One of the struggles in the American health insurance context is that there are two very different things going on under the same rubric. For people like my family who are relatively healthy and are minimal users of medical services at this time, the insurance that we get through my work is fundamentally a discount shopper’s club card for our day to day concerns. This year even with ER visits for my son’s asthma and a broken wrist for my daughter, we just maxed out our deductible this weekend when I refilled the inhaler prescription for my son. Insurance is, for us, only valuable for unlikely and unexpected scenarios. This perspective is common for most individuals who are insured. They’ll use it for primary care appointments, a few low level prescriptions and maybe an urgent care visit or two. It is a discount buyers club with hit by the bus protection.
Insurance is also a Pareto curve industry in that 20% of the users drive over 80% of the costs. Here, insurance is a very different beast. An individual with epilepsy, or serious mental illness, or significant cardiovascular concerns or multiple sclerosis or any of the other long term chronic conditions have a very different relationship with insurance. Here the question is when will a person hit their out of pocket limit over the course of a year not if. An individual could hit their limit in January if the limit is configured as first dollar deductible spending. If the same limit is configured as a 20% co-insurance, they hit the limit in July instead.
These two populations have some overlap but they are fairly distinct populations with very different needs, and creating a single insurance template does not address either need well.
Ben W in comments last week started noodling towards an interesting thought that is a tweak on a re-insurance scheme advanced by the Kerry campaign in 2004:
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.
If we identified a set of big chronic conditions that are impossible to game or upcode, this could be an interesting proposal that reduces private medical premiums, and total net medical spend.
Let us take cystic fibrosis and hemophilia as examples. These are conditions that can’t be faked on a chart and can be easily verified. They are also very expensive conditions. Insurers with small risk pools in a particular region/product can be destroyed by having an unnatural cluster of CF or hemophilia members that they cover. Each condition can cost $300,000 or more per person per year to treat. Fifty or more very low utilizers in an exchange or commercial plan are needed to generate sufficient surplus to cover one CF person.
Moving these very high cost individuals to Medicare immediately lowers the medical expenses of the privately insured groups as some of their highest cost members have been removed. This means lower premiums (and for those who think insurers are inherently evil, lower potential profits as the MLR requirements kick in). Medicare tends to pay a lower rate for services than commercial and Exchange plans. The rate for Exchange plans is usually Medicare plus a bit, while large employer groups tend to pay at Medicare plus a lot.
How could this be financed? The most direct way would be for Medicare to charge the insurers who they are taking high cost patients off of for the cost of treatment based on disease category and claims history. Medicare would act effectively as a third party administrator. From a federal budgeting perspective, it could be budget neutral to slightly budget positive. The more just way would be general taxation or taxation on all private insurance plans that are eligible to move known risk to Medicare as effectively a user re-insurance fee.
There are a couple of things to think about for this scheme. First, we already do this to some extent for very ill individuals, we just don’t call it a Medicare back-stop. Our disability and SSI systems remove the sickest individuals from the workforce and transfer them to either Medicaid or Medicare depending on their prior work history, family income and asset status and a few other qualifiers. A decent proportion of CF patients are already covered by Medicaid.
About 35 percent of those now eligible for Orkambi are insured by Medicaid, the government program for low-income residents. Most of the rest are covered by private insurers. But even when insurers foot most of the bill, patients are responsible for often hefty deductibles and copays. And the drugs contribute to a health care system that is increasingly expensive for everyone.
Secondly, the two examples I chose are some of the easiest examples to put on a hypothetical life panel. They can’t be gamed. However creating a structure where XYZ conditions and diagnosis codes are on the “life panel” list while ABC conditions and codes are not will lead insurers to find ways to convert condition C to condition X. This would be done via aggressive upcoding and pet doctors (as shown in the black lung disgrace at John Hopkins) as they want to unload high cost patients to someone else. I think aggressive chart review and medical necessity auditing would clamp down on upcoding, but the structure of a life panel program design creates the incentive to push patients over no matter what structure is in place to insure that only truly sick people with real qualified conditions would be on the panel.
Patricia Kayden
“Each condition can cost $300,000 or more per person per year to treat.”
Why so steep? Is it because drug companies are allowed to charge whatever they want? I assume in other advanced countries, patients don’t shoulder the burden of treating expensive medical conditions like they do in the U.S.
http://www.nytimes.com/2015/09/21/business/a-huge-overnight-increase-in-a-drugs-price-raises-protests.html?_r=0
srv
The ruh in roh
gene108
I think this is a great idea!
