The Alan Katz Blog

Perspectives on Health Care Reform, Politics and More

Democrats Need an ACA Retain and Repair Plan

Even before President Barack Obama signed the Affordable Care Act into law, Republicans in Congress have sworn to repeal it. “Repeal and Replace” became a rallying cry that helped switch 63 House and six Senate seats to the GOP side of the aisle in 2010. Today Republicans have the majority in both chambers of Congress and occupy the White House. the GOP opposition to the ACA is not the only explanation for this pendulum swing, but that opposition was certainly a factor.

Republican votes to repeal the ACA became a Washington staple in the six years after the law’s passage. There’s no official count, but House Republicans may have voted 60 times or more to do away with Obamacare. And why not? With President Obama in the White House they knew their repeal legislation would never become law. Votes to repeal the law were an easy political statement.

Now Republicans hold the power to make repeal real and thing aren’t so easy. The House Republican Leadership, reputedly with input from the White House and Senate Republicans, drafted and put forward the American Health Care Act as the first step in the repeal and replace effort. The AHCA faces an uncertain fate in even in the House of Representatives. And a report by the Congressional Budget Office of the AHCA’s impact on the uninsured, the federal budget, premiums and the affordability of coverage has only narrowed the bill’s path to passage.

Republicans want to keep their promise to repeal Obamacare and fear the political payback if they fail to do so. They know they will own the results of any health care reform they pass. f that result includes higher premiums and fewer insureds, the political price could be both high and painful.

Thus the current Republican civil war. More moderate Republicans worry the AHCA doesn’t do enough to support Medicaid and keep Americans insured. Their conservative counterparts are lining up against the AHCA because they see the bill as creating new entitlements and failing to cut back on Medicaid fast enough. Whether the two sides can be brought together is unknown (although I’m skeptical).

Which leaves Democrats sitting back and enjoying the spectacle of Republican-on-Republican political violence. They’ll occasionally throw a sound bite over the transom keep things interesting and to remind their base that they’re fighting the good fight. Generally, however, Democrats are adhering to adage of avoiding interfering with the enemy when they are in the process of destroying themselves.

This is a dangerous strategy. Politics can take sudden turns and, if they’re not careful, Democrats could find themselves in the same predicament that Republicans are in today.

When attacking the GOP health care proposal, Democrats often recite a mantra along the lines of “Sure, the ACA has some problems. But we shouldn’t repeal the ACA, we should fix it.”  But what does that mean? Democrats are as shy about detailing what “retain and repair” means as Republicans have been about defining “repeal and replace.”

History may show Republican’s failure to devise an ACA alternative in the six years following its passage as political malpractice. Their civil war over the AHCA provides Democrats with a window of opportunity to avoid a similar judgment..

Republicans want Democrats to do more than gloat. The Hill reported that Senator John Cornyn challenged Democrats to offer an alternative to the AHCA. Senate Minority Leader Chuck Schumer response: we have and it’s called the Affordable Care Act.

That’s a good line, but that’s all it is. If Republicans fail to pass health care reform, things as they are remains. That status quo is the ACA, a law Democrats admit is flawed and should be fixed. Democrats can claim the high ground by identifying those flaws and offering remedies. Even if Democrats fail to gain Republican support for retain and repair, there’s a value to building a party consensus around a proposal now.

After all, President Donald Trump prides himself as a deal maker. It’s extremely unlikely, but if the AHCA fails, President Trump might look for an alternative and the Democrats should be ready with one. Again, a deal with President Trump is highly unlikely, but these are not likely political times.

Even if the Democratic retain and repair proposal goes nowhere in 2017, it could be useful later. Democrats will need something to run on in 2018. A consensus retain and repair platform might be helpful.

Then there’s the possibility that Democrats are in control of Congress and the White House come 2020. If so, today’s Republicans offer an important lesson. The year you take control of Washington is not the time to start debating a health care reform plan; it’s the time to present one.

 

Is All Payer Ready for a Comeback?

Congress is debating the American Health Care Act, the first of three steps in Republicans’ march toward repealing and replacing the Affordable Care Act. Things are not going smoothly. GOP conservatives, which have considerable clout in the House of Representatives, want the bill to repeal more and replace less. More moderate Republican Senators, of which there are enough to block any legislation, argue the legislation goes too far in some respects. Attempts to mollify one side hardens opposition on the other. And so far, no real effort has been made to entice Democrats to do more than watch Republicans fight one another.

It’s possible President Donald Trump, Speaker Paul Ryan and Senate Majority Leader Mitch McConnell can corral enough votes in each chamber to push the AHCA through Congress. It’s possible, but I’m skeptical. And what if they can’t?

