IUDs and future costs

Interuterine devices (IUDs) are now one of the two recommended forms of birth control for teenagers.  This is good news on multiple fronts as IUDs are extremely reliable, relatively inexpensive, and the woman controls her reproductive choices.  She does not need to worry about how long that condom had been in that wallet, whether or not he will actually pull out when he promised that he would, if she took a pill that morning or forgot or anything else.  Once inserted, IUDs are effective and forgetable. 

Teen girls who have sex should use IUDs or hormonal implants — long-acting birth control methods that are effective, safe and easy to use, the nation’s most influential pediatricians’ group recommends….

IUDs and hormonal implants cost more, usually hundreds of dollars, because inserting them involves a medical procedure typically done in doctors’ offices. But they’re less expensive in the long run than over-the-counter condoms or prescription birth control pills, said Dr. Mary Ott, an adolescent medicine specialist and associate pediatrics professor at Indiana University. She is the policy statement’s lead author,

Teens have to remember to use pills and condoms consistently. By contrast, IUDs typically work for three to 10 years after insertion, while implants typically last three years…..

This is excellent news, and it is illustrative of some of the problems with incentives that PPACA is working to fix.  Read more

Pricing and the next best alternative

The Incidental Economist passes along a pair of interesting studies as to how Medicare pricing and provider reimbursement influences private payer provider reimbursement.  The short story is that over a long time period, private pricing imperfectly tracks Medicare pricing.  The longer story will be after the quotes:

 Jeffrey Clemens, Joshua Gottlieb, and Adam Shapiro make the case that Medicare cuts in rates paid to hospitals induce private insurer cuts….

A study of this relationship in the hospital setting by White (2013) estimates that a 10% reduction in Medicare’s hospital payments results in a 4 to 8% reduction in private payments. White and Wu (2013) further find that hospitals handle these cuts by reducing their operating costs; this and related findings are summarized in Frakt (2013).

I think there are two seperate channels of pricing in play.  The first is simple and mechanical.  Quite a few provider contracts are based on Medicare plus 30% or Medicare plus 50%.  Medicare in this case is a base rate, so a decrease in the base rate results in a decrease of the derived final rate.  The sequester was a noticable decrease in the base rate so a provider getting paid at 150% of Medicare is now getting paid at 147% of non-Sequester Medicare rates now. 

The more interesting story is the search for the next best alternative.

Read more

More on PreferredONE

Last week, I posted that PreferredOne, the largest insurer by membership on the Minnesota Exchange, was leaving the individual market.  They were losing money on the policy and I looked at some basic information and came to the following conclusions:

It is not shocking though.

I think a few things are happening.

PreferredOne either was… over optimistic on their acturial modeling or had…engage in an extremely aggressive loss leader pricing strategy to build membership. If this was a loss leader strategy, than it may have been too effective…. People with high utilization and high complexity of cases are expensive on the medical side as they go to doctors/hospitals a lot AND they are administratively costly as they are calling in for help and care coordination on a frequent basis.

Secondly, the back-end infrastructure to support Exchange is extensive, especially as the risk spreading mechanisms such as risk adjustment require significant technical support. Building that type of infrastructure from scratch is painful and expensive. PreferredOne seems to have been only a commercial group insurer with a small staff before it decided to dip its toes into the water for individual Exchange.  It had no pre-exisiting model it could rip off to modify for Exchange.

It had aggressive pricing, a population that is higher need than normal, and not a lot of administrative/technical depth.

And now a local reporter up in the Twin Cities looks into the details of the decision (h/t Charles Gaba):

PreferredOne is not providing any explanation beyond a letter to MNsure from its CEO that said continuing to offer coverage through the exchange “is not sustainable.”

After looking into the company’s filings and talking to others in the market, that seems to be a fair assessment….

In a news release a year ago, PreferredOne was pleased to announce that it offered “the lowest-cost individual and family health care insurance plans available at all metal levels in eight of the nine MNsure pricing regions.”

PreferredOne had made its decision. It was going to grab some market share.

It worked splendidly, too….

For those keeping score, that’s $1.31 paid out for every dollar coming in, a medical loss ratio of 131 percent….

 So once someone actually looked at the facts, PreferredOne engaged in optimistic acturial assumptions, aggressive loss leader pricing and later on, it was shown that they don’t have a deep technical back-end.  Not too surprising.


The important thing to remember is that 2014 was a beta test year for Obamacare.  Some insurers went into the market with loss leader membership build strategies, others went in with a reasonable price sustainability model, others went in with a hyper cautious approach.  Some insurers had optimistic pricing models, others projected a much sicker enrolled population than they actually got. 

