Whats in a number

President Obama’s press conference this afternoon threw out a series of numbers concerning interest in subsidized health insurance on the Exchanges.  What do these numbers actually mean from an insurer’s perspective?

So far, the national website, HealthCare.gov, has been visited nearly 20 million times.  Twenty million times.

This means very little.  For comparison’s sake, Balloon Juice has had slightly less than 10% of that traffic in the same time span.  These hits are not particularly informative as they could be the curious bloggers, they could be people who are looking and then walking away, and they could be people who are interested.

We know that nearly one-third of the people applying in Connecticut and Maryland, for example, are under 35 years old.

If these numbers hold up and can be nationalized at scale, then the financing of the Exchanges works out very easily.  I am slightly curious as to why these two states are examples as the demographic/actuarial concerns are national lack of interest in young people in these products.  I would love to see what the age profiles look like in California (as it is the biggest), Texas, and Kentucky look like.

  And all told, more than half a million consumers across the country have successfully submitted applications through federal and state marketplaces.

The actual number is 476,000 or more applications have been submitted for eligibility verification.  This is an important number.  These are the subscribers who have created an account, filled out the first round of applications with family size, birth dates, and income information and sent it in for verification.  A very high percentage of these applications will result in added medical coverage.  The question is what is the average number of people on an application and what is the conversion rate to Medicaid versus Exchange.  As an insurance geek, 476,000 applications indicates 476,000 potential contracts, and probably 800,000 or more actual covered lives.  Initial numbers out of states indicate a 40% to 50% Medicaid eligibility rate, so assuming a fairly high buy rate for Exchange eligible applicants, we’re looking at 5% to 7% of the Exchange goal population has already applied.

Trained representative, it usually takes about 25 minutes for an individual to apply for coverage, about 45 minutes for a family.  Once you apply for coverage, you will be contacted by email or postal mail about your coverage status.

That actually is really impressive for initial intake and application.

Right now, the enrollment numbers are low as insurers don’t consider someone enrolled until either the check has been received or the credit card swiped for the first month’s premium.  January 1st is the first day of coverage, and payment is not due until Dec. 15th, so quite a few people are making choices and getting in line to get on a plan but have not written the check or authorized the automatic charge against the credit card.

The Cost Control trilemna

From Brad Delong:

My healthcare costs are already going to skyrocket, but being responsible for 100% of the premiums just isn’t realistic on my salary. I know I’m not the only staffer looking for a job off the Hill, because I knew this was a possibility…

From the Journal of the American Medical Association via Incidental Economist:

Most of the overall study population opposed a government CER [cost effectiveness research] agency. About 56% of respondents would oppose such an agency []. Democrats and Independents were about evenly split on the issue, while a significantly smaller percentage of Republicans would support such an agency (26.9%). Younger respondents, aged 18 to 29 years, were significantly more likely to support an agency (64.7%) than respondents 65 years or older (31.2%). […]

Also from the Incidental Economist and JAMA:

First, we observed a significant increase in the frequency of treatments that are considered discordant with current guidelines, including use of advanced imaging (ie, CT or MRI), referrals to other physicians (presumably for procedures or surgery), and use of narcotics. Second, we also observed a decrease in use of first-line medications, such as NSAIDs or acetaminophen, but no change in referrals to physical therapy. […]

Recent meta-analyses and research of lumbar fusion surgery have not revealed improvement in patient outcomes and demonstrate that these procedures lead to significant adverse consequences, including 5.6% with life-threatening complications and 0.4% mortality….

Our findings also confirm an inappropriate increase in advanced diagnostic imaging that has been seen previously, with use of CT or MRI increasing by 56.9% in our study sample. Six randomized controlled trials have found that imaging in the acute care setting provides neither clinical nor psychological benefit to patients with routine back pain, and multiple prospective studies have found the lack of serious disease in the absence of red-flag symptoms….

This is a trilemna of cost control.  Our health care costs too much, no wants wants an outside entity to say no, and systemically, we do too  many expensive things that don’t actually help people.

Benefit design of insurance plans is an attempt to say no or at least to say “really, really, think about this some more….” for procedures of minimal medical value.  For instance, my health plan does not cover leeching of blood.  My personal benefit package also has a variable co-pay for imaging services.  Basic services such as X-Ray and ultrasound have a $25 co-pay while MRI, PET, DEXA, CT and other advanced scanning systems have co-pays of $150 for the first five and then $25 after that as the actuaries figure that MRI #6 is probably medically useful by then.  But this is a rough and crude steering method as an MRI is perfectly appropriate when initial physical manipulation indicates a high probability of an ACL tear but inappropriate for non-specific back pain complaints. 

