I am a student in the doctoral program at the Duke University Department of Population Health Sciences. I am working towards my my doctorate in Health Services Research with a policy focus. I am fundamentally fascinated by insurance markets, consumer choice and the navigation of complex choice environments. I'm currently RA-ing at the Duke Margolis Center for Health Policy.

I used to be Richard Mayhew, a mid-level bureaucrat at UPMC Health Plan. I started writing here and have not found a reason to stop.

Conflicts of interest: Previously employed at UPMC Health Plan until 12/31/16. I also worked full time as a research associate at the Duke University Margolis Center for Health Policy. I have received direct funding from the National Institute for Healthcare Management, and I have been on projects funded by the Rockefeller Foundation, Kate B. Reynolds Charitable Trust, Gordan and Betty Moore Foundation, Duke University Health System, CMMI, and various value based payment consortiums. I serve as a consultant on a grant from the Commonwealth Fund and have acted as a consultant to several ACA insurers.

Research Production is here: https://scholar.google.com/citations?user=zof9b4IAAAAJ&hl=en

David Anderson has been a Balloon Juice writer since 2013.

David Anderson

Narrow networks, specialty hospitals and stable suboptimal equilibria

by David Anderson| February 14, 201412:23 pm| 75 Comments

This post is in: Anderson On Health Insurance

Most exchange plans are narrow network plans. This means hospitals and doctors are excluded from the plan due to either pricing or corporate strategy. Expensive providers are culled if there are nearby options that are cheaper. This is leading to really good premiums as comparable Exchange plans are coming in under group health insurance premiums. The trade-off is restricting choice to only providers that are willing to reduce their prices.

Washington State starkly illustrates this trade-off as the Seattle Children’s Hospital was excluded from ~~all~~ most of the narrow network plans on the Washington State Exchange initially.

The Monterey Herald has a good explainer:

Left out are hospitals such as Seattle Children’s, excluded from five of seven plans on Washington’s state insurance exchange.

The hospital, which has sued the state to be included in more plans, is struggling to get paid for care given to about 125 children since Jan. 1…

Seattle Children’s Hospital, for instance, sued the Washington Office of the Insurance Commissioner…

the state responded that “nothing in the law dictates inclusion of a specific provider, regardless of their preeminence or sympathetic patient base. So long as issuers meet the legal standards for adequacy and covered services, the OIC does not manage their business arrangements for them….”

The hospital, meanwhile, counters that the uniqueness of its services and the training required by its doctors to carry out patient care deserve more compensation.

“We take care of a very unique group of children, and the amount of resources we need to have is very expensive,” Melzer said. “We do 100 percent of transplant care and 70 percent of cancer and cardiac care in the state….

“The cost of Children’s non-unique inpatient services is 100 percent higher than such services at other hospitals in our statewide network,” he [Earling, Insurance Company spokesman ]said.

A pediatric appendectomy, which cost $23,300 at Seattle Children’s, is priced at $14,100 at Premera’s other in-network hospitals, Earling said, adding: “The issue, at the end of the day, is access at a more affordable price. That’s why their non-unique services are not covered.”

Rebekah Blankers [mother of child with unique diagnosis that can be treated at Seattle Childrens’] isn’t waiting to find out what Premera considers unique or non-unique. She has switched Gabriella to a …plan that will cover all care done at Seattle Children’s. ..the rest of the family…will stay on the less-expensive LifeWise plan.

There are a lot of issues going on here which we’ll take a look at below the fold:

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Narrow networks, specialty hospitals and stable suboptimal equilibriaPost + Comments (75)

When an insurance company creates a new product, it has to file a network with the state regulating entity. That regulating entity is supposed to review the network and verify that there is sufficient adequacy of access. “Adequacy” varies by state and location in a state. Washington State has reasonably tight urban adequacy standards. Health plans can meet adequacy by either having a lot of the right types of doctors and facilities in a network, or by issuing waivers saying that out of network treatment for medically neccessary services that can not be provided in network will be paid as if they were in network from the member point of view. If the numbers or waiver system works out correctly, the state regulators don’t care too much how the network meets adequacy. Evidently, the Washington State Exchange plans met adequacy by excluding most services at Seattle Children’s Hospital.

Why would insurers want to avoid flagship specialty hospitals? Wouldn’t that be a unique selling point that a plan offers full in-network access to the flagship academic and specialty medical centers in the region. It would be a differentiator that a place that can do seven organ transplants can also take care of basic care better. That would be the immediate logic, but there is a significant amount of research that shows more expensive flagship hospitals aren’t significantly better on routine care. Instead, they specialize in one-off and low probability cases that require very high end care, and use the lower intensity patients as a means to cover the capital and open the door costs required by the highest end care.

