Exchange Fix Stabilizes and Restores “Affordable” to Affordable Care Act

Download PDF Report: Reinsure ACA

This analysis drew its data and conclusions from an Excel based simulator. Details of this simulator are described in: APPENDIX – METOHDOLOGY and APPENDIX – EXCHANGE SIMULATOR . The downloadable simulator, permits users to change a variety of assumptions and to view the results in graph and table form. This Excel file contains no macros or VBA that may pay pose a security risk to users.

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SUMMARY

Before the Affordable Care Act (ACA), people with chronic and costly illnesses, if not buried in debt, were sorely stressed from medical liabilities they incurred. ACA shifted excess costs to insurers when it prohibited any health exclusions and annual and lifetime limits. Government reinsurance could further shift these excess costs away from insurers. This last effect would draw Billions of dollars from the Exchanges and allow premiums and costs more in line with pre ACA days.

Lower costs happen despite retaining all the essential health benefits added by ACA. Of note is that while the government reinsurance costs would rise significantly, subsidies for lower-income users drop by billions. When one includes the lower premiums and deductibles for users, combined savings can significantly exceed any increase in government costs. . Users benefit while government pays out more. The difference is in fact identical to a direct tax cut for the middle class.

BACKGROUND

Few issues generate as much controversy as the Affordable Care Act (ACA). As U.S. health care constitutes nearly 20% of GDP, $3 plus Trillion and over $10,000 for every person, the issues are both economic and political. One cannot easily solve the political issues. However, one can add perspective.

First, the bulk of ACA changes have broad acceptance and help make improvements to many different aspects of health care. Most controversy centers on Exchanges and Medicaid Expansion. Alternatives to Medicaid Expansion have not been very helpful, other than to free up Billions of dollars for other uses. More valid ideas exist for amending Exchanges. This analysis focuses on just one ACA amendment.

ACA removed a financial burden from people by prohibiting medical exclusions and caps on insurer coverage. However, those costs did not just disappear. Now insurers are left “holding the bag” for these costs. Government has helped with subsidies. Nevertheless, the long-term answer would be to shift further all the highest user costs from insurers to the government. Note the difference between “highest user costs” and “highest cost users”, as in high-risk pools. Reinsurance keeps everyone in the main pool and offers the most efficient method to achieve affordability. Not only does reinsurance relieve insurers of a costly burden, it also draws billions of “duplicate” dollars from the entire health care system.

Obviously, any major change will affect stakeholders in different ways. The following section highlights a few.

Health Insurer Stakeholders

This would present a mixed bag for insurers. Reinsurance will drastically lower their costs that are coming from a very small minority. Medical loss ratio (MLR) minimums will force down premiums. Exchange Insurers employ a cost-plus scheme that directly affects profit opportunity. Falling costs lower insurers’ profit opportunity; higher costs raise them.

Favorable for insurers is retaining a customer base on which to market additional services. Solve ACA Exchanges’ cost issue and insurers can expect greater user enrollment as well.

Federal and State Government Stakeholders

Reinsurance proposed here assumes Federal government funding. Medicaid costs do involve state government, but their role regarding Exchanges is little changed.

Small Employer Stakeholders

Reinsurance should be a major boon to small employers. Both before ACA and with ACA, small employer health insurance has always been higher than for large employers, not just from economies of scale, but also from many large employers being self-insured. Self-insurance eliminates the “middle man”, namely, the insurers’ markup that adds major costs for smaller employers. Small employers are more likely than large to grow, which could prove to be a jobs boost.

Individual Stakeholders

Lower cost is an obvious benefit for individuals. Another major benefit for individuals is that reinsurance would bring back insurers leading to far more competition on Exchanges. Network “shrinking” should decline along with some of the frustration with the current Exchange market.

Those not eligible for subsidy, though not by any means rich, will gain from lower premiums, deductibles and co-pays.

Young and Healthy Stakeholders

Most people would accept paying a fair share for insurance. However, the extreme skewing of health costs and ACA restraints tilt this unfairly. This has led many to go without insurance, or to pay the penalty as less onerous options. A major reduction in costs would make coverage palatable. There are always a few to argue that about the need for some female benefits. Perhaps they slept through biology class. ACA assures that males and females are treated equally.

Elderly Stakeholders

With reinsurance drawing billions from Exchange health costs, elderly are likely to benefit as much proportionately as younger, healthier people. Older workers are more likely than younger to be laid off in a downturn, and reform would provide an affordable option until Medicare is available.

