Death spirals loom for health insurers

Obamacare enrollment is already millions of people below original forecasts, and we could see two sorts of death spirals in the insurance exchanges of the Affordable Care Act because of premium inflexibility mandated by law and partisan unwillingness to make the necessary compromises to fix it.

It helps to think first about buying car insurance. If auto insurers were mandated to subsidize higher bad-driver premiums with lower good-driver premiums, and the penalties for not carrying insurance were negligible, good drivers would see insurance as a bad deal and would begin leaving the market. Eventually, only the bad drivers would be left, and the premiums would be so high that the car insurance market would collapse.

Now think of selling health insurance. The worst cases mean paying hundreds of thousands per patient for expensive drugs for multiple chronic illnesses and repeated hospital admissions and specialist consultations every year. In health care, the difference between a “safe driver” (i.e., a consumer who might spend a few hundred dollars a year on medical care) and a “risky driver” (i.e., a very sick consumer) is far greater in terms of costs. For every 100 health insurance customers, the rule of thumb is that just one of them will account for 30 percent of all costs, and that just five of them will account for 50 percent of all costs.

As an insurer, you don’t know how sick your customers could end up, and you’re on the hook if you get it wrong. Worse, with the ACA’s state insurance exchanges, you’re limited to pricing the riskier, sicker older customers at no more than three times the least-sick customers. That makes it a bargain for the sick and a bad deal for the young healthy customers. While the penalty for not having health insurance is the maximum of either $695 or 2.5 percent of family income, that’s a lot less than the cost of health insurance.

If an insurer gets its pricing wrong, it will make a loss and be forced to exit the business or increase premiums. But if you raise prices, those customers who don’t value your services as much as others will drop out. And who will be left? The sicker customers who know they’re going to get a better deal by staying insured with you.

But to make a profit, you also need those healthier folks onboard, contributing premiums but using fewer medical services. Without them you’ll make more of a loss, or you’ll fall victim to the death spiral of rising premiums, declining customers and higher costs. This isn’t theoretical; a generous Harvard health plan experienced such a classical death spiral some time ago.

Also, the same way a death spiral can occur within a health insurance company, it can also occur among a bunch of health insurance firms operating on the ACA’s insurance exchanges, like Covered California. If individual firms make a loss on their business or fail to make enough profit, they will withdraw from the insurance exchange. Their previous customers would seek insurance from the remaining participants, who can’t decline them. This would reduce the other firms’ profits and potentially prompt them to leave, too.

Could such a uber-death spiral occur in the insurance exchanges? Chances are yes, despite ACA design features to share losses. We know United Healthcare lost $2 million a day on that business in 2015; Highmark, $1 million a day; and Aetna lost 3 percent to 4 percent on each dollar of ACA business. Blue Cross and Blue Shield of North Carolina may lose more than $400 million on its Obamacare business and is sharply limiting ACA enrollment.

What can be done? On one extreme, a Medicare-for-all approach such as Sen. Bernie Sanders’ proposal dispenses with insurance completely. A more realistic market-based alternative would remove the mandate to purchase insurance and provide credits to poor, high-risk customers. Still other policies could include increasing competition by allowing insurers to sell across state boundaries, or better meeting customers needs by changing plan benefits and making them more affordable.

In an industry as important as health care, we need good, stable trajectories. But with the relentless partisan fights over Obamacare, don’t count on Republicans helping to prevent these ACA death spirals from speeding up.

Joel Hay is professor at USC School of Pharmacy. Marco Huesch is an assistant professor at USC Price School of Public Policy. Both are affiliated with USC’s Leonard D. Schaeffer Center for Health Policy and Economics.

Source: Forbes January 2016

Consumerism in healthcare just can’t work. It can’t work because seriously ill patients are under incredible stress and can’t shop around for the best care. It can’t work because information on quality and cost isn’t easily accessible. It can’t work because healthcare spending is heavily concentrated–just 5% of the patients account for 50% of the cost. What’s the point in having a $6,000 deductible when you need a $500,000 surgery?

