You’re losing me

The Medical Loss Ratio (MLR) is a simple ratio.  It is the sum of money spent on claims by an insurance company plus the sum of money spent on a few quality improvement and medical management programs divided by the sum of money collected as premiums.  Under Obamacare, large groups are required to have an MLR of at least 85%.  Small groups and individual policies as a pool have to have an MLR of at least 80%.  If the MLR is below these thresholds, the insurance companies must send rebates.  The MLR is calculated over the course of a year as January tends to have lower claims pay-outs than November because more people are still paying deductible in January than November.  

Before Obamacare, there was no national MLR requirement.  Insurance companies could pay out as much or as little as they could get away with.  States could regulate MLRs and the regulated MLRs were often 50% to 80% of premium dollars had to go to actually pay claims. 

Business Week in 2008 highlighted an egregious example (h/t PNHP)

In several cases where BusinessWeek was able to obtain benefits ratios from colleges or universities, the percentage was well below 70%.

At Palm Beach Community College, the benefits ratio for the spring semester of 2008 was 42.6%, according to reports provided to the school by UnitedHealthcare.

In previous semesters the benefits ratios dipped as low as 10.2% and 13.8%. This means the college’s plan has been a veritable gold mine for UnitedHealthcare. At the University of South Florida in Tampa, which offers a plan from American Fidelity Assurance, the ratio this academic year is 35%, down from 71% and 61% the previous two years, respectively.

So what is the change? 

The requirement under Obamacare is that health insurance companies must actually spend a very large proportion of their premium dollars on actually paying claims for healthcare.  No state had stricter requirements for MLR than Obamacare.  This is a consumer protection piece.  Junk insurance and more importantly half decent benefit packages that are overpriced is no longer practical to sell.

 As a practical matter, most of the integrated payer-providers, co-ops and larger non-profits tended to be close to regulated MLR levels in 2012.  The big difference has been moving the for-profits pay-out rates much higher.  It is changing the business model from looking for reasons post-facto to deny claims towards better medical management and efficiency as there is no longer an ability for a company to spend 30% of revenues on bureaucrats looking to say no. 

Let’s take an example.  Let’s imagine that  Mayhew Insurance is in the large group market.  There are 40,000 members in the large group market and we charge  an average of $500 per member per month (all numbers are hypothetical and used only for illustration and easy math).  That means Mayhew Insurance collects $20 million in premiums per month.  Pre-PPACA, we might only pay, on average $15 million dollars in claims per month.  That would be an MLR of 75%. 25% of the premiums would go to interest expenses, profit, salaries, rent, hookers and blow.   Quite a few people have jobs where their mission is to say no for comparatively specious reasons. 

Under PPACA, for the same premium pool, we either have to pay out $17 million or more in claims per month, reduce premiums to $17.65 million dollars per month or still collect $20 million in premiums but send out $2.35 million dollars in MLR rebates per month.    It is cheaper to increase the pay-out than send out rebates.  Mayhew Insurance can move some of the specious No’s to quality improvement and medical management roles, but the plan to have a gold-plated fountain in the lobby has been reconsidered.

Stress, health and health insurance

Digby passes along some depressing news:

Joshua Holland shares the good news for poor people:

In 2009, the British Medical Journal (BMJ) published a study that revealed what seems to be a shocking truth: those who live in societies with a higher level of income inequality are at a greater risk for premature death….

What happens is those lower down the economic ladder experience more stress. Their lives are much more stressful, and they secrete more stress hormones until they’re burned.Stress is our twenty-first century tobacco. As we understand more about stress biology and the impact it has on our lives, we are going to have to wage a campaign to reduce the amount of stress in our lives. In one survey, people in the US reported the fourth highest levels of stress in the world. That’s true despite all our smartphones and gadgets and conveniences and the ease of everyday life. It’s incredibly stressful for those who own all these gadgets, but the ones on the bottom suffer the most stress. Surveys of stress hormones find that they have the highest levels and they have the worst health outcomes. So the bigger the gap between the rich and the poor, the greater the stress on those lower down, and the higher you are up the economic ladder, the better off you are.


Sarah Kliff noted last week that being uninsured sucks goat balls:

There’s a very simple reason that Obamacare hit 8 million sign-ups: Being uninsured is horrible.

