Thursday, October 28, 2010
The NAIC cover letter forcefully reemphasizes state regulators’ concerns about the MLR provisions: “We continue to have concerns about the potential for unintended consequences arising from the medical loss ratio. As we noted in our letter of October 13th, consumers will not benefit from higher medical loss ratios if the outcome is destabilized insurance markets where consumer choice is limited and the solvency of insurers is undermined. This is of particular concern in the period before guaranteed issue and exchanges are implemented in 2014, as those who lose coverage may be unable to find or afford other coverage.”
The letter goes on to remind Secretary Sebelius of NAIC’s earlier point that state regulators are better able than HHS to determine if waivers are necessary: “We reiterate our request that your Department give deference to the analysis and recommendations of state regulators when determining how the new requirements will be implemented in a destabilized market.”
Finally, the cover letter reiterates NAIC concerns that insurance agents and brokers will be hard hit by the MLR provisions, since their commissions are counted as insurer expenses in the proposed MLR computation, and insurers will presumably be unwilling to cover these costs in future.
Whatever HHS’ response is to the NAIC comments, federal officials and state regulators will have very little time to prepare for their implementation on January 1, 2011, and—if there are further changes— health insurers will have even less time to decide how to respond, including whether to remain in existing markets.
Throughout the reform debate, insurers were painted as the “bad guys” of the American health care system, guilty of egregious policy cancelations, huge premium increases, heartless rejections of applications for coverage, and overly generous executive compensation, all in the context of an inefficient and ill-structured industry.
Not surprisingly, insurers became the primary targets of the new law. ACA will prevent insurers from imposing annual and lifetime benefit limits, arbitrarily canceling policies, denying coverage to children with pre-existing conditions, imposing copayments on preventive care, excluding necessary services, and basing premiums on health status or gender. ACA will also force far more open competition though insurance exchanges and limit insurer administrative expenses and profits.
So far, though, in spite of a steady stream of complaints from America’s Health Insurance Plans, the industry lobbying group, there has been little apparent impact on the health insurance industry.
Many insurers have increased premiums to compensate for ACA’s increased benefits, and some have decided to no longer offer “child only” policies, to avoid the risk of accepting children with very costly pre-existing conditions. In terms of the overall market, however, these are very small blips.
There have been a few other blips. Following national publicity over McDonalds’ threat to cancel its min-med employee insurance plan, HHS granted waivers of the annual benefit provision to the burger chain and some thirty other employers. A couple of small insurers have withdrawn from the health insurance market and transferred their policies to larger competitors. And three states have applied to HHS for waivers of the MLR provisions.
Overall, however, there has been a remarkable absence so far of change in the health insurance industry. Given all the potential threats of ACA, why do insurers seem to be in some kind of limbo?
There are three reasons: delay in finalizing medical loss ratio regulations; uncertainty about HHS’ approval of waivers; and the November mid-term election.
ACA’s medical loss ratio provisions offer a huge threat to smaller insurers, especially those specializing in “affordable” high-deductible policies which typically have high administrative expenses relative to benefit costs. The National Association of Insurance Commissioners has finally—after several delays—completed its proposal for MLR computation, but until this is accepted by HHS Secretary Sebelius and incorporated into regulations, insurers will continue to be unsure of its impact.
Secretary Sebelius also must decide how to rule on MLR waiver requests already submitted by a handful of states, and on the larger issue raised by NAIC of how to measure the potential market destabilization that ACA requires to trigger a waiver. Again, this is an issue with huge ramifications for many insurers. A rigid interpretation by HHS of waiver requirements could lead to a wholesale insurer exit from the individual market.
Finally, the November election is seen by insurers as providing the chance to squeeze the Obama administration’s implementation of ACA. With a strong enough showing by Republicans, the insurance industry hope is that threats of a funding cut-off by the new Congress will lead to dilution of many of the more onerous or profit-crippling ACA provisions.
And if insurers don’t get everything they are hoping for? Starting in January 2011, when the new MLR regulations are scheduled to be effective, we can expect to see three things: insurers dumping their small group and individual business, replacing high-deductible policies by more costly coverage with lower limits, and the wave of consolidation in the industry that executives from the largest carriers have been forecasting for several months.