For instance, when I got my vascectomy, I chose a regional academic medical center because it was on my bus line, not for quality. That decision cost the insurance company several hundred additional dollars than if I had gotten snipped at either a community hospital or an outpatient ambulatory surgical center. Some of that cost increase was due to cross-subsidization of medical provider training, but a signficant portion of the increase was the academic medical center could charge more because there was significant demand for the perceived quality bonus that it had compared to community hospitals. That perceived bonus is directly built from the regional medical center’s world class reputation for a certain class of transplants and another class of highly complex surgeries. But statistically, the high reputation and high costs hospitals don’t have a particular quality differential for routine care.

Seattle Children’s Hospital is an excellent hospital that is designed to handle the extremely unusual and intensive pediatric care patients. For those cases, paying a lot makes sense. Including the hospital in network makes sense as the insurance companies will be paying for those services anyways on a waiver basis. However, the insurance companies are now competing primarily on price and minimally on network in the Exchange world. With that proviso, the insurance companies don’t want to pay for the care of a simple fracture at Seattle Children’s prices, they don’t want to pay Seattle Children’s prices for non-complicated appendicitis, they don’t want to cross subsidize the extremely high end care.

Ideally, the insurance companies that want to mimize their claims pay-outs want to have Seattle Children’s or any other high cost specialty hospital in network for a la carte services such as organ transplant and regional trauma centers of excellence, but out of network for pneumonia or routine elective surgery or setting broken ankles. Most of the specialty hosptials don’t want to go to a la carte contracting as that cuts the cross subsidization that they need to cover fixed costs.

The mother of the child with an intensive pediatric diagnosis that requires high end specialty care is responding rationally to the current situation. She is moving her expensive and sick kid to a plan that includes the hospital she needs while keeping her healthier kids on the cheaper and more limited network plans. As a side note, this behavior is being observed elsewhere. Narrow networks that don’t have leading specialty and academic medical centers in the networks are cheaper than networks that have the specialty and academic medical centers. The skinnier plans sell well to people who don’t have known current medical needs, while the more comprehensive networks are selling to people with pre-exisiting conditions and pre-exisiting treatment relationships.

This individually rational response will lead to the risk pools for the two plans that offer general in-network access to Seattle Children’s to be sicker than average for kids than the five plans that don’t offer in-network access to Childrens. The risk corridors and re-insurance system will mitigate most of the local adverse selection, but adverse selection will be at play. This leads to a rationale where the two offering insurers should be tempted to exclude Childrens in the next filing.

At that point, a stable, sub-optimal equilibrium will be achieved with no insurance plan offering full in-network access to a specialty hospital. No plan would have the incentive to offer in-network access as they know that they’ll just collect all the sick kids from the other plans. The risk moderating factors will help absorb some of the shock but not all.

So what are the policy options?

1) Do nothing and allow a stable, sub-optimal equilibrium to persist.

2) Have the state mandate a la carte contracting for unique services for specialty hospitals

3) Have the state mandate full in-network access for all qualified health plans at certain high end and high cost specialty hospitals for routine and unique services

4) Do nothing on the network side, but have the feds aggressively make risk adjustment transfers to compensate the insurers with Seattle Childrens in-network from the lower risk plans that don’t have specialty hospitals in network.

5) Go for full repeal of Obamacare and neglect the fact that this problem has nothing to do with Obamacare per se, but it produces really sympathetic and telegenic victims who will cry on TV.

Open thread

by David Anderson| February 13, 20148:32 am| 108 Comments

This post is in: Open Threads, Sports

Important things to note today:

1) My 5 year old is an excellent quasi-random character generator. I needed to reset a series of passwords this morning. She helped! A Snorfrapzle is an animal that lurks under her bed.

2) Pitchers and Catchers are REPORTING — six more weeks of snow.

3) I’m going ice skating tonight for the first time in ten years. Hopefully I won’t pull a Cole.

Talk about whatever

Open threadPost + Comments (108)

Good news everybody

by David Anderson| February 12, 201410:38 pm| 14 Comments

This post is in: Anderson On Health Insurance

ACAsignups.net has some news on enrollment for January 2014:

CNBC, moments ago:

A total of 3,299,492 had enrolled in Obamacare plans as of Feb. 1, according to HHS.

Damn. I was off by 0.017%. :)

More importantly the age mix is starting to normalize as younger adults are entering the risk pool.