But even if the total number of Obamacare sign-ups isn’t especially important, the groundswell of enrollments is: it shows that the fundamental premise of the law — that people want health insurance — is correct. They’re willing to battle through a crummy website and a complicated law and endless political controversy in that process, too, if it means coming out with a health insurance policy at the end.

“That’s not a new idea that people want health insurance,” Perry says. “But that they would stick through so much hassle still amazes us.”

I’m a health insurance wonk.  It is what I do for a living, and it is what I write about.  But the best health insurance with perfect compliance means, on a good day with a favorable study 15% of health outcomes are attributed to having great insurance and great medical care.  Most of the rest is environmental and social.  The biggest driver is stress in a variety of forms.  Removing the stress of worrying about the trade-off between getting an ugly lesion checked out and potentially treated versus paying the rent will probably do more for aggregate health outcomes than actually treating the lesion.

Better signals for Obamacare success

Kevin Drum is laying out some markers for what he would consider an Obamacare success story in 2023.  He raises a good point about pre-65 mortality rates.

But my biggest issue is with the age-adjusted mortality rate. I know this is a widely popular metric to point to on both left and right, but I think it’s a terrible one. Obamacare exclusively affects those under 65, and mortality just isn’t that high in this age group. Reduced mortality is a tiny signal buried in a huge amount of noise, and I very much doubt that we’ll see any kind of clear inflection point over the next few years.

I think there are a couple of different metrics that would be fairly useful and fairly easy to get widespread agreement that these changes would indicate that Obamacare is working fairly well.  The biggest change would be  a significant increase in Quality Adjusted Life Years for people between the ages of 18 and 64.  A QALY is a way of valuing how good a year of health is.  The source of all knowledge gives a good definition:

The QALY is based on the number of years of life that would be added by the intervention. Each year in perfect health is assigned the value of 1.0 down to a value of 0.0 for being dead. If the extra years would not be lived in full health, for example if the patient would lose a limb, or be blind or have to use a wheelchair, then the extra life-years are given a value between 0 and 1 to account for this

QALY is a better signal than raw 18-64 mortality rates because right now, a 55 year old with chronic conditions is still strong enough and in good enough shape most of the time to get to Medicare.  However the time period between significant impairment and Medicare eligiblity is less than optimal health.  Improving health may not reduce the 18-64 mortality rate, but it dramatically improves quality of life while reducing costs.  The Boston Globe recently ran a story about active disease management for diabetes and highlighted the business case: 

About 60 percent or so people with type 2 diabetes can keep side effects at bay by simply managing sugar levels, exercising, and watching their weight, said Dr. Sam Nussbaum, a former endocrinologist at Massachusetts General Hospital and an executive vice president for the insurer WellPoint.

On the flip side, if the disease is ignored, it can lead to multiple, severe complications. It’s the leading cause of heart disease, strokes, kidney failure, and vision loss.

A relatively healthy person with diabetes can cost insurers around $5,000 a year.

‘‘But if you let any of those long-term, difficult complications develop, then you’re talking $100,000-plus,’’ Nussbaum said

Improved quality of life may not show up in mortality statistics, but the overwhelming majority of people strongly prefer vision over blindness, strongly prefer not going on dialysis, and strongly prefer not going through cardiac rehab.  There is a massive quality of life gain for an individual whose diabetes or other long term chronic condition is effectively managed because they now have access to affordable health insurance and thus affordable healthcare (where the insurers have the incentive now to engage in effective disease management) rather than the chronic condition only being intermittently managed or treated for acute flare-ups.

Compared to what?

I recently took my college referee fitness test.    The college fitness test has four events; a distance run, an agility box, and two sprint sets.  On each event, the referee can score between zero and five points depending on time/distance.  I passed.

My results could be described in the following ways:

  • Piss Poor
  • Adequate
  • Great

These disparate descriptions are accurate.

They are accurate depending on what my results were compared against.

My results were piss-poor when compared against the other nine referees in my testing group.  It was me, seven referees whose highest level matches last year were either NCAA semi-finals, or some version of an international match, and two 21 year olds who run the 800 in college.   In all four events, I had or shared the lowest score.  Against a narrow comparison group, I was slower than molasses. 

My results were adequate in that I am fast and fit enough for the games that I work.  I met or exceeded external absolute standards.

My results were great because I had personal bests in two events (the distance run and the first set of sprints) and matched my previous personal best scores on the other two events.  Against an internal comparison, I improved. 

