The Congressional Budget Office estimates that the government deficit will exceed one and a half trillion dollars this year, with federal health care annual expenditures expected to hit the trillion dollar mark by 2012. The largest federal health care program is, of course, Medicare, with costs projected to be close to $600 billion in 2012, and growing at around seven percent a year thereafter, although forecast to drop to a mere six percent annual increase if and when the Affordable Care Act is fully implemented.
Republicans and Democrats have each offered proposals to reduce projected Medicare expenditures, Republicans by shifting much of the cost of the program to beneficiaries, Democrats by passing responsibility to the already hobbled and politically endangered Independent Payment Advisory Board. Neither proposal has any realistic chance of passage.
Maybe it’s time to blow the cobwebs off the 1999 proposal from the National Bipartisan Commission on the Future of Medicare.
The Commission, co-chaired by Democratic Senator John Breaux and Republican Representative Bill Thomas, was created by Congress as part of the Balanced Budget Act of 1997, back when bipartisan cooperation was still sometimes possible. The Commission spent nine months examining Medicare’s program structure and costs and alternative approaches to reform, with the two co-chairs issuing their joint recommendation in March 1999. The co-chairs’ recommendation was, however, supported by only ten of the seventeen Commission members, one short of the number required for formal adoption, with the more liberal members generally opposed to the proposal’s cost control approach. Ironically—in the light of subsequent economic events—one key reason for the failure of the co-chairs’ proposal to gain more support was the booming economy of the later Clinton years, combined with the success of already enacted program changes dictated by the Balanced Budget Act.
Despite its failure to achieve the two-thirds majority needed for adoption, the 1999 proposal includes some recommendations that together look more practicable and potentially more politically acceptable than those of either Representative Ryan’s Republican plan or President Obama’s Democratic proposal:
1. Medicare would become a premium support program, with federal contributions of 88 percent of average premium cost (and with subsidies for low-income seniors) – Like Representative Ryan’s 2011 plan, the 1999 proposal recommended a voucher-type approach in order to encourage beneficiary cost-consciousness, but with considerably less of a potential financial burden on beneficiaries.
2. Traditional fee-for-service Medicare would remain as an option along with insurer offerings – Unlike the Ryan plan, the three-quarters of seniors enrolled in traditional Medicare would not be forced to switch to an insurance company plan. However, the FFS program would have to be self-funded and self-sustaining and meet the same requirements as private plans, including standards for actuarial soundness, adequacy of reserves, and performance capacity.
3. Medicare program administration would be transferred from HHS to a government-chartered Medicare Board, free of civil service restrictions – Key functions of the Board would include negotiation with health plans, risk adjustment, and premium collection and disbursement, but with the standard Medicare benefits still determined by Congress.
4. The traditional FFS program would have some power to contract with individual providers in order to control costs – Rather than a one-size-fits-all reimbursement approach, the FFS program would have some flexibility of payment methods and would be able to contract selectively in areas where otherwise it would be uncompetitive with insurance plans.
5. Parts A and B would be combined into a single program – With close to 95 percent of beneficiaries enrolled in both Part A and Part B, with the blurring of lines between inpatient and outpatient services, and with the recommended changes in funding, combining Parts A and B seems a logical step.
6. The Medicare eligibility age would be the same as for Social Security – As with Representative Ryan’s plan, the 1999 Commission saw increasing the eligibility age as a reasonable reflection of demographic trends. Tying Medicare eligibility age to Social Security would be a rational approach.
Could the 1999 proposal be the optimal solution for Medicare? Probably not, but with finding an approach that could gain enough votes to reduce the deficit increasingly urgent, it seems more realistic than the recent political offerings, provided steps are also taken to minimize cost-shifting to the non-Medicare market.
The Bipartisan Commission’s proposed average 12 percent beneficiary contribution (roughly equal to today’s Part B premium) would not result in immediate federal savings. However, as the experience of the Federal Employees Health Benefit Plan and state employee plans like California’s CalPERS has shown, a premium support model can result in much greater consumer awareness of coverage cost, without imposing undue financial burdens on beneficiaries. Retaining the traditional FFS Medicare program as an option, but with real price competition with—and between—private plans, would alleviate many seniors’ concerns, while forcing both the private Medicare insurers and the government plan to press their providers to be more cost-effective.