Thursday, October 21, 2010
If anyone ever doubted the extent to which Congressional committees could turn good intentions into a bureaucratic nightmare, they need only to look at PPACA’s premium subsidy provisions and their potential impact on insurance exchanges.
PPACA offers premium and enrollee cost-sharing subsidies for lower-income people not eligible for Medicaid or SCHIP as one of the three key components—along with liberalizing Medicaid income restrictions and requiring everyone to have coverage—of reform’s attempt to solve the affordability problem that’s resulted in fifty million Americans being uninsured.
How will the subsidy process work? It takes up 25 pages of the final reform legislation, so the following is a vastly simplified description. It’s also one that assumes that the final regulations will not deviate significantly from the law itself.
First, anyone wishing to be eligible for a subsidy must submit an application to an exchange. The application must include all information necessary to determine if the applicant is eligible for Medicaid or SCHIP, as well as for the PPACA subsidies. (Massachusetts’ Connector—the prototype exchange—requires a 12-page page form to convey this information.)
Second, the exchange transfers the applicant’s information to the state Medicaid and SCHIP agencies to determine possible eligibility for those programs. If either is the case, and depending whether all or just some family members are affected, the applicant must be notified, and may no longer be eligible for exchange enrollment.
Third, assuming no eligibility for Medicaid or SCHIP, the exchange must determine if the applicant’s income appears to meet PPACA subsidy rules. If not, the applicant must be notified that no subsidy is available.
Fourth, the applicant’s information is forwarded to HHS, which will—in conjunction with the IRS and other federal agencies—verify the submitted information. (The Congressional Budget Office estimates that the cost to the IRS of implementing the eligibility determination, documentation, and verification processes would be between $5 billion and $10 billion over 10 years.)
Fifth, HHS will notify the exchange of the results of verifying the submitted information. The exchange must then notify the applicant, including whether any discrepancies were found and must be corrected.
Sixth, assuming the application meets PPACA subsidy rules, the applicant can finally select an insurance plan from the exchange. However, in order to receive a cost-sharing subsidy as well as a premium subsidy, only Silver plan selection is allowed. Thus, lower-cost Bronze plans cannot be chosen by anyone wanting to reduce their out-of-pocket costs. The exchange must also notify the applicant of the reduced premium amount and the impact of any reduced cost-sharing.
Seventh, the exchange must notify HHS of the applicant’s choice of plan.
Eighth, HHS must notify the Treasury Department, which will then make the monthly premium subsidy and reduced cost-sharing payments to the selected insurer.
Of course, the above describes the most straightforward situation in which a well-organized individual applies for subsidies well ahead of the start of coverage deadline, during an annual open enrollment period, with timely and accurate communication among the various agencies involved.
Unfortunately, there are likely to be many cases when a subsidy application is incomplete or inaccurate, or when it is submitted only just before a deadline, or when information supposed to be forwarded from one agency to another goes astray, or when an individual moves from one state to another in mid-year, or when any of the myriad of other problems occur associated with 11 million people (CBO’s premium subsidy population estimate for 2015) encountering a new government program on January 1, 2014, the same date that an estimated 15 million others will become newly eligible for Medicaid or SCHIP, with every one of these 26 million individuals’ applications being processed by the same state agencies.
Could it be that reform’s attempt to solve American’s health care problems by applying a giant Band-Aid to the existing system is going to lead to an even more incomprehensible muddle?
Monday, October 18, 2010
LOW ENROLLMENT MEANS FAILURE
As Massachusetts discovered, it’s impossible for the exchange to influence premium rates without a significant share of the small group and individual markets. Massachusetts succeeded with its subsidized plans, where it was the dominant purchaser, but not with its unsubsidized plans. Insurers will see no reason to risk cannibalizing their non-exchange business by offering especially competitive rates within the exchange if the potential enrollment is too low to be attractive.
Low enrollment also means high per capita administrative costs. Implementation expenses ($25 million for the Connector) will be politically unacceptable unless substantial enrollment can be guaranteed, while ongoing operating costs spread over too few enrollees could make the exchange noncompetitive with non-exchange offerings—resulting in even lower enrollment.
Massachusetts attempted to make individual coverage less costly (and therefore more attractive) by combining individual and small group markets. This creates a larger enrollee risk pool, and greater per plan enrollment, but results in higher small group rates.
