One of the flaws of the ACA is the incentive structure built into the second Silver subsidy calculation. The typical on-Exchange subsidized buyer is extremely price sensitive. Insurers have every incentive to design product offerings that are at or very tightly clustered near the 2nd least expensive Silver price point. This means most truly affordable plans will have narrow networks and fairly restrictive access to specialists and high end care. For people who are relatively healthy, this is not that big of a deal. Healthy people don’t have high switching costs as they don’t have long and deep relationships with their current provider set.
However for people who have complex and chronic conditions, narrow networks are sub-optimal unless they get lucky. Switching providers is expensive in time, mental attention, energy and care coordination. If an individual needs to see a different rheumotologist than their current one, a narrow network may only have a few of that specialist available and the first appointment might not be for another five months. That means individuals with chronic conditions are more likely to select more expensive and much broader network plans than the subsidy setting Silver plan. Being sick means the cost of effective insurance goes up for the individual.
Narrow networks are a risk selection mechanism for insurers. It is counter-acted at the plan level by risk adjustment schemes where plans’ diagnosed medical history status by region and metal band is balanced against other plans by region and medical band diagnosed medical history. Plans that have a sicker than average population in a particular band/region combination get money from plans that have a healthier than average covered population. This policy is in place for all public guaranteed issue plans, otherwise the business incentive is for all insurance companies to get as ugly as possible as quick as possible for anyone who would ever go to the doctor’s office.
On an aggregate level, insurer level risk adjustment keeps plans from being too small and too stingy in order to game the 2nd Silver subsidy point. Building a plan that only attracts 23 year old tri-athletes at $88 a month would have the issuing insurer send $75 a month back out in risk adjustment payments. It would make no business sense. However, the incentive structure is currently more painful for the chronically ill than the reasonably healthy.
What if there was a front end, individual level risk adjustment process that builds a potential bump into the subsidy level for each individual? This could be a Wyden waiver idea.
A perfectly healthy individual with no current chronic condition diagnoses in the CMS encounter system would have their subsidy calculated at the 2nd Silver level. Individuals with chronic conditions but no CMS encounter data would be out of luck in the first year. However if that individual applies for insurance on the Exchange in the second year and there is a diagnosis history in the CMS encounter data, there could be a calculated individualized risk score. That risk score is already calculated for CMS Exchange group level risk adjustment, so breaking it down to the individual level is not a technically arduous process. From that risk score, a subsidy bump could be calculated so that an individual with a chronic condition would receive a larger subsidy. That subsidy could be used to buy either higher actuarial value insurance or increase the network size which would reduce the individual’s switching costs.
Update 1: Rebecca Stob makes a good plumbing point that makes this idea harder:
@bjdickmayhew @xpostfactoid1 for Medicare yes but ACA that data is submitted to insurer EDGE server and CMS does not get encounter data
— rebeccastob (@rebeccastob) November 10, 2015
The ACA data is rolled up at the insurance company level for risk adjustment and not at the individual level unlike Medicare. This could be tweaked to work in states with all payer claims databases as a second option. Running a model through a claims dump looking for a combination of CPT4 procedure codes and diagnosis codes is fairly straightforward.
MomSense
This is really good information. I’m in that second silver category but so far healthy enough that this hasn’t been a huge problem–except for the cost of lab work which is a narrow network problem.
rikyrah
Mr. Mayhew,
Please explain to me what qualifies as a Cadillac plan, and what are the taxes on it. And who pays the taxes on it.
Thank you in advance.
Why did the President put it in Obamacare in the first place.
Vhh
I appreciate the high wonkery, but this level of complexity suggests that single payer would beheaps simpler and cheaper to administer.
Richard Mayhew
@Vhh: It would be but where are the votes in either 2010 or today or 2022? This is what it is, so let’s make it better while working for a saner system at the same time.
Richard Mayhew
@rikyrah: Lots of good questions.