Well, they could do nothing, leaving enough uncertainty laying about that the individual market, at least, collapses. That could make 2018 a tough election year for Republicans. Or they could offer AHCA version 2.0 and hope for better results. Wishful thinking is a great past time, but hardly a vehicle for making public policy.

All of which argues for doing something outside the proverbial box. Maybe Congress could even address the core problem facing America’s health care system: the cost of medical care. What might that look like? One option would be to look at an idea that’s been around since the 1990s if not longer: an all payer system. It would certainly be an interesting debate.

One idea that fits that bill is an all payer system. To oversimplify, under this arrangement providers and payers (usually the government) establish a price for each medical treatment and service. Every provider accepts this rate as payment in full and every payer (government, private insurance, self-funded plans and individuals) pays this rate.

As noted by The Hill, several states experimented with one version or another of all payer systems in the 1990s, although today only Maryland’s remains. As recently as 2014, academics at Dartmouth proposed using 125 percent of Medicare reimbursement rates for a national all payer program. Pricing transparency advocates like all payer systems because everyone knows the cost of care – the ultimate transparency. And this system eliminates the wide variance in pricing for identical treatment so prominent today.

A pure all payer system would be difficult to pass, however. Free market Republicans will not accept the government setting the price for all medical care payments. And pharmaceutical companies, doctors, hospitals and other providers are not going to take kindly to having anyone set a one-size fits all cost structure. There are variations on the all payer theme that might make such a system more palatable — and allow for a healthy (and entertaining) debate..

For example, consider an all-payer system in which Medicare reimbursement rates are simply a starting point; the benchmark used by all providers in setting their costs and all payers in determining their reimbursement levels. No more Alice in Wonderland pricing by hospitals and other providers. Each service provider would describe their fees as a multiple of Medicare. Insurers would offer plans that cap reimbursements at different multiples of Medicare.If the doctor’s charges are at a lower or the same multiple as an insurance policy’s, that provider would be fully reimbursed by the carrier and no charges beyond co-payments, deductibles and co-insurance (if any) would be required of the patient. If the practice has set a higher Medicare multiple than a patient’s policy covers then the patient is liable for the additional cost. The key, however, is that the consumer would know this before incurring the charge. (Which is why emergency care would be treated somewhat differently).

An all payer system requires higher cost providers to justify the extra expense. It eliminates the helter skelter of ever-changing networks. Health insurance premiums would reflect reimbursement rates and would correlate with the number of providers whose services would be covered in full.

Conservatives can’t claim all payer systems is a government takeover of health care. On the contrary, the only role Medicare plays is providing the baseline for reimbursement … a common language all providers and payers speak.  What they do with that baseline is up to them. Liberals won’t like that insurance companies remain in the health care system and will object to limiting, as a practical matter, poorer Americans to low reimbursement policies.

Right now, all attention is on the American Health Care Act. That’s as it should be. After all, it’s not dead yet. Given there’s a good chance the legislation will crash and burn, there’s no harm in thinking about what could come next. I’m rooting for something that isn’t just a rehash of the 2009 debate, but rather something bolder. An all payer proposal is just one idea and there are no doubt many better ones.

What’s your favorite?

The Math of Health Care Reform

The House Leadership’s plan for repealing and replacing the Affordable Care Act is now public for all the world to describe, dissect and debate. Entitled the American Health Care Act, the legislation first stop will be the House Energy and Commerce Committee. At the same time, the House Ways & Means committee will consider budget language to support the Republican repeal and replace effort. For articles on what it does, please check out my Flipboard magazine.

To call the legislation dead on arrival is unfair. However, even ahead of its first hearings, the proposal is looking under the weather. Conservatives in the House have long expressed their displeasure with key elements of the Leadership’s proposal like the inclusion of refundable tax credits to help Americans pay their health insurance premiums. And four Republican Senators with what the House bill would do to Medicaid. If the four Republican Senators hang together and together they could block any health care reform bill. Majority Leader Mitch McConnell needs at least 50 votes in the Senate to repeal the financial aspects of Obamcare through the budget reconciliation process. There are 52 GOP Senators in his caucus. If he loses four of them he’ll need two Democrats to come to his rescue. The price for their assistance will be extremely high.

In short, as I’ve posted previously, what Speaker Paul Ryan and the Republican Leadership put forward this week is highly unlikely to be what emerges from Congress … assuming health care reform does emerge from Congress.

