Medicare Advantage and the public option

The Kaiser Family Foundation is recapping the Medicare Advantage landscape files for 2019.  The recap differs in details but is similar to previous years as Medicare Advantage is a well functioning program that seems to be delivering good value to both beneficiaries and the federal government.

Medicare Advantage are plans that are offered by private insurers to replace the traditional Medicare benefit package.  People can buy a Medicare Advantage plan or they can stay in traditional Medicare with the option of buying a supplemental plan to provide catastrophic risk protection.  Medicare Advantage is growing in popularity.

However it is not offered everywhere


No Medicare Advantage plans will be offered in 115 counties in 2019, down from 149 counties in 2018; these counties account for one percent of beneficiaries, most of whom live in relatively rural areas in California. Eight other states also have counties in which no Medicare Advantage plans will be offered in 2019 (AK, CO, IA, ID, NE, NV, VA, and WA).

And even where it is is offered, there may be low competition as a “plan” is only a single policy like a Gold $2,500 deductible narrow network is a single plan from a single insurer.  A one plan county is a single insurer county.

And very few people care.

Indifference is rational as everyone who is Medicare eligible has access to baseline coverage through traditional Medicare. It is the public option of the system that acts as a backstop to the added-on layer of Medicare Advantage.  It is the default that is everywhere for everyone.  Some people opt out of the default but it is always there no matter strategic decisions an insurer makes due to policy, actuarial or political pressures.

Risk adjustment and market incentives

Market structure in revenue neutral risk adjustment should drive incremental coverage decisions.

Risk adjustment moves money to insurers that have a sicker than average population to cover.   There are two flavors of risk adjustment financing that have very different incentive structures for coding. Widget risk adjustment like Medicare Advantage has a central payer (the federal government) that pays a fee for each qualified diagnosis any insurer submits on a claim.  Revenue neutral risk adjustment has insurers with low population morbidity send money to insurers with higher than average medical burden.  A dollar that Insurer A gains is a dollar that Insurer B loses.  The ACA is risk adjusted in this manner.  Some state Medicaid managed care programs like Pennsylvania, where I used to work and optimized the risk adjustment search system for UPMC for You, also have revenue neutral risk adjustment.

Widget risk adjustment leads to upcoding.  Legitimate upcoding is the incentive for insurers to get their doctors to code everything that is medically defensible onto a claim.  Medicare Advantage patients will have more diagnosis categories than identical fee for service Medicare patients.  Medicare Advantage insurers will chase diagnosis codes that their data sets indicate should be credited but have not yet been credited.  The decision structure for any given insurer is simple: Chase every diagnosis until the incremental revenue gain is outweighed by the chase, hassle and piss off the providers costs.  It is not a strategic decision that has to incorporate other actors’ behaviors.

Revenue neutral risk adjustment can be a strategic decision depending on the market structure which will lead to very different chase incentives.  The ACA risk adjusts the metal plans in the individual market by state.

An insurer that has a state wide monopoly has no incentive to care about coding as a revenue enhancement measure.  Any coding concern should be relevant to either clinical treatment concerns, claims payment reasons or population health measures.  There is no money to be made or lost by chasing risk adjustment points.

States that have two insurers have a wide range of incentives. If there is a split market with a single dominant insurer (Insurer A) and an insurer that has minimal market power/enrollment (Insurer  B), Insurer A may be indifferent to chasing risk adjustment gains as the dollars at risk is a very small proportion of total revenue.  The rewards and costs for Insurer A are low.  Insurer B has strong incentives to optimize their risk adjustment.  A $1,000,000 risk adjustment swing is merely an accounting error for Insurer A and a company existence event for Company B.

If there are two more more insurers with decent market share in a state, we get a red queen’s race.  Insurers will have strong reasons to chase every defensible diagnosis ( and some that may not be defensible).  It won’t add to their revenue but it will prevent a competitor from getting undeserved revenue.  This is an expensive behind the scenes administrative arms race.

Why does this matter?

I think this is a good identification strategy for Hep-C dispensing incentives for insurers:

the ACA risk adjustment program is highly likely to overpay for Hep-C anti-viral prescriptions this year and next year due to list price reduction shocks.  The price that insurers pay will be significantly below the prices used to determine risk-adjustment co-efficients.

I think that insurers will be seeing too large of a risk adjustment score for the dispensing of a Hep-C anti-viral prescription.  Monopolistic insurers won’t have any risk adjustment incentives to change their behavior.  Insurers that are overwhelmingly dominant in a state will have very weak incentives to change their behavior.  Very small insurers will have bet the company incentives on increasing Hep-C prescriptions.  Insurers (regardless of enrollment) in competitive states will have strong incentives to increase their Hep-C anti-viral cures.