Those on Corporate/Government Health Care Plans

By removing dollars from health insurance, Exchange costs will be more comparable to corporate and government plans. This may lead some who have an option to switch to join an Exchange and be insurance independent of their employer. It may also be a precursor to transition health insurance from employer based to individual based, or even single payor.

ACA EXCHANGE INTERACTIVE SIMULATOR

The following analysis draws its data from an interactive simulator explained further in the Appendixes. Six cases compare differences from before ACA to two reinsurance cases that bring user costs down to pre ACA days but with far better coverage. For each case, there are two side-by-side graphs below which are the assumptions for those graphs.

ANALYSIS

CASE 1. Pre Affordable Care Act

The following graph shows Exchange member costs under “Pre-ACA”. ACA will change two key (yellow) assumptions that bear noting. One is the “User Annual Limit” that caps what insurers will pay, and second is the Medical Loss Ratio (MLR) that reflects a typical MLR for individuals and small groups prior to ACA. Prior to ACA, insurers paid only to the annual limit, forcing members to absorb any excess costs. Insurers also could raise premiums to increase their margins, as there were no MLR limits on insurers’ profits.

The first bar in the left graph (50% of members) had costs less than their deductible (no blue bar) where insurers paid no claims. The next two groups (40% combined) did co-share with insurers (green bars), but the three groups at right (top 10%) were also forced to absorb their excess health costs (red bars). As regards premiums (line graph), they were low for healthier members but were often 5 times (or more) higher for older, less healthy members. Premiums averaged nearly $440/ month, not exactly affordable to many.

The right graph shows an often-overlooked cost item. The copper (3rd) bar shows government reimbursements ($18B) to hospitals and providers. It covers medical service costs for uninsured people. Analyses have found that the uninsured incur about half the health costs of insured. Government has always been deeply involved in health cost support prior to ACA, just in a less visible way. The low amounts in first two bars are due to only 10% Exchange members being insured.

10.0 M Exchange Population $15K User Annual Limit
$8,000 Avg Health Costs n/a Reinsurance Premium
$2,000 User Deductible 68% Medical Loss Ratio
40% Co-pay / Co-share 90% % Users Uninsured
$10,000 Max Out-of-pocket $2,000 Provider Reimbursemnt

Finally, bottom right shows a significant Insurer “margin” of $97 per month that insurers received. This is the difference between premium received and costs paid out. Self-insured companies get by with far lower margins, while individuals and small business withstand the brunt of insurers’ profits.

CASE 2.1. ACA 2017 Bronze 60%

Like Case 1, the following graph shows Exchange member costs under “ACA mid 2017” conditions and assumptions.

10.0 M Exchange Population n/a User Annual Limit
$8,000 Avg Health Costs n/a Reinsurance Premium
$6,000 User Deductible 80% Medical Loss Ratio
40% Co-pay / Co-share 70% % Users Subsidized
$10,000 Max Out-of-pocket $3,000 Subsidized Payments

The key change, however, was a shift of some $35 B excess cost (red bars) from ALL 10 million now insured members to insurers. This led to large increases in insurers’ costs that insurers passed back to users as premiums and deductibles.

ACA had hoped that with mandatory enrollment, healther members with lower costs would balance those with higher costs. A 3:1 max premium spread also forced up premiums for younger members. With only mild penalties, enrollment ran below expectations, requiring insurers to increase both premiums ($698) and deductibles (to $6,000). Not visible is how many did not enroll due to the effect of these actions.

In the right graph, Gov’t reimbursements for the uninsured are replaced by ACA subsidies for the poorer insured. These costs exceeded reimbursement savings for a small increase. Meanwhile, the sum of all costs rises to over $200 Billion.

CASE 2.2. ACA 2017 Silver 70%

The following graph shows costs for ACA Silver plans. One would expect user costs to decrease when insurers pay more on claims. However, higher insurer payments lead to higher margins, that rise above $100/month.

Those claims payments and added margins actually exceed initial user claims payments. The net effect is that that users come out worse on average. All this assumes an exact 80% MLR effect on margins. Meanwhile, total costs (last bar at right) remain high at over $200 Billion.