How far could such an approach go towards reducing the deficit and enhancing the financial viability of Medicare? The 1999 Bipartisan Commission’s staff analysis estimated that it would reduce the growth of Medicare spending by approximately 1 percent a year, once fully implemented, or—based on current CMS projections—some $60 billion annually. Given that the 1999 projection was made at a time when Medicare growth was slowing significantly, a new cost analysis might show a bigger potential reduction, while a slightly higher beneficiary contribution would obviously increase the federal savings. What’s needed now is to do that updated analysis—preferably without the pressures of partisan politics—in the hope of finding an acceptable bipartisan solution, before the deficit crisis dictates a more desperate and draconian approach.
Thursday, April 28, 2011
Wednesday, April 27, 2011
NEWS UPDATE April 25, 2011: STOPPED IN ITS (FAST) TRACKS
It wasn’t a huge surprise, but it was—after quite a drought—slightly good news for advocates of health care reform as defined by the Affordable Care Act.
The Supreme Court on Monday rejected the State of Virginia’s request to put the State’s challenge to the ACA (one of several similar cases) on a fast track. The Court’s order provided no explanation, and there were no dissenting votes.
Virginia’s attorney-general had argued that an exception was justified to the usual process of a case moving from federal district court to federal appeals court on its way to an eventual hearing by the Supreme Court, because of the importance of the ACA case and the virtual certainty that it would eventually be heard by the Court. The government agreed with the importance, but proposed the usual more orderly approach, especially since the case is already moving towards appellate review.
Possibly more interesting and important than the Court’s actual decision was the absence of any indication that any of the justices had disqualified themselves from the case. Since the newest justice, Elena Kagan, was previously Solicitor General in the Obama administration, there had been some speculation that she might recuse herself, thereby potentially leaving the Court more heavily weighted towards its conservative wing. Meanwhile, the best guess is that the Virginia ACA case will be heard by the Court some time in 2012, but with a decision not being handed down until later in the year, possibly in time for the presidential election.
The Supreme Court on Monday rejected the State of Virginia’s request to put the State’s challenge to the ACA (one of several similar cases) on a fast track. The Court’s order provided no explanation, and there were no dissenting votes.
Virginia’s attorney-general had argued that an exception was justified to the usual process of a case moving from federal district court to federal appeals court on its way to an eventual hearing by the Supreme Court, because of the importance of the ACA case and the virtual certainty that it would eventually be heard by the Court. The government agreed with the importance, but proposed the usual more orderly approach, especially since the case is already moving towards appellate review.
Possibly more interesting and important than the Court’s actual decision was the absence of any indication that any of the justices had disqualified themselves from the case. Since the newest justice, Elena Kagan, was previously Solicitor General in the Obama administration, there had been some speculation that she might recuse herself, thereby potentially leaving the Court more heavily weighted towards its conservative wing. Meanwhile, the best guess is that the Virginia ACA case will be heard by the Court some time in 2012, but with a decision not being handed down until later in the year, possibly in time for the presidential election.
Saturday, April 23, 2011
CONTROLLING THE MEDICARE BUDGET—TWO INFEASIBLE PROPOSALS
How to slow Medicare’s escalating costs has been the big health care policy issue this month, with Republicans and Democrats offering competing proposals, each part of broader plans for reducing the federal deficit—projected to be $1.5 trillion this year, with the government borrowing 40 cents for every dollar it spends.
Unfortunately, neither the Medicare proposal of Representative Paul Ryan’s House Budget Committee, nor that offered in response by President Obama, can be considered realistic.
Both proposals do have some merits. Representative Ryan’s plan for switching Medicare to a quasi-voucher premium support program in which beneficiaries would pay part of the premium for their choice of health plan could make seniors more cost conscious and introduce more competition among insurers. President Obama’s proposed strengthening of the Independent Payment Advisory Board provision of the ACA by lowering the trigger point for IPAB action would force further efforts to reduce costs, while doing much to remove Medicare policy from lobbyist-vulnerable political considerations. Both, if implemented, would effectively guarantee that federal Medicare expenditures would drop dramatically from current projections.
Neither, however, has any chance of enactment. The Congressional Budget Office’s projection of the average 65-year-old paying more than two-thirds of the cost of Medicare coverage by 2030—and more than twice as much as under the present program—almost certainly dooms Representative Ryan’s proposal. (The CBO’s assumption of the continuation of the differential between traditional Medicare and insurers’ equivalent offerings can be questioned, but it’s the forecast of the unfortunate 65-year-old’s 68 percent share of the tab that will resonate for seniors, their lobbyists, and their political supporters.)