2015 is the first significant readjustment and the market is acting pretty much as we should expect markets for minimally differentiated products.  Plans that were underpriced are seeing their pricing go up, plans that are overpriced are seeing cost reductions.  It is almost like the market structure could work.

Narrow networks aren’t new

A Modern Healthcare article has an extensive piece on initial Exchange consumer reaction to narrow networks.  Besides wanting better web directories, people are relatively happy with them. However there is a throw-away line at the end concerning the proliferatin of narrow networks on the commercial/employer sponsored insurance side of the business that I think is wrong:

Jon Gabel, a senior fellow who studies insurance markets at the National Opinion Research Center at the University of Chicago, told Modern Healthcare in March that if narrow networks “spill over into employer-based health insurance, I think we’ll see much more politically potent backlash.”

As I noted last July, most of the popular plans sold to groups by Mayhew Insurance are narrow network or tiered network plans. 

Note that the three commercial networks which are the top sellers by membership are narrow to very narrow networks and they were all fundamentally built when President Obama was either a state senator or a junior Senator in D.C.

I think he is wrong for two reasons.  First, the big trend for large groups and Fortune 1000 companies over the past several years have been to keep employee contributions reasonably stable while jacking up the deductible.  Companies that were offering low Platinum or good Gold style plans in 2012 are now offering weak Silvers as the base option.  A lower deductible but narrower network option at the same employee contribution per paycheck is a trade-off a lot of people are willing to make on an individual basis (that is what I choose for my family). 

So on the first front, narrow networks have been around for a while and they have been common for large groups for at least a decade in my market.  Secondly, as long as the networks are well disclosed, directories frequently updated and the narrow network is not the default or only option, but instead are a part of a set of choices, I don’t think there will be a potent backlash.

Insurance companies as countervailing forces

The Incidental Economist’s Nicholas Bagley has a good set of comments on the New York Times great article on drive-by doctoring for massive out of network charges. First he looks at the current legal dynamics of contracts of adhesion for individuals and providers.  There is probably a theoretical course of corrective action for massive billing objections, the practical course of action is that it is usually cheaper for the individual to get extorted.

One of those terms is typically that the patient agrees to pay for all medically necessary care in connection with her treatment….As with any take-it-or-leave-it contract full of boilerplate terms—what’s called a “contract of adhesion”—the courts won’t enforce a treatment contract to the extent that it deviates from a signer’s reasonable expectations…just imagine how hard it would be to win such a case. The plaintiff would have to prove either that it wasn’t medically necessary to call in the drive-by physician or that the physician’s fees were so out of line as to be unreasonable. That, in turn, would require expert testimony and intensive discovery—and all for the unlikely prospect, after a delay of several years, of convincing a judge to supersede a physician’s professional judgment.

Doctors are one of the two or three most trusted professions in the country. Lawyers are slightly more popular than cockroaches and Congress. A doctor saying that his smart, intelligent colleague Dr. Smith was the BEST CHOICE at $100,000 for an afternoon’s worth of work for Mr. Doe’s surgery will sway far more juries than lawyers and experts arguing over what is appropriate care.   This is especially true when any claim that reaches the court room is a one-off event without vast statistical profiling.

Now the alternative as Mr. Bagley advances is for laws like New York’s reasonable expectations law:

New York’s law puts insurers on the hook for covering the patient’s out-of-network charges, which are then passed along to the rest of us in the form of inflated premiums. Disputes between insurers and out-of-network providers will be resolved in arbitration, and let’s hope that arbitrators won’t let providers get away with charging exorbitant fees. It’s possible, however, that New York’s law will just shift the costs of drive-by doctoring from patients to insurers.

I think this type of law is far more likely to reduce drive by assistant doctoring than individual litigation for a very simple reason. I know my company’s legal department. They are absolute assholes at softball. They also enjoy big, complex, multi-year litigation. They have spent twice as much on a case than they recovered/avoided in pay-outs to make a point. A suit to avoid outrageous charges is right up their alley.

In a Galbraithian sense, an insurance company acts as a countervailing pressure against concentrated medical power and the legal department is the sledgehammer in this function. An insurance company can look at statistical measures of patient quality and outcomes and show that keeping care in network at reasonable rates is no worse or significantly better than getting an out of network assistant surgeon. They can engage in extensive pre-trial discovery. More importantly, they can kick out of the networks abusers of assistant surgeon/drive by doctor assignments. It won’t stop it, but it will trim the outliers.

Tools to detect bullshit

At work, we received a response to a request for proposals that was incredible and fantastic.  I don’t mean that the proposal would save money, reduce confusion, reduce false denials and holds on services or even give a senior executive a suite full of nubile young women whose virtue had already been negoatiated.  I truly mean it was incredible along the lines of the product shitting cupcakes out a unicorn’s ass incredible.  However, on the first read of the response, it looks really good.  The second read is when the bullshit started to become obvious.  My boss knew it was bullshit but could not quite put her finger on why it was bullshit, so I spent the past two days deconstructing the proposal and thinking bullshit. 

