The costs of the Arkansas/New Hampshire Private Option

The New York Times has a good article on the difference in lived experiences of the ACA in New Hampshire. The short version is that people who make more than 400% Federal Poverty Level (FPL) are screwed for a wide variety of reasons. The subsidy cut-off means these folks bear the full cost of premiums and thus the full cost of sabotage.

I want to focus on a secondary line though. New Hampshire uses the Arkansas Private Option model for their Medicaid expansion:

Instead of giving its new Medicaid recipients traditional coverage through the program, New Hampshire uses Medicaid funds to buy them private plans through the Obamacare marketplace. The report, by an independent actuarial firm, found that average medical costs for the state’s expansion population were 26 percent higher than for the marketplace’s other customers in 2016.

The firm found this raised average claim costs — a proxy for premiums — for everyone by 14 percent.

There are two drivers that could lead to higher utilization for the Medicaid Expansion population are the population is sicker than the rest of the Exchange eligible population and the lower cost sharing leads to more services for a given level of health. It is most likely a combination of the two.

New Hampshire could significantly lower costs to non-subsidized buyers by shifting the Medicaid Expansion population to Medicaid Managed Care. This would lead to a significant drop in state expenses as New Hampshire Medicaid pays providers 60% of the standard Medicare rates. Medicare rates are often significantly less than commercial and Exchange rates. This will become increasingly important as the states begin to pick up more of the tab for Medicaid Expansion.

It seems like the Private Option in New Hampshire costs everyone except the hospitals and the docs more money than a straight up expansion.

Three quarters loafs in Virginia

Sarah Kliff reports on some important and interesting news in Virginia:

Over the weekend, a key committee in the Republican-controlled Virginia House of Delegates backed a budget that would have the state opt in to the Affordable Care Act program to cover low-income Americans. For years now, Virginia Republicans have opposed Medicaid expansion — so this new budget is a significant turnaround….

But the Virginia Republicans’ plan to expand Medicaid comes with a catch. State legislators say it would require enrollees to work in order to receive coverage, similar to new the new programs recently rolled out in Kentucky and Indiana.

There is also movement on Medicaid expansion in Kansas:

From my point of view, any time a non-expansion state is able to expand Medicaid to at least 100% Federal Poverty Level (FPL) should be greeted with cheers. The details always matter, but in my moral universe, improving the lives of those facing great challenges with few resources now is almost always better than causing more pain in the hope that a technically better solution may (or may not) come in several years.

If Medicaid expansion in Virginia needs work requirements, than several hundred thousand people will get coverage that they need and some hassle that they don’t need. That is better, in my mind, than have several hundred thousand people going without coverage and still getting a different type of hassle of trying to manage their medical care with insufficient resources. And once Medicaid expansion is in place, the next task is building majorities to make it and the rest of the healthcare system better.

Churn, prophylaxis and incentives

Craig Garthwaite makes a very good point on the problems of paying for prophylatic treatment in the current US health finance system:

He is commenting on a specific case. But the general point is that the incentives for costly upstream care to deliver large downstream savings are seldom aligned in the United States. The insurer paying for the expensive care seldom receives the benefit of future cost savings. Unless there is a strong mandate that requires all insurers to pay for this type of high cost and long pay-off care and perfect risk adjustment to eliminate the incentive for insurers to dodge, private insurance models will provide less of this type of care than optimal. This is true if a person is likely to churn to another private insurer or if in this case a person is highly likely to churn to Medicare.

We either accept this is the case or we perfect our mandates with precise risk adjustment or we carve out increasing classes of care so that they are paid for by entities with very long shadows of the future.

Their own private Idaho

What is going on in Idaho’s individual health insurance market?

Politico reports:

Idaho is going rogue on Obamacare.

The Republican-led state has a maverick plan to flout the federal health care law, letting insurers sell plans that don’t meet Obamacare coverage rules and patient protections….

The state’s largest insurer, Blue Cross of Idaho, announced Wednesday it has five “state-based” plans that it wants to get approved and on the market by April. They will be cheaper than Obamacare plans but won’t provide as robust benefits or protections for people with pre-existing conditions.

Mechanically, Idaho is attempting to implement the Cruz amendment from the 2017 summer Senate repeal and replace bill. The Idaho rule is that as along as an insurer also offers an ACA plan, they can offer underwritten plans with life time limits and benefit caps as well to the individual market.

This is aimed at bringing down premiums for healthy non-subsidized buyers. It will be a better deal for 24 year old men who won’t be buying plans with maternity coverage. It will be a far worse deal for individuals with significant health needs and who don’t qualify for a subsidy as the underlying risk pool in the ACA markets will get worse and premiums will go up. It will not meaningfully matter to people who qualify for subsidies and are happy with what they get right now.