Cadillac tax is a 40% surcharge placed on health spending dollars above $10,200 for an individual policy and $27,500 for a multi-person policy (a couple of exceptions for higher limits for certain occupations). it goes into effect for 2018. The thresholds increase at the rate of inflation plus 1% in the first year IIRC, and then inflation after that. http://www.cigna.com/assets/docs/about-cigna/informed-on-reform/882320-a-cadillac-tax-sheet.pdf
The check for the tax is written by the employer sponsoring the insurance coverage. On an economic level, the tax will be borne to some degree by the employer and some larger degree by people who have Cadillac coverage in the form of lower wages as the total compensation pool is (roughly) fixed.
Why was it put into PPACA. Biggest reason was to curtail very expensive health care plans and get rid of an inequitable tax deduction to some degree. Second reason was to raise money for coverage expansion, but the primary goal was to minimize very expensive plans.
Thoughtful Today
” this level of complexity suggests that single payer would beheaps simpler and cheaper to administer. “
Undeniably.
Unless you’re vested in the current system and find such comments offensive as they could hurt your personal financial interests.
In that case you’ll leap to the defense of the current system and act like there’s no possible better solution.
Richard Mayhew
@Thoughtful Today: Thank you questioning my integrity and motives. You are a wonderful contributor of shiboleaths to the conversation as always.
It is a simple statement of fact. If a public option with negotiated rates could barely get out of the most liberal House in the past fifty years and fail miserably in the Senate, single payer was not happening in 2009/2010 as that is an even greater disruption to a system that works well enough for 75% of Americans (and a higher percentage of voters) in any given year.
Now if you can tell me how to get single payer out of the current Congress,or being more generous under the current maps, I’ll listen and I’ll do what I can to help build that majority. i just don’t see that as a plausible pathway forward until at least 2022, and more likely 2032 to get the craptatastic maps of 2012 unwound with Democratic demographic advantages growing.
So far you can’t, so let’s not waste time talking about magical unicorns of single payer and impugning motivations and let’s start talking about what could be achieved at the state level with a Wyden waiver
Thoughtful Today
Richard, if you feel you resemble the comment: “you’re vested in the current system and find such comments [pointing out corporate insurance’s ”level of complexity suggests that single payer would beheaps simpler and cheaper to administer“] offensive as they could hurt your personal financial interests.”
Okay.
Vhh
@Richard Mayhew: I agree, but am a bit worried that the complexity itself will be a target for an attack on the system that is difficult to defend against. Perhaps what happens in KY will prove this worry to be unfounded.
WereBear
These things are made to be tweaked, but it’s really really upsetting that THIS Congress thinks it’s more important to dump the disabled into the street to die.
Scratch
I’ve had type 1 diabetes for over 30 years, so this is something a source of frustration and worry for me. Not only is possibly having to change providers an issue, every year can end up being a change of test strip brands and what brands of insulin are preferred. It sucks, it really sucks. Type 1 diabetes is its own host of fun because it requires that I make medical treatment decisions for myself every day, if I want to try to stay healthy, and there’s no real taking a break from it. It’s always there in the back of the head. Then with the coming of the next insurance changing periods, it’s a nightmare of worry. Although I admit it always seems kind of funny how if I come back to an insurance provider after having gone to another for some period of time, my doctor will usually end up having to confirm with them again that I am still a type 1 diabetic.
It’s with a certain dismay I read about type 1 diabetics in countries with single payer systems and how those type 1 diabetics don’t have sort of problem. They sometimes have to wrangle with getting enough test strips, but when they get those, they aren’t getting reamed by high deductibles and/or high co-pays.
Obamacare is definitely a step forward, but it’s awfully kludgy in places. I appreciate Richard’s time and effort to write good posts about policy and how the new law and how insurance companies work. I also appreciate that there was no freaking way in hell that health care reform could have passed in America with a single payer option.
