Withdrawal for a too small company

An insurer in New York state that offered plans for 2014 will not be on the 2015 Exchange:

American Progressive Life & Health Insurance Company of New York has become the first company to withdraw from the New York State Health Exchange after failing to file a 2015 rate proposal.

The company, also known as Today’s Options of New York, operated in 37 counties across New York State, but only 384 people signed up for its plans [emphasis mine]under the first year of the Affordable Care Act….

h/t ACA Signups

Size matters a lot, and Today’s Options was too small to be even laughed at.  Why is this a good business decision?

384 people are too few people for an insurance company to offer a commercial or commercial like product for two significant reasons.  Either reason is a good enough reason for a company to get out of this market segment.

The first reason is that insurance companies are group size queens:

Actuaries and underwriters love large groups.  The bigger the better. Small groups and individuals are almost impossible to accurately price.  Big groups allow statistical approximations to approach population realities while the error bars on a small group are massive.  Massive error bars make underwriters and actuaries cry…

A large group smooths out the random noise and makes the cost of covering the sick lower due to both lower administrative costs and lower variance costs.

384 people in a single risk pool is an inadequate risk pool unless there is massive and costly reinsurance on the back-end.  At this point, a fully insured group of this size could see the risk pool blow up if there is one more drunk driver than projected, if there is one more conversation that ends in “Hold my beer and watch this”, if there is one more cancer diagnosis than projected.  An unexpected $350,000 claim is a massive miss.  A risk pool of 5,000 or even better 100,000 people in it can absorb a little claims noise far better than a risk pool of 384 people.

Secondly, preparation to file for a new plan year is expensive as hell.  I was intimately involved in filing Mayhew Insurance’s 2015 options, and I would guess that this effort was at least 35 man years where most of those man years are not cheap man years. Our filing was complex. Filing a single basic plan design at different metal levels which is what it looks like Today’s Options did in 2014 is a simpler task but it will still eat up several man years to prepare a comprehensive filing.

Mayhew Insurance could afford to invest the time and manpower in the filings for two reasons. First, we have an enrollment base to cover the costs. Secondly, we’re historically a general services insurer and a long term chunk of the strategy is to be able to play in all levels of the market.  Taking a short term loss may be acceptable.  Today’s Options is fundamentally a Medicare Advantage company with low margins and it was attempting to make a quick play for a virgin market.  Butting its collective head against the wall while losing money is not a good idea for a secondary line of business.

Since there were only 384 members with an allowable administrative overhead of 20% which has to cover everything, filing costs and regulatory compliance expenses most likely overwhelmed Today’s Options’ cost structure.

From a policy point of view, unpopular and comparatively expensive plans exiting the marketplace is a good thing in states with deep markets and significant participation.  It sucks that 384 people will need to find new policies next but they are highly likely to get better and cheaper policies instead.  Most insurers are using 2014 as a beta test year, and some insurers will figure out that the test failed, so we should expect to see insurers with minimal enrollment leave the markets.

Obamacare in an import-export regional economic modeling view

Obamacare is many things.  One of which is an interesting natural experiment in determining whether states shooting themselves in the foot makes it harder or easier to walk than states that don’t shoot themselves in the foot. 

When PPACA passed in March 2010, the basic cash flow model would have seen increased taxes (income tax surcharges, Cadillac plan taxes, medical devices, tanning tax etc) from richer and usually bluer states as well as Medicare Advantage clawbacks from a variety of places.  The Medicare Advantage clawbacks would apply to everyone but areas with higher Medicare Advantage utilization would see greater net reductions.  This money, either new from taxes or reprioritized from Medicare Advantage would then go pay for either Medicaid expansion or coverage/cost-sharing subsidies.  Regions with very low pre-PPACA Medicaid eligibility thresholds and high uninsured populations such as Mississippi would see more new Federal money than states with high Medicaid thresholds and low uninsured populations like Massachusetts.  Massachusetts would pay more and proportionally get less back.  That is expected, it is how every single social welfare program in this country works. 

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En Bancing on Halbig and general assholery

So what does the Halbig decision in the DC Circuit mean for the Exchanges?  On a practical matter, not much at the moment. And longer term, probably not much unless there are five assholes on the Supreme Court who decide that fucking with Obamacare is worth fucking with one hundred years of administrative law precedent.

The Halbig decision says that the IRS can not offer premium assistance tax subsidies to people who signed up for insurance on federally run exchanges as it was the clear intent of Congress to use tax subsidies as a hammer to get states to establish their own exchanges (bullshit) but that is their argument.  People who live in states that have their own exchanges (like Kentucky and California) would still qualify for subsidies.