The core problem is that this is wildly illegal. ACA legal expert Nick Bagley comments:

The only individual market full year insurance plans that are allowed to be underwritten and to offer limits are the grandfathered and the grandmothered plans. All other plans that were first offered on the market after 1/1/14 must comply with ACA rules, and most plans offered before 1/1/14 and after the signing of the bill also comply with those rules. The state insurance department is the first regulator. If the state does not knock back illegal plans, then CMS has an obligation to do so.

The new Secretary of HHS has been asked about that and it seems like CMS is looking into what Idaho is doing. Given that CMS’s political leadership is against enrollment but open enrollment went mechanically well, I will not be surprised if there is a letter being drafted right now that goes like this:

Dear Idaho,
We know that you want to do something to help the people who are priced out of the insurance market. That’s cool. We want to help states customize their own marketplaces.

However the current plan is bananapants illegal so knock that shit off. Insurers participating in something this ludicrous are placing themselves at risk of fines up to $100 per member per day.

Let’s talk about your 1332/1115 proposal next week.

CMS Legal staff

If that letter is not being written, then someone else will sue to stop the selling of these non-compliant plans.  Other Idaho ACA insurers are basically being dared to either all participate in this scheme or sue as the non-compliant plans will take away a significant portion of their off-Exchange good risk mid-year which is a negative material financial event.

So the TLDR: There will be a lot of lawyers soon.

Avoiding bad headlines a week before midterms

Stephanie Armour at the Wall Street Journal reports on the increasing willingness of Republicans to think about reinsurance:

Republicans opposed to the Affordable Care Act are showing interest in proposals to shore up the health law and lower premiums, driven partly by their concerns that any big jump in insurance costs may hurt them in the midterm elections.

State and federal GOP lawmakers are backing or considering reinsurance proposals that aim to curb premiums by offsetting insurers’ costlier claims….

Timing is important. Insurers are developing their preliminary rates right now.  They submit those preliminary rates for state approval in mid-spring.  Insurers then sign their final contracts with the Center for Medicare and Medicaid Services (CMS) in late September.  The public use files that show actual pricing tends to be released between seven and ten days before open enrollment starts.  Open Enrollment starts November 1, 2018.  Midterm elections are November 6.

Republicans as the party defending more seats and holding the White House will get blame or credit for the general environment.  They have a strong incentive to avoid headlines that say “Your insurance is going up 20% again”.

Right now here are the major factors of pricing changes with rough estimates of the size of the increase:

  • General medical trend +7
  • Repeal of the individual mandate +10
  • More association and underwritten individual plans +2 to +5
  • Repeal of the Health Insurance Tax -3

We’re looking at a baseline of a seventeen to twenty point increase in individual market, non-subsidized premiums.  Premiums will drop as people downshift from Gold to Silver or Silver to Bronze as well as shop around if they are able to do so.  But this is a good rough baseline.

A reinsurance program funded at $15 billion dollars in initial federal outlays reduces the increase to probably five to eight percent on average.  That is a much better headline.

I think there is a policy deal that can be made that trades a Democratic policy win for Republican political wins.  A deal that funds reinsurance, modifies 1332 guidance, shifts outreach from to states and makes Catastrophic plans funny looking Bronze plans could easily pass.  Cost Sharing Reduction subsidies will not be restored to their 1/19/17 status quo.  If CSR is funded, it will be in exchange for richer premium tax credits and higher phase-outs of both premium and CSR subsidies.


Is 12.9 million enrollees the right counterfactual?

Joshua Peck of Get America Covered is attempting to estimate a counterfactual of what enrollment would have been without Trump. I think this is a useful exercise, I have tried to build the same type of counterfactual. I think the number that he and his team use is too high.

Based on the evidence we have, without the Trump Administration’s efforts to undermine enrollment, national enrollment would have exceeded 12.9 million enrollments or roughly 1.1 million additional people would have enrolled.

There are a couple of major assumptions that I disagree with. The biggest are the impact of CSR and the impact of federally paid media. Before we go deeper, I want to outline what I think are the major drivers of enrollment changes.

  • Enrollment in QHP is probably counter-cyclical as a better economy should lead to more people covered at work
  • Medicaid expansion is a negative in Louisiana as eligible people are switching to Medicaid from QHP
  • Overall messaging environment is a major negative
  • Lack of federal outreach is a negative
  • Increase in private outreach is  a positive
  • Insurers dropping out is a negative
  • Terminating CSR is a positive
  • Increased Silver Gapping is a positive

Peck acknowledges that CSR is a big deal:

Marketplace consumers saw lower net premiums this year than last year. For many Americans, prices were much lower than previous years due to the indirect effects of cutting payments for cost-sharing reductions aka “Silver Loading”. According to HealthSherpa, overall their consumers paid on average 13% less this year than last year.

