The upcoming strange politics of the ACA

ACA politics, assuming the Texas v. Azar lawsuit eventually gets bounced, is about to get strange in a new direction as premiums look to be about flat and Medical Loss Ratio (MLR) rebate checks are about to get big.

Charles Gaba has been tracking rate increases across the nation:

There will be variation, but the general story is that unsubsidized premiums are generically flat. I had expected national rate increases to be around 7% between medical trend and premium taxes.  That is not the case.  There are several causes of rates, on average, being flat:

  • More states filing and receiving approval for 1332 reinsurance waivers
  • More insurers entering monopoly markets and increasing competition
  • Medicaid expansion in more states removes the most expensive portion of the risk pool from the ACA individual market.
  • Insurers significantly overpriced 2018 and modestly overpriced 2019.

The first three reasons are good reasons.  These are reasons of pro-active government intervention to correct market failures, competition bringing down prices and expanding a cost effective program to provide direct and indirect benefits to a large population.  The last reason was the result of the policy and messaging shock of the inauguration of the Trump administration and the decision to not pay Cost Sharing Reduction subsidies.  Insurers were operating under incomplete and uncertain information in the spring and summer of 2017.  Insurers had two fundamental choices: run like hell or raise premiums a lot. Some insurers ran like hell, others turtled up to core counties and almost everyone raised premiums by some method of Silver Loading.  This produced dramatically cheaper net of subsidy premiums for most of the country and it has been a major enrollment booster even as the ongoing anti-messaging and operational outs that are administration policy has driven down new enrollment.

Pricing 2018 too high out of policy fear interacting with monopoly status allowed for spread games to proliferate and insurers to roll in the dough.  2019 premiums were based on mostly 2016 and 2017 claims experience, some 2018 retention and claims but the rates were submitted with only thirty to forty percent of the year actually hitting the claims system.  2019 rates were also being set in a policy environment where insurers were uncertain how important the individual mandate and the proliferation of new underwritten plans could be. Pricing actuaries had strong incentives to price high in 2019.

This will lead to significant MLR rebates in Fall 2019 for the 2016-2018 period and much larger and more widespread rebates in the Fall of 2020 for the 2017-2019 period.  I was cynical in the fall of 2017 as I thought about CSR and I may not have been cynical enough:

in the fall of 2019, rebate checks start showing up just as final rates are to be approved…. rate regulators will have strong incentives of getting great press on being tough on the insurance companies by forcing them to hand out very large checks to tens of thousands of residents.

And then in the fall of 2020, ambitious state insurance commissioners will be handing out rebate checks in late September as they are running for Governor or the Senate. Or if they are a bit less ambitious, they are supporting the incumbent party by handing out checks and injecting new federal money into the state and making the fundamental background economic picture a bit better than it otherwise would have been.

We’re about to enter a period of multiple years of effectively flat rates combined with large checks being handed out to tens of thousands of individual policy buyers just as early voting is starting in 2020.  Most of the flat rates will be from 2018 and 2019 being overpriced due to policy shocks and uncertainty.  Some of the flat rates will be the ACA operating as designed and intended.  The big Trump innovation which has contributed to flat rates has been the proliferation of reinsurance waivers.  But most of the action has either been a correction for policy shocks or business as usual.

Yet we should expect to see at least some bragging about the ACA rates are fundamentally flat next fall from people who voted to repeal it repeatedly.  The politics are going to get weird.




MLR Variation in Pennsylvania

Medical Loss Ratio (MLR) regulations require individual market insurers to spend 80% of their adjusted premium revenue on claims or quality improvement services.  If, over a three year look-back period, an insurer spends less than 80%, they have to send out checks to the people who bought their plans in the last year of the look-back period to make up the difference.  Large MLR rebates are likely to occur in the fall of 2019 for the 2016-2018 period.  It was predictable (June 2018):

2017 looks to have been a very profitable year for insurers. 2018 looks to be even more profitable. There is a good chance that the 2016-2017-2018 time period will produce several states with an average MLR well below 80% as the first quarter results plus initial 2019 rate filings strongly suggest that insurers in many states overpriced their premiums for 2018

However there is variation as the MLR calculation is at the insurer level and not the state level.   I’m working on a slightly longer project to estimate the expected Medical Loss Ratio rebates in Pennsylvania but the 2018 data that was present on the initial 2020 rate filings is interesting due to the variation.  2018 is a high premium level year with low raw and ACA MLRs being common.  