Under the original Senate logic of the bill, the state exchanges would be the default option as it would devolve power to the states instead of having a one size fits all federal solution.  A federal exchange would be the back-up for states too small or too poor to establish their own exchange.  The expectation was the federal exchange would carry states like Delaware, Wyoming and Vermont  across the finish line.  So even under the bullshit reading advanced by the majority of the DC panel, the federal exchanges would screw small state residents.  Again, bullshit.  The 4th circuit demolishes this idea.

And why am I not particularly worried?  The government can ask for the entire active DC Court of Appeals to hear the case as a body.  En Banc  review is used for high profile cases or where the vast majority of the circuit thinks their colleagues fucked up big time.

The DC Court of Appeals currently has a 7-4 Democratic appointee majority and they’ll apply normal administrative law procedures to this case and tell their colleagues that they are fucking hacks in appropriately judgy language.  Assuming the en banc review goes the way I think it does, all circuits will then agree that the IRS has the right to interpret ambiguous law as it sees fit as long as the interpretation passes a rationale basis/giggle test .  If there is an all circuit agreement, the Supreme will have a real hard time taking the case to gut Red State subsidies.

And now let’s talk about the asshole of the day.
The two “intellectual fathers” of the anti-Obamacare lawsuits are Michael Cannon and Jonathan Adler.  Their major brief on the Halbig case contains a massive factual error that invalidates their argument.  Balkinization explains:

In a recent blog post, Cato scholar Michael Cannon admitted that he and his colleague, Case Western University professor Jonathan Adler, had made a mistake in an amicus brief they submitted to the courts in the Halbig and King cases.  We all make mistakes—indeed Michael has claimed that I have made many mistakes in my analysis of these cases, some of which were indeed mistakes.  This mistake is important, however, because it goes to the central argument that he and Jonathan have relied on in their brief….

When Michael Cannon first noticed this provision in the fall of 2011, he described it as a glitch.  He must have realized, however, that the federal courts would be reluctant to invalidate a major federal program based on a “glitch.”  He and Jonathan Adler, therefore, have constructed an increasingly elaborate legislative history for the provision.

First, they wrote a papersuggesting that the Senate HELP Committee, which developed its own draft of the legislation, wanted deliberately to threaten states with withholding subsidies from states that did not set up Exchanges.  Since then, in amicusbriefs, Michael and Jonathan have argued that earlier health reform laws enacted or considered by Congress similarly threatened withholding of subsidies from individuals or businesses unless states agreed to comply with federal requirements.


Of course, Congress did not adopt the HELP bill or earlier proposals, but rather adopted the ACA, which contains federal fallback exchanges which step into the shoes of states that fail to establish their own exchanges, a different approach to encouraging the states to take action.   In his “erratum,” Cannon admits that he was wrong as to at least one of those earlier proposed programs, further weakening his argument.


Cannon’s error is one of a flood of misstatements that the opponents of the ACA have propagated, from “death panels” at the outset to “no federal exchange tax credits” now.

Michael Cannon and Jonathan Adler did not withdraw their brief or otherwise attempt to get Halbig et al to drop the case based on significant error. It is almost like Cannon and Adler are neo-feudalists who want to fuck the poor, the middle class and anyone else in this strand of the multiverse who is slightly less privileged than themselves. So they get the asshole of the day award.


NB Remember legal “history” is not concerned with verifiable truth, rather it is concerned with creating a patina of “truthiness” to win an argument.

System success and people with options

Jane Jacobs is my second favorite economist or economics writer (Herb Simon is #1).  In her thoughts on how an urban neighborhood unslums itself, she has a core insight. 

Unslumming is the process of people who have the option to leave a neighborhood, deciding to stay instead.  This leads to local maitenance investment, it leads to social capital being maintained and enhanced, and it leads to renovation, rehabilitation and new construction. 

The core insight is for systems of extreme complexity (urban neighborhoods are such a system), with multiple stakeholders who engage in constant communication, quasi-coordinated actions that can create or consume social and community surplus, a healthy system will see a significant number of people who have options to leave deciding to stay.  Good community development policy creates system of enablement for people to choose to stay — it can be the process of reducing barriers to credit (CRA for instance), it can be rerouting a bus line so that residential and employment centers are convientenly linked, it can be the fostering of neighborhood community organizations so that local collective actions problems can be solved.  There are a lot of policy decisions that can enable people who want to stay but could reasonably leave  to stay in a neighborhood.  Sometimes this philosophy can be taken to the extreme (hi Richard Florida and his obsession on attracting the “Creative Class” marginally attached to space individuals) but it is a critical insight.

And then I read that Detroit is considering increasing the pupil to teacher ratio from 38 students per teacher to 43.

Already at an unmanageable target of 38 per classroom in grades 6 through 12, Emergency Manager Jack Martin’s fiscal year 2015 budget allows class sizes in those grades to expand to 43.

