Health Reform

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How to drop the individual mandate and avoid the collapse of the private health insurance market

March 28, 2012 in Health Insurance, Health Reform, Medicare Part D | 1 comment

Today, the Supreme Court is deciding  whether to let many of the provisions of the Affordable Care Act (a.k.a. ACA, a.k.a. Health Reform, a.k.a. Obamacare) stand.  One of the key provisions is the individual mandate.  The individual mandate requires all individuals to purchase health insurance.  If you don’t buy health insurance, you must pay a penalty or fine.

The reason Obama claims the individual mandate is necessary is due to the prohibition of setting premiums based on pre-existing conditions.  Currently, if you don’t have insurance, you become ill and try to buy insurance, it is very expensive.  The ACA, however, would prohibit insurers from price discriminating based on your health status.  Although this may sound good in theory, there are problems in practice if the individual mandate is not in place.  Many individuals will have an incentive not to buy insurance when they are healthy.  When they become sick, they can purchase an insurance plan for the same price as someone who has had insurance for 10 years.  Because only sick people will be insured, the average cost of health insurance will rise for everyone.  Hence, the need for the individual mandate arises.

The individual mandate, however, may not be constitutional.  Can the government compel individuals to buy something?  Many states already require auto insurance.  This requirement is only applied to those who own a car whereas the only condition for the health insurance mandate is that you are alive.

Americans have already found a way around this problem, however.  Medicare’s prescription drug program (Medicare Part D) is an optional program.  No one has to buy prescription drug coverage.  Further, premiums do not vary based on health status (although insurers receive different subsidies based on individual’s health conditions).

To incentivize individuals to purchase prescription drug coverage while they are healthy, Medicare Part D relies on a late enrollment penalty.  Any individual who does not purchase prescription drug coverage when they are eligible has to pay an increased premium when they are eligible.  This increased premium depends not on your health status, but on the number of months you were not enrolled when eligible.  From the Medicare website:

The late enrollment penalty is calculated by multiplying 1% of the “national base beneficiary premium” ($31.08 in 2012) times the number of full, uncovered months you were eligible but didn’t join a Medicare drug plan and went without other creditable prescription drug coverage. The final amount is rounded to the nearest $.10 and added to your monthly premium.

This approach could solve both problems.  The one short-coming is determining how much the late-enrollment penalty should be for private plans.  Allowing the government to set prices is generally a poor idea.  One could allow private plans to set the late enrollment penalty, as long as this were regulated to prohibit price discrimination based on individual health status.  Although this approach certainly has a number of challenges, it may be more palatable to the American public (and the Supreme Court) than an individual mandate.

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Does expanding insurance coverage improve access to care?

February 27, 2012 in CHIP, Health Reform, Medicaid | 3 comments

Although Health Reform did little to reduce the cost of health care, it did make significant strides to expand access to care.  For low-income individuals, the increased access comes along two dimensions: expanded Medicaid eligibility and increased physician fees.  Specifically, Health Reform required to

  • Make all individuals with incomes below 138% of the Federal Poverty Line (FPL) eligible for Medicaid, and
  • Increase their Medicaid physician fee schedules, so that they are no lower than Medicare’s for evaluation and management services provided by primary care physicians.

Whereas the first provision is permanent, the second provision is to be in effect only for 2013 and 2014.

Which one will have a bigger effect? According to a paper by White (2012), paying doctors more improves access.

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Medicare Reforms Linking Reimbursement Rates with Hospital Performance

February 23, 2012 in Health Reform, Hospitals, Medicare, P4P | No comments

Health reform not only changes the health care market for the demand side (e.g., patients, insurers), but also for the supply side (e.g., hospitals, physicians).  In the Medicare setting, a number of initiatives have aimed to pay providers who provide high-quality or low-cost care more money, and pay providers who provide low-quality or high-cost care less money.  CSC provides a nice overview of some of these initiatives.