Which may be a good thing. Because the American Health Care Act fails to address in any meaningful way what should be a critical goal of any health care reform proposal: making health care affordable. Washington is fixated on how Americans get health care coverage. Should there be government exchanges?. Should premiums be subsidized? Should there be restrictions on how insurers set premiums for coverage? And so on. All of these are vital, important issues. But they’re playing around the edges of public policy when the real solution is at the core.

This isn’t just opinion. It’s math. Consider: the Affordable Care Act requires carriers to spend the vast majority of every premium dollar they collect for medical care. In the individual and small group markets, 80% of premiums must go to cover medical care or carriers must refund enough premium to reach that level. For larger employers, the medical expense target is 85% of premium. The remaining premium dollars are what carriers can use for paying claims, customer service, negotiating discounts with medical providers, advertising, legal expenses, staffing, HR departments, distribution costs, profit (or retained earnings for non-profits) and any other administrative costs. (Incidentally, I don’t see any reference to these provisions of the ACA, which, I assume, means they stay in place. If I’m wrong, please let me know in the comments section.)

If lawmakers want to make health insurance coverage affordable, they’re going to have to make medical care affordable, because that’s where the money is. Zero out insurer’s operational expense and overall premiums would go down less than 20%. That’s a sizeable amount. However, in three or four years we’re back where we are today thanks to medical inflation. And there’s no way to eliminate all administrative costs. Someone has to process the claims or answer consumer’s questions. And they expect to get paid. And someone has to pay for their phone, desk and computers. And someone has to support their equipment. And so on.

Yet medical care representing 80-to-85 percent of health insurance premiums. Reduce this side of the ledger by 20% and premiums fall 17% — roughly the same as eliminating 100% of insurer’s operational costs.

If President Donald Trump and Congress are serious about reducing the cost of health insurance, they need to figure out how to reduce the cost of medical care. There’s plenty of ideas out there (a topic for a future post). And, to be fair, they’ve mentioned a few. But there’s a political reality that explains why most of the rhetoric around Pennsylvania Avenue concerns the cost of coverage: no one has lost an election by attacking health insurance companies. They’re one of the safest pinatas in American politics. On the other hand, doctors and hospitals are politically dangerous to take on. Voters actually like them.

Regulating health insurance so consumers get a fair deal is important. Lowering the cost of medical care is critical while also reducing insurance premiums. It’s just harder.Perhaps that’s why the Republican proposal is called the American Health Care Act. It would be wrong to use the word “affordable.”

 

Trump’s ACA Reform Principles and What They May Mean

President Donald Trump gave a speech to a joint session of Congress Tuesday night. A significant portion of his speech dealt with his commitment to repeal and replace the Affordable Care Act. What did he say, what does what he said mean, and what will be the impact on the ACA?

What He Said

President Trump devoted considerable time to discussing his goal to repeal and replace Obamacare. Here is what the President said, “Tonight, I am also calling on this Congress to repeal and replace Obamacare with reforms that expand choice, increase access, lower costs, and at the same time, provide better Healthcare.”

Then, after reciting his criticism of the Affordable Care Act he proclaimed, “We must act decisively to protect all Americans.  Action is not a choice — it is a necessity. “So I am calling on all Democrats and Republicans in the Congress to work with us to save Americans from this imploding Obamacare disaster.”

He then cited five principles that “should guide the Congress as we move to create a better healthcare system for all Americans:

“First, we should ensure that Americans with pre-existing conditions have access to coverage, and that we have a stable transition for Americans currently enrolled in the healthcare exchanges.

“Secondly, we should help Americans purchase their own coverage, through the use of tax credits and expanded Health Savings Accounts — but it must be the plan they want, not the plan forced on them by the Government.

“Thirdly, we should give our great State Governors the resources and flexibility they need with Medicaid to make sure no one is left out.

“Fourthly, we should implement legal reforms that protect patients and doctors from unnecessary costs that drive up the price of insurance — and work to bring down the artificially high price of drugs and bring them down immediately.

“Finally, the time has come to give Americans the freedom to purchase health insurance across State lines — creating a truly competitive national marketplace that will bring cost way down and provide far better care.”

What He Meant

I hesitate to try interpret what President Trump means when he, well, uses words. We’re talking a moving target here.  However, given the gravity of the speech, I assume what he said was thoroughly vetted and intentional.  So, I’ll go try to interpret the President’s message. Full disclosure, however, Republicans are already fighting over the meaning of his five health care reform principles, so there’s clearly room for differing interpretations.

Pre-existing conditions: In the past, President Trump has expressed the desire to keep the ACA’s guarantee issue provisions that prevents insurers from declining coverage due to a consumer’s health status.  Last night, however, he said used a different wording, stating that pre-existing conditions should not bar Americans from having “access” to coverage. These are two different things. The ACA requires carriers accept consumers, even those with expensive medical conditions, into any plan for which the consumer is eligible. Calling for access means that, as an alternative, these Americans could be shunted into high-risk pools or plans designed specifically for high cost insureds.