2018 MLR Calcuations
ABCD (0.008*A)B/A(B+D)/(A-C)
2018 MLR for Pennsylvania Individual Market Insurers competing in 2020PremiumsClaimsTaxes and FeesEstimated QIRaw MLR2018 ACA MLR
Capital Advantage Insurance Company$2,577,457$1,924,633$93,040$20,62075%78%
First Priority$105,685,090$66,718,288$5,626,506$845,48163%68%
Highmark Inc$10,072,903$7,966,069$414,633$80,58379%83%
Highmark Choice Company$40,796,398$30,094,250$763,732$326,37174%76%
Highmark Health Insurance Company$161,466,202$91,364,203$12,332,377$1,291,73057%62%
Geisinger Health Plan$493,460,297$349,829,082$36,269,383$3,947,68271%77%
Geisenger Quality Options$2,319,160$1,560,772$105,126$18,55367%71%
Keystone Health Plan East$1,079,731,654$709,768,606$103,709,776$8,637,85366%74%
QCC Insurance Company$345,713,052$272,647,844$39,414,952$2,765,70479%90%
UPMC Health Coverage Inc.$9,179$604$370$737%8%
UPMC Health Options$842,415,260$670,631,775$21,579,781$6,739,32280%83%
State Average$3,533,841,207$2,456,452,546$283,409,377$28,270,73070%76%

The first point is that the raw MLR is almost always going to be several points below the ACA MLR.  A quick and dirty rule is to add five or six points to the raw MLR to get close to the ACA MLR unless there are weird tax issues going on.

The second point is to look at the incredible variation, even if we only look at insurers with at least $10 million dollars in premiums.  CAAC has a 67% ACA MLR while QCC is running at 90%.

There is significant geographic variation in MLRs.  UPMC Health Options (an entity controlled by my former employer) has a dominant market position in the western part of the state and some presence outside of the Philadelphia Metro and Poconos region. Its only Western Pennsylvania competitor is Highmark.  Highmark had been tremendously overpriced in the region relative to UPMC and had very little enrollment.  Even if Highmark (which was a dumpster fire in 2016-2017) needed to send out MLR rebates, there would be very few people in Western Pennsylvania eligible to receive a check.

That is not the case in Central Pennsylvania where Capital Advantage Assurance Company (an entity of Capital Blue Cross) has had incredibly low MLRs.  CAAC will be writing some good sized checks in their service area while Geissenger might have some checks to right as well.  Keystone Health Plan East (part of Independence Blue) will also be looking at some good size checks along the Delaware River Valley.

Backing this out a bit, MLR rebates will be announced soon. Kaiser Family Foundation anticipates at least $800 million in individual market rebates this year.  These rebates will be built on some insurers have an ungodly low MLR in 2018 being balanced by a dumpster fire of 2016.  However these rebates won’t be evenly distributed across a state or even within a county.  Instead some people will get quasi-random income shocks this fall.  And going forward, there will be another round of much larger income shocks in the fall of 2020 as the dumpster fire of 2016 will be replaced in the formula by a slightly overpriced 2019.

There will be incredible variation.

Insurers and a one way ratchet lobby

This is interesting to me as it strongly implies that the health insurers and providers has two pathways towards increasing revenue:

1) Cover more people
2) Increase average payment level per person

From a business perspective this makes sense.

Let’s unpack it a bit as we looked at provider side accounts receivable preferences years ago:

Providers have their preferences as to what patients and insurance scenarios they see. Uninsured individuals have always been the least preferred by both the treatment/clinical side and the finance side for a multitude of reasons….
Providers have clear account receivable preferences as to what patients they treat.

The ideal patient from an account receivables perspective pays a very high percentage of the billed charge with a high degree of certainty and a short turn around time and minimal haggling. Excluding celebrity rehab centers and $40,000/year per person coverage, there are few payers who meet this provider ideal. Everything else is a trade-off.

Let’s look at it from an insurer revenue side perspective now.

An uninsured individual brings no revenue. An individual in Medicaid fee for service brings in no revenue. However an individual in Medicaid managed care brings in some revenue. This is a direct revenue source and also a source of slightly more leverage on payer-provider negotiations that would allow the insurer to get slightly lower rates. Insurers support expanding Medicaid because most of the incremental money is flowing through managed care and a good chunk of the incremental ACA covered population is either getting a new Medicaid ID card or were uninsured.

Medicare Advantage tends to pay more than Medicaid. Exchange plans tend to pay anywhere from Medicare Advantage-esque rates to full commercial rates. Large group plans tend to pay the highest as they have the strongest network constraints if they have a large geographic footprint for their critical employees.

These industries want a one way ratchet where program expansion is only allowed to go from lower paying subgroups to higher paying subgroups.