10.0 M Exchange Population $15K User Annual Limit
$8,000 Avg Health Costs n/a Reinsurance Premium
$3,500 User Deductible 80% Medical Loss Ratio
30% Co-pay / Co-share 70% % Users Subsidized
$7,000 Max Out-of-pocket $3,000 Subsidized Payments

Case 2.3. ACA 2017 Gold 80%

The following graph shows costs for ACA Gold plans. This is a repeat of Silver plans addressed just above. The more insurers pay, the more margins rise. Together, that raises user costs. Moreover, government subsidies to poorer insured are dependent only on their income. As health care costs rise, this forces government to increase subsidies to keep these insured users whole. If all 10 million users had gold plans, total costs under current ACA conditions would rise above $220 Billion.

10.0 M Exchange Population n/a User Annual Limit
$8,000 Avg Health Costs n/a Reinsurance Premium
$1,000 User Deductible 80% Medical Loss Ratio
20% Co-pay / Co-share 70% % Users Subsidized
$5,000 Max Out-of-pocket $3,000 Subsidized Payments

CASE 3.1. ACA -Base Reinsurance

With greater insurer payments inflating government subsidies and user costs even more, then one logical way to correct this is to lower what insurers pay. Just as ACA shifted user costs to insurers by increasing user protections, one can increase insurer protections by government reinsuring their highest costs. Reinsurance is not an insurer bailout but an efficient way to reduce their involvement in claims payments. MLR constraints will limit margins and any notion of bailout.

Like all Cases, the graph below shows Exchange member costs under “ACA with Government Reinsurance”. This shifts some $34 B of “excess” costs (red bars), but this time from insurers to government. With this shift in costs, the risk to insurers declines to less than what existed prior to ACA. The premium effects are dramatic. The highest Premiums (for older folks) drop almost in half compared to Pre ACA levels, while the lowest decline as well.

One can see the dramatic reduction of Total Exchange Costs by comparing the right graph above with any of the previous ACA cases. The axes on the right graph are fixed at $140 billion for Users, Insurers, and Government, and $280 Billion for all combined. In each of the ACA cases, the combined costs of all three parties were over $200 Billion.

10.0 M Exchange Population $15K Reinsurance Threshold
$8,000 Avg Health Costs 10% Reinsurance Premium
$3,500 User Deductible 80% Medical Loss Ratio
30% Co-pay / Co-share 70% % Users Subsidized
$5,000 Max Out-of-pocket $3,000 Subsidized Payments

Reinsurance greatly lowers user and insurer costs, though increasing costs to government. The total combined costs drop to $130 Billion, some $70 Billion below curent levels.

Every dollar for which an insurer is liable more than doubles the claims cost. This is because insurers add an overhead margin to claims paid. They then recoup via premiums and deductibles from users. If government is liable, there is that much less for insurers to pay. And if they don’t pay, they they also have to cut their margin to remain MLR compliant.

The government is currently paying some $42-45 Billion in subsidies to insurers. As premiums decline with reinsurance, so do subsidies. The net result is a modest $8 Billion increase to about $52 Billion in government costs. Contrast that with at least a $35 Billion reduction in user costs. That has the same effect as a $27 Billion ($35B-$8B) tax cut, and nearly all of that is for the middle class.

What should surprise nobody is that when risk shifts to government, there is no middle man (private insurer) to add overhead for marketing and profit. This is one reason why Medicare and Medicaid cost materially less per person than does private insurance. Government doesn’t charge extra for “risk.” Medicare also fixes prices, relying on doctors in private practice for input, but that is another story.

Less well known is that many of those same private insurers that ACA forced to reduce margins to “only” 15% to 20% perform nearly all the same administrative tasks for Medicare and Medicaid for less than 5%.

CASE 3.2. ACA -High Reinsurance

There is one more appeal to the reinsurance model. Lowering the threshold from $15K to $5K in graph below, transfers the bulk of insurer risk and related cost. Insurers are at risk only for lesser amounts. As claims bypass the middleman and his markup, Exchange premiums decline to near Medicare levels. All the while, insurers can remain in (or return to) Exchanges with an opportunity to sell additional benefits and find ways to lower costs even more. Reinsurance retains the creativity and inventiveness of private enterprise to reign in costs.