 This is a policy designed to drive out both teachers with options and students whose parents have options.  This makes working conditions for teachers worse.  It makes the educational experience for students worse.  Teachers who are not tied to Detroit Public Schools for either pension or healthcare reasons (and the proliferation of 401(K) and 403(b) retirement plans means there are few teachers with golden handcuffs) should be looking for employment in districts where there is a reasonable probability of actually being able to teach instead of babysit.  Detroit will see a barbell distribution of teacher experience and competence.  There will still be teachers who are hanging on for retirement with fully vested pensions, and they’ll be rookies who just need a job.  The middle core of highly experienced and effective teachers will flee, leaving mostly incompetents who know they can’t find equivilant or close to equivilant work elsewhere.

Parents with choices who have chosen to stay in DPS should be the core of any reconstruction program.  Instead more of those parents and their kids will leave the system as the marginal choice between stay and go just got pushed to GO.  That is either fleeing to the suburbs, or going to Catholic schools, or charters or something else.

It is almost like the emergency manager wants to enable and accelerate a death spiral….

Rejecting free money is expensive

Forbes Magazine is using little words to explain to its readers that hospitals in states that are rejecting Medicaid Expansion are hurting:

financial issues are emerging for medical care providers in the two dozen states that didn’t go along with the expansion under the Affordable Care Act.

Reports out in the last week indicate the gap between those with health care coverage is widening between states that agreed to go along with the health law’s Medicaid expansion and those generally led by Republican legislatures and GOP governors that are balking at the expansion….

“We expect providers in states that have chosen not to participate in expanded Medicaid eligibility to face increasing financial challenges in 2014 and beyond,” Fitch said in its July 16 report. “Nonprofit hospitals and healthcare systems in states that have expanded their Medicaid coverage under the Patient Protection and Affordable Care Act have begun to realize the benefit from increased insurance coverage.”

As I explained in my post on rural hospitals and Disproportionate Share Hospital payment reductions, this is a logical consequence of Chief Justice Roberts and his associated sociopaths making Medicaid expansion optional.

The hospital most likely relied on Disprorpotionate Share Hospital payments.  These payments are Medicaid reimbursement bonuses to hospitals that serve underinsured and overly poor areas.  The goal of the DSH payments was to make up for some of the fixed costs that normally would be covered by private insurance’s higher reimbursement rates.  PPACA reduced the pool of money committed to DSH payments.  The policy logic behind the reduction was that the Medicaid expansion and Exchange subsidies should significantly reduce the number of people who are uninsured and receive care that is not directly paid for, therefore the need for DSH payments would decrease. 

That logic is sound, and it works as long as there was the assumption that the Medicaid program and expansion was a single program that every state in the nation would take as the deal was too damn good to pass up. It is working in the Expansion states.

Thanks to the assholes on the Supreme Court and the sadists and sociopaths in the Republican Party, half the states have not taken up free federal money to cover their poor uninsured population via Medicaid Expansion… the compensating factors for the DSH payment cuts aren’t compensating as intended in Republican governed states.

In a rational world, blame would be placed squarely on the Republican governors and Teabagging legislatures for refusing free money.  In a slightly less rational world, blame would be split between the Supreme Court and the Teabaggers who say Nee.  In our world, at least 27% of the country will blame Obamacare for closing the rural hospitals in non-Expansion states.

Why is John getting fucked this time?

JC wrote last night as he got kicked in the balls by the world:

Do you have any idea how hard it is to deal with addiction and get treatment in America? I have gold plated insurance, am comfortably middle class, and I have been going through sheer hell trying to get into a facility. It’s almost like you have to show up with a syringe full of heroin dangling from your arm and a crack pipe in your mouth to get anyone to take you seriously…

Why is this so fucking hard? Am I just incompetent or is it this fucking bad everywhere?…Why is it that getting into rehab requires a fucking PhD in bullshit and the equivalent of a tax attorney’s knowledge of procedure? Isn’t getting clean tough enough? Jeebus

There are a couple of things in play.  The first and biggest reason why JC is getting fucked over hard right now is that there are nowhere near enough rehab beds in this country.  Most of this is historical in two aspects.

The first is that addictive diseases are now seen as medical issues with significant mental health components.  Any other physical health problem would see it treated and paid for as a physical health problem.  However diseases of addiction were long seen to be either mental health problems with minimally related physical health problems, or solely a matter of someone needing to sack up.  That was the attitude when health insurance started to propogate.  Early health insurance had minimal to no mental health coverage, and over the course of the past sixty years, mental health coverage was both slowly added to coverage and poorly paid.

