, plus any charges in excess of the plan’s  overed charges.”

Michael Morrisey recommends repealing these two laws to increase competition and I tend to agree with him.  Both laws limit managed care organizations’ ability to effectively negotiate on price.

Health Care Reform in Massachusetts

May 3, 2010 in Health Insurance, Regulation | 6 comments

With healthcare reform having passed, how will the health insurance market look a few years from now?  Although Mitt Romney may (or may not) deny it, Massachusetts has been a model for President Obama’s health reform bill.  In 2006, Massachusetts passed its own health reform and when the share of uninsured residents was at 14%.  By 2008, this figure had fallen to 2.6%.  Let us now take a look at the specific reforms Massachusetts implement to increase coverage.

Based on the research of Doonan and Tull (2010), one can divide the Massachusetts expansion efforts into five broad categories.

  • Medicaid Expansion. Massachusetts expanded Medicaid eligibility to all children below 300% of the federal poverty line (FPL) and all adults below 150% of the FPL.
  • New subsidized health insurance exchange.  Commonwealth Care is a program that provides aces to health insurance for individuals with incomes between 150% -300% FPL.  The government subsidizes these plans depending on the individual’s income.  The state moved individuals who were previously in the stat’s uncompensated care pool (UCP) to Commonwealth Care by restructuring the UCP so that copays, deductibles, and premiums were similar to those offered in Commonwealth Care.
  • Insurance Exchange for Individuals and Small Businesses.  Commonwealth Choice is a program that provides a number of unsubsidized insurance plans to individuals and small businesses (with 50 or fewer employees).
  • Mandates.  The Massachusetts legislature enacted an employer mandate and an individual mandate.  The employer mandate stats that employers with more than 50 people who do not provide insurance must pay a “fair share” assessment of $295/employee/year.  The state also mandates that all residents purchase insurance through an individual mandate.  Each year, each Massachusetts resident must submit a Schedule HC to the Massachusetts Department of Revenue to verify that they do indeed have Connector-approved insurance.  After a 90 day grace period, individuals are penalized each month that they are not insurance in the previous tax year.  The penalty for not having health insurance in Massachusetts is generally much larger than what Congress is currently considering.
  • Insurance Regulation.  The Commonwealth Health Insurance Connector Authority (the Connector) created minimum standards for any insurance product to be offered in the state.  Thus, individuals could not bypass the individual mandate by taking out a very inexpensive health insurance product with a $50,000 deductible.  The Connector Board recommended that the minimum credible coverage (MCC) include preventive and primary care, emergency services, hospitalization benefits, ambulatory patient services, mental health services, and prescription drug coverage.  Doonan and Tull (2010) claim that the mandated benefits were fairly generous, but not out line with what private insurance companies previously had offered.  Because there is more heterogeneity in insurance products across the country than within Massachusetts, Congress would have a much more difficult time determining a valid coverage minimum that did Massachusetts.

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Developing a pre-existing condition

April 17, 2010 in Health Insurance, Miscellaneous | No comments

I have recently read in the press a number of mentions of the phrase “developing a pre-existing condition.”  For instance, a Cato Institute paper discusses this phenomenon and how you can buy insurance against developing a pre-existing condition.

This phrase seem paradoxical however.  How can you develop a pre-existing condition?  Before you “developed” the condition, it was not pre-existing.  Once the condition comes into existence, at what point is it pre-existing?  Immediately?

The phrase is more likely derived from the language of insurance companies rather than common sense.  If you get sick during a given year and have to renew your insurance over the subsequent year, the illness you developed during the past year will become a pre-existing condition next year when you need to buy insurance.  Thus, by becoming sick, you immediately have a pre-existing condition which will affect your future health insurance premiums.

Only in the crazy language of insurance-speak would it be  possible to develop a pre-existing condition.

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The Impact of Comparative Effectiveness Research on Health Care Spending

April 14, 2010 in Health Insurance, Public Policy, Quality | 3 comments

Comparative Effectiveness Research (CER), as it name suggests, compares how well different medicines treat a given disease.  Politicians claim that using CER findings can help improve quality and decrease cost.  If one treatment produces better health outcomes on average than another and also costs less, we should always make people use that treatment, right?

Not according to a working paper by Basu and Philipson (2010).  Let us assume that health outcomes for Drug A are better than the health outcomes for Drug B.  If the results from this research were released, the public’s demand for Drug A would increase and the demand for Drug B would decrease.  However, this may not save money.  The demand for Drug B will decrease since fewer people want to buy it; this will reduce expenditures.  As the demand for Drug A increases, however, the price and quantity purchased will increase.  Thus, the net effect on spending is indeterminate.

In addition, if insurance companies or the government decided to subsidize or cover the entire cost of treatment using Drug A, the demand will increase even more.