But that doesn’t mean that I, and surely some others, don’t feel frustration at the kludginess and difficulties that the American healthcare system wreaks upon individuals with chronic conditions. Sometimes I get pissy about it and I even had one time in my life that I ended up calling a conservative acquaintance a freaking endhole (it was far more obscene than how I’ve rendered it here) because of how much this issue touches upon my core desire to live and live healthy.
By the way, now that I’m older and trying to maybe do a little bit of good before this world swallows me up, if any of you think you might have a few extra bucks to donate to the JDRF, Juvenile Diabetes Research Foundation, please do so. It’d be really nice if you could do so through my donation page, I’m running a half-marathon in Philadelphia Nov 22 as a member of Team JDRF. You can get to my donation page by clicking on my username and visiting my blog. There’s a link to my JDRF donation page there. Thanks.
TriassicSands
Richard, I really appreciate your posts about health care and insurance.
Tommy
WTF. That actually happens? Perfect example of why people smarter than myself ought to do health care policy. It never ceases to amaze me how little I know about the world around me and I would not have guessed in a thousand years a change in plans or a doctor would require you to change the medicine you use.
Richard Mayhew
@Scratch: Agreed, it is a kludge and behind the veil of ignorance, the design parameters would never be chosen…. mind if I highlight your JDRF fundraising in a front page post this week?
Eric
@Richard Mayhew: Follow up question on the meaning of the “cost of the plan”
Does cost in this case include deductibles and coinsurance or are they excluded from the calculations on cost under the terms of the excise tax?
benw
Here’s an idea: what if the federal government backstops health insurance, kind of like an FDIC for your life instead of your bank account? If you get a long term chronic disease, you can opt to be taken off your private health insurance plan and put on Medicare. There would have to be a list of conditions that a group of doctors agree are long-term and expensive enough to warrant this, call it a “life panel”. This would be 1) good for people that get extremely sick because dealing with private insurance with chronic illness is – Richard says sub-optimal – fucking shitballs; 2) good for private insurers and the healthy population because the insurers could lower premiums and stop creeping around trying to figure out ways to run off the sick, which would in theory be cheaper and give more options to everyone else; and 3) relatively inexpensive for Medicare because it’s already a YOOGE system that has machinery already in place for dealing with the very sick, since older folks tend to be sicker, so it could best absorb the cost of a group of very sick people added to its coverage.
For example, say someone gets CML and needs a bone marrow transplant, but their private insurance declines to cover it (or if they don’t have insurance at all). That means they need ~$1M for the procedure and it’s not something for which they can go to the emergency room and hope to figure out how to pay later. A transplant can make it impossible to work for over a year so employer insurance could be lost if the person can’t work. If they can afford it, because of the ACA’s preexisting condition clause, they can go buy an expensive boss insurance plan every year that covers it. If not, they can “opt in” to Medicare, because CML is on the “terrible, horrible, no good, very bad” chronic disease list. But if you break your arm or need an appendix out, you can’t opt-in.
Richard, leaving aside how it would fly politically, do you think this is bad meaning bad or bad meaning good? Has something like this been proposed before?
satby
@Thoughtful Today: Please don’t be disingenuous now and act like your first comment wasn’t a not so subtle jab at Richard, who works in the industry. He writes thoughtful and for many of us helpful posts about navigating the system as it is today. We who have to navigate that system, especially without health plans provided by our employers, appreciate this information provided by an expert in the field. I’d love Medicare for all. The pushback from your fellow citizens, who in one state elected the guy who wants to throw 400K people off Obamacare there, are why we don’t have single payer. It’s taken since Roosevelt’s time to try to get some semblance of national health care, for millions this is better than nothing. Since I’m one of those millions, I’m happy for now to have this. Because otherwise I’d be a 60 y.o. with no insurance.
Richard Mayhew
@benw: John Kerry proposed to do 90% of this in 2004… Basically the federal government would act as the reinsurer for large claims (http://www.washingtonpost.com/wp-dyn/articles/A16748-2004Jun4.html ) and the majority of large claims are recurring claims (only so many people get hit by a bus each year).
