Wyden or Section 1332 State Innovation Waivers can go into effect on 1/1/17. These waivers would allow states to rework their insurance markets (excluding interaction effects with Medicaid) as long as the resulting coverage was federal deficit neutral or better, covered at least the same services, covered at least the same number of people (with a specific focus on low income and high health risk individuals) at the same or higher actuarial value. This is a skeleton of a proposal for a state with its own Exchange platform (as CMS won’t tweak Healthcare.gov for Wyden waivers) to significantly simplify the choice space and expand coverage while complying with Wyden Waiver rules.
Three major changes would occur. The first is bundling subsidies. The second is a re-calibration of the actuarial value model to reflect actual provider reimbursement rates. Finally, eligible individuals who do not choose a plan would be placed in the highest actuarial value plan that their projected bundled subsidy would buy.
These changes would increase the choice space, decrease deductibles and other cost-sharing for some plans and dramatically reduce the uninsurance rate.
The first major change is something I proposed last March, relabeling the coverage bands and more importantly, bundling the two sets of subsidies together.
If a state decided to look at the total cost of providing the second lowest Silver in determining subsidy levels instead of just looking at the second lowest premium for Silver, average actuarial value would increase as choice space increases. The change in subsidy formula would be the.. Premium plus CSR subsidy cost minus the individual contribution = Total Subsidy….
Let’s work through an example. A 35 year old individual making 140% FPL in zip code 90210 qualifies for a CSR Silver at $34 per month and a $200 premium tax credit….
The total cost to the government for this person to buy the CSR Silver is about $280 per month. The total cost is $314 per month.
Inserting total bundled cost of a policy in place of premium into the subsidy formula would re-order the offer a much wider choice set. This same individual could get a CSR Silver at 94% AV for $34 per month, a Platinum at 90% AV for $20 per month, CSR Silver 87% for $14 per month, Gold at 80% AV for almost nothing in monthly premiums. Straight Silver and Bronze plans would almost not be worth wasting time looking at.
This increases the choice space. It makes the decision making a little more complex but it removes the non-intuitive logic that a Silver is sometimes less valuable than Gold but other times it is significantly more valuable than Gold.
Individuals who are shopping on the state Exchange would enter their income and depending on their income which determines the Cost Sharing Reduction Subsidy, their plan choices would be generated. Someone making 399% of FPL could buy 94% AV at a significant price. Someone making 148% of FPL and in good health could decide that the Platinum 90% at a net out of pocket monthly cost of $22 a month is a better deal for them then 94% CSR Silver at $34 a month.
The second change is a technical adjustment. Plans would be required to submit an actuarially justified provider reimbursement level projection for a variety of service types. Those self-submitted projections would then be run through a model that is similar to but not identical to the current CMS actuarial value model in order to define what band a proposed policy would belong to. This fixes a data and modeling weakness in the current band assignment process while lowering some out of pocket maximums.
The current CMS actuarial value calculator uses old group and individual claims data as the model baseline (p.9):
HHS began with claims data from the Health Intelligence Company, LLC (HIC) database for calendar year 2010. This commercial database includes detailed enrollment and claims information for individuals who are members of several regional insurers and covers over 54 million individuals enrolled in individual and group health plans.
This is a problem. The problem is that in 2010, there were very few commercially available networks that paid their providers at Medicare plus a little bit rates. Instead they paid their providers on Medicare plus a whole lot. The recent paper on private insurance costs notes that private insurance pays a much higher per service rate than Medicare. Andrew Sprung highlights an important section:
This thought experiment holds quantity constant (i.e., assumes no behavioral response). If inpatient care was paid at 100 percent of Medicare rates, it would lower spending by 31.2 percent. Similarly, paying at 110 percent of Medicare, 130 percent of Medicare, and 140 percent of Medicare would lower spending by 24.2 percent 10.5 percent and 3.7 percent, respectively. – See more at: http://xpostfactoid.blogspot.com/2015/12/what-if-all-private-health-insurers.html#sthash.7kmYGRwI.dpuf
The data source consists of almost all claims paying at 140% of Medicare rates or higher. If the Exchange markets were only broad network, non-restrictive gatekeepers, this assumption could make sense. However, in competitive regions, there are numerous Exchange plans that are paying at 110% of Medicare rates or lower. However those low cost plans are being assigned to metal bands by assuming their service utilization is being paid at high costs.
The 2017 plan regulations propose a standardized plan design. For the straight Silver plan with a $3,500 deductible, that deductible level is calculated by assuming that all plans are paying at standard commercial rates. For broad network plans, the deductible and cost sharing produces a plan that should be very close to 70% of actuarial value. However if a plan is paying on average 110% of Medicare rates, the level of deductible and cost-sharing is too high. The actual costs borne by the members insured by a low cost plan is above the 30% that they as a collective pool should bear in a standard Silver plan. Instead they could be paying 32% or 35% of the plan.
Recalculating actuarial value based on projected reimbursement rates would more accurately calculated deductible and cost sharing. Using the standardized Silver as a suggestion, a high reimbursement rate plan would see no changes to their cost sharing. A plan with low provider reimbursement rates would see the deductible drop to $3,000 instead of $3,500 and total out of pocket exposure decrease to $6,200. The downside is that the concept of a standard plan goes out the window.
This policy would lead to fewer broad network plans as they would be beaten on both price and cost sharing by lower reimbursement narrow networks. However the average actual actuarial value of covered lives would increase.
The final major change would apply to individuals in a state that do not sign up for insurance. The Kaiser Family Foundation recently pointed out that half of the currently uninsured could get Bronze coverage for less than the current individual mandate tax.
About 7 million uninsured people are eligible for marketplace premium subsidies and are a key target group for increasing marketplace enrollment. Almost half (48%) of them could, in fact, buy a bronze plan for a zero premium contribution or for less than the penalty they would owe for remaining uninsured, including 28% who could buy a bronze plan using their premium subsidy for a zero premium. In other words, 3.5 million subsidy-eligible uninsured people could either get coverage for free or end up paying less by enrolling in marketplace coverage than by remaining uninsured and paying the individual mandate penalty. However, bronze plans come with high deductibles and low-income enrollees may be better off financially enrolling in silver plans that have higher premiums but are eligible for cost-sharing subsidies.
Using state tax data combined with information from the IRS 1095 series, the state would identify individuals who are uninsured but are subsidy eligible. These individuals would then be preemptively enrolled in health plans. The objective would be to enroll eligible but uninsured and non-active buying individuals into plans with the maximum reasonable actuarial value. The plans would be paid for by the application of 90% of the combined advanced premium tax credit and cost sharing reduction tax credit (as discussed in the first change). That means instead of 48% of people being able to get at least a Bronze plan for less than the cost of the mandate penalty, a significantly higher proportion will be as most of the people who are uninsured and eligible for advanced premium tax credits will also be eligible for cost sharing reduction subsidies.
These people would be auto assigned to a state owned (but potentially privately run) uninsured coverage pool which pays a narrow network of providers 110% of Medicare rates. There would be coverage tiers starting at 60% actuarial value and going to 94% actuarial value matching the same value bands that are on the Exchange. The state pool would be part of the risk adjustment process to minimize cherry picking. I think utilization would be fairly low as most people who were covered in this pool would not realize that they are covered until they hit a major crisis/emergency. But when an individual does get a major diagnosis, they would be faced with a $4,000 or $5,000 shock instead of a $50,000 shock.
These three changes could lead to increased coverage, and better choice space while conforming to Wyden Waiver regulations.