10.0 M Exchange Population $5K Reinsurance Threshold
$8,000 Avg Health Costs 5% Reinsurance Premium
$1,000 User Deductible 80% Medical Loss Ratio
30% Co-pay / Co-share 70% % Users Subsidized
$5,000 Max Out-of-pocket $3,000 Subsidized Payments

CONCLUSION

Without changing essential business processes in use today, one can greatly reduce Exchange costs by implementing ACA reinsurance. Shifting most risk from insurers would be like insuers being third party administers for self-insured companies. One major insurer benefit is they retain a built-in customer base where they can market features beyond ACA’s essential benefits. Like other countries with single payor systems, the U.S. can still have a vital albeit smaller private insurance market able to offer health features beyond basic government benefits. They are also free to adapt to special conditions of their markets.

Best of all, Congress could make the threshold adjustable to rebalance, as needed, consumer affordability and private insurer sustainability. That is a fiscally conservative idea with a major benefit both to the middle class and to the health of all Americans.

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APPENDIX – METHODOLOGY

 STEP 1 – DEFINE THE HEALTH COST “CURVE”

To find a solution, one needs to understand the problem. Health care insurance is not like most insurance policies about which many are familiar. With most insurance, there is a fairly symmetrical form to their costs: some low, some high, most near the middle. Acceptance occurs when those with lower costs feel the “premium” is worth the protection.

However, health costs are extremely skewed, with a huge majority of low cost members expected to cover extremely high costs of a tiny minority. Adding a mandate to buy health insurance simply adds to the discontent.

The first step was to develop an exponential math equation that would roughly mirror the actual health cost distribution where the top 1 % consumes 20% of all costs, the top 5 % – 50%, and the top 10% – 60% of all costs. Then build a table with 100 cells of equal population sorted by cost. The graph below does this and highlights how skewed health costs are. With an average cost for the U.S. of about $10,000/year, it was necessary to limit the right axis values in order to view any of the lower costs for 90% of the population.

ACA further limits insurers to a maximum ratio between highest and lowest premiums of 3:1. Insurers responded by increasing deductibles in order to maintain reasonable premiums. The result was deductibles rising to the $4,000 to $6,000 range. Even with high deductibles, premiums are still uncomfortably high. Deductibles are often far above 80% of the members. These lower cost members never collect any of the insurer’s co- payments. Even at $2,000, few members exhausted their deductible (red line) in the next graph.

STEP 2 – HIGH-RISK POOLS VS. REINSURANCE

Nearly all agree of the need to shift costs from insurers to government. This analysis considers two ways. In an effort to bring down costs, some favor funding (state run) high-risk pools that remove high cost members from the main pool.

Applying this to the highest 4% cost members yields the graph above. With High-risk Pools, Health Insurers have total protection only from those in the pool. They still retain the risk that one or more of those in the main pool will incur exceedingly high costs. With over 95% of members still at risk for substantial claims, insurers will cover this risk by raising premiums, deductibles, or both. As pools often have stricter conditions, users face obstacles for even small claims.

Another way to shift risks and costs to government is with reinsurance, a form of which ACA included until Congress blocked its funding as a “bailout of insurers.” A permanent form of reinsurance is needed like shown in the next graph.

Several kinds of reinsurance are available. “Treaty” transfers risk when overall costs exceed a threshold. “Facultative” is the recommended form for health reinsurance. It covers only an individual’s excess costs. Insurers already have systems in place, as the logic is identical to annual limits of yesterday. Only now, costs are forwarded to government, not returned to the user. An important conclusion is that reinsurance protects health Insurers from high costs over the entire pool. They can more readily define risk and do not need to add more risk for potentially large claims from any member.

Another advantage is for those with chronic illnesses. If they incur common injuries or sicknesses having nothing to do with their chronic illness, they still have pool coverage common to all. Unlike high-risk pools, reinsurance offers ALL members equal treatment for any illness or injury.

Finally, one can compare the costs of high-risk pools versus reinsurance. In the graphs above, assigning the top 4% to high-risk pools is equivalent in cost (but with greater risk) to setting a $22,000 average reinsurance threshold.

STEP 3 – COMBINE MEMBERS WITH LIKE COSTS

At this point, there are 100 cells (members) each representing 1% of the population. Now consolidate the100 cells into six groups or “buckets”, where the total cost of each is higher and the population is smaller than the preceding group.

This led to population groups (in ascending cost order) of 50, 30, 10, 5, 3, 2 = 100. The result is having the cost for each group and total. The actual total cost is not important. What is important is knowing the percent of total costs are in each group. Applying these percents to any cost total determines the costs for each group. Total cost is simply a product of Exchange members and their average costs.