Asking the simple question of what something is being compared against and therefore being evaluated against is a critical question in determining the value of an analysis. 

Moving back to the healthcare world, this simple question — compared to what — is critical when looking at the Exchange age mixture.

Jonathon Cohn at the New Republic has a good summary:

And within those marketplaces that the federal government is managing directly, 28 percent of enrollees are ages 18 to 34…

As for the age mix, you may have heard that about 40 percent of the population eligible for coverage in the marketplaces is between the ages of 18 and 34. That’s true and, obviously, 28 percent is a lot less than 40 percent. The worry has always been that older and sicker people would sign up in unusually high numbers, forcing insurers to raise their prices next year and beyond.

But insurance companies didn’t expect young people to sign up in proportion to their numbers in the population. They knew participation would be a bit lower and they set premiums accordingly. Only company officials know exactly what they were projecting—that’s proprietary information—but one good metric is the signup rate in Massachusetts, in 2007, when that state had open enrollment for its version of the same reforms. According to information provided by Jonathan Gruber, the MIT economist and reform architect, 28.3 percent of Massachusetts enrollees were ages 19 to 34, a comparable age group.

Age is a good but not perfect proxy for health.  The Exchanges need a population that is roughly similar in health composition to the general population to avoid premium spikes. An Exchange population of only Balloon-Juice blog hosts or 63 year olds with chronic conditions is an extremely expensive risk pool.  A death spiral would be unlikely due to subsidy design but total federal costs would increase dramatically.  An Exchange population with a good number of healthy people in it means premiums won’t spike. 

So when you hear people comment on whether or not the Exchange risk pool composition is good or bad or adequate, ask — compared to what?

Against the most relevant comparison (Massachusetts in 2006), the risk pool composition is at least adequate if not good on a national scale.  We don’t have the data to say what the Exchange risk pool looks like in any given state.  My suspician is that states that embraced PPACA, the risk pools will be on average, better than the full resistance states.  The states that embraced Obamacare have seen higher sign-ups and more effective outreach efforts.  Young and healthy individuals have always been the hardest group to bring en masse into social insurance programs, so states that actively outreached to these groups probably would see higher enrollment than states like Georgia that actively ratfucked outreach efforts.

The first year risk pool age composition is not meeting ideals, but a reasonable expectation is that it would never reach ideal composition in the first year. 

Insurers expanding

As I mentioned a couple of weeks ago, health insurance co-ops are expanding.  Co-ops from Massachusetts, Montana and Kentucky are crossing borders to operate in New Hampshire, Idaho and West Virginia.  Idaho has a competive exchange market in 2014. New Hampshire and West Virginia have non-competitive Exchange marketplaces as they each had only a single Blue offering plans. 

The Christian Science Monitor reports that it is not just non-profit public good orientated co-ops that are looking to expand their Exchange footprints.

“At this point not very many insurers [are] pulling out,” says Jenna Stento, a senior manager at Avalere Health in Washington, a provider of information and advisory services in the health-care industry. The trend “doesn’t seem to be going in the direction of less competition.”

She says the Blue Cross family of insurers, for example, looks likely to expand its presence from 47 states in the first year of the Affordable Care Act (ACA) exchanges to 49 states when enrollment starts for 2015.

Another straw in the wind: The directors of three state exchanges under the ACA told reporters on a recent conference call that they expect new insurance companies on the playing field for 2015. Those states were California, Kentucky, and Washington.

And in New Hampshire, with only one insurer selling on its exchange for 2014, two more firms are expected to offer coverage in 2015, according to news reports….

Insurers don’t have to disclose their preliminary plans for several more weeks.  At the end of April, preliminary networks, plan designs and premiums are due for plans that want to sell on the Federal exchange.  State based exchanges have different deadlines.  This is a soft deadline.  For instance, Mayhew Insurance last year threw seven major configurations at our regulators for approval.  We withdrew one configuration because our market research folks figured it would not be worth the set-up costs as it could not sell.  We withdrew another because half a dozen groups that had an MOU with us withdrew the understanding, thus blowing up the relevant network and pricing model. We only sold half of what we filed.

A broader example is Aetna.  Last year, Aetna filed preliminary plans in most states where it operated.  However in September when final filings were required, it withdrew from Exchanges in several large states.  It did not think it could make money on Exchanges, so it pulled out. 