President Obama’s proposal is just as unlikely to succeed. Senior Republicans were scathing in their criticisms of the original IPAB provision, as further increasing bureaucratic meddling in seniors’ care, and can be assumed to be even more opposed to any strengthening of IPAB. Political considerations aside, the President’s plan faces practical problems. The ACA severely limits the scope of IPAB recommendations, specifically excluding increases in beneficiary costs, benefit restrictions, changes to eligibility criteria, or any “health care rationing.” Since the ACA also forbids most targeting of hospital and hospice rates before 2020, the major cost-control option remaining is a severe cut in physician payments (and even that is excluded if a permanent fix to the sustainable growth rate problem is enacted), something that—even if it were politically feasible—would almost certainly lead to a wholesale exit of doctors from the program.
Both proposals suffer from another problem: each would shift costs onto Medicare beneficiaries and onto non-Medicare private sector insureds, although in slightly different ways.
Representative Ryan’s proposal would require beneficiaries to contribute to the cost of insurance coverage in excess of the government voucher value. To the extent that insurers respond to beneficiaries’ expected increased cost consciousness by squeezing provider rates, it’s likely that providers will try to recoup by increasing their charges to private sector payers.
President Obama’s proposal would require IPAB to impose cost reduction strategies to meet the targets prescribed in the ACA. Whether these are simply cuts in rates or more stringent applications of “evidence-based” medical criteria, each almost certainly resulting in providers leaving Medicare, the result is likely to be many beneficiaries paying out of pocket to obtain care, and—just as for Representative Ryan’s proposal—providers increasing charges to other payers .
The two proposals have one other feature in common: they each ignore history. Representative Ryan’s plan ignores the total failure of Medicare Advantage’s insurer competition model to reduce expenditures. President Obama’s plan ignores the almost equally total failure of CMS and its predecessors to bring Medicare costs under control in any significant way, other than by reducing provider reimbursement (and anyone who believes the current proposals for Accountable Care Organizations will achieve this cost control miracle would do well to read recent critiques by Ron Klar and Jeff Goldsmith).
Unfortunately, neither the Medicare proposal of Representative Paul Ryan’s House Budget Committee, nor that offered in response by President Obama, can be considered realistic.
Both proposals do have some merits. Representative Ryan’s plan for switching Medicare to a quasi-voucher premium support program in which beneficiaries would pay part of the premium for their choice of health plan could make seniors more cost conscious and introduce more competition among insurers. President Obama’s proposed strengthening of the Independent Payment Advisory Board provision of the ACA by lowering the trigger point for IPAB action would force further efforts to reduce costs, while doing much to remove Medicare policy from lobbyist-vulnerable political considerations. Both, if implemented, would effectively guarantee that federal Medicare expenditures would drop dramatically from current projections.
Neither, however, has any chance of enactment. The Congressional Budget Office’s projection of the average 65-year-old paying more than two-thirds of the cost of Medicare coverage by 2030—and more than twice as much as under the present program—almost certainly dooms Representative Ryan’s proposal. (The CBO’s assumption of the continuation of the differential between traditional Medicare and insurers’ equivalent offerings can be questioned, but it’s the forecast of the unfortunate 65-year-old’s 68 percent share of the tab that will resonate for seniors, their lobbyists, and their political supporters.)
President Obama’s proposal is just as unlikely to succeed. Senior Republicans were scathing in their criticisms of the original IPAB provision, as further increasing bureaucratic meddling in seniors’ care, and can be assumed to be even more opposed to any strengthening of IPAB. Political considerations aside, the President’s plan faces practical problems. The ACA severely limits the scope of IPAB recommendations, specifically excluding increases in beneficiary costs, benefit restrictions, changes to eligibility criteria, or any “health care rationing.” Since the ACA also forbids most targeting of hospital and hospice rates before 2020, the major cost-control option remaining is a severe cut in physician payments (and even that is excluded if a permanent fix to the sustainable growth rate problem is enacted), something that—even if it were politically feasible—would almost certainly lead to a wholesale exit of doctors from the program.
Both proposals suffer from another problem: each would shift costs onto Medicare beneficiaries and onto non-Medicare private sector insureds, although in slightly different ways.
Representative Ryan’s proposal would require beneficiaries to contribute to the cost of insurance coverage in excess of the government voucher value. To the extent that insurers respond to beneficiaries’ expected increased cost consciousness by squeezing provider rates, it’s likely that providers will try to recoup by increasing their charges to private sector payers.
