Consumer Power Report #402
The latest analysis of the signups for Obamacare reveal the risk pool is far older and sicker than supporters had hoped, with young people lagging dramatically in signups. The New York Times reports:
Of those who signed up in the first three months, administration officials said, 55 percent are age 45 to 64. Only 24 percent of those choosing a health insurance plan are 18 to 34, a group that is usually healthier and needs fewer costly medical services. People 55 to 64 – the range just below the age at which people qualify for Medicare – represented the largest group, at 33 percent.
The latest figures about enrollment add pressure on the Obama administration after a disastrous rollout of the HealthCare.gov website in October. Senior officials said they understood the stakes and were working to increase sign-ups. The White House recently hired Marlon Marshall, the deputy national field director for Mr. Obama’s 2012 presidential campaign, to run a campaign-style effort aimed at increasing sign-ups, especially among young people.
The Wall Street Journal has more. Of course, this will lead to higher premiums, just as critics have predicted. Philip Klein notes how much the administration is lagging:
Leading up to the launch of the exchanges Oct. 1, administration officials had been telling reporters that in order to be a success, 2.7 million of the projected 7 million enrollees in the health care law’s exchanges would need to be from the young adult demographic. Attracting a critical mass of young and healthy enrollees was seen as necessary to offset the cost of covering older and sicker Americans, particularly those with pre-existing conditions. But in the report, HHS said that just 24 percent of those who signed up so far were aged 18 to 34. In December, a report from the Kaiser Family Foundation identified a “worst-case scenario” situation in which just 25 percent of enrollees were in the 18-to-34 demographic.
[A] recent article by Larry Levitt, Gary Claxton, and Anthony Damico of the Kaiser Family Foundation described an enrollment of 25 percent among 18–34 year olds as a “worst-case scenario,” estimating that insurers would lose money on these plans, because “overall costs … would be about 2.4% higher than premium revenues.”
2.4 percent may seem like a small number, but given that the average insurer has profit margins of 4 to 6 percent, a 2.4 percent loss on premiums – before we even count overhead costs – is a serious problem. It’s why Humana reported to the Securities and Exchange Commission that it expected meaningful losses in its exchange-based plans.
Now, this isn’t to say this circumstance is permanent by any means – but it is an indication that the concerns of insurers thanks to the bungled exchange launches and the relative weakness of the individual mandate are leading to exactly the kinds of problems many of us predicted. And if the administration can’t make reality match up with expectations, they will have disrupted the marketplace to bring us to a point where only the sick want to buy insurance. And that really is a brave new world.
— Benjamin Domenech
IN THIS ISSUE:
The move toward narrow networks in Obamacare is a function of the way the law sets up competition between insurers on the exchanges. Insurers can no longer compete by trying to be the best at only covering healthy people, or by endlessly lowering benefits and raising deductibles. So limiting provider choice emerged as one of the few levers that health plans had to hold down premiums. And a lot of them did: approximately 70 percent of the exchange plans are either narrow or ultra-narrow plans, according to a study by McKinsey and Co. The consulting firm defined “narrow” as having at least 30 percent of the 20 largest hospitals in the geographic region not participating in the plan.
“Many exchange carriers are offering limited provider networks,” Timothy Jost, a supporter of the health law, writes in a recent edition of Health Affairs. “Consumers will like the low premiums but will be unhappy to learn that their doctors are not available and shocked to discover charges from out-of-network specialists when they go to in-network hospitals.”
The growth of narrow network plans, as Jost points out, isn’t one that tends to be favorably viewed by patients. When they’re told certain doctors are off limits, subscribers are predictably frustrated. But whether narrow networks are actually bad for patients’ health – whether losing access to the most expensive hospital also means losing access to the best hospital – is a totally different question, and one that’s difficult to answer.
The patients’ worry tends to be losing access to the best doctors, especially when the networks getting cut out are the most expensive. It makes sense, intuitively, that the most expensive hospitals are probably the best – if not, why would they charge so much money?