This would also keep employers from being less worried about hiring people, because the idea that every new hire is a “ticking time bomb” about to blow up insurance rates with a catastrophic illness gets reduced, because the folks with chronic conditions are already covered.
Also, there are degenerative chronic conditions, which do not start off needing a lot of attention to start off with, but can get more and more expensive as the condition worsens.
At some point, before it becomes truly expensive you could off-roll patients onto Medicare.
This is sort of done for end-stage renal failure, but you have to have basically been on dialysis or waiting for a transplant for some time, before you can roll onto Medicare. If, for example, after you get evaluated for a kidney transplant and before needing to be on dialysis, your transplant center finds a kidney for you, you can opt to get the transplant done through private insurance rather than wait to get on Medicare.
Getting people onto Medicare, before reaching end-stage renal failure, but while they have sufficient kidney function is the sort of thing that would probably fall into the gray area of recoding that is referred to in the post.
p.a.
Why would the privately insured see lower premiums v. hookers & blow for the insurance execs?
Luthe
@p.a.: The medical loss ratio would keep the hookers & blow account limited. If taking one CF patient off the rolls saves the insurance company $300,000, a MLR of 90% means the execs only get to keep $30,000 of it. The other $270,000 either has to go towards medical care for all the other customers or be refunded to them in the form of lower premiums (or sometimes actual refunds).
Richard Mayhew
@Luthe:
Exactly, MLR regulation is the key to minimizing hookers and blow. (BTW, I am quite happy that hookers and blow is entering Balloon Juice lexicon territory)
@gene108: Yep, keep the private insurers to insurer the healthy and the not too sick (~85% of the working age population and 90% of the voting population 18-65), and roll-off the long term cases to the Feds who are now working with a very different incentive structure without concern for churn and can capture gains from expenses today in five or ten years….
@Patricia Kayden: Drugs for CF, and hemophilia is a combination of very expensive maintenance drugs and long hospital stays after a crisis.
Luthe
My problem remains that while this works for the really chronically ill, it doesn’t help the only mildly chronically ill. The IBS sufferers, the chronic pain patients, anyone with on-going mental health issues that don’t require hospitalization, etc. Basically any condition that requires a steady stream of maintenance meds and frequent doctor visits but not to the point where, barring a surprise ER trip, they ever hit their deductible. A drip drip drip of money, not a flood.
How do we help these patients lower costs?
Richard Mayhew
@Luthe: Not sure; Someone with actual clinical knowledge would have to develop the chronic disease list that gets handed off to Medicare for the life panel, don’t know what conditions would be on it. But your larger point of this only takes a slice of people off private insurer books stands.
Whomever is removed from the private insurers’ risk pool and whose care is getting paid for at Medicare rates means total medical expenses for the private insurer go down which means premiums go down, and since the risk pool is healthier, OOP maximums go down slightly for the same actuarial value as the fat tail of expenses just got a whole lot skinnier.
It is a very indirect effect for people with mid-sized chronic conditions who get hit with the drip drip of co-pays and deductibles. No real direct effect, but I think it makes the system a little bit better.
Luthe
@Richard Mayhew: I really wish they would lower co-pays for those kinds of visits, because while mental health parity is a great thing and it’s nice not to pay more for therapist visits than PCP visits, I don’t see my PCP once a week to the tune of $30 each time.
cmorenc
WHAT AN AMAZING COINCIDENCE!
Now that I’m on Medicare (and a Blue Cross PPO for supplemental Medicare) – I’m finally getting around to knee joint replacement surgery for my right knee, as well as getting around to the colonoscopy I’ve put off for longer than I should. Whereas before then, I was a beneficiary on a Blue Cross plan through my wife’s office which had a $5k annual deductible.
Imagine that.
RSA
I like it. The incentive for insurance companies to unload sick patients is a problem, but maybe the life panel approach would help. I’ve had some experience with getting Social Security Disability benefits, where it’s an adversarial process that can take a long time to resolve, which seems less than optimal. I guess maybe there are lots of special cases that need to be handled, and probably a lack of funding to do it quickly.
singfoom
Yeah, having a chronic condition is a challenge. If you’re a kidney transplant recipient like me, you get 3 years of Medicare (regardless of your age) from the date of the transplant due to a law passed in the 70s. The Medicare acts as a secondary backstop with your employer insurance being the primary. But after that 3 years, you’re on your own.