One of the big questions that the early 2014 experience has raised is whether or not the insurers think they can make long-term money on the Exchanges.  There will be a few insurers leaving the market, but there looks like a significant number of new insurers entering the market.  This will be especially important in low-competition states and regions.  I don’t think insurance competition is a panacea for cost control purposes, as we’re basically pass through entities in a quasi-public regulated entity model now, so there is some area of savings.  Some regions will see significant cost savings because new entrants won’t have pre-exisiting relationships with high cost providers whom they have to keep happy.  The new entrants can tailor networks based solely on Exchange criteria instead of a multi-objective function of keeping a high cost provider happy for commercial and Medicare Advantage providers. 

As long as insurers think they can make money on Exchange, the Exchanges are healthy enough.

Latest CBO update — more covered at lower costs

 I expected the post Open Enrollment CBO estimates for coverage costs to show a significant increase over their February estimates:

the CBO headline will not be that Obamacare costs $9 billion more than projected, but $13 or $15 or $20 billion dollars more than projected.  The CBO will probably not alter their out-year projections for total uptake as they’ll model the person that they assumed would have skipped out on 2014 enrollment but entered the Exchange in 2015 will have just entered a year “early”. 

The increase in cost will be due to two factors.  The first is increased subsidy costs.  80% of the people on the Exchange qualified for subsidy.  If that ratio holds, that means an additional 800,000 to 1,200,000 people will be getting monthly subsidies.  The second factor is that fewer people will be paying the mandate penalty.  The absolute lowest revenue loss would be $100 million dollars, probable revenue loss is $300 to $500 million dollars. 

I was really, really wrong!

The new CBO report just was released and here are the highlights:

Relative to their previous projections made in February 2014, CBO and JCT now estimate that the ACA’s coverage provisions will result in lower net costs to the federal government: The agencies currently project a net cost of $36 billion for 2014, $5 billion less than the previous projection for the year; and $1,383 billion for the 2015–2024 period, $104 billion less than the previous projections (see the figure below).

. As time has passed, the period spanned by the estimates has changed. But a year-by-year comparison shows that CBO and JCT’s estimates of the net budgetary impact of the ACA’s insurance coverage provisions have decreased, on balance, over the past four years (see the figure below). That net downward revision is attributable to many factors, including changes in law, revisions to CBO’s economic projections, judicial decisions, administrative actions, new data, numerous improvements in CBO and JCT’s modeling, and lower projected health care costs for both the federal government and the private sector.

CBO Cost projections of PPACA 2014-04-14

CBO Cost projections of PPACA 2014-04-14


It’s almost like this thing is going to work at both increasing coverage and flattening the growth curve of healthcare spending.

Fraud, Waste and Abuse

The Washington Post is reporting on a successful recovery effort of funds from fraud, waste and abuse in Social Security:

The Treasury Department has intercepted $1.9 billion in tax refunds already this year — $75 million of that on debts delinquent for more than 10 years, said Jeffrey Schramek, assistant commissioner of the department’s debt management service. The aggressive effort to collect old debts started three years ago — the result of a single sentence tucked into the farm bill lifting the 10-year statute of limitations on old debts to Uncle Sam….

the Social Security Administration, which has found 400,000 taxpayers who collectively owe $714 million on debts more than 10 years old. The agency expects to have begun proceedings against all of those people by this summer.

Wait, its not reporting on successful recovery of funds that were illegally gained by moochers. 

The report is sympathetic to people the government claims collected too many benefits:

In Glenarm, Ill., Brenda and Mike Samonds have spent the past year trying to figure out how to get back the $189.10 tax refund the government seized, claiming that Mike’s mother, who died 33 years ago, had been overpaid on survivor’s benefits after Mike’s father died in 1969.

“It was never Mike’s money, it was his mother’s,” Brenda Samonds said. “The government took the money first and then they sent us the letter. We could never get one sentence from them explaining why the money was taken.” The government mailed its notice about the debt to the house Mike’s mother lived in 40 years ago.

This is what most “waste/fraud/abuse” looks like — minor book-keeping issues.  Most of the time there is either a prompt reconciliation, or a decision to let things slide as reconciling would be more costly than eating the costs.  So anyone who claims that there are tens of billions of dollars of easy to cut or recover WFA in the federal budget is either a fool, a liar, an innumurate or any and all of the previous.