  • Performance Value-Based Purchasing (VBP) — Offers increased update to diagnosis-related group (DRG) payment rates to hospitals according to demonstration of performance or improvement in designated performance areas relative to performance standards and benchmarks.
  • Shared Savings Program — For groups of providers who form an Accountable Care Organization (ACO), potentially shares a portion of financial savings in caring for Medicare patients if performance standards are met, according to performance rated on a sliding scale against benchmarks.
  • Readmission Reduction Program (RRP) — Decreases annual adjustments to DRG payment rates for hospitals that are in the lowest performance quartile for excess readmissions of Medicare patients with selected discharge diagnoses.
  • HAC Payment Limitation — Decreases annual adjustments to DRG payment rates for hospitals that are in the lowest performance quartile for a designated set of Hospital-Acquired Conditions (HACs).
  • Bundled Payments for Care Improvement Initiative — One of several initiatives of the CMS Innovation Center to give doctors and hospitals new incentives to coordinate care, improve the quality of care and save money for Medicare. Bundle care for a package of services patients receive to treat a specific medical condition during a single hospital stay and/or recovery from that stay. Applicants pick conditions to target and one of four ways to define the extent of pre- and post-hospital care included in the bundled payment.

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Have States made any progress towards implementing Health Exchanges?

February 6, 2012 in CHIP, Health Reform, Medicaid | 2 comments

The answer depends on the state. Today, I examine an Urban Institute research paper that looks at this progress in more detail.

Dividing States into 3 Group

The most advance States fall into Group 1 (CA, CO, CT, DC, HI, IN, MA, MD, NV, OR, RI, UT, VT, WA, WV). These states have either enacted an exchange establishment law or in which the governor has established one by issuing an executive order. Massachusetts and Utah had already passed exchange laws before enactment of the ACA. All Group 1 states (except Colorado, Massachusetts and Utah) have received an exchange establishment grant.

Group 2 states (AL, AZ, DE, IA, ID, IL, KY, ME, MI, MN, MO, MS, NC, NE, NJ, NM, NY, PA, TN, VA, WI) have not yet established exchanges, but have demonstrated significant interest in doing so. Most notably, 17 of the 21 states have received level 1 federal establishment grants, which represent a second round of funding for state exchange development work beyond the initial state planning grants. Although Wisconsin has not received a level 1 federal establishment grant, Wisconsin is using federal funds to develop an IT system to fully integrate exchange eligibility determination and enrollment with state-based public insurance programs (i.e., Medicaid and CHIP). Recently, however, Wisconsin Governor Scott Walker has rejected all federal funding for implementation of the ACA. Of the remaining four states, Virginia and Wisconsin have passed legislation stating its intent to develop an exchange, although they have not yet passed exchange establishment legislation, New Jersey has establishment legislation pending in its legislature, and Pennsylvania’s governor has recently announced that his administration is taking steps to establish a state exchange.

Group 3 states (AK, AR, FL, GA, KA, LA, MT, ND, NH, OH, OK, SC, SD, TX, WY) do not meet any of the criteria for Groups 1 and 2 and are the furthest from successfully implementing the ACA provisions.

Correlation between Exchange Progress and Potential Increases in State Health Insurance Coverage

A research article from the Urban Institute finds that States with the ‘most to gain’ from the ACA are actually the most likely to fall into Group 3. States that currently have the least generous Medicaid programs and the largest share of uninsured workers are the least likely to have made significant progress in implementing the ACA provisions.

I can think of two reasons for this finding. The first is philosophical. These States began with less generous health insurance programs. Thus, the residents (or politicians) in these States may prefer to have less generous health insurance programs than other States. Hence the natural aversion to implementing the ACA provisions. The second reason is financial. Because these States have the largest share of uninsured individuals, they would also incur the largest percentage increase in cost to finance the ACA provisions. Although it is true that these States would likely receive the largest subsidies, these subsidies will not cover the full cost of the ACA implementation.

Questions States need to answer to implement an Exchanges

  • Should the exchange be run by an existing government agency, a new agency, a quasi-governmental entity or a not-for-profit private entity?
  • What should the composition of the governing board be?
  • How should the administrative costs of running an exchange be financed?
  • Should the exchange be able to actively negotiate with plans over premiums?
  • Can plans be excluded, or must all qualified plans be allowed to participate?
  • In computing premiums, should enrollees in the Small Business Health Options Program (SHOP) exchange and nongroup exchange markets be pooled together, or should their premiums be set separately?
  • What will be the role of agents and brokers in the exchange?
  • Should state insurance regulations be identical inside and outside the exchange?
  • How will Medicaid/CHIP eligibility and enrollment be integrated with the exchange?
  • Should the Basic Health Plan option be implemented?