President Obama’s proposal would require IPAB to impose cost reduction strategies to meet the targets prescribed in the ACA. Whether these are simply cuts in rates or more stringent applications of “evidence-based” medical criteria, each almost certainly resulting in providers leaving Medicare, the result is likely to be many beneficiaries paying out of pocket to obtain care, and—just as for Representative Ryan’s proposal—providers increasing charges to other payers .
The two proposals have one other feature in common: they each ignore history. Representative Ryan’s plan ignores the total failure of Medicare Advantage’s insurer competition model to reduce expenditures. President Obama’s plan ignores the almost equally total failure of CMS and its predecessors to bring Medicare costs under control in any significant way, other than by reducing provider reimbursement (and anyone who believes the current proposals for Accountable Care Organizations will achieve this cost control miracle would do well to read recent critiques by Ron Klar and Jeff Goldsmith).
Sunday, April 10, 2011
REPRESENTATIVE RYAN’S REFORM PLAN
It’s not termed as such, but the 2012 Budget Resolution authored by House Budget Committee Chair Paul Ryan includes the most comprehensive effort so far to define a conservative Republican health care reform plan.
Representative Ryan proposes to attack the federal government’s ever-escalating expenditures on health care by repealing major sections of the Accountable Care Act and by making fundamental changes in the financing of Medicare and Medicaid. Medicare would become a quasi-voucher “premium support” program, with government contributions dependent on age and beneficiary income, as well as being modified to increase the age at which seniors become eligible. Medicaid would be transformed into a state block grant program and the expansions included in the ACA would be rolled back, as would the individual mandate, the requirements for insurance exchanges, and the subsidies for lower-income exchange enrollees.
On the one hand, Representative Ryan’s proposal offers an aggressive approach to cutting the federal deficit. On the other hand, it does so primarily by shifting costs from one payer—the federal government—to others—seniors, low-income individuals, and states. If there are resulting reductions in overall health care expenditures, they may come mainly from the inability of the new payers to afford coverage. Unsurprisingly, the proposal has immediately come under fire from Democrats, seniors’ organizations, and provider groups.
Although it stands no near-term chance of passage in the face of opposition from a Democratic-controlled Senate, Representative Ryan’s proposal should not be written off. The Medicaid recommendations will be welcomed by many state governors—struggling to reconcile federal benefit mandates with budget-squeezed state funding—as offering the chance to craft more affordable eligibility and benefit rules. The Medicare premium support approach is consistent with that recommended in 1999 by the bipartisan National Commission on the Future of Medicare (but quickly discarded by congressional leaders as too much of a political hot potato). Representative Ryan also has attempted to finesse seniors’ reactions by phasing in the Medicare changes so that neither the increase in eligibility age nor the premium support plan would affect any beneficiaries for at least ten years.
While the impact of the Medicaid block grant proposal cannot be evaluated without knowing how states might choose to run their programs, there are existing models for the Medicare premium support proposal. Both the Federal Employees Health Benefit Plan and California’s CalPERS (as well as other state employee programs) take similar approaches. CalPERS in particular is regarded by many health care economists as an exemplary competition model, in which a fixed employer contribution is applied to enrollees’ choices from a limited number of health plans offering similar benefits. However, unlike CalPERS, FEHBP, or the 1999 Medicare Commission’s recommendations, Representative Ryan’s proposal could require very significant beneficiary contributions. CalPERS employer contributions are typically between 90 and 100 percent of the cost of the lowest priced plan, while the Medicare Commission’s recommendation was for an average government contribution of 88 percent of premium. In contrast, the Congressional Budget Office analysis of Representative Ryan’s proposal projects that by 2030, it would result in the average 65-year-old beneficiary paying 68 percent of the total of premium plus cost-sharing (deductibles etc).
Perhaps the biggest problem with Representative Ryan’s approach is that it fails to recognize the “water bed syndrome” of health care costs, in which squeezing costs in one area causes increase elsewhere: reducing Medicare and Medicaid expenditures may be good for government budgets, but—absent even more sweeping changes—may simply result in increased cost shifting to the private insurance market.