“At the center of Kerry’s ideas is his proposal to have the federal government reimburse employers 75 percent of medical bills over $50,000 that a worker runs up in a year. The reimbursement would, in effect, make the government a secondary insurer and ease costs for employers, workers and private insurers.
In exchange for the benefit, Kerry would require employers to offer insurance to every worker and to provide health programs that detect and manage chronic illnesses such as high blood pressure early enough to prevent the diseases from worsening.”
That plan was looking for catastrophic claims and moving them onto the Medicare fee schedule instead of the commercial fee schedule. Your plan would look more at the Dx state (diabetes 99% of the time for instance won’t be a catastrophic claim but it is a long term and chronic condition), but it is doable.
I’m stealing this idea for a post
Tommy
@satby: I said I would never reply to you again but this comment is so spot on.
I never thought so much about health care because my employers gave me about the best plans money could buy. Then I started to work for myself and buying insurance isn’t that easy. I never feel as dumb as I do when buying insurance. Richard educates me. Often in a ways my simple mind can understand. He should get huge kudos for that.
jacy
I’m going through switching plans right now. I have a silver plan with a high tax credit, so it’s pretty reasonable, has a low deductible and covers everything in network 100% after the deductible. I need it because I have enormous healthcare costs. Last year I was treated for ovarian cancer and chronic depression and anxiety, and although I’m currently cancer free, I have some sort of autoimmune problem going on that is taking eleventy-billion tests and has already resulted in one exploratory surgery. I’ve been very happy with the plan I’ve had.
I received a letter that my premium would double in January — which for me was not going to work. As a single mom with a freelance business and chronic health issues, I just squeak by. Luckily I was able to find a comparable silver plan with half the premium I’m paying now, a higher deductible, but the 100% in-network coverage after the deductible. My big fear was having to change doctors, but thankfully all five of my regular doctors (GP, ENT, oncologist, endocrinologist, OB/GYN) are still in-network. So I’ve been extremely lucky, but I can see how tricky it could become to constantly have to change plans to fit a person’s exact situation and to maneuver around with serious health issues.
One think that caught me out was that I was having my regular blood draws at the hospital lab. Suddenly they were out of network (but only for labwork, not for imaging). So I racked up a bit of a bill before anybody informed me that the status had changed. Now I have to go to an independent lab for labwork, even though all my doctors are affiliated with the city hospital. Weird.
Thoughtful Today
Mayhew: “magical unicorns of single payer”.
That kind of dismissive, insulting language is deliberately calibrated to diminish single payer health care advocacy in the US.
Scratch
@Richard Mayhew:
That would be wonderful, Richard, thank you.
Tommy
@Thoughtful Today: It is logical and truthful. Of course I want single payer. Pretty sure Richard has said as much. We can barely keep the ACA alive, going before the Supreme Court for a fifth time. Voted what 50 times to repeal it in the House. Call it defeatism on my part if you will but single payer is a no go and we got to work with what we have.
benw
@Richard Mayhew: I didn’t remember Kerry’s plan, why didn’t I vote for that guy? Oh wait, I did!
I guess, yeah, my thought would be Medicare as a default reinsurance to anyone staring down the barrel of a >$500k bill (to pick an arbitrary large number), no matter how they got there. Diabetes would be in a grey area, because (as far as I know) that diagnosis doesn’t usually stick a person with an immediate, catastrophic payment, but it does have all the headaches of long term chronic care in an insurance market that re-ups every year and often feels like laying down with the snakes. @Scratch‘s comment, which I saw after I commented, really drives that home. Maybe certain chronic conditions could also make the “life panel” list. That’s in the details, I guess.
As someone said in a previous comment section said, feel free to use, but attribute! For example: “some schmuck in the comments section said…”
Richard Mayhew
@Thoughtful Today: Is it going to happen before 2022 in the best case scenario?