The big policy change on this matter was the 2008 Mental Health Parity and Addiction Equity Act.  This act required policies that cover groups of more than fifty (50) people to pay for mental health and recovery services at the same benefit level and same accessibility standards as any other physical health act.  A side effect of the act is that providers in this field are slowly starting to see their commercial rates rise.  Over the long term, this should mean more beds will be available.  PPACA has a couple of policy changes that will decrease the degree of fucking over as well.

The other major policy driving that contributed to John being fucked over this year is the Medicaid Institutions for Mental Diseases exclusion policy:

The IMD exclusion is found in section 1905(a)(B) of the Social Security Act, which prohibits “payments with respect to care or services for any individual who has not attained 65 years of age and who is a patient in an institution for mental diseases” except for “inpatient psychiatric hospital services for individuals under age 21.” The law goes on to define “institutions for mental diseases” as any “hospital, nursing facility, or other institution of more than 16 beds [my emphasis], that is primarily engaged in providing diagnosis, treatment, or care of persons with mental diseases, including medical attention, nursing care, and related services.” The IMD exclusion was intended to ensure that states, rather than the federal government, would have principal responsibility for funding inpatient psychiatric services.

Medicaid is one of the major payers for mental health services in this country.  They don’t get to set policy for facilities that don’t bill Medicaid, but there are very few facilities (excluding celebrity rehab spas) that can’t afford to not bill Medicaid.  This policy was designed to keep states from closing their state hospitals and long term mental health care facilities and dumping those people onto the Federally paid for portion of Medicaid.  The side effect is the facilities that are out there are artificially limited to sixteen beds or less.  There are a couple of work-arounds (mainly defining how multiple 16 bed pods are seperate facilities) but there are significant limitations on facilities.

So to recap; in patient rehabilitation and detox services have historically been seen as mental health services which means sporadic coverage at low rates.  That is slowly changing.  And those providers which do rehab and detox are limited to small facilities.  More people have access to these services without supply increasing.  And since John is usually a a functional individual on most measures (excluding mopping), he does not need emergency admittance, so he is getting fucked because there are nowhere near enough beds to help the people who need help but can get by at a lower quality of health and living without the service.

Warm up the laser beam

Austin Frakt links to an interesting study on the comparative effectiveness of proton beam therapy (PBT) for a variety of cancers:

ICER’s review found that PBT was superior to surgical treatment of tumors of the eye, and appears to be a safer alternative to conventional radiation in brain and spinal tumors as well as pediatric cancers, although most of the evidence in the latter two conditions has been based on simulation modeling rather than actual clinical study.  There was insufficient evidence to determine whether PBT offers any improvement over alternative treatments for many other conditions, including bone, breast, gastrointestinal, head and neck cancers, lymphomas, and benign arteriovenous malformations.  For many other conditions, including prostate, liver and lung cancer, PBT provides comparable outcomes but at greatly increased cost. Payments for PBT are typically 2-3 times higher than for other forms of radiation treatment and may approach $50,000 per course of treatment in some situations.

There are three categories of outcomes in that paragraph.  Better results than current best practice, about the same results as best practice alternatives at signficiantly higher costs, and potentially worse than alternative results.  How does our health system(s) deal with this information and how should our health system deal with this information.

First, let’s deal with the should instead of is.  As a value and moral judgement that informs the technocratic equation, I think the idea should be we do and pay for things that work well.  And if there is equal effectiveness between various alternatives, the least expensive alternative should be tried first.  We should not, as a society, pay for less effective and more expensive treatments while allowing individuals to pay for those courses of treatment themselves.  These are moral statements in the garb of technocratic language. 

How does these values get expressed in insurance industry plumbing?

There are a couple of ways.  For cancers of the eye, as well as brain/spinal cancers, PBT would be quickly and routinely approved as it is better/safer than the alternatives even if it more expensive.

For the cancers where effectiveness is roughly equal but the costs are significantly higher, there are a couple of ways to deal with this scenario.  The first is to engage in bundle payments for those particular diagnosises where the average bundle is pegged to the cost of the just as effective but significantly less expensive treatment modality.  Clinicians could appeal for PBT bundle uppers if there were unique markers/indicators that lead to a statistical argument that PBT would be the superior course of action, but the default standard of care would be the previous less whizbangy treatment.  An alternative modification would be a reference priced bundle where the reference price for the bundle would be the current standard of care plus a little bit while allowing the individual to buy up to PBT if they wanted to. 

And for the cancers such as bone and breast where PBT is both more expensive and less effective than the current standard of care, PBT should either be denied as a paid for service pending appeal or the individual can have the choice of either the standard of care at full coverage or paying for the entire expense of PBT.  The goal here is to move doctors to a closer to uniform standard of care and treatment modalities while making medicine closer to science than a craft.

How is Proton Beam Therapy treated today?

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