But if we are trying to establish a counter-factual based on a universe where Hillary Clinton is President we need to back out CSR impacts.  I don’t think it is a straight faced assumption to assume that a Clinton HHS would terminate CSR mid-year in order to encourage Silver Loading.  If there is no Silver Loading, the only pricing advantage possible in 2018 compared to 2017 for subsidized buyers is via Silver Gapping.  Insurers have been getting smarter about increasing the number of counties where there is a wider spread between the least expensive Silver and the benchmark Silver. Silver gapping was more common in 2017 than at any point before.  I don’t think we can create a counter-factual with a better subsidized pricing environment than reality.

Insurers dropping out is a known negative. People get lost in the wash of auto-renewals and have price shocks and then messaging.  I think we would have seen fewer insurers drop out in a Clinton administration than we actually did as there would have been less policy uncertainty, but we still would have seen insurers change their covered regions and leaving counties.

The next major areas that can drive changes in enrollment levels are messaging environments.  I will start small. minimized their outreach.  However, the Wesleyan Media Project shows that the private sector picked up the slack:


We also see total enrollment in California down by 2.3% compared to 2017 despite Covered California going all out on outreach and taking advantage of very aggressive Silver gapping and Silver loading.

The big counter-factual negative is the broader messaging environment.  We know that the Trump executive order led to an immediate slow down in enrollment in the last eleven days of the 2017 Open Enrollment Period (OEP).  Quick and dirty estimates have the enrollment loss at 4.29% while more sophisticated estimates have lower numbers for that immediate administration change period.  People have been hearing for a year now that the ACA is dead and it is worthless.  Marginal buyers aren’t following health insurance policy news closely and they’ve heard that the ACA won’t be around for long.

We have two other enrollment depressors that are constants across the actual and the counterfactual. The first is Louisiana had a mid-2016 Medicaid expansion where a lot of eligible people still signed up for ACA plans instead of Medicaid in 2017.  Those people are switching over to Medicaid for this year.  Next the unemployment rate is decreasing which means more people have jobs which means more people may have access to employer sponsored insurance.  The individual market is counter-cyclical, we should expect, all else being equal, more enrollment in bad economic times and less enrollment in good economic times.

The big net depressor of enrollment for 2018 to 2017 in my opinion is the general messaging environment.  A lot of other things seem to wash out.  In the counterfactual universe, subsidized pricing is no better and most likely significantly worse in many counties.  Advertising is just being sourced differently and fewer insurers were leaving the market.

I don’t think 12.9 million potential enrollments in the counterfactual is a reasonable estimate. I think a number that is closer to 12.4 or 12.5 million potential enrollments is probably a more defensible counterfactual.

A day in my life (health care thoughts)

Yesterday was a sick day. I needed a root canal.

I’ve always thought dental insurance is better visualized as a buyer’s discount club with some minimal insurance features instead of an insurance product with some buyer’s discount club features.  I estimate that my dental insurance has an actuarial value of about 50%.  The rest is out of pocket.

My endodontist started the procedure and about twenty minutes after I had been numbed up and the drill started to go through the crown of my tooth, she stopped and we had the following conversation:

“This is a little different than what’s on the X-ray”

“Is it a problem?”

“No, but I would like to do a scan to confirm the diagnosis, you okay with that?”

“How much would the scan cost and what does it get me?”

“$300 after your insurance pays, and it slightly decreases the chance you are in pain on Saturday”

“What are my baseline odds of pain?”

“Pretty low, I’m good at what I do…”

“Then no scan”


Twenty minutes later, the temporary crown was on and I was walking out the door.  As a health policy researcher and insurance geek, I was impressed with the radical price transparency and the discussion of value as my mouth was being worked on.  As a patient, this is something that I appreciated that I was not surprised with an unexpected $300 charge for minimal gain but it is not a decision that I was particularly able to make well.  I was operating at massive information asymmetry.  I had no way to evaluate whether or not my dentist was telling me the truth on how good she was and whether or not the baseline odds were accurate.

Once I got home, I checked the mail. And joy of joys, I received a revised bill from my son’s pediatrician.  We had taken him for his annual well child/vaccination update visit last July to an in-network provider.  The doctor’s office did not believe he was insured that day.  OOPS!

The HR office made an error on the special enrollment period membership file to the insurer.  He was initially deemed not covered so we got billed for the entire charged amount.  I fought and it took four rounds of phone calls to get everything straightened out.  Now we owe the standard co-pay and I dropped that check in the mail this morning on the way to the kids’ bus stop.

On one side there is radical price transparency fueled by low actuarial value coverage.  On the other hand, high actuarial value coverage required the paper work to work right.  One system worked as designed, I was a hyper informed consumer who decided to not get marginal care and the other took over six months to resolve to everyone’s satisfaction.  This is where we are probably going for health coverage where the insurer is more of a buyer’s discount club but the moment of decision felt like I was still operating under intense informational asymmetry and a power imbalance.  Getting the billing right for my son was a pain in the ass but I had allies from the insurer who do this multiple times a day so information and power were closer to symmetrical.