The next decent opportunity for the stars to line up for a single payer push is probably 2032 — let’s get to 218-51-1-5 under the following scenario
2017 Clinton elected
2017 to 2020 full scale line change in the Supreme Court (both old liberals replaced by 38 year olds in perfect health and at least one of the conservative judges is replaced by a liberal judge who is just able to rent a car without a surcharge)
2020 — big set of Dem wins at the state level to start redrawing 2022 maps
2020 Clinton re-elected to 2nd term.
2022/2024 Big set of Dem state level wins (for instance a neutral map in Pennsylvania is now possible with the Dems controlling the state’s high court, so Pennsylvania goes from a +5 Obama state with massive Republican majorities in the state legislature to a Blue trifecta possible state, which unpacks the 2012 state level gerrymander but can’t touch the Congressional gerrymander to the same degree)
Best case scenario in 2021 is the last three elements as the maps in the House are absolutely unlikely to produce a Democratic majority without at least a net D+7 vote margin in 2020 and if there is a D+7 vote margin, the 218th member of the House is representing an R+4 district so s/he is running in fear of looking vaguely liberal as they will lose when conditions snapback.
So 2021 there is a very low probability of assembling a 218-51-1-5 coalition and almost no chance of assembling a 218-60-1-5 coalition.
Let’s go to 2024 — let’s give a Republican win as a party holding the White House for 5 terms is very unusual in American history.
2028 — Dem win in the White house and the possibility of a 218-51-1-5 coalition holding as demographic changes continue to blue up red districts into purplish districts
more likely 2032 is needed to finish unwinding the 2012 gerrymander.
Best case scenario for a single payer advocate is 2028, more likely that the next plausible chance at major system reform is 2032… so yes, single payer is magical pony level wish fulfillment IF the goal is to improve the health care system within the next five years. Longer run, good luck storming that castle.
Tommy
@benw: I am not an expert on Medicare but it seems a viable option. I just wish everybody had the health care my parents do. Dad worked for the government for 30+ years. He has the same kind of health care plan as a House or Senator members have. Mom was in the ICU two years ago. More than a month. Three surgeries. Guess what their out of pocket was. Zero dollars. Not a single penny. Seems everybody ought to have that!
Thoughtful Today
…
Corporatists spend their time inventing excuses as to why Single Payer & Universal Health Care are ‘magical unicorns’.
Corporate Dems are the Elephants in the Room that too few are willing to challenge.
Roger Moore
@satby:
It’s not a jab at Richard; it’s an attack on anyone who wants to talk about improving Obamacare rather than tossing it and replacing it with single payer. Though obviously anyone who supports single payer must be a stooge for the inefficient medical providers, whose profit seeking at the expense of the public good can only be brought under control by a NHS-type system.
Tommy
@Roger Moore:
Yes. Obamacare isn’t perfect. Given. But very smart people have come up with some straightforward, even simple changes to improve the Act. It is the law of the land and it isn’t going to change. Let’s try that. Please. Pretty please.
Amir Khalid
@Thoughtful Today:
Gedankenloses Heute strikes again.
Thoughtful Today
!
American polls show socialist health care policies are preferred to corporate insurance ‘solutions’.
And I’m not talking about Richard’s dismissive ‘magical unicorn’ sneer, I’m talking about actual, existing socialist health care that’s being actively used by Americans.
Socialist health care through the VA, Medicare, and Medicaid, is preferred consistently over corporate insurance.
Corporate Dems will just sneer at such majorities, doing otherwise might hurt one of their corporate friend’s bottom line.
benw
@Tommy: agreed. My idea is definitely yet another band-aid to try and make the ridiculous for-profit heath insurance system in the US a little more humane.
@Richard Mayhew: you put a lot of thought into that and got it wrong from the start; obviously in 2017 it will be President-elect Sanders! :)
Tommy
@Thoughtful Today: I work for myself. I buy my insurance on the “open” market. I am paying a heck of a lot less money, with no substitutes, for a BETTER plan. People need to hear that. I want to yell it from rooftops. The darn thing works. Is it perfect? No, but I am not even sure what “perfect” looks like. It is working and again people need to hear that!
