Why we need to fight

First a story from Jacy:

I had a catastrophic plan the first year — which was the year I was diagnosed with ovarian cancer that July. Living in Louisiana, I fell into the “Jindal Hole,” where I made too much money for Medicaid but not enough money to qualify for a subsidy. It was a nightmare. Out-of-pocket cap was supposed to be $6,300 after a $4,200 deductible (which was a fortune that I couldn’t afford anyway…), but having a major diagnosis meant that I racked up bills so fast that they couldn’t even process the claims to figure out when the insurance would kick in. Fast forward to October, where I was standing at the reception desk of the oncologist’s office, crying, because I couldn’t pay the $5,000 copay to get the chemotherapy I was scheduled for that day. I was paying almost $500 a month for insurance, had spent borrowed and spent nearly $7,000 in copays and deposits to meet my deductible and and out-of-pocket cap, but none of that mattered. I had to postpone chemotherapy and spent the next several days on the phone trying to get someone to authorize treatment or find some way to come up with thousands of more dollars on the spot.

The next year, I made enough money to get a silver plan, and I was paying $128 a month in premiums, with a $200 deductible, after which everything was totally covered. I would not have survived another year on the catastrophic plan.

And then a story from the truly bad old days as written in the LA Times:


When Steve and Leslie Shaeffer’s daughter, Selah, was diagnosed at age 4 with a potentially fatal tumor in her jaw, they figured their health insurance would cover the bulk of her treatment costs.

Instead, almost two years later, the Murrieta, Calif., couple face more than $60,000 in medical bills and fear the loss of their dream home. They struggle to stave off creditors as they try to figure out how Selah can keep seeing the physician they credit with saving her life.

“We’re in big trouble,” Leslie said.

Shortly after Selah’s medical bills hit $20,000, Blue Cross stopped covering them and eventually canceled her coverage retroactively, refusing to pay for treatment, including surgery the insurer had authorized in advance.

The company accused the Shaeffers of failing to disclose in their coverage application an undiagnosed bump on Selah’s chin and physician visits for croup. Had that been disclosed, the company said in a letter, it would not have insured Selah.

(h/t Charles Gaba)

Let’s avoid the bad old days.

Age based subsidies and geographic disparities

I am reading through the leaked Republican Reconciliation bill at Politico.  

P.66 has the replacement subsidies that are determined solely by age and do not reflect either income or local cost of coverage:

  • 18 to 29 — $2,000 year
  • 30-39 — $2,500 year
  • 40-49 — $3,000 year (note mid-40s is when the cost curve which is incresing from a 3:1 band to a 5:1 band starts getting expensive)
  • 50-59 — $3,500 year
  • 60+ — $4,000 year

There are major distributional impacts that will kick the Republican base voters in the teeth.  Most notably the increase of the age premium band from 3:1 to 5:1 will make insurance much more expensive for older insured individuals.  The subsidy band is only 2:1.

In Pittsburgh under the 3:1 band, a 29 year old can buy a catastrophic policy today for less than their monthly subsidy. A Bronze plan would cost $20 out of pocket every month and a Silver plan $47 per month.  Under the same banding, a 64 year old with their $333 non-income adjusted subsidy will be able to buy a catastrophic policy for $89 per month, a Bronze plan for $152 per month and a Silver plan for $211 per month.  This is a favorable set of assumptions for the 64 year old as the age banding is 3:1 instead of 5:1.  Less favorable assumptions would make the Silver policy cost $600 or more after subsidy for a 64 year old.  The only person who will buy that policy is someone who is already getting extremely expensive treatment in the hospital.

That appeals to liberal moral interest and a bit of schradenfreude.  A more useful angle of attack is to look at what that 29 year old and 64 year old can buy after the subsidy in Alaska (zip code 99501).  There a 64 year old under 3:1 band would see a Bronze plan cost them $1,300 a month and a Silver plan cost them $1,700 a month after the flat age based subsidy is applied.  These numbers will get even larger once a 5:1 premium band is applied.  This will death spiral the individual market.

Apply the same analysis to Arizona which also has two Republican Senators that count on an older supporting voter base and there are stories to tell which will inflict significant political risk to Republican Senators.

Revisiting the three legged stool

Paul Krugman has used the three legged stool analogy to describe the ACA several times.  It is an analogy that is vivid in its description and useful in its implications:

Yes! The Court (minus the three stooges) understood that the ACA is designed to work via the “three-legged stool” of guaranteed issue and community rating, the individual mandate, and subsidies. All three elements are needed to make it work, which is why it was obvious to anyone who paid any attention that the lawsuit was nonsense.

There is a problem with this analogy.  It is too specific.

There are three legs of the stool.  Two can stand without modification.  Guarantee issue with community rating stands as a firm leg.  It means that anyone can get a policy at a standard rate.  In the ACA, that standard rate is based on the county or zip code of residence and age of the applicant.  Subsidies also are a firm leg.  They help people who can not afford the standard rate pay for the standard rate.

The third leg of the stool is a pool participation mechanism.  The individual mandate is a specific type of the third leg.  There are other mechanical techniques that can fundamentally perform the same needed function of getting people who think that they will be relatively healthy and low utilizers into the insured risk pool.  100% subsidy for the premium and auto-enrollment with an opt-out performs the same function as the mandate in getting healthy people in the pool.  It would force a lot more healthy people into the pool at a higher expenditure for a given level of actuarial value coverage.  Late enrollment penalties like those used in Medicare that are long lasting and significant are another approach to get healthy people in the current period into the pool.  Multi-year contracts that extend the zone of uncertainty and risk theoretically perform the same function.