Offering access to high-risk pools means Americans with existing medical conditions would have fewer choices, limited benefits and pay higher premiums than their healthier neighbors. In testimony before a California legislative committee I once referred to high-risk pools as “a ghetto of second-hand coverage.” The author of the legislation establishing the state’s pool sat on the committee. Oops. But I stand by my description.

The President indicating a willingness to accept high-risk pools was good news for House Speaker Paul Ryan, who supports them. However, there are millions of Americans with pre-existing health conditions. How will they react to being removed from the “normal” market? And how will they, and their family and friends, express those feelings at the polls?

Tax Credits and HSAs: Health Savings Accounts have long been a staple of Republican health care reform proposals.  In a draft of Speaker Ryan’s Obamacare replacement bill, leaked last week, tax credits are the primary means of making health insurance premiums affordable. Conservatives have pushed back against tax credits calling them a new non-means tested entitlement program. The President’s backing of this approach will give the Speaker some leverage in negotiations with these members of the GOP caucus in the House.

Medicaid: President Trump’s call for giving governors more say in how their states implement Medicaid seems to support efforts to move federal payments for the program into block grants, which aligns the White House with Republicans in the House.  Currently states receive funds based on Medicaid enrollment (subject to a host of adjustments for a variety of factors, but let’s keep it simple for now). Block grants would give states a fixed amount to spend within very broad federal guidelines. This approach enables the federal government to cap their spending on the program and leaves it to states to manage the program.

Lowering the Cost of Care: Too often the debate over health insurance affordability ignores a harsh reality: the major driver of health insurance premiums is the cost of medical care. Most of the President’s principles concerning health care reform focuses on health care coverage. But he’s also seeking to lower costs through malpractice reform and through taking steps to drive down the cost of prescriptions. That the President is addressing medical expenses at all is a good thing. Hopefully as a replacement to the Affordable Care Act moves through Congress there will be an even greater emphasis placed on reducing the cost of medical treatments and services.

Interstate Sales: President Trump and many Republicans invoke letting consumers buy out-of-state coverage with the same passion as Hogwarts students learning their first spells. They proclaim it will increase competition and lower premiums across the country. Like that school of witchcraft and wizardry, however, this proposal is, unfortunately, a fantasy. I’ll write a post on why soon, but for now consider just one factor. Virtually all health insurance policies sold today rely on discounts offered by “in-network” doctors, hospitals and other providers of care. Plans sold in State A may look good to a consumer in State B, but if that carrier doesn’t have a strong network in State B, what good is that policy? In short,

The Impact

Let’s assume I’ve interpreted what the President said correctly. What will be the impact of his position on whatever Obamacare repeal and replace bill that emerges from Congress and lands on his desk to sign?

First, it is very significant that the President’s health care reform principles align as closely as they do with those of Speaker Ryan. This gives the Speaker a powerful card to play when herding his splintered caucus behind his preferred legislation.

Second, it seems to signal that the White House is ceding to Congress the responsibility to develop an ACA replacement. The President carved out no bold vision for what he wants nor are his principles in conflict with longstanding Republican positions. The only exception is his call for federal action to lower prescription drug costs. But would President Trump veto a bill that meets all of his principles except for this one? Doubtful.

Third, we’re only at the beginning of long, arduous march to reforming or replacing the Affordable Care Act. There’s many more parties will be heard from, including Senate Republicans, insurers, pharmaceutical companies, doctors, hospitals and other special interest groups. The public will have a lot to say on this subject, too. Plus, any reform package will likely require support from Democrats, and negotiations for those votes have not yet begun.

As I’ve written previously, what Republicans are putting forward now may bear only a passing resemblance to the health care reform we get at the end of what will be a very long, messy slog.

Please check out my health care reform magazine on Flipboard for constantly updated, curated articles.

Is the GOP ACA Repeal Strategy Taking Shape?

GOPThere’s politics then there’s governing. As former New York Governor Mario Cuomo put it, “You campaign in poetry. You govern in prose.” Republicans have been campaigning against the Affordable Care Act since its enactment with rhetorical flourishes along the lines of “repeal and replace” and “end Obamacare on Day One.” That is poetry (or at least what passes for poetry in politics). Come January, Republicans will need to prove they can handle the prose part. As discussed in my previous post, that won’t be easy.