PPACA exchanges should gain from being the only sources for those receiving premium subsidies, with subsidized and unsubsidized enrollees expected to choose from the same menus of plans (unlike the Connector). However, competition from non-exchange plans may be significant since PPACA puts few limits on such offerings, other than to require that premiums be the same if the identical plan is offered through the exchange, and to require that exchange and non-exchange enrollees be part of the same risk pool.
ENROLLMENT MUST BE ATTRACTIVE, EASY, AND FAST
To maximize enrollment, exchanges must compete successfully with individual insurers. To overcome the government agency stigma, exchange enrollment processes must be exceptionally well-designed to attract potential enrollees (and supported by advertising), be easy to navigate (while providing the information needed by enrollees), and fast (so enrollees don’t quit before enrollment is completed).
Massachusetts’ Connector website provides a good model for plan selection and enrollment by non-subsidized individuals, but could require considerable modification for a state with more plans, and to attract small employers (few of whom have chosen to use the Connector).
PPACA’s subsidized enrollees will present problems because of the need to review income and other details. Exchanges will have an effective monopoly of this group, but enrollment will be a two-step procedure, as in Massachusetts, separated by a—possibly lengthy—state and federal subsidy determination process.
PRICE COMPETITION IS ESSENTIAL
Massachusetts’ Connector (and also California’s 1.3 million enrollee CalPERS public employees exchange) shows that people tend to choose lower cost options IF they can easily compare premiums and benefits. Such comparisons are essential to controlling the costs of coverage and—eventually—medical care.
The Connector (and also CalPERS) offers limited menus of plans, with benefits defined by the exchanges. This reduces the complexity of plan choice and—in theory—means that enrollment isn’t spread so thin that it becomes insignificant to individual plans.
PPACA exchanges may encounter pressure to include the products of every licensed insurer in the state or region, and to allow variations from standard benefits. Insurers may also attempt to cherry pick outside the exchanges by offering products aimed at the best risks, while trying to finesse PPACA’s risk-pooling provisions. Allowing such flexibility would undermine any potential that exchanges have for controlling health care costs.
EXCHANGES MUST BE ACTIVIST
Massachusetts took an activist approach to exchange operation, including specifying allowed coverage options and providing a website that readily allows price comparison. Similarly, CalPERS has worked closely with insurers to provide affordable and comparable options. (In contrast, Utah’s so-called exchange offers little more than would be provided by a Google search on “health insurance.”)
PPACA gives exchanges a lengthy list of responsibilities, including requiring that an exchange provide “standardized comparative information on plans,” and that it assign a “quality and price rating.” However, the law is silent on key issues like the exchange’s ability to determine which insurers and which products are to be included, or exactly how they are to be compared, or whether restrictions could be imposed on competition between exchange and non-exchange products.
Without a strong activist approach, exchanges will provide no incentive for insurers to control their own costs or the costs of their contracted providers—and their success will still be dependent on meeting enrollment and price competition goals.
In an October 13 letter to HHS Secretary Kathleen Sebelius, NAIC officers ask that HHS “give deference to” state regulators’ determinations of whether imposition of the MLR and rebate provisions would destabilize individual markets.” The letter lists a series of factors that state regulators would consider, including possible impact on insurer solvency and the ability of policyholders to find alternate coverage if waivers were not granted. In other words, the NAIC is requesting that HHS grant waivers to states with a minimum of argument. As the letter says, “State regulators are most familiar with local health care and health insurance markets.”
The NAIC letter emphasizes the importance of a smooth transition to fully implemented reform, and points out that while the MLR provision is scheduled for 2011, the major components of PPACA will not be effective until 2014. (The letter fails to note that, starting in 2014, the MLR calculation must be based on a 3-year rolling average, so that even with waivers prior to 2014 it may be impossible for insurers to meet the 80 percent individual market threshold in 2014.)
The underlying threat, of course, is that unless state regulators’ requests for waivers are granted, HHS will become the whipping boy for every individual policy that is canceled, and for every departure of an insurer from a state market. Democratic insurance commissioners may not complain too loudly, but the Republican majority certainly will.