Now, the expensive part is the transplant and the post operative care right after, but you actually see studies showing that people start to reject after 3 years because they can’t handle the costs of the immunosuppression…
There was a bill a congress or two ago to extend the Medicare kidney care for people under 65 but it died in committee. So it’s already proven that this approach works, but you only get it for 3 years and then you’re on your own to wrangle with your normal insurance company. Fun times.
Ian
Are we comfortable that current Medicare reimbursement rates are adequate to sustain the specialists who work with these sorts of illnesses, if they have no higher-paying patients? How big is the typical reimbursement rate difference in this context?
WereBear
@singfoom: I did not know that. What an awful situation to be in.
Ecks
the obvious answer to the gaming question, is that you need not restrict it to the absolute sickest, surely? Give anyone with a chronic condition an option to offload onto medicare, and adjust the rates you charge the insurance companies accordingly.
If it’s a market problem that there are essentially two completely different populations, why not let the market decide where to draw the line, and then let the actuaries work out what to charge the market.
Note also: This plan probably doesn’t lead to premiums going down all that much, because the insurance co’s merely exchange the price of paying for medical care, with the price of paying Uncle Sam for medical care. If things get cheaper overall, it’s due to a marginal gain in overall system efficiency / Medicare negotiating leverage.
Another upside of the plan, you have to assume, is that it means that acquiring a chronic condition means you no longer have to go quite as bankrupt before getting government help (yeah, I know, the ACA fixed MOST of that problem already, but still).
gene108
@Richard Mayhew:
In cases like kidney failure, where decline happens over a period of time, what do you think the problems would be in figuring out a point to shunt people to the Feds versus keeping them on private insurance.
From my experience, insurance companies are very good at figuring what is wrong with you and where you are in terms of potential problems, based on your prescription history, getting those refilled regularly, the lab work the doctor orders for you, and how many visits to the doctor you have.
They could very easily “punish” (for lack of a better word) a small to medium sized group, with people with chronic conditions, by sticking them with higher premiums, until those folks were sick enough to roll off onto Medicare.
As much as I like the idea, in general, chances for gaming the system are still very high for cases that are not as clear cut as CF, so the devil would be in the details, if it ever got that far.
Richard Mayhew
@gene108: Yep, your last line is the great problem — the devil is in the details.
To your greater point, yes, insurers are very good at figuring out where people are in the course of a chronic and expensive condition. I don’t think the punishment problem is too large due to the combination of community rating for the individual market segment and group rating for employer groups. Small groups are protected as they are pooling into a community pool instead of experience pools. Mid-size groups (51-500) might be at risk if they are fully insured with statistical underwriting but they were already getting fucked if they have half a dozen high cost individuals with chronic conditions as that data is already incorporated into the experience period that the insurers look back on to set their future rates.
singfoom
@WereBear: Eh, I’m alive so I can’t complain honestly. The doctors were great and everything is awesome (I’m 1 year+ out from the transplant). It was rough at first during the recovery but my life is roughly back to normal, just gotta take meds constantly.
Having the ACA remove the pre-existing condition issue has been a great help to people with chronic conditions. The funny part about the Kidney care on Medicare is that I pay the premiums for B just like everyone else, so it’s still pretty arbitrary and random that it’s only 3 years. Once I hit the 3 year mark and that goes away, we’ll see how it goes.
Richard Mayhew
@Ecks: Don’t want to do that. Using the HCC model that CMS uses to categorize chronic conditions, mild hypertension counts as a Chronic condition. Mild hypertension gets a small payment bump (<$500/year IIRC) to Medicare Advantage providers
Getting everyone with mild hypertension, diabetes or asthma to Medicare is a backdoor way to Medicare for All, so it won't get the votes.
The only way I think this could get the votes in any Congress between now and 2022 is restricting it to a very small population of very sick individuals that are still on the private market and make it revenue neutral. So using Medicare as a selective claim repricer and the private insurance as the secondary insurer could work — simpler mechanics as I am thinking more, use it more as a mirror of how Medicare interacts with the disability system when the individual has private coverage but invert it.
Richard Mayhew
@Ian: really good question — not sure, this is a technical detail to resolve — could address it as having a payment bump to specialists for certain codes etc.
benw
Thanks for the post, Richard!
I hadn’t thought about the problem of insurance companies gaming the system to push sick-but-not-catastrophic-sick people onto Medicare. Still, under the current conditions insurance companies have incentive to game the system to push the sickest and most expensive people off their policies, and not insure them at all, and some do try very hard at it (thanks ACA for the no-preexisting-condition clause, BTW!). So mendaciously pushing medium-sick onto Medicare seems like a win over pushing very-sick to the curb.