Repealing the law outright would cause chaos in the health insurance marketplace and take medical coverage away from millions of consumers. However, doing nothing would break a promise central to the GOP’s electoral successes in the past four Congressional elections, not to mention the most recent presidential campaign. Either path could lead to voter retribution that would be devastating to the short- and long-term interests of the Republican party.

A GOP strategy may be emerging that aims to avoid this rock and that hard place. The idea involves passing repeal legislation as close to President Trump’s first day in office that is legislatively possible, but delaying the effective date of that legislation by a year or two. This enables Republicans to keep their promise to repeal Obamacare “on day one,” yet gives them time for the more difficult task of working out a replacement to the ACA. It’s a political two-step Joanne Kenen has dubbed “TBDCare.”

Yes, this would cast a dark cloud over the health insurance market for some considerable time and raises a host of questions: Is Congress capable of passing workable and meaningful health care reform? What happens if they don’t? What would those reforms look like? Who would the winners and losers be under Republican-style reform?  Not knowing the answers to these questions is terrifying. For GOP leaders trying to avoid the wrath of voters, however, living under a frightening dark cloud for a couple of years might look better than ushering in the health care reform apocalypse.

The repeal part of this two-step strategy is simple: Republicans in Congress eviscerate the financial mechanisms critical to the ACA through the budget reconciliation process. This type of bill requires only 51 votes, which means no Democratic support is needed. Meanwhile, President Trump dismantles other elements of the law by either revoking President Barack Obama’s executive orders or issuing new ones. Both the legislation and executive orders become effective at the end of either 2017 or 2018 to allow for a “smooth transition.”

Then the replace portion of the program would begin. Much of any new health care reform legislation would need to go through the normal legislative process and be completed before the effective date of the repeal. Given the Senate’s filibuster rules this means securing at least eight Democratic votes in the upper chamber. (Here’s a list of the Democratic Senators most likely to be recruited by Republicans).

Both Jennifer Haberkorn on Politico.com and Albert Hunt on Bloomberg.com do a great job in reporting on this evolving strategy.  Meanwhile, opposition to TBDCare is already building as evidenced by this editorial in the Denver Post.

What should not be overlooked in all this pain aversion is that the Affordable Care Act was neither the cause nor the solution to America’s deep-seated health care problems. Long before Senator Obama became President Obama everyone knew the key to successful health care reform was reducing medical costs. A few provisions in the Affordable Care Act address costs, but the legislation focused primarily on health insurance reforms because, well, reforming the health insurance market is a lot easier than reducing health care costs. If you were a politician, who would you rather take on, insurance companies or doctors, hospitals and pharmacy companies?

Whether using poetry or prose then, it would be nice if, once they get past the politics of health care reform, Congress and the new Administration addressed the substance of health care reform. Let’s hope that’s not asking too much.

Please check out my magazine on Flipboard for a curated collection of news and opinion concerning health care reform.

 

Update: The Supreme Court and Transparency

The United States Supreme Court recently rendered its decision in a case known as Gobeille v Liberty Mutual Insurance Company. The Court decision rests on an interpretation of ERISA. Nonetheless, in a result illustrative of the tangled complexity of health care coverage, the most profound impact the Court’s opinion may have is to undermine states’ efforts to control health care costs by making medical treatment expenses more transparent.

In an earlier post I provided some background on the case and discussed the import of the (then) pending Supreme Court decision. Now that decision is here and it’s time for a brief update.

Simply put, the Court, on a 6-2 vote, decided that ERISA overrode Vermont’s interest in requiring self-insured health plans to report claims data into a state’s all-payer claims database. As Ronald Mann lays out in his analysis of the case on SCOTUSblog, the Court majority found that Vermont’s requirements were inconsistent with ERISA’s preemption of all but the most trivial state record keeping requirements.

While the decision rested solely on the Court’s interpretation of ERISA, the case will have a substantial impact on the ability of states to use transparency to hold down medical costs. As Erin Fuse Brown and Jame King note in their post on the Health Affairs Blog, “63 percent of America’s workers with employer-sponsored health insurance are in self-funded plans. In Vermont, the ruling eliminates data from 20 percent of the total population ….” In some states this percentage will no doubt be much higher. Self-funding is the approach of choice for many employers with a large number of workers; Vermont has relatively few of these employers compared to other states.

States have sought to establish all-payer claim data bases to enable research into the variation in costs for similar medical procedures. The Court’s decision means these data bases will be unable to capture data from all-payers. It’s hard to see how America’s health care system can become more cost-effective in the future without the means to accurately measure how cost-ineffective it is today.