Representative Ryan’s Budget Resolution is a much more conservative proposal than that included in his earlier Roadmap for America’s Future. In comparison, the Roadmap—originally published in 2008, with later revisions—differed in two very significant ways: it increased federal control over Medicaid, while giving eligibles credits and subsidies to purchase private insurance; and it replaced the tax exclusion for employment-based insurance by a refundable tax credit for the purchase of coverage, either through an employer or on an individual basis. While it is certainly possible to quibble with the details, these features could have achieved the mainstreaming of Medicaid eligibles into the general health insurance system, and provided the same incentives for cost-conscious purchasing for the larger employed population as for FEHBP and CalPERS enrollees. Applying similar enrollee-choice premium support principles to each of Medicare, Medicaid, and private insurance could have gone a long way to eliminating the inter-program inequities that result in cost shifting.
Whether or not Representative Ryan’s change of direction reflects the increasingly conservative Tea Party-driven philosophy of his party or not, it’s disappointing to see worthwhile ideas being abandoned. A more balanced Roadmap-based Budget Resolution proposal might have received the serious consideration it would have deserved.
Representative Ryan proposes to attack the federal government’s ever-escalating expenditures on health care by repealing major sections of the Accountable Care Act and by making fundamental changes in the financing of Medicare and Medicaid. Medicare would become a quasi-voucher “premium support” program, with government contributions dependent on age and beneficiary income, as well as being modified to increase the age at which seniors become eligible. Medicaid would be transformed into a state block grant program and the expansions included in the ACA would be rolled back, as would the individual mandate, the requirements for insurance exchanges, and the subsidies for lower-income exchange enrollees.
On the one hand, Representative Ryan’s proposal offers an aggressive approach to cutting the federal deficit. On the other hand, it does so primarily by shifting costs from one payer—the federal government—to others—seniors, low-income individuals, and states. If there are resulting reductions in overall health care expenditures, they may come mainly from the inability of the new payers to afford coverage. Unsurprisingly, the proposal has immediately come under fire from Democrats, seniors’ organizations, and provider groups.
Although it stands no near-term chance of passage in the face of opposition from a Democratic-controlled Senate, Representative Ryan’s proposal should not be written off. The Medicaid recommendations will be welcomed by many state governors—struggling to reconcile federal benefit mandates with budget-squeezed state funding—as offering the chance to craft more affordable eligibility and benefit rules. The Medicare premium support approach is consistent with that recommended in 1999 by the bipartisan National Commission on the Future of Medicare (but quickly discarded by congressional leaders as too much of a political hot potato). Representative Ryan also has attempted to finesse seniors’ reactions by phasing in the Medicare changes so that neither the increase in eligibility age nor the premium support plan would affect any beneficiaries for at least ten years.
While the impact of the Medicaid block grant proposal cannot be evaluated without knowing how states might choose to run their programs, there are existing models for the Medicare premium support proposal. Both the Federal Employees Health Benefit Plan and California’s CalPERS (as well as other state employee programs) take similar approaches. CalPERS in particular is regarded by many health care economists as an exemplary competition model, in which a fixed employer contribution is applied to enrollees’ choices from a limited number of health plans offering similar benefits. However, unlike CalPERS, FEHBP, or the 1999 Medicare Commission’s recommendations, Representative Ryan’s proposal could require very significant beneficiary contributions. CalPERS employer contributions are typically between 90 and 100 percent of the cost of the lowest priced plan, while the Medicare Commission’s recommendation was for an average government contribution of 88 percent of premium. In contrast, the Congressional Budget Office analysis of Representative Ryan’s proposal projects that by 2030, it would result in the average 65-year-old beneficiary paying 68 percent of the total of premium plus cost-sharing (deductibles etc).
Perhaps the biggest problem with Representative Ryan’s approach is that it fails to recognize the “water bed syndrome” of health care costs, in which squeezing costs in one area causes increase elsewhere: reducing Medicare and Medicaid expenditures may be good for government budgets, but—absent even more sweeping changes—may simply result in increased cost shifting to the private insurance market.
Representative Ryan’s Budget Resolution is a much more conservative proposal than that included in his earlier Roadmap for America’s Future. In comparison, the Roadmap—originally published in 2008, with later revisions—differed in two very significant ways: it increased federal control over Medicaid, while giving eligibles credits and subsidies to purchase private insurance; and it replaced the tax exclusion for employment-based insurance by a refundable tax credit for the purchase of coverage, either through an employer or on an individual basis. While it is certainly possible to quibble with the details, these features could have achieved the mainstreaming of Medicaid eligibles into the general health insurance system, and provided the same incentives for cost-conscious purchasing for the larger employed population as for FEHBP and CalPERS enrollees. Applying similar enrollee-choice premium support principles to each of Medicare, Medicaid, and private insurance could have gone a long way to eliminating the inter-program inequities that result in cost shifting.
