Basic Health Plans and hoping for chaos

States that want to start a Basic Health Plan in 2019 have an incentive to root for non-fatal market chaos in 2018 rate filings.

The Basic Health Plan (BHP) is effectively enhanced Medicaid Managed Care for the Exchange population that earns less than 200% of the Federal Poverty Level. States receive 95% of the funds that would have been spent on Exchange premium and cost sharing subsidies with geographic and demographic adjustments.

Currently, we are hearing that insurers may file very high rates because they don’t know what the 2018 on-Exchange rules or risk pool will look like. Very high rates will be composed of the combination of increasing medical trend which is a normal part of a rate filing and an uncertainty component. The uncertainty component will be large enough to cover an insurer’s obligations if they are required to offer Cost Sharing Reduction (CSR) actuarial value boosts without getting paid for them. The uncertainty component will be large enough to cover a risk pool that shrinks significantly as outreach by Healthcare.gov is curtailed or ineffective and mandate enforcement messaging disappears. The uncertainty component is the insurance insurers will take out to cover themselves from sabotage.

The uncertainty component is specific and limited to only the individual market.

The current rules are from the February 29, 2016 Federal Register. BHP subsidies are not adjusted for changes in premiums due policy uncertainty. The assumption in the current rules is that Exchange costs increases are driven only by medical trend.

This produces an opportunity for states that want to start a BHP in 2019. If we assume the ACA’s structure fundamentally exists in 2019 states could receive a cash windfall if they elect to build a BHP using 2018 QHP rates as the funding baseline. 2018 QHP rates will be very high and most of that increase will be due to policy uncertainty and not underlying medical trend. The current rules do not recognize a policy uncertainty adjustment so the states would get a block grant equal to 95% of the inflated Exchange expense. The underlying trend of expenses in a BHP would be normal and the block grant would be more than sufficient to cover expenses. The surplus could either be used to enhance benefits with a BHP, provide a one shot infusion of funds to opioid efforts or other public health/social determinants of health programs.

By 2020, the uncertainty premium is most likely wrung out of the baseline Exchange rates that drives the BHP funding stream so it is only a one or two year play but there is a good chance a lot of extra money is out there for states that want to start their own Basic Health Plan in 2019.



Oklahoma’s 1332 application

Oklahoma is preparing a 1332 State Innovation Waiver for a customized ACA implementation in the state. It is an interesting concept and as the AHCA has failed to progress, I can see quite a few conservative states go down the 1332 route to tweak the ACA to fit local political and economic needs. And I’m okay with that.

So let’s see what Oklahoma identifies as the problem and what they then want to do with it:

Oklahoma continues to face a number of challenges related to providing individuals with access to affordable, quality, and sustainable health care coverage. Particularly telling of the necessity of swift intervention is the exodus of all but one carrier from Oklahoma’s individual insurance market for plan year 2017, premium increases in excess of 75% on average for plan year 2017, and participation of only 31% of eligible individuals for plan year 2016

They want more competition, more choices, lower premiums and more people covered. Those sound like reasonable objectives, so how will they do that?

They have a two year plan. Read more



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.  



Healthcare down by the river

The Washington Post had a great article on how Idaho has tried to do something on Medicaid expansion eligible populations without actually accepting the federal money to just expand Medicaid eligibility to 138% of the Federal Poverty Line.  I have some sympathy for Idaho policy makers who actually want to do something in a state that is controlled by fantasists and Tea Party Republicans.  I’ve always though that health policy and working poverty policy  is tough work with lots of interacting factors.

Silly me, I could never have come up with this proposal that would have solved all economic and health policy problems:

One senator lobbed the idea of offering the working poor tax incentives if they use a life coach to motivate them to get higher-paying jobs. None of the proposals caught on.

Chris Farley down by the river is not a systemic solution.

Health policy is tough and there are few easy wins.

Open Thread



Big Payer vs. Big Provider in the Bay State

The Boston Globe is reporting on some very interesting news:

The state agency that spends more than $2 billion a year to provide health coverage to 436,000 public employees, retirees, and their families is pushing changes that would allow it to slash what it pays the most expensive hospitals, a drastic move to try to rein in health care costs.

The Group Insurance Commission voted unanimously last week to support capping its payments to health care providers at 160 percent of the rates paid by Medicare, the federal government’s insurance program for seniors….

The limits would hit a “really small number of providers who are at the high end” of the pay scale, such as Partners HealthCare, UMass Memorial Health Care, Dana-Farber Cancer Institute, and others, Herman said….

This can be modeled in two ways. The first will be the large hospitals near the Charles River screaming socialism. The other will be the state screaming capitalism.

One of my first posts at Balloon Juice was modeling the HHI interactions on pricing.

If the ratio of ratios is close to one, the providers and payers are evenly matched. If the ratio is significantly above one, providers have a market power advantage as the largest provider groups control a significant chunk of sub-markets that the payers need access to. If the ratio is significantly below one, the payers have market power. They can pressure providers to take low rates.

A good paper * just came out in Health Affairs by Roberts, Chernew and McWilliams that looks at the impact of a market power dynamics on pricing. They found the intuitively expected (when providers have power rates are high, when insurers have power, rates drop). More importantly, they were able to quantify the effect:

Using multipayer claims for physician services provided in office settings, we estimated that—within the same provider groups—insurers with market shares of 15 percent or more (average: 24.5 percent), for example, negotiated prices for office visits that were 21 percent lower than prices negotiated by insurers with shares of less than 5 percent. Analyses stratified by provider market share suggested that insurers require greater market shares to negotiate lower prices from large provider groups than they do when negotiating with smaller provider groups. For example, office visit prices for small practices were $88, $72, and $70, for insurers with market shares of <5 percent, ≥5 to <15 percent, and ≥15 percent, respectively, whereas prices for large provider groups were $97, $86, and $76...