In January, 27 percent of those who selected plans in the Federally-facilitated Marketplace are between the ages of 18 and 34, a three percentage point increase over the figure reported for the previous three month period. Young adult enrollment grew by 65 percent in January, from 489,460 at the end of December to 807,515 as of Feb. 1, while all other age groups combined grew by 55 percent.

81 percent of young adults ages 18 to 34 selected plans at the Silver metal level or higher (Silver, Gold and Platinum plans).

The Massachusetts experience was that younger and healthier people waited. The age distribution got younger each month the deadline got closer. And shockingly, a program that is a a kissing cousin of the Massachusetts program design is experiencing similar growth patterns.

Good news everybodyPost + Comments (14)

Where’s my doc

by David Anderson| February 12, 20144:16 pm| 82 Comments

This post is in: Anderson On Health Insurance

KQED in California has been following several of its audience members’ experiences with Obamacare. Today’s story is about finding providers taking insurance and the joys of online provider directories:

I’ve been following Sue Kearney of Oakland. After confirming her doctors would take the insurance, she enrolled in an Anthem Blue Cross subsidized PPO plan with Covered California last fall. Then she scheduled appointments…

But at her first appointment, she was told that the doctor did not accept any Covered California insurance. Ditto for the other doctors. Kearney set up a screen share with me, logged into her account and confirmed for me that doctors showed up as accepting her insurance, but the office said they didn’t when she called them.

That sounds about right.

When I was a young health insurance bureaucrat who did not know any better, I helped to maintain the provider directory. Provider data quality is a constant struggle to get a response from the office manager and the receptionist. If we contracted with a large group, the central office would have a decent idea as to what their CFO or CEO signed but only seven of the thirty four receptionists or office managers were aware of the newest configuration of networks.

There are numerous points for failure in the provider directory informaation chain. The most common is the office manager to health plan link.

Office managers will assume that they have always taken all Mayhew products, so they still take all Mayhew products including the very narrow network, so they tell members that they’re participating in Mayhew Narrow, but they aren’t. Members are shocked when they get billed out of network. Office managers may reflect the attitude of their doctor(s) who are Randian fanboys and assume that they don’t take any Exchange, but their CEO signed them up. Office managers may not be aware that a particular product is geographically restricted, so the office that they work at on Monday, Wednesday and Friday takes the product, but the office that they work at on Tuesday and Thursday can’t take the product. They may also have amazing tacit knowledge which minimizes problems until they retire or move to a different job and the new kid has no clue.

And then they just forget to tell the insurance company about important things:

The office burned down.
The office is uninhabitable due to the meth lab next door exploding.
The provider died two years ago.
The doctor in question moved three time zones away.
The doctor in question is in Congress now and no longer practices.
The office has been bought out by an integrated payer-provider system that does not contract with other insurers.
The doctor surrendered his license because of a very public front page scandal.

Those are some of the things that providers have forgotten to tell my company.

Where’s my docPost + Comments (82)

Kristol to Americans: You lazy moochers have it too good

by David Anderson| February 10, 201411:17 pm| 77 Comments

This post is in: Anderson On Health Insurance, Fuck The Middle-Class, Fuck The Poor, Grifters Gonna Grift, Show Us on the Doll Where the Invisible Hand Touched You, Zombie-Eyed Granny Starver, Assholes, WIN THE MORNING

I am a firm believer in the Heritage Uncertainty Principle of True Conservative Healthcare Reform Plans:

Conservative health-care-policy ideas reside in an uncertain state of quasi-existence. You can describe the policies in the abstract, sometimes even in detail, but any attempt to reproduce them in physical form will cause such proposals to disappear instantly. It’s not so much an issue of “hypocrisy,” as Klein frames it, as a deeper metaphysical question of whether conservative health-care policies actually exist.

The question should be posed to better-trained philosophical minds than my own. I would posit that conservative health-care policies do not exist in any real form. Call it the “Heritage Uncertainty Principle.”

P-Care was a recent iteration of such a principle as the primary financing mechanism was immediately clawed back as soon as liberal wonks started asking obvious questions (why yes, it would be a massive tax hike on middle class Americans AND massively disruptive to the market).

The most recent iteration of conservative “health insurance reform” proposals is from Always Wrong Kristol et al. The diagnosis of the problem is simple — Americans, or at least non-rich Americans, have it too easy and risk is too insulated. We must suffer more. And TAX CREDITS:

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Kristol to Americans: You lazy moochers have it too goodPost + Comments (77)

Earlier this week, we reviewed how small group underwriting currently works. Most small groups are underwritten on either an experience review of claims history or statistically rated based on a review of risk factors. One of the larger cost risk factors is being female.