Medicare Advantage for All, Medicaid Buy-ins, Medicare Buy-ins, Medicare for All would move a tremendous number of people out of higher paying categories and into lower paying categories. That is what the fight was about in the Washington State public option bill as the original proposal was for it to pay providers Medicare plus a little bit and the final proposal ended up at basically commercial rates. This is the fight in North Carolina where the state treasure wants to “only” pay 200% Medicare for the State Employee Health Plan. The large hospital groups in North Carolina have not signed onto the proposal.

Providers and insurers are talking their book of business and they want a one way ratchet. And from a business perspective, that makes sense. From a societal perspective, let’s just be aware of what is happening here.

Plumbing and the US Healthcare system

Plumbing matters.  Complexity matters for project timelines and launch dates.

This is overwhelmingly true for health insurance, health finance and healthcare access.

We need to think about why there are transitions periods built into the various healthcare bills that are being proposed by all of the Democratic presidential candidates right now.  These bills vary in scope, complexity and how they interact with the current framework (ACA, Medicare, Medicaid and Employer Sponsored Insurance (ESI)).  That variance leads to very different plausible time frames.  Bills that tweak the current parameters of the ACA individual market by extending subsidies to 600% or 6,000% Federal Poverty Level (FPL) should have shorter minimum necessary lead times than bills that completely restructure eighteen percent of the US economy.

I poked at this type of question in the summer of 2017 when there was a plan-like rumor that one possibility for the GOP was to repeal the ACA with a 12/31/19 drop-dead date and create a crisis point.  At that crisis point, a big bipartisan bill would be signed that would have mostly conservative policy priorities in it but since it was bipartisan, no one would be responsible and no one could be blamed.  One of my points in that post was the seventeen month lead time in that proposal was grossly inadequate for a bill passed that afternoon.

Let’s work our way through the process of a major revamp first and then a minor revamp.  We will assume that your favorite bill (of any flavor) passes this afternoon, everyone has a hangover celebrating on July 31, so actual work starts on August 1, 2019.  I’m going to give a set of scenarios that are in the 95th percentile of GOOD NEWS.   Read more

Partial Medicaid Expansion is off the table

Late last week, the Washington Post reported that federal government won’t pay the enhanced 90% ACA Medicaid expansion match rate to any state that does not expand Medicaid to 138% Federal Poverty Level (FPL).

The Trump administration will not give Utah or other states generous federal funding to partially expand their Medicaid programs under the Affordable Care Act, funding that Utah hoped to receive after the administration earlier this year authorized the state to move forward on an expansion of the government health insurance program

This is important as Utah was about to file a waiver to ask for the enhanced matching rate instead of their standard 70% rate for expanding Medicaid to only 100% FPL. Utah had a complex set of interlocking waivers that the state legislature approved to spend more money to cover fewer people compared to a full expansion that voters had approved in November 2018. Now those waivers are likely to fall apart, and after a complex series of unfortunate events, a standard expansion with work requirements will most likely be implemented in Utah.

As I noted at Health Services Research, this decision was being anxiously waited upon by several other states:

Utah and Wisconsin have expanded Medicaid to 100 percent FPL so that all citizens of these states earning less than 400 percent FPL are eligible to receive some financial assistance for medical insurance. Utah and Wisconsin are receiving neither enhanced federal funding nor the rate reduction benefits of a full expansion. Other states are also investigating partial Medicaid expansions, which has significant legal and financial implications….

Adrianna McIntyre and I also poked at this idea of a partial Medicaid Expansion at the Health Affairs blog:

These silver-loaded policies only benefit those exchange enrollees who qualify for federal tax credits. The proposal by Utah’s legislature succeeds in expanding Medicaid to only 100 percent of the federal poverty line, keeping the 100-138 percent FPL cohort in the exchange means a sicker risk pool with higher premiums for unsubsidized enrollees, relative to a world where the state fully expands the program to 138 percent FPL….

Furthermore, subsidizing individuals to enroll in private plans is more expensive than covering those same people on Medicaid. States are likely to find the more expensive option attractive, because they do not directly bear the burden of paying the federal tax credits that make these plans affordable for lower-income households. By contrast, Utah would be responsible for shouldering 10 percent of the cost of the Medicaid expansion population from 2020 forward. Partial expansion is thus a clear winner from the state budgeter’s perspective, but a potential loser for the federal government—partial expansion is only a less expensive proposition if fewer people enroll in coverage.

The short run, limited effect is that Utah is highly likely to go to a full expansion.  The intermediate run effect is that several states that were potentially considering partial expansions as a viable pathway forward if they received the enhanced 90% ACA match for only the sub-100% FPL population won’t go move forward.