What does this mean?

The simplest model is that the Massachusetts state employee plan is one of the largest concentrated buyers of services in Massachusetts. It covers almost half a million lives. That is a big pool of people who pay on average, commercial based rates. It is one of the most attractive sub-markets for healthcare providers to service. The state employee plan is making a declaration that it will offer a single maximum price on a take it or leave it basis. The gamble is that the providers who are currently getting rates above that price will look at their next best alternative to fill their beds and realize that 160% of Medicare that gets paid quickly for a significant fraction of their beds is still much better than the next best alternative.

This is as much a political fight as an economics fight. My bet is that at least some of the high cost hospitals will make concessions and drop their rate significantly (remember the high cost hospitals already get significant upward bumps in their Medicare base rate compared to community hospitals a few miles away). One or two of the hospitals will hold out and run a parade of very sympathetic crying parents and sad looking kids in front of the media every five to ten days as well as running millions of dollars in TV ads.

But if we want to get healthcare cost growth under control much less hold spending constant as a fraction of GDP, reducing the relative prices of care will be a major effort. And that means driving more and more price points to lower multipliers of the Medicare base rate in addition to public health improvements and delivery reform efforts that lead to lower quantities of expensive services needed and consumed.

* Eric T. Roberts, Michael E. Chernew and J. Michael McWilliams “Market Share Matters: Evidence Of Insurer And Provider Bargaining Over Prices” Health Affairs 36, no.1 (2017):141-148 doi: 10.1377/hlthaff.2016.0479



Death for fun and profits

538 has a good write up on the changing patterns of causes of death in the United States. There is one part I want to pull out:

Mortality due to substance abuse has increased in Appalachia by more than 1,000 percent since 1980….

The linked study has a great set of customizable maps. For substance abuse, it shows the southern most counties of West Virginia being one of the epicenters of substance abuse deaths in the country.

And now I want to focus on the specific from the West Virginia Gazette:

Rural and poor, Mingo County has the fourth-highest prescription opioid death rate of any county in the United States.

The trail also weaves through Wyoming County, where shipments of OxyContin have doubled, and the county’s overdose death rate leads the nation. One mom-and-pop pharmacy in Oceana received 600 times as many oxycodone pills as the Rite Aid drugstore just eight blocks away…

Cardinal Health saw its hydrocodone shipments to Logan County increase six-fold over three years. AmerisourceBergen’s oxycodone sales to Greenbrier County soared from 292,000 pills to 1.2 million pills a year. And McKesson saturated Mingo County with more hydrocodone pills in one year — 3.3 million — than it supplied over five other consecutive years combined…
At the height of pill shipments to West Virginia, there were other warning signs the prescription opioid epidemic was growing.

Drug wholesalers were shipping a declining number of oxycodone pills in 5 milligram doses — the drug’s lowest and most common strength — and more of the painkillers in stronger formulations….Between 2007 and 2012, the number of 30-milligram OxyContin tablets increased six-fold, the supply of 15-milligram pills tripled and 10-milligram oxycodone nearly doubled, the DEA records sent to Morrisey’s office show.

This is a complete system failure. There were good actors. It seems like WalMart from the story was doing a good job of actually telling abusers and addicts “no” as they were not filling high dosage prescriptions nor passing out an inordinate number of pills. But there are enough cracks in the system for unscrupulous prescribers, unscrupulous distributors who were solely responsible to pump up next quarters’ stock price, and usually small and locally owned pharamcies to pass a quasi-legal product out in droves without concern about how many people it was killing and how many lives it was disrupting and ruining.

I don’t know how to fix this problem. I just know it is a problem and it needs to be fixed.



Blue State solutions

Two valued community members raised good points yesterday in comments:

Raven Onthill:

the blue states can build their own plans. Romneycare might be the model, and some states might try something else; perhaps some sort of single payer system. I suppose they will pretty much have to.

And Martin:

There’s an opportunity now in California, however. The 6th largest economy on earth and 1/6 of the US economy. Dems have supermajorities in both chambers and have the governorship. We’ve twice passed single-payer and Brown has indicated he’d support it if the finances work out. If there is going to be a widespread national privatization effort, CA now has renewed incentive to make it go. Yes, its hella complicated as Richard has noted, but CA also has the most actively managed exchange in the country, one of the most competitive health care marketplaces in the country, and some of the best health policy folks around Kaiser Family Foundation.

The big problem with both of these cases is that state healthcare policy will interact with federal healthcare policy. That means some type of waiver will be needed. That could be a major blockage.

However, the core point is very strong and very valid. Blue states if they want to take care of their own citizens while allowing the Red States to race to the bottom can do so. If there are massive high income tax cuts, there will be fiscal space from high income Blue state taxpayers to fund local social insurance programs. California has the size and the expertise to make a go at something that could work. My bet is that they would go multi-payer in a tightly regulated market and build from the fairly successful Covered California exchanges with higher subsidies and tweaked eligibility but that is a guess purely informed by speculation before my first cup of coffee.

The next big challenge is getting traditional Blue States with super majorities in the Legislature back to Trifectas by retaking governorships so experimentation can move forward with motivated stakeholders. But that is a discussion for a different day.