Whether or not Representative Ryan’s change of direction reflects the increasingly conservative Tea Party-driven philosophy of his party or not, it’s disappointing to see worthwhile ideas being abandoned. A more balanced Roadmap-based Budget Resolution proposal might have received the serious consideration it would have deserved.
Thursday, April 7, 2011
REFORM AT ONE YEAR: HINDSIGHT—THE MASSACHUSETTS MISTAKE
A year after the passage of health care reform, fewer than half of Americans support it, a similar percentage believe that it has already been found unconstitutional or soon will be, health care costs are continuing to rise far faster than the CPI, and the Republican Party has seized on the issue as a sure election winner.
The Obama administration and congressional Democrats, now thoroughly on the defensive, are clearly surprised at the public and political reaction. But should they be? This post—on the reliance on Massachusetts as a model—is the first of three that will look at some of the miscalculations—and sheer bad luck—that have helped to undermine reform.
When Governor Mitt Romney signed Massachusetts’ reform bill into law in 2006, it was widely regarded as a bipartisan political triumph, and one that was supported by the public and by most of the state’s insurers and providers. Massachusetts would be the first state to require virtually all legal residents to have coverage (with tax penalties imposed on those not complying), while providing subsidies for lower-income individuals not eligible for government programs, as well as to implement a state-administered brokerage function (the Connector) to allow competitive selection of health plans.
By the fall of 2008, as congressional efforts to design national health care reform moved into overdrive with the election of Barack Obama, the Massachusetts legislation was widely regarded as a success. Public reactions were generally positive, the numbers of uninsured had fallen, and there had been no dramatic increase in costs. It was scarcely surprising that the Massachusetts model emerged from the field of competing proposals as the favorite of most Democratic lawmakers.
Unfortunately, the elected officials in Washington DC failed to recognize that Massachusetts was an exceptional state in terms of health care. Even before the state’s reform bill was enacted, the percentage of uninsured was very low. It was also a socially very liberal state, far more likely than most to support reform efforts (in fact, Massachusetts had passed, but then revoked, a slightly different version of health care reform a dozen years earlier). And, of course, the economy was still in its boom period when the new law was passed.
Massachusetts had other advantages that would not transfer to national reform. As a small state, with only a small percentage of the population likely to be directly affected by reform, implementation could be much faster—less than a year for most provisions of the state’s new law. Similarly, interfaces between programs like Medicaid and the state subsidy program could be handled at the state level, without federal involvement.
In fact, even some of Massachusetts’ apparent success proved illusory or at least oversold, presaging criticisms that would later be leveled at national reform. Although Massachusetts does now have the highest rate of insured in the country, the goal of universal coverage has not been achieved, with some five percent of the state’s population still without insurance. The Connector has failed to influence costs for either public or private payers, and government program expenditures are creating an ever bigger hole in the state budget. The Connector also has had only marginal success in attracting non-subsidized enrollees (although a revamped small business offering is finally showing some gains). And, of course, along with the rest of the nation, Massachusetts has continued to suffer from the effects of the prolonged recession.
Massachusetts clearly has some value as a prototype for national reform, but the Accountable Care Act might have been very different if its authors had recognized just how small a percentage of the state’s population had gained coverage (and added to overall expenditures), or realized that the state’s efforts had had no discernable cost control effect.
The Obama administration and congressional Democrats, now thoroughly on the defensive, are clearly surprised at the public and political reaction. But should they be? This post—on the reliance on Massachusetts as a model—is the first of three that will look at some of the miscalculations—and sheer bad luck—that have helped to undermine reform.
When Governor Mitt Romney signed Massachusetts’ reform bill into law in 2006, it was widely regarded as a bipartisan political triumph, and one that was supported by the public and by most of the state’s insurers and providers. Massachusetts would be the first state to require virtually all legal residents to have coverage (with tax penalties imposed on those not complying), while providing subsidies for lower-income individuals not eligible for government programs, as well as to implement a state-administered brokerage function (the Connector) to allow competitive selection of health plans.