Basu and Philipson, however, assume that the marginal cost to produce a drug increases as the quantity rises (i.e., the supply curve is upward sloping).  However, because there are economies of scale in the production of pharmaceuticals, the price of Drug A could actually decrease (increasing returns to scale) or stay the same (constant returns to scale) as demand increased.

The key assumption in the above analysis is that it assumes that all people with a given disease respond in a homogeneous way to Drug A.  If two-thirds of people have better health outcomes when treated with Drug A and one-third have better health outcomes when treated with Drug B, then it may be suboptimal to cover Drug A, but not Drug B.

To prove this, Basu and Philipson look at the Clinical Antipsychotic Trials of Intervention Effectiveness project (CATIE).  They find that “if Medicaid would have eliminated coverage for the least cost-effective treatments of the CATIE trial then under homogeneous effects, it would save about 90% of the $1.3B Medicaid class sales annually in non-elderly adult patient with schizophrenia. However, taking into account the observed heterogeneity in treatment effects, it would incur a loss of health valued annually at about 98% of class spending and thus a net loss of about 8% of annual class spending.”

However, one of their key assumptions is that not covering the less effective medicines means that no patients will take the uncovered drug.  This may be a fair assumption for the Medicaid population, but not for the population at large.  There is a big distinction that needs to be made between not covering a drug (but allowing for the purchase to purchase it out of of their own pocket) and prohibiting the drug entirely.  Basu and Philipson are looking at the most extreme case where not covering the drug means, de facto, that the drug will not be taken, but this need not be the case.

What is important to take from this research, however, is that the drug that is most effective on average may not be the best drug for everyone.  One must take into account heterogeneous treatment effects when designing any insurance benefit plan.

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Health Reform’s Creation of a High Risk Insurance Pool

April 8, 2010 in Health Insurance | No comments

One of the first steps after the passage of health reform is the creation of a high risk pool for uninsured individuals.  This is help individuals such as 56 year old Laura Carpenter of Tuolumne, CA.  Individuals such as With the $5 billion allocated for this task, Health and Human Services (HHS) Secretary Kathleen Sebelius sent the following letter to U.S. governors:

“The establishment of a temporary new high risk pool program is one of our first tasks in implementing the new health reform law and will help provide affordable insurance for Americans who have been locked out of the insurance market for too long,” said Sebelius. “This letter marks the first step in that process and demonstrates one of our core principles of implementation — building on effective programs that already exist. In the coming days, we will work closely with states to answer their questions.”

States have 5 options of how they could participate:

  • Operate a new high risk pool alongside a current state high risk pool;
  • Establish a new high risk pool ;
  • Build upon other existing coverage programs designed to cover high risk individuals;
  • Contract with a current HIPAA carrier of last resort; or
  • Do nothing, in which case the federal government through HHS would carry out a coverage program in the state.

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CLASS Act: Will it work?

April 6, 2010 in Health Insurance, Public Policy | 1 comment

One aspect of health reform that has received little attention is passage of the Community Living Assistance Services and Supports(CLASS) Act.  This act creates a long-term care (LTC) insurance program.  However, the insurance plan in its current form is fairly limited.  Those who require assistance with activities such as bathing, dressing, getting out of bed and using a toilet would receive about a $50 per day benefit.  This is of course not enough to pay for full-time care in a nursing home, but would help defray some of the cost for assistance in one’s home.

Milliman notes that currently, the CLASS act would be voluntary and would include guarantee issue (meaning that no one could be denied coverage).  Separately, each of these provisions could allow for a sustainable long term care insurance product.  The private sector currently uses the voluntary insurance model with underwriting.  On the other hand, a guaranteed issue policy could work if purchasing LTC insurance was mandatory.

Together, however, these provisions may be problematic.  “The voluntary aspect of the program allows low-risk individuals to never sign up for the program while the guaranteed issues enables some of the highest-risk individuals to join the program.  This is a formula that is virtually certain to create financial instability in any insurance program unless there are other important provisions to control risk.”

The CLASS act does have some additional risk control provisions.  To qualify for these benefits, one must pay into the plan for 5 years.  Employers can decide to offer this LTC as a benefit and employers who choose to this option will have employees automatically enrolled with the premium deducted from each paycheck.  Individuals would have to specifically ask to be removed from the program.  Also, individuals who opt-out of the program will have to pay a higher premium if they decide to opt back in.  The purpose of the vesting and opt-out penalties is to minimize adverse selection.

However, Scot Forman of Long Term Care Associates notes that many employees may not realize that if they opt out after just 1 payment and later opt in more than 5 years in the future, they would pay “a massive penalty,”  If a young worker who has just 1 deduction from her paycheck at age 38 later decides to opt-in when she’s 59, her premiums would be higher than they would have been had she stayed in the program. In the example given, “the rate increase will be no less than 250% on each payment, which is CLASS’s penalty for opting back in.”

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