Source: Blavin F, Buettgens M and Roth J “State Progress Toward Health Reform Implementation: Slower Moving States Have Much to Gain.” RWJF and Urban Institute Real Time Policy Analysis, January 2012.

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Does Obamacare Limit Profits for Health Insurance Companies in Your State?

January 31, 2012 in Health Insurance, Health Reform | 2 comments

One of the provisions in the Patient Protection and Affordable Care Act (a.k.a ACA, a.k.a. Health Reform, a.k.a. Obamacare) is that it limits the profits of health insurance companies.  The ACA imposes a minimum medical loss ratio (MLR) on all insurers.  The MLR is the amount of money spent on covered person medical care divided by the total revenue received through premiums.  There is some debate of what constitutes ‘medical care’ (e.g., do investments in electronic health records count as medical care?), but insurer profits certainly are non-medical.

The ACA requires health insurers in the individual and small group market to spend 80 percent of their premiums (after subtracting taxes and regulatory fees) on medical costs.  The corresponding figure for large groups is 85 percent.  According to a recent Kaiser tracking poll, 60 percent of the public views the MLR concept favorably, although only 38 percent was aware that the provision is in the ACA.  Insurance brokers may be getting squeezed for insurers to meet this amount.

Even though the MLR is a national law, it may not apply in your state.  Why?  Because many States are petitioning for a waiver.  HHS is currently reviewing applications from six states: Florida, Kansas, Michigan, Texas, Oklahoma and North Carolina.  According to The National Association of State Budget Officers, HHS has granted waivers to seven states: Maine, New Hampshire, Kentucky, Nevada, Iowa, Georgia and Wisconsin. The department has denied them to Delaware and North Dakota.

Why did these States receive waivers?  For a variety of reasons, but one of the reasons is due to the fact that some states have a less competitive medical market.  Maine, for instance, requested a MLR of 65%.  The reason was that State only has two large commercial insurers, Anthem Blue Cross Blue Shield (with 49% of the market) and MEGA Life and Health Insurance Company (with 33% of the market).  A public-private partnership, DirigoChoice, makes up most of the rest of the market.  Three HMO’s have less than 1% of the market combined between them.  To avoid the case where a large insurer would leave the market due to minimum MLR requirements and create a near monopoly, HHS decided to approve Maine’s request.

Notes:

  • Section 2718 of the Public Health Services Act implements the minimum medical loss ratio requirement.

The National Association of State Budget Officers

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Inpatient Rehabilitation Facility’s Quality Reporting Program

November 23, 2011 in Medicare, Quality, Rehabilitation | No comments

Medicare’s push to evaluate all types of providers is being extended to Inpatient Rehabilitation Hospitals (IRFs).  According to Health Reform bill (specifically, Section 3004 of the Affordable Care Act), CMS is required to start publishing quality measures for IRFs by October 1, 2012. This newly created IRF Quality Reporting Program (QRP) currently has proposed two measures.  These include the following:

  • Presentation of Urinary Catheter-Associated Urinary Tract Infections (CAUTI)
  • Presentation of Percent of Residents with Pressure Ulcers that Are New or Have Worsened

CMS will hold an Open Door Forum on Tuesday, November 29, 2011, 2pm-4pm ET to discuss these measures.  It is disappointing that CMS only has two quality measures for the IRF program.  Thus, the QRP is far less comprehensive then Health Reform intendend.  Hopefully, the number of quality measures increases over time.  The Healthcare Economist does realize, however, that rehabilitation services are much harder to evaluate than more procedure based services with more observable outcomes.  Specifically, improvement in patient functioning is a key measure for IRFs.  However, if the IRFs themselves self-report this data, the quality measures will not be unbiased.  I am assuming that the data for the IRF QRP come from the IRF Patient Assessment Instrument (PAI), and thus the quality data will be self-reported by the IRFs themselves.  Here is the form used by IRFs as part of the PAI.

One problem with any quality system is cases where the provider fails to report the quality data.  In the QRP, however, IRFs will have a strong financial incentive to report these measures.  Specifically, if an IRF fails to report their quality measures, Medicare will reduce their payments by 2 percentage points.