There are a couple obvious sign-posts of bullshit in an argument that I think are relevant to general policy analysis.  If you start to see the following signs, you are either engaging with a sophomore in college who just learned something really cool in an introductory class but has neither the advanced classes in the field nor the experience to know better or you are seeing bullshit.  These two categories are not mutually exclusive.

The units of analysis make no sense

Avik Roy’s “study” of sticker shock in 2014 based on average prices per county had the unit of analysis as the county.  A county is a reasonable first unit of analysis as most state regulators regulate plans at a county level.  However, it is a shitty final unit of analysis as there are 3,144 counties in the US.  8 counties contain slightly more than 10% of the US population, and the largest county in the US, Los Angeles County, is roughly 120,000 times larger than the least populated, Loving County, Texas.  In his “analysis”, these two counties count the same. 

The comparisons are wildly bizarre

Again, Avik Roy compares community rated insurance with a fairly rich benefit package to underwritten insurance with significant exclusions of coverage.  As I showed last year, this study included plans that excluded mental health coverage, excluded maternity coverage and included plans that rejected outright a quarter of the individuals who applied for coverage.  It is real easy for an insurance company to offer low prices when it is statistically unlikely to pay big claims due to a screening of the risk pool.  So any comparison between underwritten policies and community rated policies have to be taken with extreme caution.  It can be done, but straight up comparisons can’t be made.

The claims are incredible

Timothy Jost looked at Avik Roy’s Obamacare replacement plan and made a note about an incredible set of claims that the free market/Universal Exchange would shit cupcakes out of its ass:

He claims it would increase access to providers by 4 percent (98 percent for Medicaid recipients) and average health outcomes by 21 percent,  [my bold] while reducing the federal budget deficit by $29 billion over the first 10 years and $8 trillion over 30 years. It would, he claims, reduce average commercial premiums by 17 percent for individuals and 4 percent for families by 2023.

These claims are based on analysis of the proposal conducted by Stephen Parente, an American Enterprise Institute Scholar. I can find, however, no description of the methodology, or for that matter of the inputs, applied in this analysis. In particular, how Parente and Roy modeled an improvement in health outcomes, something the CBO never attempts, is a complete mystery.

The bolded part, increasing average health outcomes by 21% is an incredible claim that flies in the face of most evidence that suggests access to great medical care is a 10% to 15% determinant of health status.  A 21% improvement in health status is an incredible claim.  It should have incredible evidence to support it.  The evidence should be made public.  However it is not disclosed nor has anyone with significant credibility and the charge to conduct that type of analysis ever published anything similar to that model.  It could happen, but the support for that number is extraordinarily weak.

The underpants gnomes dominate the theory of change

As we all know, the underpants gnomes have a simple business model/theory of change to get rich:

1) Steal underpants

2) ????

3) Get rich

When the underpants gnomes have to do the heavy lifting in a theory of change, it is either a first draft that needs to be fleshed out, an affinity scam, or bullshit.  Congressman Ryan (R-Wis) wants to use dynamic scoring to get around the fact that he is making two incompatible promises — lower tax rates, especially on the wealthy, and revenue neutrality.  Dynamic scoring  is step two of the theory of change. 

Don’t look at past predictions

Be extremely skeptical of people who don’t audit their past predictions.  Jonathan Chait ripped Reason magazine’s Peter Suderman apart on his Obamacare predictions:

The latter study comes in for criticism by Peter Suderman, Reason’s indefatigable health-care analyst. Like the entire right-wing media, Suderman’s coverage of Obamacare has furnished an endless supply of mockery of the law’s endless failures and imminent collapse. While some of his points have validity, it’s fair to say that the broader narrative conveyed by his work, which certainly lies on the sophisticated end of the anti-Obamacare industry, has utterly failed to prepare his libertarian readers for the possibility that the hated health-care law will actually work more or less as intended.

And yet, in another way, the conservative media has provided a useful lagging indicator of Obamacare’s progress. The message of every individual story is that the law is failing, the administration is lying, and so on. The substance, when viewed as a whole, tells a different story. Here is how Suderman, to take just one example, has described the continuous advancement of the law’s coverage goals:

People get things wrong all the time.  That is fine.  It is not fine when their is no evaluation of the process that produces wrongness as that guarantees the continuation of the Garbage In-Garbage Out loop.


There are plenty of other high quality bullshit detection tools that are useful in policy analysis, but the above tools can be safely applied by anyone with some curiousity and interest in a subject.