Alas, the health-care system is anything but intuitive and, most research suggests, there is very little connection between how much we pay for health care and the quality of the provider. “Evidence of the direction of association between health care cost and quality is inconsistent,” Peter Hussey, Samuel Wertheimer and Ateev Mehrotra wrote in a recent RAND literature review. “Most studies have found that the association between cost and quality is small to moderate, regardless of whether the direction is positive or negative.”
In other words: It’s completely possible that cutting out an expensive hospital cuts out a top-notch provider. And, it’s equally possible that cutting out an expensive hospital eliminates a provider who charges excessive fees without delivering really great medical care.
SOURCE: Washington Post
Missouri would strike another blow against the federal Affordable Care Act under a bill filed by state Sen. John Lamping, R-Ladue.
The bill would suspend insurance companies’ state licenses if they accepted subsidies offered by the federal government to help pay health insurance premiums for low- and middle-income Missourians.
Lamping contends the subsidies are illegal and eventually will be thrown out by a federal court. By rejecting them, he said, Missouri could remove the trigger in the federal law that, beginning in 2015, will assess penalties against large employers that don’t provide health insurance.
“This is a legislative way by which the state actually could push back” against the law, Lamping said.
Critics of Lamping’s plan say that the Affordable Care Act is helping people obtain health insurance and that it’s time to stop fighting it. The bill would “just throw a wrench in the whole situation, slow everything down,” said Sen. Gina Walsh, D-Bellefontaine Neighbors.
The insurance industry is watching the bill closely.
“We’re kinda caught in the middle,” said Brent Butler, government affairs director for the Missouri Insurance Coalition. “We’ve spent three years since the adoption of the Affordable Care Act informing everybody of the changes that will happen in the marketplace. This might add more questions than answers.”
SOURCE: St Louis Post-Dispatch
Members of the Joint Labor, Health and Social Services Interim Committee voted today to advance two Medicaid expansion bills to the full Legislature for consideration in the budget session that starts next month.
On Thursday, several witnesses told committee members … they can’t afford health insurance on the open market.
Lawmakers voted early last year to reject $50 million in federal money for the optional expansion that would extend coverage to about 17,600 low-income adults. The federal government has pledged to pay 90 percent of the cost of expanding the coverage for the first few years.
Gov. Matt Mead has urged lawmakers to reject any expansion, saying the federal government can’t be trusted to follow through on that promise.
reason: In your book, the word incentives comes up a great deal.
David Goldhill: The fundamental argument I make is that removing us as the real consumer in health care and putting someone between us and providers – whether it’s insurers, whether it’s Medicare or Medicaid – has completely turned the incentives in the system on their head. What we see now is that the best way to make money in health care is to price high; provide excess service; be sloppy about safety; underinvest in service, which includes information technology; and lack the type of accountability we see in anything else.
reason: How did health care and health become synonymous?
Goldhill: You’ll hear, “The United States spends so much on health care and lags behind other countries in health measurements.” Well, we don’t really measure the outcomes of health care. We measure how long we live, how vigorous we are through old age, how many of our children are born healthy. We measure those types of big things. Unfortunately, all of them have almost nothing to do with health care. The things that drive health are all lifestyle. Nutrition, exercise, stress, income, education, public safety – all of these things drive health results far more than health care.
The most dangerous thing we do in health care policy is we imply that making sure that everyone has the maximum amount of health care is essential to health, when one could better argue that diverting 18 percent of our GDP into health care has made us significantly less healthy as a country. I always like to turn that little thing on its head and say, “You know what’s amazing? No developed country’s health seems to suffer, no matter how little it spends on health care.” It may be the least important factor in health, and yet it’s the one we emphasize.
From there a lot of things go wrong. From there, we have a system where much of the debate is about money: How do we pay for all the health care people? And we miss a big question: If we pay for health care in such a way that we take the individual out, are we going to subject people to excess care and excess treatment, which is a major cause of harm and injury and poor health in itself?
reason: There seems to be a real desire on the part of many Americans to not think about their health care costs.
Goldhill: The foundation of health care economics in this country is an article written by Kenneth Arrow. He said that health care can never be a normal industry, because you’ll buy whatever your doctor sells you. He’s got all the expertise. You’re desperate, you’re sick, he’s gonna tell you how not to be sick. You’ll buy anything. There can’t be any normal marketplace transaction.