Finer steering methods of moving people to more cost effective treatments as the first course of action could theoretically work.  If an insurance company said that it would only pay for back surgery after fifteen PT visits and anti-inflamatory drugs have been used, that would reduce back surgery.  However, since it is saying no, consumers would bitch about faceless bureaucrats wearing Mickey Mouse ties getting between them and their doctors who are effectively practicing folk ways at this time.  And the company would lose members to another firm that charges a little more but does not say no. 

System reform changes like the Accountable Care Organizations and capitation models where the doctors are strongly encouraged by profit motives to refer patients to higher effectiveness and efficiency treatments may be the only way to get a politically viable means of saying no in place in the United States.

One third true and due to PPACA

I pulled this mid-afternoon as I made a serious error of fact.  I’m okay with making errors of analysis, but I want my signal to noise ratio to be fairly high, so I needed to pull the post for corrections.  Original errors will be in the following post but struck through.  Corrections took a while as I had an urgent tea party with Kid #1 and five stuffed animal friends and then I had to go to work. 


Get ready to see a lot of stories like the following:

“My husband is already working a second full-time job and I occasionally tutor and pick up some extra students,” said Charlotte, a public school teacher who did not want to disclose her full name. “We are looking at a three-hundred dollar per month increase in premiums for blue choice.”

This is in North South Carolina, and reading through the story, context is given and roughly a third of the projected cost increase is due to PPACA:

BlueChoice said in a statement “The Affordable Care Act is adding federal taxes and fees, and additional costs due to enrichment of benefits; it is one-third of what is causing this particular insurance product to increase so significantly.”

The argument that roughly a third of the cost increase is attributable to Obamacare regulations and benefit enrichment is extremely plausible.  It is line with other companies and their public release of information.  For instance UPS saw a 12% increase in the cost of self-insuring its employees.  A third of that cost was due to PPACA. 

UPS officials said that the company’s actuaries expected overall employee health costs to rise by about 12 percent next year—and that about a third of that increase was in reaction to Obamacare.

The big drivers of additional premium costs due to PPACA is the individual mandate pushing people into the risk pool who previously were running naked at companies that offered insurance, and adding adult children to the age of 26 to parental policies.  The elimination of life time maximum coverage is also playing a part.

However, this is not the entire story.  Below the fold will have some reasonably well informed but complete speculation.

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Bending the curve

The Aaron Carrol at the  Incidental Economist did some window shopping on the Indiana Exchange and discovered significant system wide curve bending:

Silver plans for an individual range from $278 to $301 a month (before subsidies). This is far less than what the state released a while ago. For a family like mine, silver plans range from $938 to $1018 a month (before subsidies). What’s more, even the gold plans range from only $1175 to $1329 a month.

Since we know that the average employer sponsored health insurance plan for a family in the US is $16,351, that means the most expensive gold plan on the exchange, at $15,948, is cheaper. Let me say that again: The most expensive plan I could find for a family line mine on the Indiana Health Insurance Exchange is less expensive than the average employer sponsored health insurance plan in the US.

Given Dr. Carrol’s life situation ( high end researcher with an M.D.) odds are that he would get little to no subsidies on the Exchange AND his current employer picks up a very high percentage of his employer sponsored health insurance, so he would be individually worse off going to the Exchange.  However most employer coverage ranges from high Bronze to high Silver, so if Gold plans total costs are coming in at or under average high Silver commercially provided costs, this is a massive cost savings.

The Black and Tan of the insurance industry

Very few insurance companies want to hold onto all of the risk that they agreed to take on.  There are two ways around this problem.

The first is to commit fraud on a massive scale and laugh at the people who are filing two million dollar claims when their policies state there is neither a lifetime nor an event limit.  That tends to lead to arrests of senior executives who were on the hookers and blow bonus level and the firing of the low level drones who were on the free pizza on fifth Fridays bonus level.  From a self-interested perspective, this is a bad thing for the insurance company. 

The other means of dealing with tail risk is to buy protection from another party.  This is reinsurance.  And it is quite common as a means of risk and cash flow control.  Reinsurance is  a contract between two parties.One party has a significant risk of all health care costs for 10,000 individual. It buys protection for  the fourth or fifth standard deviation and greater level of risk to another company.   Spreading the risk over the nation or often internationally allows for smaller variance costs.  There are a few different ways risk can be sold and we’ll work through examples.

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