All of these techniques are ways to minimize the cost gap between not being covered at all and being covered at a minimal level while participating in the pool.  They attack the same problem from a variety of angles but they are functionally similar to each other.

So the actual three legged stool of the ACA is community-rated guarantee issue, subsidies and pool participation mechanism.  Keep this in mind as we again talk health reform over the next year.

An open letter to insurance commissioners regarding baseline maximization

To any Insurance Commissioner:

This is an open letter to insurance commissioners who believe it is their legal and moral duty to protect the citizens of their state in the face of increasing policy uncertainty.  I strongly urge that the following actuarial guidance be sent to all carriers that are considering submitting rates for the individual market for the 2018 rate year as this will provide significant protection for subsidized individuals in 2018 and potential long term insulation from several of the policy changes that are currently being debated in Washington.

“All carriers that wish to submit rates for qualified health plans for the 2018 shall use the assumption for all on-Exchange plans that the individual mandate will not be enforced.  An alternative secondary submission shall be prepared with the assumption that there is no material change in the enforcement of the individual mandate.”

Furthermore, states should seek to reduce the number of plans that are offered, approved and authorized for sale on Exchange, specifically on the Silver metal band.  Increasing the difference in price between the least expensive Silver plan on the Exchange and the second least expensive Silver plan will lead to far lower post-subsidy premiums and a healthier risk pool.  

These strategies will help protect residents and citizens of your state in 2018 within the current uncertain political and policy environment.  This protection emerges from two directions.  First it will give permission to carriers to realistically budget and plan for the next plan year which should increase the probability that carriers will offer plans in all markets even if there are significant rate increases needed to counteract any potential off-Exchange death spirals in the non-subsidized portion of the individual common risk pool.

Secondly, there are several bills that are being mooted about that seek to block grant future health insurance subsidies on a state by state basis where the baseline for the funding will be CBO projected subsidy spending under PPACA as it is currently written and implemented.  If the law is changed to reflect this, it is in the best interest of your state to have as high of a baseline as possible in order to guarantee the best coverage for as many of your citizens as possible.  If your department determines that the individual mandate enforcement is not certain and authorizes very large premium increases for on and off Exchange plans this summer, the baseline spending allocation will be significantly higher for your state than if you authorize very low rate increases which could lead to carriers withdrawing en masse which would be a human tragedy in 2018 with decades of repercussions.

Aggressively asking for actuarial sound scenarios will further your charge to protect your state’s insurance market and citizens.  

What’s going on in Kansas

Some very interesting news in Kansas that I don’t know how to interpret:


The argument that is being advanced is that even at a 90% Federal match, there is a Medicaid expansion package that will reduce Kansas state expenditures so it helps the state legislature dig out of the Brownback inspired fiscal hole without raising taxes and without being heartless bastards. And that argument seems to have worked in at least the House.

Here is what I don’t know yet:

  • Will this pass the Senate?
  • Will it pass with a Senate super-majority that is veto-proof?
  • Is it straight up expansion/state plan amendment or a 1115 waiver application?
  • What the hell is going on?

So what the hell is going on in Kansas as this seems slightly unbelievable in a good way.  And who do we need to call to encourage good votes in the Senate?

High deductible plans, IBNR and non-patient centered care

My wife had scheduled an elective but needed surgery for late December, 2016 (just days before I left her with the kids to go to North Carolina**). We had good insurance through my former employer.  The individual deductible after the health incentive bonus is $600 and then there is a 20% co-insurance for the next $10,000 in expenses.  By a rough estimate it is 83% to 85% actuarial value coverage.  It is somewhere between a Gold and a Platinum plan.  Up to the surgery, she had spent less than $50 in deductible so she still had a lot of deductible to satisfy before the co-insurance kicked in.

Any an-patient surgery for a non-bundled case will produce at least three sets of claims. The first claim is the surgeon’s professional claim.  It compensates the surgeon for their skill and time.  The second claim is the anesthesiologist for their skill and time as well as the good drugs.  The third claim is the facility fee from the hospital.  It is the rent for the operating room, recovery room and then room and board.  This is the simplest billing situation.  There are numerous situations where the claim situation will be far more complex.

And now let’s see where this split system produces a very patient unfriendly experience that has a root cause of increasing cost sharing obligations.

The week before the surgery, the surgeon’s office pre-authorized the diagnosis and procedure codes.  They also received an estimate of how much cost sharing my wife was subject to and the split between deductible and co-insurance.  Before the operating room reservation would be confirmed, the billing manager told my wife that she would have to pay her estimated cost-sharing for the surgeon’s professional claim.  This was deductible plus some co-insurance.  My wife was surprised and asked why.  She was told that with increasing deductibles the surgeon’s office does not want to chase patients for co-pays and deductibles that they won’t see.  My wife pulled out a credit card and made the payment.

A week later, she checks into the hospital, gets her surgery and is released the next afternoon.

All is good and then we get into claim processing cycle heck.

Read more

Arrow’s healthcare primer

Kenneth Arrow passed yesterday.  He was my second favorite economist who made their bones in the 50s and 60s.  Much like Herb Simon (my favorite) he makes my head hurt whenever I try to think hard about what he is saying in whatever field he is commenting on and thus leading it in a new, intriguing and useful direction.  Here is a link to his seminal healthcare insight  and paper

The key insight is that the medical market operates under massive uncertainty and time variance of knowledge.  Risk can be priced but uncertainty can not be priced.  This leads to extraordinarily inefficient outcomes if we assume a traditional competitive market framework.

If you want to gain a good understanding of health policy, read this paper and then read Akerlof’s Lemons paper.  And then reread them until your head hurts.

We lost a giant but his ideas and influence will remain.