California single payer

California is studying a single payer system. It is doing the homework to make explicit the assumptions that are needed to make the system work. Modern Healthcare has some details:

SB562 would guarantee health coverage with no out-of-pocket costs for all California residents, including people living in the country illegally. The state would contract with hospitals, doctors and other healthcare providers and pay the bills for all residents similar to the way the federal government covers seniors through Medicare.

The measure envisions using all public money spent on healthcare — from Medicare, Medicaid, federal public health funds and “Obamacare” subsidies. That’s enough to cover about half of the $400 billion cost, according to the legislative analysis.

The rest would come from higher taxes on businesses, residents or both. It would take a 15% payroll tax to raise enough money, the analysis said.

Matt Bruenig makes one very good point before I want to look at some details:

After the implementation of single payer, the report says, health expenditures in the state of California would total $400 billion per year, or 15 percent of the state’s GDP. This is 3 percentage points lower than the share of GDP the US overall spends on health care.

I have a couple of questions about the finances.

Does the analysis assume or not assume the AHCA will be passed. If it does not assume the AHCA, there is a potential $10 billion Medicaid annual gap in the financing. More importantly it is assuming some incredibly complex and currently not authorized in law much less by rule making waivers.

What happens when there is a recession. California has a balance budget constraint. Wage and capital gains income taxes tend to be pro-cyclical. They go up in good times and crash in bad times. How is this program financed in bad years?

Finally, we need to look at the distributional fight inherent within universal access programs. Single payer is exceptional for the fifty two year old making $11 with either no benefits or Bronze level benefits. It is not as good of a deal for a twenty nine year old independent contractor making $39,000 who has a cheap policy in the individual market. It is a really bad deal for the mid-40s couple making $200,000 with exceptional coverage through work.

The American political system is most responsive to people who have a lot to lose, people who have power and people who can mobilize significant resources. In this case, that is an apt set of descriptors for the mid-40s couple making very good money.

Single payer is hard. California is trying to make explicit the trade-offs needed to get a single payer system off the ground. There are choices to be made with winners and losers from each choice made. And each set of people whose current situation is changed for the worse will scream.



The Republican Health Care Plan: ER’s For The Poor

In their ongoing effort to make America sicker and to ensure that more Americans die before their time, Trump and his Republican party have decided to spend more money to cover fewer people less well in Florida:

The shift involves funding that the federal government provides to help hospitals defray the cost of caring for low-income people who are uninsured. Under a deal with the State of Florida, the federal government has tentatively agreed to provide additional money for the state’s “low-income pool,” in a reversal of the previous administration’s policy.

The Obama administration balked at providing more money to help hospitals cope with the costs of “uncompensated care” for people who could be covered by Medicaid. If Florida expanded Medicaid eligibility, the Obama administration said, fewer people would be uninsured, and hospitals would have less uncompensated care.

This is, of course, not a health care policy. It’s simply the latest accomplishment in the fundamental goal of Republican politics since 2009:  anything the Black guy did must be undone.

“Florida is just being paid by taxpayers not to expand Medicaid,” said Andrew M. Slavitt, the acting administrator of the Centers for Medicare and Medicaid Services from March 2015 to January of this year. “The low-income pool is essentially a slush fund,” Mr. Slavitt said, “and it’s a really inefficient way to pay for medical care.”

But hey, maybe it could it work, right?

Come on! This is the Florida Republican establishment we’re talking here.  If it ain’t nailed down, it’s getting stolen:

Two House Democrats from Florida, Debbie Wasserman Schultz and Kathy Castor, said that after receiving the commitment of federal funds, the Florida Legislature was now moving to adopt a budget that includes cuts in state Medicaid spending. “It’s outrageously irresponsible,” Ms. Wasserman Schultz said.

Ms. Castor said that “it would be more efficient to expand Medicaid so people would have coverage, rather than running up huge bills at hospitals that need to seek reimbursement from the low-income pool.”

Ladles and Jellyspoons:  your modern Republican party.  It’s better to pay more money to achieve less than it is just to make government work with the tools it has.  There is no compromise with these folks.

Ni shagu nazad!

Image: Sebastian Vrancz, Soldiers plundering a farm during the Thirty Years’ War, 1620

ETA:  Sorry, David, for poaching on your patch!



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