What is Secretary Sebelius likely to do? Given the rapidity with which HHS folded in the face of concerns about mini-med policies, it’s a reasonable bet that the final federal regulations will require HHS to consider state regulators’ determinations, at least through 2014. It’s also likely, given that the MLR provisions become effective in just a few weeks, that the waivers already requested (from Iowa, Maine, and South Carolina) will be quickly granted.
Saturday, October 9, 2010
Mini-med plans also run afoul of PPACA’s medical loss ratio rules. Because administrative costs are high compared with premium, even a highly efficient, non-profit mini-med plan will fall below the MLR thresholds. Again, HHS has indicated that it will allow some form of waiver for mini-meds. However, an MLR waiver faces two obstacles. First, the NAIC draft regulations for MLRs are based on reporting by legal entity, rather than specific product, implying that a waiver would somehow have to exclude mini-med data from the entity’s MLR calculation. Second, insurers marketing conventional high-deductible plans may reasonably argue that they also should be granted waivers—why should HHS waive a plan that offers almost no coverage, but not a plan that offers much more generous coverage (but less than needed to pass the MLR test)?
There is another potential MLR problem, but it’s one that may not be apparent until closer to 2014. Starting in that year, insurance exchanges will offer up to five levels of coverage (Platinum, Gold, Silver, Bronze, and catastrophic. The problem is that, if past exchange experience is any guide, the less expensive coverage levels (Silver and Bronze) will be most popular—and that will mean MLR trouble for insurers offering these levels.
For example, at the Bronze level, and assuming that exchanges will, as in Massachusetts, fund their operations through a premium levy of 4-5 percent, insurers will find it almost impossible to meet the MLR threshold of 80 percent for individual plans. Currently, the most efficient large group plans have MLRs of around 88 percent, indicating non-benefit costs of some $600 for typical single coverage (roughly equivalent to PPACA’s Gold level). With the addition of a 4 percent premium levy, non-benefit costs increase to $800, enough to cause almost all Bronze plans and many Silver plans to fail the MLR test. Only if insurers enroll startlingly large numbers at the Gold level will they be able to avoid the requirement to offer rebates—and that’s unlikely to happen.
Friday, October 8, 2010
Judge George Steeh ruled that Congress did not exceed its authority in requiring that almost all Americans have health insurance by 2014, or pay a penalty.
The plaintiffs, from the Thomas More Law Center, had argued that the individual mandate violated the Commerce clause of the Constitution in attempting to regulate an “inactivity” (the non-purchase of insurance).
The Judge cited Supreme Court rulings in which the Commerce clause had been extended to the growing of both wheat and marijuana for personal use, finding that such cultivation impacted the larger market, and also noted that the failure of some to purchase insurance inevitably resulted in higher costs for others. Interestingly, he also found that the issue was “ripe” for judicial determination, even though the mandate does not come into force until 2014, apparently accepting the plaintiffs’ argument that they would have to make financial decisions considerably before that time.
While Judge Steeh’s ruling is definitely a victory for reformers, it may be a short-lived one. Similar cases in Florida and Virginia are about to go to trial, possibly with judges less inclined to take a broader view of the extent of the Commerce clause. Ultimately, however, it will be up to the Supreme Court to rule on the individual mandate—and that may be two or more years in the future.
Thursday, October 7, 2010
The release of draft MLR regulations by the National Association of Insurance Commissioners last week eliminated much of the uncertainty, especially concerning the inclusion or exclusion of federal and state taxes from the MLR computation. With the NAIC drfat in hand, and assuming that it will be accepted by HHS Secretary Kathleen Sebelius, it's become a lot easier for insurers and employers to figure out how they may be affected, and what kind of strategic response is most approriate.
BNA's Pension and Benefits Daily asked REFORM UPDATE Editor Roger Collier to provide a detailed review of the issues facing employers and insurers. It was published on October 6 as a BNA Insight article and is available to BNA subscribers.
California’s new statute was signed into law by Republican Governor Arnold Schwarzenegger in the face of fierce opposition from the Chamber of Commerce, NFIB, and Anthem Blue Cross—but apparently after a nudge from President Obama. The law creates an independent statewide exchange authority, effective January 1, 2011 (but not providing exchange services until 2014), with responsibilities for determining eligibility and enrollment requirements under qualified carriers. The new entity will be headed by a five-member commission.