Of course, most of the people who tell you that consumerism can’t work in healthcare tend to work in healthcare themselves. But if they were doing such a great job, maybe our healthcare system wouldn’t be riddled with high costs, fatal medical errors, and hundreds of billions of dollars in waste and fraud.

Companies in other industries–from Wal-Mart to Trip Advisor, Amazon, andGoogle GOOGL +1.11%–have figured out ways to simplify incredibly complex systems to lower the amount of time and the cost for consumers to identify affordable, quality products. Those companies have just one thing in common: they answer to consumers.

Advocates for consumer-driven healthcare often argue that patients need more “skin in the game” in terms of actual purchasing power–and they do–but what about the biggest of big ticket healthcare items, like cancer, major surgeries, or other complex chronic illnesses? Paying one co-pay could cancel out your entire deductible. No incentive to shop after that.

Or is there?

Technology is already changing healthcare in ways that point to how market competition can work for all patients–including those with serious chronic illnesses–and could work even better if government focused on just two critical roles: lowering barriers to entry for innovative start-ups and enforcing transparency in pricing and quality metrics.

But first things first. Let’s take the argument that patients can’t shop around when they are sick. That might be true if you’ve suffered a car accident or a heart attack, but 85% of U.S. healthcare spending goes to long-term chronic diseases–when patients have the time and the necessity too make informed choices. And they will make better choices if we make the right information easily accessible first.

Companies like Best Doctors already offer expert second opinions for complex illnesses and injuries–correcting wrong diagnoses, poor treatment plans, and misguided surgeries that proliferate in our fee-for-service system. Best Doctors is a supplement to employer-based insurance, but accessible online second opinion services, from prestigious providers like the Cleveland Clinic and Mass General to start-up companies like SecondOpinionExpert are springing up as well–some for as a little as $300.

Start-up doctor finder Amino is aggregating the experience of 188 million Americans–based on health insurance claims data–and allows consumers to find doctors with the most experience treating their particular medical condition given their location, and insurance plan. Amino even sets up appointments for users.

Apps are also helping patients with chronic illnesses stay healthier, longer.Diabeo is a smartphone app (available on iTunes) for patients with Type 1 Diabetes that processes users’ data on carbohydrate intake, pre-meal blood glucose, physical activity and plasma glucose targets with “automatic algorithms for the adjustment of carbohydrate ratio and basal insulin or pump basal rates” when glucose levels are too high or too low.

Diabeo also transmits users’ data to secure websites monitored by medical staff that can provide real-time consultations. A study in Diabetes Care, the journal of the American Diabetes Association , concluded that “the Diabeo system gives a substantial improvement to metabolic control in chronic, poorly controlled type 1 diabetic patients without requiring more medical time and at a lower overall cost for the patient than usual care.”

Hospitals are even getting into the act. Driven by the increasing prevalence of high deductible health plans among employers and the Obamacare exchanges, hospitals are finally starting to review their own prices and analyze “how much those services actually cost to deliver, something that providers have rarely done before,” according to Modern Healthcare.

Of course, they’re not being altruistic. The growing prevalence of cost calculators like Castlight and Guroo, and the growing push for all payer claims databases (APCDs), are shedding more light on the enormous cost differences for the same services at different hospitals–some of which are across the street from each other.

Another strategy gaining steam is reference pricing–reimbursing high quality, affordable healthcare services 100%, but requiring patients to pay for higher cost providers out of pocket (think of it as a reverse deductible). Reference pricing can be applied to a wide range of “shoppable” procedures and services, “including hospital procedures, ambulatory surgical procedures, laboratory tests, imaging procedures, and drugs.” James C. Robinson, an economist at the University of California, found that for the diagnostic tests covered by reference pricing at Safeway, a large self-insured employer, “reference pricing resulted in declines in the average price paid by Safeway of 18% in the first year, 22% by the second year, and 28% by the third year, compared to the prices paid for tests not subjected to reference pricing.”