The majority on the Supreme Court indicated that ERISA may empower the Department of Labor to require self-funded plans to report claims data to state databases. The key word here is “may.” The Court isn’t definitive on the validity of this workaround. Any attempt by the Department to impose this requirement could wind up before the Supreme Court in another few years.

For now, however, Gobeille v. Liberty Mutual will make analysis of cost differences in America’s health care system much tougher.

 

When a Penalty is not a Penalty

The Affordable Care Act requires most Americans to buy qualifying health insurance coverage. Fail to comply with this mandate and there’s a financial penalty waiting for you come tax time. But when is a penalty not a penalty? When is a mandate not a mandate? Hey kids, let’s do some math.

The penalty for going uninsured in 2016 is $695 per adult and $347.50 per child up to a maximum of $2,085 or 2.5% of household income, whichever is greater.

To determine the cost of coverage we’ll use the second-lowest silver plan available in a state. That’s the benchmark used to calculate ACA subsidies and in 2015 silver plans comprised roughly 68% of policies sold through an exchange. Even more important, I found a table showing the cost of the second-lowest cost Silver plan for 40 year olds by state, but I couldn’t find a similar table for other metallic levels.

The least our 40-year-old could spend on the second-lowest Silver plan this year is $2,196 in New Mexico; the highest premium is $8,628 in Alaska. The median average is $3,336. Divide the penalty by the premium and you get 32% of the cheapest premium and 21% of the median average premium. Put another way, paying the penalty saves our 40-year-old  consumer $1,500 in New Mexico and over $2,600 in the mythical state of median average.

I did find a table showing the national average premium a 21-year-old would pay for a bronze plan: $2,411.  In this situation the $695 penalty amounts to just 29% of the policy’s cost, a savings of over $1,700.

The purpose of this post is not to encourage people to go uninsured. I think that’s financially stupid given the cost of needing health insurance coverage and not having it. And, personally, I support the individual mandate. I also understand the political obstacles to establishing a real penalty for remaining uninsured.

However, I also believe the individual market in this country is in trouble. (More on this is a later post). Adverse selection is a contributing cause to this danger. The individual mandate is supposed to mitigate against adverse selection. The enforcement mechanism for that mandate, however, is a penalty that, for many people, is no penalty at all.

That’s not just my opinion. That’s the math.

A version of this article was originally posted on LinkedIn.

The Endangered Individual Health Insurance Market

And then there were none? The individual health insurance marketplace is endangered and policymakers need to start thinking about a fix now, before we pass the point of no return.

Health plans aren’t officially withdrawing from the individual and family market segment, but actual formal withdrawals are rare. What we are witnessing, however, may be the start of a stampede of virtual exits.

From a carrier perspective, the individual and family health insurance market has never been easy. This market is far more susceptible to adverse selection than is group coverage. The Affordable Care Act’s requirement guaranee issue coverage only makes adverse selection more likely, although, to be fair, the individual mandate mitigates this risk to some extent. Then again, the penalty enforcing the individual mandate is simply inadequate to have the desired effect.

Add to this higher costs to administer individual policies relative to group coverage and the greater volatility of the insured pool. Stability is a challenge as people move in-and-out of the individual market as they find or lose jobs with employer provided coverage. In short, competing in the individual market is not for the faint of heart, which is why many more carriers offer group coverage than individual policies. Those carriers in the individual market tend to be very good at it. They have to be to survive.

Come 2014, when most of the ACA’s provisions took effect, these carriers suddenly found their expertise less helpful. The changes were so substantial historical experience could give limited guidance. There were simply too many unanswered questions. How would guarantee issue impact the risk profile of consumers buying their own coverage? Would the individual mandate be effective? How would competitors price their products? Would physicians and providers raise prices in light of increased demand for services? The list goes on.

Actuaries are great at forecasting results when given large amounts of data concerning long-term trends. Enter a horde of unknowns, however, and their science rapidly veers towards mere educated guesses. The drafters of the ACA anticipated this situation and established three critical mechanisms to help carriers get through the transition to a new world: the risk adjustment, reinsurance and risk corridor programs.

Risk corridors are especially important in this context as they limit carriers’ losses—and gains. Carriers experiencing claims less than 97% of a specified target pay into a fund administered by Health and Human Services; health plans with claims greater than 103% of this target receive funds. You can think of risk corridors as market-wide shock absorbers helping carriers make it down an unknown, bumpy road without shaking themselves apart.

You can think of them as shock absorbers. Senator Marco Rubio apparently cannot. Instead, Senator Rubio views risk corridors as “taxpayer-funded bailouts of insurance companies.”