Opposition to the exchange legislation centered around two issues: funding and authority. Taxpayer and business groups argued against the use of premium levies to fund the exchange, while major insurers (but not Blue Shield or Kaiser) vehemently opposed giving the exchange the power to negotiate benefits and rates and to require that the coverage offered to exchange enrollees also be offered in the general individual market. Other insurers expressed concern that small plans could be effectively shut out of the exchange.
The NAIC draft issued just after the California signing is intended to be a template for state exchange legislation and, accordingly, is far less specific about funding, responsibilities, and authority. It is, however, a useful starting point, especially for states still confused about how to approach PPACA’s exchange provisions. The draft includes clauses covering all essential exchange functions, reflecting the PPACA requirements, together with discussions of how to put various state options into statutory language. States are not required to utilize the NAIC language (like California, they can choose to develop their own statutes), but the NAIC draft clearly is a valuable source.
Wednesday, October 6, 2010
The Connector, which offers Commonwealth Care subsidized coverage for those with incomes below 300 percent of FPL but not eligible for Medicaid, and Commonwealth Choice private plans for other families and individuals and small employer groups, has been touted as a major success by current and former Commonwealth officials and many national reform advocates.
But, after four years of operation, just how successful has the Connector really been? Has the Connector simplified health plan choice and enrollment, increased the number of insured, reduced marketing costs, created competition, or driven down premiums? It turns out that the answers are far less positive than the Connector’s boosters have admitted.
HAS THE CONNECTOR SIMPLIFIED PLAN SELECTION AND ENROLLMENT?
For some, at least.
For the 33,000-enrollee unsubsidized Commonwealth Choice program the answer is yes. Health plan selection and enrollment for CommChoice’s seven plans (with six levels of benefits each) is directly available via the Connector website, with simple well-designed screens and navigation, and easy comparison of alternatives. However, in spite of the ease of use, only half of Massachusetts’ post-reform non-subsidized insured have chosen coverage via CommChoice.
For the 155,000-enrollee subsidized Commonwealth Care program, enrollees face enough complications that a 13-page booklet is necessary to guide them through the process. Plan selection and enrollment for CommCare’s five Medicaid managed care plans (with multiple benefit levels depending on income) require applicants to first complete a benefit request form with income and other details; only after eligibility is determined by the state Medicaid agency is plan selection possible, either on-line or, for those without convenient web access, through submission of a paper form. Not only can this be a time-consuming process, but it’s one that is explained on the Connector website in language that may require a higher level of education than many potential applicants possess.
HAS THE CONNECTOR INCREASED THE NUMBER OF INSURED?
Only marginally, at best.
A few CommChoice enrollees may have purchased coverage as a result of the easy-to-use Connector enrollment procedures, but—given the pressures of the individual mandate and its associated penalties—most would otherwise have bought insurance through brokers or directly from carriers.
CommCare enrollees are even less likely to have acquired coverage because of the Connector’s capabilities. Most CommCare enrollees pay no premiums and presumably would have submitted applications for coverage regardless of the Connector.
Overall, although the Connector provides a useful source of information, most of Massachusetts’ post-reform insured were probably influenced more by media coverage of the individual mandate and other reform details than by the Connector. In fact, neither the media nor the Connector has persuaded all eligibles to become covered. The latest Census Bureau figures show Massachusetts—while having the lowest uninsured rate in the US—still with five percent uninsured, while a 2010 Robert Wood Johnson Foundation study estimates that almost half of these uninsured are eligible for either CommCare or Medicaid.
HAS THE CONNECTOR REDUCED MARKETING AND ENROLLMENT COSTS?
For CommChoice, the Connector’s costs (funded by a 4.5 percent levy on premiums, roughly equivalent to broker commissions) are additive to health plans’ own administrative costs. Although the plans presumably incur somewhat less enrollment effort as a result of the Connector, the volume of enrollees gained (less than 5 percent of total enrollment) isn’t large enough to influence plan costs significantly.
For CommCare, the Connector’s costs (funded by a 4 percent levy on premiums) also are additive to plans’ administrative costs. However, because the Medicaid managed care plans contracted by CommCare have cost structures that assume enrollment is a state function, plan costs are not affected by use of the Connector.