CSR Allocation methods for 2019 On-Exchange plans

Cost Sharing Reduction (CSR) payments are still not being made. Insurers are still obligated to provide these benefits to income and plan selected qualified individuals. Insurers have three basic strategies to be made whole for their actual claims expense:

  • Do nothing
  • Broad Load the CSR increment into all plans as a fixed surcharge
  • Silver Load the CSR increment onto only Silver plans
    • Silver load the CSR increment onto only on-Exchange Silver plans

In 2018, insurers were all over the place for their on-Exchange strategies.  Most insurers and states Silver Loaded.  This led to higher enrollment that otherwise would have occurred in the 200% to 400% Federal Poverty Level as well as a shift out of Silver plans. In 2018, six states Broad Loaded, and three states did nothing. Five states had insurers choose a strategy which led to some very interesting mixtures in Georgia, Texas and Illinois that invite county line discontinuity dissertations.

The Congressional Budget Office assumed that almost every state and insurer would Silver Load for 2019.

This is not quite right. Charles Gaba, and Louise Norris have updated our tracking sheet for 2019.Five states changed strategy.  New Mexico went from an anything goes strategy to Silver loading.  Vermont and North Dakota did nothing for CSR in 2018 and now are Silver Loading while Delaware and Colorado are switching from a Broad Load to Silver Load.  No state that Silver Loaded last year switched strategies.  We are still waiting for clarity in Illinois, Georgia and Texas, big states where multiple strategies were used.  Indiana, West Virginia, Mississippi and Oklahoma are still Broad Loading while Washington DC has not been explicit about any CSR load as it is nearly irrlevant as Medicaid eligibility goes to 215% FPL.

Levels and wiggles

Average premiums for the ACA are likely to barely increase. There are locally massive rate decreases. CMS is taking a victory lap.

I think CMS is right on the proliferation of Section 1332 reinsurance waivers has contributed to lower premiums in seven states. The rest I think is far more questionable. I think that when we look at 2018 Medical Loss Ratios, we see that insurers massively overpriced. Insurers did not know what the rules would be in 2018 so they either ran like hell or raised rates.

We get two different pricing scenarios. Scenario 1 is the counterfactual scenario where 2018 was “correctly” priced so that most insurers would end up normally profitable with an MLR in the mid-80s. Scenario 2 is roughly what we are seeing in reality where insurers will be Scrooge McDucking it on the individual market in 2018 with MLRs in the 60s and 70s.

In Year 1 and 3 under both scenarios, the pricing is the same.

The difference is in Year 2. Under the counterfactual case (Scenario 1) there is a large price spike as CSR is built into premiums and medical trend matters. In the reality case (Scenario 2) we see a huge spike. Insurers built CSR into the premiums, medical trend matters, insurer drop out matters, fear of spiking morbidity due to messaging and potential mandate repeal and intense political leverage for state regulators to approve any rate level. Fear, rule set uncertainty, and empty markets created by fear and rule set uncertainty drives massive rate increases.

Moving to year 3, Scenario 1 has a premium increase from a realistically priced 2018. Medical trend hits again plus mandate repeal minus health insurance tax repeal minus reinsurance creates the current price point. Under Scenario 2, the insurers are trying to price the 2019 market so that they don’t have incredibly outsized profits leading to mega-MLR rebates. Under both scenarios the Year 3 price point is the same but the change from prior years is different.

Levels and spreads

The Center for Medicare and Medicaid Services just issued a press release trumpeting a decrease in the benchmark premiums for the individual market plans sold on

the average premium for the Second Lowest Cost Silver Plan (SLCSP) is expected to drop by 1.5 percent.

This brings up a good example of the conflict between levels and spreads. Average premiums across the county went up by about 3%.

If average premiums went up and a specific subset of plans went down, that implies other plans went up faster than the overall aggregate increase in premiums. If this situation was for anything other than the benchmark plan it would be a meaningless idiosyncrasy. However it is the benchmark plan.

Subsidies are tied to the level of the benchmark plan. The subsidy is the gap filler between an individual’s expected contribution and the final premium. If an individual buys a plan that is less expensive than the benchmark, they get a dollar for dollar in the premium that they pay. If an individual buys a plan that is more expensive than the benchmark, they pay the entire incremental increase in premium.

If the benchmark decreases and other plans increase, this means that the plans that are less expensive than the benchmark in 2018 are still less expensive than the benchmark in 2019 but the gap is smaller. A smaller gap means higher premiums that the individual pays every month. For plans that are more expensive than the benchmark, the lower benchmark and higher everything else implies higher net of subsidy premiums for the buyer as well.