In 2014 Senator Rubio led a successful effort to insert a rider into the budget bill preventing HHS from transferring money from other accounts to bolster the risk corridors program if the dollars paid in by profitable carriers were insufficient to meet the needs of unprofitable carriers. This provision was retained in the budget agreement Congress reached with the Obama Administration late last year. Senator Rubio in effect removed the springs from the shock absorber. The result is that HHS could only reimburse carriers seeking reimbursement under the risk corridors program just 12.6% of what they were due based on their 2014 experience. This was a significant factor in the half the health co-operatives set up under the ACA shuttering.

Meanwhile individual health insurers have taken a financial beating. In 2015 United Healthcare lost $475 million on its individual policies. Anthem, Aetna, Humana and others have all reported substantial losses in this market segment. The carriers point to the Affordable Care Act as a direct cause of these financial set-backs. Supporters of the health care reform law push back on that assertion, however. For example, Peter Lee, executive director of California’s state-run exchange, argues carriers’ faulty pricing and weak networks are to blame. Whatever the cause, the losses are real and substantial. The health plans are taking steps to staunch the bleeding.

One step several carriers are considering is to leave the health insurance exchanges. Another is to exit the individual market altogether; not formally, but for virtually. Formal market withdrawals by health plans are rare. The regulatory burden is heavy and insurers are usually barred from reentering the market for a number of years (five years in California, for example).

There’s more than one way to leave a market, however. A method carriers sometimes employ is to continue offering policies, but make it very hard to buy them. Since so many consumers rely on the expertise of professional agents to find the right health plans, a carrier can prevent sales by making it difficult or unprofitable for agents to do their job. Slash commissions to zero and agents lose money on each sale.

While I haven’t seen documentation yet, I’m hearing of an increasing number of carriers eliminating agent commissions and others removing agent support staff from the field. (Several carriers have eliminated field support in California. If you know of other insurers making a similar move or ending commissions please provide documentation in the comments section).

So what can be done? In a presidential election year not much legislatively. Republicans will want to use an imploding individual market to justify their calls repealing the ACA altogether. Senator Bernie Sanders will cite this situation as yet another reason we need “Medicare for all.” Former Secretary of State Hillary Clinton, however, has an incentive to raise the alarm. She wants to build on the ACA. Having it implode just before the November presidential election won’t help her campaign. She needs to get in front of this issue now to demonstrate she understands the issue and concerns, begin mapping out the solution and inoculate herself from whatever happens later this year.

Congress should get in front of the situation now, too. Hearings on the implosion of the individual market and discussions on how to deal with it would lay the groundwork for meaningful legislative action in 2017. State regulators must take notice of the endangered individual market as well. They have a responsibility to assure competitive markets. They need to examine the levers at their disposal to find creative approaches to keep existing and attract new carriers into the individual market.

If the individual market is reduced to one or two carriers in a region, no one wins. Competition and choice are consumers’ friends. Monopolies are not. And when consumers (also known as voters) lose, so do politicians. Which means smart lawmakers will start addressing this issue now.

The individual health insurance market may be an endangered species, but it’s not extinct … yet. There’s still time to act. Just not a lot of time.

Will Rubio’s Measure Undermining ACA Survive?

Republicans stated goal is to “repeal and replace” the Patient Protection and Affordable Care Act. That hasn’t happened and won’t at least through the remainder of President Barack Obama’s term. So a secondary line of attack is to undermine the ACA. And Senator Marco Rubio has had success in that regard.

As reported by The Hill, Senator Rubio accomplished this feat by weakening the ACA’s risk corridors program. Whether this is a long- or short-term victory is being determined in Washington now. We’ll know the answer by December 11th

President Obama and Congress recognized that, given the massive changes to the market imposed by the ACA, health plans would have difficulty accurately setting premiums. Without some protection against under-pricing risk, carriers’ inclinations would be to price conservatively. The result would be higher than necessary premiums.

To ease the transition to the new world of health care reform, they included three major market stabilization programs in the Affordable Care Act. One of them, the risk corridors program, as described by the Kaiser Family Foundation, “limits losses and gains beyond an allowable range.” Carriers experiencing claims less than 97% of a targeted amount pay into a fund; health plans with claims greater than 103% of that target receive funds.

The risk corridor began in 2014 and expires in 2016. As drafted, if payments into the fund by profitable insurers were insufficient to cover what was owed unprofitable carriers the Department of Health and Human Services could draw from other accounts to make up the difference.

Senator Rubio doesn’t like risk corridors. He considers them “taxpayer-funded bailouts of insurance companies at the Obama Administration’s sole discretion.” In 2014 he managed to insert a policy rider into a critical budget bill preventing HHS from transferring money from other accounts into the risk corridors program.