Connector administration costs to date are actually significantly higher than the premium levy amounts indicate, since initial implementation efforts were funded by a one-time $25 million appropriation.
HAS THE CONNECTOR CREATED A COMPETITIVE MARKET FOR COVERAGE CHOICES?
Only to a limited extent.
The Connector website allows applicants to compare costs of plans with similar benefits—essential for a competitive market. Initially, the Connector allowed choices between “actuarially equivalent” plans, but more recently has switched to offering plans whose benefits are almost identical in order to facilitate price comparison.
For CommChoice, price seems to have played a significant role in plan and benefit choice: most enrollees have chosen the lower Bronze or Silver benefit levels, with less costly plans being most popular. However, with CommChoice enrollees representing fewer than five percent of the individual and small group market, the Connector’s price-comparison capability is unlikely to have influenced overall market competition.
For CommCare, most enrollees pay no premiums so that price comparisons are meaningless. For the remaining CommCare enrollees, premium differences between plans are small and seem not to have been a major influence on plan selection.
HAS THE CONNECTOR RESULTED IN LOWER PREMIUMS?
Possibly, for the subsidized CommCare plans, but not for CommChoice.
Connector administrators have taken activist roles in attempting to control premium increases, especially for CommCare, rejecting plan proposals until lower rates have been offered. For CommChoice (whose plans are available in the general market), Connector administrators supported the state insurance regulators’ rejection of rate hikes that led to a brief “insurance strike” in the spring of 2010 and ultimately to reduced increases. What is not known for either program is the extent—if any—to which state pressures on individual market premiums may have resulted in cost shifting elsewhere.
Although Connector officials have claimed in Congressional testimony that CommChoice’s creation led to a dramatic drop in non-group premiums, the reality is that this was primarily due to the state’s combining of the small group and individual markets, something that also resulted in premium increases for small groups. The very small CommChoice enrollment is simply too little to influence the overall Massachusetts market (which has the highest health insurance premiums in the nation): the tail does not wag the dog.
SO, DOES THIS MEAN PPACA INSURANCE EXCHANGES WILL BE EQUALLY UNSUCCESSFUL?
In a sense, the very existence of the Connector—a pioneering state effort to offer truly competitive—and easy—health plan selection—represents a success. However, this success is due in part to the factor that undermines the Connector’s effectiveness: the very low enrollment numbers. Establishing the Connector would almost certainly have been much more difficult and faced far stronger opposition if Massachusetts had had more pre-reform uninsured, especially those above the 300 percent FPL level, as will be the case in most other states who must establish PPACA insurance exchanges.
The real value of the Massachusetts experience is likely to prove not to be to the Commonwealth itself, but to other states. Whether they can achieve greater success, and the lessons they can learn from Massachusetts, will be the subjects of a subsequent article.
Saturday, October 2, 2010
Starting with a snide comment about a New York Times article that quotes a study by the prestigious National Bureau of Economic Research on the effects of the recession on medical care usage in different countries, the post goes on to attack the study itself. Miller’s complaint is “the NBER study assumed facts that were not in evidence—that Americans face significantly higher OOP costs for health care than people in other comparable nations. It confused absolute dollar totals (in a larger health economy) with the more decisive “share” of health spending that is paid OOP.” Miller criticizes the NBER study for using OECD nations’ OOP percentages of GDP without adjusting for the much higher share of GDP for health spending in the US, and accuses the NBER authors of “detaching the numerator from the relevant denominator, to make the former look larger compared to another less-related one.”
Who’s clueless here? It seems as if it’s the Health Affairs blog post’s authors who are having the most denominator trouble.
If it’s their intent to show that OOP reductions in the US have less impact on consumers than in nations with “socialized” medicine, perhaps they should have surveyed US users of medical care. If so, they would have discovered that few, if any, Americans evaluate their OOP costs in terms of national spending on health care, any more than they consider the cost of a new automobile in terms of national costs of vehicle production.
And if the Health Affairs blog authors were trying to show that OOP reductions in the US are small in overall terms compared with those in other OECD countries, they have succeeded only in showing that almost any expenditure is small compared with the United States’ bloated health care costs. Using the post authors’ rationale—and their denominator—it seems there’s nothing like out-of-control total spending to make our OOP cutbacks look good (at least, in percentage terms).