Lower benchmark premiums in the context of generally higher premiums for everything else is good for the federal government’s budget and potentially good for a small subset of off-exchange buyers but it is either neutral or higher premiums for everyone else.

Open enrollment thoughts

Open enrollment season is coming up really soon. I just got the e-mail from Duke HR that outlined the choices I’ll need to wrestle with. Medicare’s open enrollment starts on October 15th. Covered California opens up their enrollment period on the 15th as well for the individual market. will run their open enrollment starting on November 1st. January 1 is the most common start date for employer sponsored insurance so corporate open enrollments are going into high gear now.

There are a lot of questions that someone going into open enrollment needs to ask as they make their decisions:

  • What are the choices being offered?
  • Am I or my family member(s)  guaranteed to run up a certain level of costs or am I only worried about getting hit by a surprise?
  • How important is our current set of doctors/hospitals?
  • If something bad happens do I have a preference for certain docs and places?
  • How much is the trade-off between monthly premiums and out of pocket costs

Duke has a very small, curated set of choices.  There are four health insurance choices with three networks and fairly low variation in benefit configurations.  There are three dental plans and a vision plan.  This is an easy set of choices.  I am fairly certain that I am going to be perplexed at some point though.

Some counties on the ACA have a single insurer offering sixteen different Silver plans in 2018.  Other counties have over one hundred plans from half a dozen insurers.  Medicare Advantage has dozens of options in some counties from multiple insurers.  Medicare Part D drug plans are frequently numerous.

Choosing insurance is hard.  The best advice that I can give to you is to ask for help and take your time.  Lay out your objectives and constraints.  Lay out what trade-offs you are comfortable making and then knock out the easy failures and then think about the plans that are meeting your minimal standards.  When I buy insurance, I acknowledge to myself that I probably won’t choose an optimal choice but I should be able to choose a satisficing choice.

Picking an insurance plan is tough so accept that fact and don’t be scared of that fact.

Cash for CART

CAR-T therapies are a type of innovative cancer therapy that tweaks a patient’s immune system cells to attack cancer.  The National Cancer Institute explains:

A type of treatment in which a patient’s T cells (a type of immune system cell) are changed in the laboratory so they will attack cancer cells. T cells are taken from a patient’s blood. Then the gene for a special receptor that binds to a certain protein on the patient’s cancer cells is added in the laboratory. The special receptor is called a chimeric antigen receptor (CAR). Large numbers of the CAR T cells are grown in the laboratory and given to the patient by infusion.

This treatment regime has good clinical results and the attack path is expanding to more diseases.  However it is (to use a technical term) wicked expensive.  Novartis charges a list price of $475,000 for their CAR-T regime.  This is one more example of something that we’ve looked at with Hep-C last March.   Hep-C cures generate two true statements with a significant tension.

1) They are really freaking expensive on both a per-patient basis and total spending basis
2) They are really effective and thus high value

JAMA Pediatrics just published a cost-effectiveness study on CAR-T for a particular type of childhood cancer .**  This paper raises the same points as the Hep-C cures:

In this decision-analytic modeling study using deidentified data, cost-effectiveness analysis generated an incremental cost-effectiveness ratio between $37 000 and $78 000 per quality-adjusted life-year gained over a patient lifetime horizon, with more than 40% of those initiating tisagenlecleucel treatment becoming long-term survivors.

Currently, the next best alternative to CAR-T treatment has a survival rate of 5% to 10%.  So there are huge survival gains.  Secondarily, those survival gains are cost effective gains.  Most health policy analysts in the United States assume that a quality adjusted life year price of under $100,00 is a reasonable deal.  Very few analysts will argue that a treatment with an upper bound price per QALY well below $100,000 is unreasonably priced.

A policy problem is that these are huge cash outlays for an insurer that has to assume that a patient won’t be covered by them for the rest of their life.  The insurer will pay for the treatment and won’t get any of the gains of the new, high cash outlay treatment.  If there is perfect risk adjustment with a technological innovation plus-up, this could remove some incentives for insurers to either not cover CAR-T facilities at in-network rates or to try to drown a patient and their family in paperwork and pre-authorization purgatory.

We need to figure out ways to pay for treatments that are both incredibly expensive and incredibly cost-effective within the insurance model that we are committed to.



** Whittington M et al, “Long-term Survival and Value of Chimeric Antigen Receptor T-Cell Therapy for Pediatric Patients With Relapsed or Refractory Leukemia”, JAMA Pediatrics, October 8, 2018