By the fall of 2008, as congressional efforts to design national health care reform moved into overdrive with the election of Barack Obama, the Massachusetts legislation was widely regarded as a success. Public reactions were generally positive, the numbers of uninsured had fallen, and there had been no dramatic increase in costs. It was scarcely surprising that the Massachusetts model emerged from the field of competing proposals as the favorite of most Democratic lawmakers.
Unfortunately, the elected officials in Washington DC failed to recognize that Massachusetts was an exceptional state in terms of health care. Even before the state’s reform bill was enacted, the percentage of uninsured was very low. It was also a socially very liberal state, far more likely than most to support reform efforts (in fact, Massachusetts had passed, but then revoked, a slightly different version of health care reform a dozen years earlier). And, of course, the economy was still in its boom period when the new law was passed.
Massachusetts had other advantages that would not transfer to national reform. As a small state, with only a small percentage of the population likely to be directly affected by reform, implementation could be much faster—less than a year for most provisions of the state’s new law. Similarly, interfaces between programs like Medicaid and the state subsidy program could be handled at the state level, without federal involvement.
In fact, even some of Massachusetts’ apparent success proved illusory or at least oversold, presaging criticisms that would later be leveled at national reform. Although Massachusetts does now have the highest rate of insured in the country, the goal of universal coverage has not been achieved, with some five percent of the state’s population still without insurance. The Connector has failed to influence costs for either public or private payers, and government program expenditures are creating an ever bigger hole in the state budget. The Connector also has had only marginal success in attracting non-subsidized enrollees (although a revamped small business offering is finally showing some gains). And, of course, along with the rest of the nation, Massachusetts has continued to suffer from the effects of the prolonged recession.
Massachusetts clearly has some value as a prototype for national reform, but the Accountable Care Act might have been very different if its authors had recognized just how small a percentage of the state’s population had gained coverage (and added to overall expenditures), or realized that the state’s efforts had had no discernable cost control effect.
Monday, April 4, 2011
MEDICAL LOSS RATIOS – AGAIN!
A new study, reported in the American Journal of Managed Care, seems likely to add more heat to the continuing medical loss ratio controversy.
The Accountable Care Act effectively mandates that health insurers achieve MLRs of 85 percent for large group business and 80 percent for small group and individual business, with insurers not meeting these thresholds required to make rebates to affected policyholders. However, the ACA allows HHS to issue a waiver if the requirement would disrupt a state’s insurance market. So far, an individual coverage waiver has been granted to the State of Maine, with eight other states’ waiver requests being considered.
The study reported by AJMC examined individual coverage data from health insurer filings to state regulators, as reported to the National Association of Insurance Commissioners. For each state (except California, where most health insurers report to a state agency other than the Insurance Commissioner), the study computed the number of individuals with coverage (in terms of enrollee-years), the number of insurers offering coverage, and the medical loss ratios (recomputed to reflect differences between ACA’s definition of MLR and that used by the NAIC). Based on this data, the study went on to estimate the number of enrollees in plans failing the ACA’s 80 percent threshold, and the number of higher-risk individuals who might have difficulty in finding coverage if their insurer exited the market.
At first sight, the findings seem dramatic and very different from the expectations of the MLR provision’s Senate authors. The AJMC article estimates that in nine states (Arkansas, Illinois, Louisiana, Nebraska, New Hampshire, Oklahoma, Rhode Island, Wyoming, and West Virginia) at least half of the individual health insurers missed the 80 percent threshold in 2009, while in twelve states (Arkansas, Arizona, Florida, Illinois, Indiana, New Hampshire, Nevada, South Carolina, Tennessee, Texas, Virginia, and West Virginia) more than half of the enrollees were covered by insurers failing the standard, with some two million individuals nationally covered by such insurers. The study then projected that overall more than a hundred thousand enrollees (with more than ten thousand in each of Florida, Illinois, Texas, and Virginia) would find it difficult or impossible to find coverage if their non-MLR-compliant insurers exited the market.
If the study’s findings are accurate, somewhere between a dozen and twenty states could reasonably demand waivers of the individual market MLR standard. However, as the authors note, there were significant study limitations as well as possible source data inaccuracies. Enrollment in health plans offered by life insurers was generally omitted, as was all data from California. Additionally, the findings are dependent on state reporting to the NAIC, something that some of the data shown in the article suggests may be unreliable. For example, Maine—the only state so far granted an MLR waiver—is shown as having an average MLR well above the 80 percent threshold, while insurers in Michigan are shown as having an average MLR in excess of 1.0 in both 2002 and 2009—an unlikely consistently money-losing trend in a large state.