Here’s where the government could tip the scales even further in favor of consumers. Entrepreneurial governors and legislators can strip away Certificate of Need laws, allowing new facilities to compete with incumbent hospitals, and repeal prohibitions on the corporate practice of medicine–allowing new firms to enter healthcare markets and offer more affordable bundles of goods and services. States can also do a lot more to encourage provider competition by allowing all practitioners to practice at the top of their licenses, paying for the same service at the same price, regardless of who delivers it. Encouraging telemedicine would be another step in the right direction.

As of December 2015, 18 states have enacted APCDs, with about a dozen more waiting in the wings. With appropriate privacy protections, APCDs should be opened to commercial researchers that want to leverage big data to help patients navigate the healthcare system by benchmarking provider networks to help identify high-quality, lower-cost providers. Consumers and employers could then find centers of excellence that may not have recognizable names, but provide top-quality care for specific conditions.

States should also prohibit anti-steerage contracts that limit the information that insurers can tell patients about competing doctors or hospitals–blocking consumers from knowing which in-network hospitals might have lower co-pays or co-insurance.

Finally, Congress should get into the act, too. It should repeal the ACA’s prohibition on physician-owned hospitals. While traditional hospitals have argued that physician-owned facilities cherry pick their patients, there’s little evidence to support this contention–and a lot of evidence that for the services they do offer, they offer very high quality services at lower cost.

Rather than focusing on how healthcare worked in the past, policymakers should encourage competition by clearing away outdated regulations that prevent savvy, tech-based entrepreneurs from empowering patients with the information they need to find the providers who deliver the best outcomes–often at a more affordable cost.

In short: power to the patients.

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Source: The Sacramento Bee 1/19/2016

Sign up for health care coverage or pay the price. That’s the message from Covered California officials, who urged consumers Wednesday to sign up for Obamacare coverage by the Jan. 31 deadline or face stiff tax penalties.

This year, the penalties are hitting harder, ranging from a minimum of $700 for an individual to as much as $10,000 for a family of four, depending on income. The average penalty in 2016 will be $969. That’s a 47 percent increase from last year, according to a recent analysis by the nonprofit Kaiser Family Foundation.

But taxes are only part of the equation for those who don’t get health coverage, said Peter Lee, executive director of Covered California, the state’s health care exchange for Obamacare policies.

“The bigger penalty,” said Lee, “is showing up at an emergency room and walking out with a bill in tens of thousands of dollars.” Or, he added, not getting regular checkups because of no insurance and then developing a late-stage cancer that went undetected. “Californians have a choice in signing up or rolling the dice and taking a big gamble.”

With less than three weeks left in this year’s open enrollment season, Covered California is reminding consumers who don’t have employer-provided insurance to purchase coverage.

Under the 2010 Affordable Care Act, tax penalties are considered a “shared responsibility” payment by those who can afford to buy health care coverage but choose not to do so. The penalties are either 2.5 percent of household income (up to a cap) or $695 a person and $347.50 per child, whichever is higher.

The Taxpayer Advocate Service, part of the IRS, has an online calculator attaxpayeradvocate.irs.gov where individuals can check what they might owe. Penalties would be due in April 2017 when individuals pay this year’s taxes.

Not everyone faces a tax penalty. Those for whom health care premiums are deemed unaffordable – 8 percent or more of household income – are exempt, as are those with certain economic hardships or religious objections.

As of last week, Lee said more than 230,000 Californians have signed up for Covered California policies during the three-month enrollment season, which started last November.

Employee Benefit News 12/29/2015

The Internal Revenue Service on Monday extended the deadline for 2015 Affordable Care Act information reporting, giving employers subject to the requirements some highly-sought after relief.

In Notice 2016-4, issued by the IRS on Dec. 28, the agency extended the deadlines for both furnishing to individuals reporting forms and filing them with the IRS.

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