The impact of this rider has been profound.

In October HHS announced a major problem with the risk corridors program: insurers had submitted $2.87 billion in risk corridor claims for 2014, but the fund had taken in only $362 million. Subsequently, payments for 2014 losses would amount to just 12.6 cents on the dollar.

This risk corridor shortfall is a major reason so many of the health co-ops established under the ACA have failed and may be a factor in United Health Group to consider withdrawing from the law’s health insurance exchanges. (United Health was not owed any reimbursement from the fund, but likely would feel more confident if the subsidies were available).

The Obama Administration certainly sees this situation as undermining the Affordable Care Act. In announcing the shortfall, HHS promised to make carriers whole by, if possible, paying 2014 subsidies out of payments received in 2015 and 2016. However, their ability to do so is “subject to the availability of appropriations.” Which means Congress must cooperate.

Which brings us back to Senator Rubio’s policy rider. It needs to be part of the budget measure Congress must pass by December 11 to avoid a government shutdown. If the policy rider is not included in that legislation, HHS is free to transfer money into the risk corridor program fund from other sources.

Senator Rubio and other Republicans are pushing hard to assure HHS can’t rescue the risk corridors program claiming to have already saved the public $2.5 billion from a ‘crony capitalist bailout program.” Democrats and some insurers, seeing what’s occurred as promises broken, are working just as hard to have it removed.

By December 11th we’ll know whether the ACA is further undermined or bolstered.

 

The Open Enrollment Convergence: Scope and Resources

To state the obvious, there are 12 months in the year. Unfortunately for health insurance companies, brokers, exchanges and those they serve, various health care coverage open enrollments for most Americans are crammed into less than four of those months. The scope and challenge of this Open Enrollment Convergence is mind-boggling.

Open Enrollments by the Numbers

Medicare’s open enrollment period is October 15th through December 7th of each year. Open enrollment for individuals runs from November 1, 2015 through January 31, 2016. The majority of small and large group plans renew on either December 1st (because last year employers wanted to put off coming into the ACA market for as long as possible) or January 1st (so benefit years coincide with calendar years).

Cramming all these open enrollments and renewals into a 15 week period impacts most Americans. The US Census Bureau estimates that in 2014 enrollment was:

  • 50 million in Medicare
  • 60 million in Medicaid
  • 45 million in medical policies they purchased themselves (primarily individual and family coverage)
  • 175 million in private group health coverage

Renewing any one of these cohorts in a two-or-three months is a Herculean challenge. Deal with all of them at once and you’ll find the Demigod in a fetal position off in a corner somewhere muttering about ACA compliance reports. Yet, all at once is when they’re happening.

Resources:

Alcohol is not a resource. Nor will it help get brokers through the Open Enrollment Convergence. Avoid it until February 1st. The three sources, however, will help. This blog’s Health Care Reform Resources page lists additional useful sites.

The National Association of Health Underwriters, the preeminent organization for health insurance brokers, consultants and benefit professionals, publishes a lot of extremely useful material. The NAHU Compliance Cornered Blog is accessible to everyone. Tools and information in the association’s Compliance Corner are available only to members, but well worth the dues. One feature allows members to pose detailed questions to experts and quickly receive a personalized response. The breadth and depth of the compliance expertise available through this service is impressive and invaluable.

The Henry J. Kaiser Family Foundation is an outstanding resource for dependable information on health policy and parsing the Affordable Care Act. (The Foundation is unrelated to Kaiser Permanente health plans). The Foundation’s Health Reform FAQs recently updated 300 items on a broad range of ACA topics. If you’re into Twitter, you’ll benefit from following the Kaiser Family Foundation. (Of course, if you’re into Twitter I hope you’ll follow me as well, he shamelessly plugged).

The Department of Health and Human Services is the government’s lead agency on the ACA. The HHS Health Care site serves up extremely helpful data, forms and explanations along with a bit of not unexpected ACA cheer leading.

Go Team

I wish I had a pithy message to help get you through the fourth quarter renewals; some poster-worthy motivation you could hang on your wall. However, in the accurate words of the folks at Despair.com, “If a pretty poster and a cute saying are all it takes to motivate you, you probably have a very easy job. The kind robots will be doing soon.”

Robots will not be handling an Open Enrollment Convergence anytime soon (the stress would rupture their … whatever robots rupture). New tools are on their way to help benefit brokers manage the workload. These, however, will amplify the high-touch service and expertise benefit brokers deliver, not replace agents.

Because there’s nothing easy about helping consumers find and use the health care coverage they need. Fortunately, professional benefit brokers are really good at doing just that.

This may not be a motivational statement, but it is factual.