PPACA is changing the means of how groups are underwritten for non-grandfathered policies that went into effect on or after January 1, 2014. The new policies are underwritten based on a modified community rating system that allows for consideration of the age of people in the underwritten group, their locations (which can still tie a lot of statistical probabilities of cost and health status) and smoking status. The community that they are rated against is the entire pool of small groups that an insurance company insures.

Yesterday, we looked at why actuaries and underwriters like big groups. Healthcare cost distribution is extremely lumpy.

Small groups and individuals are almost impossible to accurately price. Big groups allow statistical approximations to approach population realities while the error bars on a small group are massive. Massive error bars make underwriters and actuaries cry…Random noise becomes more important in small group sizes.

Right now under experience and/or statistical underwriting, there are significant premium differentials between groups with members who are the same age, location and smoking status. This system has its own set of entrenched winners and losers.

Why should we expect to see hundreds of stories of rate shock this fall?

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Why there will be rate shock stories this fallPost + Comments (19)

Al’s Autobody covered seven guys and gets a great rate. Clara’s Choral School and her fourteen sopranos sees a decent rate. Center City Cancer Survivor Support Center with its policy of only hiring cancer survivors as peer counselors pay a horrendous rate. Statistical and experience underwriting gives better rates to groups that historically have lower health care costs. Those groups tend to have more men then women, and fewer than typical number and severity of pre-exisiting conditions for each age cohort. Conversely, groups that have more women than men and have greater than expected number of people with expensive conditions, tend to get much higher rates than average and median.

Community underwriting elimintates gender as a factor of underwriting so men now have to bear some of the cost of pregnancy risk. It also spreads the cost and risk of pre-exisiting conditions throughout the entire universe of small groups covered by a single insurer in a state. This is a major change that will have people screaming this fall as rates resort for the 2015 open enrollment period.

Al’s Autobody will see a rate increase as more of his premiums will go to cover the pregnancy cost risk of Clara’s Choral School and an even larger chunk of his premiums will cross subsidize the Center City Cancer Survivor Support Center risks of remission. Clara’s Choral School will see a normal increase when she renews her policy in December. Center City Cancer Survivior Support Center will see their premiums collapse as other groups are taking on more of their remission risk.

On average, the total cost of premiums to insure the same people in the same groups with experience or statistical underwriting versus community underwriting will be the same. However the distribution of those costs will be wildly different. Groups that are more male and/or healthier in general will see significant rate increases due to underwriting changes. Groups that are more female or statistically likely to be sicker than average will see flat rates or decreases.

There are winners and losers in the change to community underwriting. The losers will scream much louder than the winners will sing.

Update 1: Most small and medium size groups that thought they would pay more under community underwriting had the option to renew their policies one last time with a December 2013 start date. This stretched out the underwritten policies and avoided the price hikes for 11 more months. This is why we have not seen many of these stories yet.

And now I have baud making fun of me. this day can’t get worse.

GOP baffled that ‘we don’t care if you die’ is not a winning slogan.

rich, arrogant assholes who equate luck with genius

Historically it was a little unusual for the president to be an incoherent babbling moron.

Tide comes in. Tide goes out. You can’t explain that.

Trump makes a mockery of the legal system and cowardly judges just sit back and let him.

If you are in line to indict donald trump, stay in line.

Republicans in disarray!

The republican speaker is a slippery little devil.

The republican caucus is covering themselves with something, and it’s not glory.

This has so much WTF written all over it that it is hard to comprehend.

They are lying in pursuit of an agenda.

Bogus polls are all they’ve got left. Let’s bury these fuckers at the polls a year from now.

Every one of the “Roberts Six” lied to get on the court.

I’d try pessimism, but it probably wouldn’t work.

The new republican ‘Pastor’ of the House is an odious authoritarian little creep.

Someone should tell Republicans that violence is the last refuge of the incompetent, or possibly the first.

There are some who say that there are too many strawmen arguments on this blog.

Too often we hand the biggest microphones to the cynics and the critics who delight in declaring failure.

… riddled with inexplicable and elementary errors of law and fact

It’s not hopeless, and we’re not helpless.

Let’s show the world that autocracy can be defeated.

Seems like a complicated subject, have you tried yelling at it?

I’m more Christian than these people and I’m an atheist.

Narrow networks, specialty hospitals and stable suboptimal equilibria

Open thread

Good news everybody

Where’s my doc

Kristol to Americans: You lazy moochers have it too good