Thoughtful Today
!
This week’s Gallup poll: “Americans With Government Health Plans Most Satisfied.”
Tommy
@benw: I am not so against for profit, but I want it flipped. I want them paid for the wellness of those that are on their rolls. The story I tell is of my father. Had a mild heart attack a couple years ago. Cholesterol through the roof. They didn’t work to change how he ate or his lifestyle, they just gave him drugs. IMHO there is something so wrong with that I don’t even know where to start.
BL
Richard
These posts are so helpful. I am hoping you can help answer another question. I have access to healthcare plans through my deceased husband’s retirement. The new card that I was issued shows me as the insured person and not as a dependent. I also have access to healthcare plans through my employer.
If I sign up for a plan through my employer, which plan is the primary plan? I would like to sign up for the low premium, highest deductible plan through my employer. It has the benefit of paying 100% of all costs after the deductible is met, even for out of network providers and hospitals. My understanding is the payments paid by one plan can be used to offset the deductible of the other plan, although this doesn’t seem to be common knowledge even within the plan administrators. But I don’t like the idea of the hassle of trying to get the plans to coordinate benefits if my employer’s plan is primary. Dealing with all the bills from my husband’s final illness this year has been very time consuming. On the other hand, after experiencing the outrageous costs of treating rarer cancers with the newest drugs (my husband’s care just for his 4 cancer infusions was over $750,000), 100% of costs being met even out of network sounds awful good.
As an aside, I want to thank you. My unemployed son with pre-existing conditions recently turned 26 and had to come off my insurance. I was worried about going with ACA (my state is all in with ACA) vs COBRA. You advised doing ACA. He signed up with Medicaid (since he is currently unemployed) with minimal hassle. In less than a week, he was able to go to the pharmacy to pick up a refill of a drug whose generic cost is well over $300/month and paid $1 with no problems. ACA works pretty well in my state at least.
Also, when he signed up, the first question the online site asked before any other: “did he want to register to vote?” If that is a requirement of the ACA in general, I can see another reason why the Republicans hate it – it is encouraging all those “losers” to register.
Tommy
@Thoughtful Today: Look you are not wrong on this. Many of my friends are military. Now the VA can kind of suck if you live in the middle of nowhere, but I am 5 miles from a huge base. Easy to get care. Active duty and retired love the medical care they get. But I don’t know how you roll this out to 300+M people. I just don’t.
Thoughtful Today
“how you roll this out to 300+M people”
Reconciliation.
“Reconciliation” is a Congressional budgetary process that’s frequently been used to forward health care initiatives.
Corporatists will explain to you how “reconciliation” only works if it helps Corporate ‘people’.
Living people are often excluded from such equations.
Roger Moore
@Thoughtful Today:
And people with at least a tenuous hold on reality will tell you that Congress will never do anything to advance healthcare for ordinary citizens as long as it’s in the hands of Republicans.
Richard Mayhew
@benw: Whoops … does he also come with a lantern?
Thoughtful Today
Erm….
Roger: Medicare Part D.
You should read up on how and who passed it and who was helped. (Hints: Reconciliation, Republicans, drug corporations, and some of our elderly neighbors).
FTR, I’m a supporter of Medicare Part E (For Everybody).
Richard Mayhew
@BL: BL — first my sympathy for your loss.
Second, I don’t know. Coordination of Benefits (COB) is something that I’m familiar with in that it messes up claim data pulls and we have to work around them BUT I don’t know how it actually works besides that it works. I would recommend talking with the plan administrator at your former husband’s insurance plan as they want to off load your costs to someone else so they should be helpful. I just don’t know enough to be able to intelligently help.
WereBear
@jacy: Glad things worked out ok for you. You’ve been going through quite enough!