One thought is that I realized when spitballing my first comment is that it would need to be an opt-in to Medicare model. If a patient is diagnosed with a condition that makes the life panel criteria to make Medicare coverage available, but has no or bad insurance they would jump at the Medicare opt-in like a Republican politician using terrorist attack to demonize minorities and whip up fear. But if the patient is, for example, on a good employer-provided plan, it would be better for them to stay. Probably what would happen is that insurers would just make it explicit in most reasonably-priced new policies that they simply do not cover any Medicare opt-in disease, so the “opt-in” it would become effectively mandatory for most people. I think you can certainly make the case that those plans that “enforce” the Medicare opt-in pay for the program with a tax; I really like that idea.
But by keeping it opt-in, you could allow some insurers to offer expensive plans that do cover the life-panel criteria diseases for those who can afford it and want something “better” than Medicare. These plans would basically be very wealthy people paying the insurance company as a middle-man to negotiate the top-of-the-line services. These plans would also probably be Cadillac taxed, and some of that tax could go back to paying for the Medicare opt-in system.
You have lots of good ideas. Thanks again!
ecks
@Richard Mayhew: Not sure I followed your last few sentences there (I’m not an insurance plumber), but…
Is it possible that there are also some counter-incentives built in, for insurers to want to hang onto people, rather than dump them off to medicare. To take your mild hypertension example, the insurer COULD boot the guy to medicare, but then they lose a paying customer, are left with a narrower subscriber base, and are left with a healthier population, which reduces the rebalancing payments they would otherwise receive. As such, they are probably happier to keep him as a customer on their books. So then if it’s only for the people that they see as seriously costly that these incentives would swing out of alignment, then they are only dumping the people onto medicare that we WANT them dumping.
(the broad philosophical point being, that it’s better to jig the incentives to encourage what you want, than to try to police responses to perverse incentives).
mclaren
No, an individual with serious mental illness or significant cardiovascular concerns or multiple sclerosis has a very different relationship with medicine.
America’s ignorant incompetent doctors refuse to admit that if someone has serious mental illness, we can’t do anything for them. Period. All our treatments are effectively worthless. Schizphrenia? Borderline personality disorder? Autism? Bipolar disorder? Modern medicine can’t do shit.
What modern medicine can is dope mentally ill people up to the gills with toxic drugs whose side effects are often worse than the original mental illness (Parkinson’s symptom induced by medication, etc.) in a frantically failed effort to treat the symptoms while modern medicine still has no idea whatsoever how to treat the underlying mental illness.
Same with MS, lupus, tendonitis, arthritis, lower back pain, etc. None of the conditions can be cured by modern medicine. Modern medicine doesn’t even have a ghost of a clue how to cure these conditions. Diseases like diabetes are illnesses that modern medicine bounces right off of, we can only treat the symptoms, we can’t even come close to curing the disease.
Ignorant incompetent American doctors refuse to admit this, of course, and persist in prescribing treatments that don’t work — and often make the diseases worse.
Ben Carson has done a great service for the public because he’s shown everyone just how stupid, just how ignorant, just now incompetent, just how cluelessly superstitious, your average American doctor really is.
People diagnosed with mental illness need to be put in facilities. It’s inhumane and there’s no other better solution. People diagnosed with MS or some other fatal chronic disease need to be sent home with a morphine pump that can be set to overdose when they don’t want to suffer anymore.
Instead American doctors obsess over heroic life-saving measures. I read an article last year about a stupid couple with gold-plated insurance who chose to spend $170,000 on a treatment that the doctors told them might slightly improve the quality of life of the last two weeks of the guy’s terminal illness.
That’s the kind of horseshit that should be illegal.
American medicine overprescribes and overtreats most serious illnesses.
If you want to see how doctors elect to get treatment when they’re diagnosed with severe illnesses like congestive heart failure or MS or Alzheimer’s or terminal cancer, take a look at the articles describing the typical doctor’s response.
They know all the whirlwind of expensive treatments is useless and does nothing other than prolong the patient’s agony. So doctors typically choose minimal treatment, get a morphine pump, and die quietly at home.
Source: “How doctors choose to die,” The Guardian, 8 February 2012.
The U.S. medical-industrial complex needs to stop lying to patients and conning them into using fantastically expensive medical procedures that have no realistic chance of curing the illnesses of terminally sick people.
It’s vampiric. It’s evil. It needs to stop.