 

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Accountable Care Organizations: Update on Medicare Implementation

November 17, 2011 in Health Reform, Medicare | 1 comment

Health Reform’s Accountable Care Act (ACA) mandates the creation of Accountable Care Organizations (ACOs).  Dartmouth researcher Elliott Fisher stimulating much of the interest in ACOs by introducing the concept of an “extended hospital medical staff” at a 2006 meeting of the Medicare Payment Advisory Commission (MedPAC).

Today, I review an article by Berenson and Burton (2011) describing the latest ACO developments.

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The End of Health Reform Starts in Ohio?

November 9, 2011 in Health Reform | 2 comments

One of the key tenets of health reform is that insurers cannot charge different premiums to individuals based on their pre-existing conditions.  Under this type of system, the optimal strategy for many individuals is to not buy any health insurance until one gets sick.  Since insurers cannot charge these sicker people higher premiums based on these conditions, healthy individuals will end up heavily subsidizing the sick.  In fact, average premiums will increase for everyone.

To prevent this from happening, health reform instituting an individual mandate which requires every American to buy health insurance.  Without this requirement, health insurance prices could spiral out of control.

Ohio, however, has recently rejected the individual mandate.  The Cato institute that Ohioans came out against the individual mandate on a 2 to 1 basis.

Is this the beginning of the end of health reform?

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Decisions States Face When Implementing Health Exchanges

November 7, 2011 in Uncategorized | No comments

States face a number of decisions regarding how to establish an Health Insurance Exchange as part of the Health Reform Bill.  The State Health Access Data Assistance Center (SHADAC) describes in detail these policy choices.  The decisions include:

  • Creating separate exchanges for individuals and small businesses or combining the nongroup and small group markets into a single exchange
  • Allow the federal government to operate an exchange on the state’s behalf
  • Create a single-state exchange, regional exchanges (which include more than one state), or subsidiary exchanges (which serve distinct geographic areas).
  • Selecting the Exchange administrator which could be: a federal agency (if states cede control over exchange design and implementation), a state government, a quasi-public agency, a private or a nonprofit entity.
  • Acting as a market organizer (serving as impartial information source that lists and compares all qualified health plans) or an active purchaser (using a bidding process, applying restrictive certification and reporting requirements, and/or negotiating with plans to identify and select high performers).
  • Establishing minimum certification requirements (e.g., quality measures, claims payment policies and practices, and financial disclosures as well as data requirements describing enrollment, disenrollment and denied claims.
  • Determining specifications to define which tier a plan fits into (bronze-level provides benefits equal to 60 percent of the actuarial value of plan benefits, the silver level covers 70 percent, the gold level covers 80 percent, and the platinum level covers 90 percent).
  • Funding Exchange operations through mechanisms such as general revenue or assessments on plans, employers, or individuals.
  • Restrictions on how qualified health plans (QHPs) operate outside the Exchange.

Current Exchanges already in operation include:

Source: State Health Access Data Assistance Center (SHADAC) “Health Insurance Exchanges: Implementation and Data Considerations for States and Existing Models for Comparison” October 2010.

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Industry Consolidation

October 31, 2011 in Health Insurance, Health Reform | 1 comment

Last year, I mentioned how ACO requirements will lead to more industry consolidation.  A recent article by the Economist is finding that my prediction is becoming a reality.

“Cigna, an insurer based in Connecticut, said it would pay $3.8 billion for HealthSpring, which offers services and insurance to the elderly. It is the latest deal to extend insurers’ tentacles into new areas of health care.”

State Health Exchanges will come into effect in 2014 and will extend health insurance to more people.  Individuals who cannot afford health insurance will receive subsidies.  The Economist cites a Boston Consulting Group study which estimates that firms’ revenues will more than double by 2019 to $1.2 trillion.  Profits margins, however, may fall due to a new taxes, minimum benefit standards, and more regulation of premiums appears.

What will plans do about it?

Many are diversifying.  They are moving into the Medicaid market where States outsource the health care provision of their enrollees to insurers or Medicare Advantage where the federal government is doing the same.  Insurers like Aetna are investing in health IT companies; UnitedHealth Group’s IT business (OptumInsight) makes up a large share of their revenues.

Industry consolidation can increase care coordination, but also reduces competition.  The effect on premiums and quality remains to be seen.

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