Given the apparent data limitations, what can be deduced from the study? In general—although not in the case of Maine—it supports the claims of the nine states that have so far submitted waiver requests. On the other hand, it appears that many insurers who in 2009 were below the 80 percent level were only just below, suggesting that they might be able to achieve the standard in the future, while in states with fewest consumer protections, the possible exit of some minimal benefit insurers may actually be beneficial. In addition, insurers failing the 80 percent standard will not necessarily exit the market; some may prefer to keep their policyholders in the hope that the potential implementation of the individual mandate and new benefit standards in 2014 will make the individual market profitable again.
None of this, however, is an argument for the ACA’s MLR requirements. Assuming HHS continues its recent generous waiver policy, the overall effect is likely to be the exit of a minimal number of low benefit carriers at the expense of cancellation of coverage for several thousand individuals, some imaginative manipulation of numbers by some insurers, some reductions in profit and administrative costs by others, and a substantial increase in bureaucratic oversight.
The Accountable Care Act effectively mandates that health insurers achieve MLRs of 85 percent for large group business and 80 percent for small group and individual business, with insurers not meeting these thresholds required to make rebates to affected policyholders. However, the ACA allows HHS to issue a waiver if the requirement would disrupt a state’s insurance market. So far, an individual coverage waiver has been granted to the State of Maine, with eight other states’ waiver requests being considered.
The study reported by AJMC examined individual coverage data from health insurer filings to state regulators, as reported to the National Association of Insurance Commissioners. For each state (except California, where most health insurers report to a state agency other than the Insurance Commissioner), the study computed the number of individuals with coverage (in terms of enrollee-years), the number of insurers offering coverage, and the medical loss ratios (recomputed to reflect differences between ACA’s definition of MLR and that used by the NAIC). Based on this data, the study went on to estimate the number of enrollees in plans failing the ACA’s 80 percent threshold, and the number of higher-risk individuals who might have difficulty in finding coverage if their insurer exited the market.
At first sight, the findings seem dramatic and very different from the expectations of the MLR provision’s Senate authors. The AJMC article estimates that in nine states (Arkansas, Illinois, Louisiana, Nebraska, New Hampshire, Oklahoma, Rhode Island, Wyoming, and West Virginia) at least half of the individual health insurers missed the 80 percent threshold in 2009, while in twelve states (Arkansas, Arizona, Florida, Illinois, Indiana, New Hampshire, Nevada, South Carolina, Tennessee, Texas, Virginia, and West Virginia) more than half of the enrollees were covered by insurers failing the standard, with some two million individuals nationally covered by such insurers. The study then projected that overall more than a hundred thousand enrollees (with more than ten thousand in each of Florida, Illinois, Texas, and Virginia) would find it difficult or impossible to find coverage if their non-MLR-compliant insurers exited the market.
If the study’s findings are accurate, somewhere between a dozen and twenty states could reasonably demand waivers of the individual market MLR standard. However, as the authors note, there were significant study limitations as well as possible source data inaccuracies. Enrollment in health plans offered by life insurers was generally omitted, as was all data from California. Additionally, the findings are dependent on state reporting to the NAIC, something that some of the data shown in the article suggests may be unreliable. For example, Maine—the only state so far granted an MLR waiver—is shown as having an average MLR well above the 80 percent threshold, while insurers in Michigan are shown as having an average MLR in excess of 1.0 in both 2002 and 2009—an unlikely consistently money-losing trend in a large state.
Given the apparent data limitations, what can be deduced from the study? In general—although not in the case of Maine—it supports the claims of the nine states that have so far submitted waiver requests. On the other hand, it appears that many insurers who in 2009 were below the 80 percent level were only just below, suggesting that they might be able to achieve the standard in the future, while in states with fewest consumer protections, the possible exit of some minimal benefit insurers may actually be beneficial. In addition, insurers failing the 80 percent standard will not necessarily exit the market; some may prefer to keep their policyholders in the hope that the potential implementation of the individual mandate and new benefit standards in 2014 will make the individual market profitable again.
None of this, however, is an argument for the ACA’s MLR requirements. Assuming HHS continues its recent generous waiver policy, the overall effect is likely to be the exit of a minimal number of low benefit carriers at the expense of cancellation of coverage for several thousand individuals, some imaginative manipulation of numbers by some insurers, some reductions in profit and administrative costs by others, and a substantial increase in bureaucratic oversight.
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