So now we never ask them what it costs, and we buy everything. It’s almost what I would call Arrow’s revenge, although I don’t think he would take that very kindly.
According to a new paper published by the Mercatus Center at George Mason University, the slowdown in health care cost growth is extremely unlikely to solve Medicare’s financing problems. Indeed, such a suggestion primarily reflects an incomplete understanding of how current Medicare cost projections are done.
Study author Charles P. Blahous, a Mercatus senior research fellow and public trustee for Social Security and Medicare, notes that while it is impossible to definitively determine the cause of the health care cost slowdown at this time, the following points are clear:
1) The slowdown predated the passage of the Affordable Care Act (ACA) and isn’t primarily a result of it.
2) Most of the ACA’s projected effects on Medicare costs over the long term concern provisions that have yet to take full effect.
3) Medicare today is in worse financial shape than was projected before the cost slowdown began. The recession had a more severe impact in depressing Medicare revenues than it had a helpful effect on Medicare cost growth.
4) Current Medicare projections already assumed a substantial, long-term deceleration in national health cost growth – a slowdown much greater than what has transpired to this point.
5) Going forward, actual Medicare costs are much more likely to be higher than the trustees’ current projections than they are to be lower.
In this study, Blahous reviews the interaction between health cost inflation and the assumptions underlying Medicare projections. He concludes that neither the recent health care cost slowdown nor the ACA has – as some have suggested – solved the Medicare financing problem, nor has it given reason to expect that program finances may be healthier than now projected. He further finds it highly improbable that Medicare can be kept financially viable without substantial addi-tional legislative reform.
SOURCE: Mercatus Center
National trends are not a sufficient explanation for Part D’s success. While patent expirations are part of the story – national drug spending as a whole slowed during the period we examine – they are far from the full explanation for large overestimates in Part D spending (indeed, patent expirations were likely captured in the original projections). Instead, the available evidence indicates that private-sector firm-level innovations, including preferred pharmacy networks and aggressive negotiations with drug manufacturers, have played a significant role in keeping the program’s costs below projections. We find that broader market trends (e.g., patent expirations and other changes) account for only about half (56 percent) of the program’s performance. The remainder – 44 percent – of Part D’s lower-than-estimated cost savings is attributable to factors not captured in national prescription drug trends, which should include competition between Prescription Drug Plans (PDPs). This is strong evidence indicating that consumer-driven competition in Part D has been critical to the program’s financial success.
Consumer-driven competition is a relatively new tool in the government’s effort to control health-care costs. In hindsight, government overestimates of Part D’s cost are not surprising, since the program utilizes a model of consumer choice (robust competition among dozens of regional drug plans and Medicare Advantage plans) that has no perfect analogue in other government health plans, such as Medicaid.
Part D is an excellent model for future health-care and entitlement reforms. Arguably, Part D and Medicare Advantage plans represent the first national health-care exchange (the Federal Employees’ Health Benefits Program [FEHBP] is a close cousin). While the Affordable Care Act (ACA) operates a similar exchange concept, there are important differences. First, Part D plans compete in large regional areas, not states (this creates much bigger risk pools because even large states are incorporated into larger regions), as the ACA exchanges do. Even the federal exchange is layered on top of a state-regulated insurance market. This potentially limits the ability of plans to create economies of scale to bargain with providers and to utilize innovative tools to arbitrage cost and quality differences across state markets (preferred pharmacy and mail-order networks in Part D; telemedicine and medical tourism to “centers of excellence” for health-insurance plans). Notably, while Part D includes higher subsidies for sicker seniors (typically, the low-income subsidy population), it does not penalize healthier seniors through higher premiums, as the ACA’s community rating provisions do. Arguably, a better approach would be to rely more on backdoor (non-cross-subsidized) risk adjustment of plans and larger subsidies for sicker or older patients, while allowing plans to charge actuarially fair premiums to younger enrollees. The cross-subsidies in the Part D approach are more transparent in that sense, since they come from tax revenues rather than from private premiums.
SOURCE: Manhattan Institute