STEP 4 – BUILD EXACT PROCESS FOR CLAIMS

With costs by group defined, the next step was to build the precise and detailed logic or rules of how insurers process all health claims. All insurers must abide by the same rules in the table below, but not necessarily using the same values.

Step Description Paid by…
1 Deductible Member
2 Co-pay/Co-share % by Member, balance by Insurer
3 Out-of-pocket Maximum Limit on what member pays. With ACA, Insurer liable for excess
4 Reinsurance Threshold Limit on what insurer pays. (Gov’t) Reinsurer liable for excess
5 Who Pays Excess Costs – 3 Cases 1. Pre-ACA – Members paid
2. ACA mid 2017 – Insurers pay
3. ACA Reinsurance – Gov’t pays
6 Derivation of Premiums using cost + accounting All health costs paid by insurer + a Margin to cover overhead – max set by Medical Loss Ratio limits
7 ACA Subsidies /
Reimbursements
% eligible & Avg Gov’t Subsidy or
Pre ACA Provider reimbursements

APPENDIX – EXCHANGE SIMULATOR

All the graphs above drew their data from an interactive simulator that covers 3 Cases or phases of ACA health care.

  • Phase / Case 1: Pre ACA using earlier business processes
  • Phase / Case 2: ACA in 2017 using current processes
  • Phase / Case 3: Amended ACA adding a new process for government reinsurance

In addition to three basic cases, one can change 14 values that determine payment of costs and derivation of premiums:

  1. Exchange Population (+/- 10 million)
  2. Average Health Care Costs (now about $10,000)
  3. Insured member Deductible $
  4. Insured / Insurer Co-payment %
  5. Insured Maximum Out-of-pocket $
  6. Annual Limits for users (now outlawed by ACA)
  7. Government Reinsurance Threshold $
  8. Reinsurance Co-payment % (in lieu of premium)
  9. Medical Loss Ratio (70%+/- pre-ACA, 80% ACA)
  10. Uninsured pre ACA whose costs Gov’t reimbursed
  11. The reimbursement amount paid to providers
  12. Number of subsidized Exchange members
  13. Cost of Gov’t Payments for subsidized members
  14. Finally, toggle between 5:1 or 3:1 premium ratios

All the graphs in this document, plus the table below are available for download and experimentation in an Excel spreadsheet. This Excel file contains NO macros that can interfere with network security. It does contain over 2,400 “formulas”. This interactive ACA simulator is available at “insr.us/reinsureaca”

APPENDIX 2 – EXCHANGE SIMULATOR RESULTS

The table below shows assumptions and results for six cases. One is before ACA, three are cases representing Bronze, Silver, and Gold ACA, and finally two showing ACA with Reinsurance. Identical logic applies to all cases. Focus on the top three rows and their sum, “Total Cost All Sources” row, in yellow. While Government costs go up, User and insurance go down.

Today those combined total costs are running over $200 Billion. Note in the last two columns with reinsurance, total costs drop significantly to about $130 Billion. The $8-10 Billion increase in government is more than offset by member decreases of $40 Billion, and by insurer decreases of $50 billion. Reinsurance literally “drains” billions of dollars from Exchanges.

APPENDIX 3 – EXCHANGE SIMULATOR DETAIL COMPUTATIONS

The table below shows the detailed calculations for the final case, “ACA with High Reinsurance”. The assumptions are in yellow in column D. The eight blue shaded rows describe the computations immediately below each. Section D, “Reassigned Excess Costs” shows who bears excess costs (user, insurer, or this in case, government) and how much are those costs.

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Individual Mandate not necessary – But will you like the alternative?

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SUMMARY

Of all the issues in the Patient Protection and Affordable Care Act (ACA or PPACA), one that has drawn an extraordinary amount of attention is the Individual mandate. Looked at in isolation, it may seem like an overreach. However, a broader view indicates why this provision or similar was included at all.

It is included because another section of ACA prohibits Health Insurers from rejecting people with pre-existing conditions as they do now. Some medical conditions may be avoidable, but the vast majority of pre-existing conditions occur through no fault of the individual. Insurance of all types is to spread risk, and the more skewed the risk the greater the need for insurance. Health costs are extremely skewed making health insurance vital to a modern economy.

ACA mandated that everyone buy insurance and that makes sense. However, the objection is forcing people to buy from a private company. There are several options to resolve that. One is to create a government-run insurer. That would eliminate forcing people to buy from a private insurer. A second is to make payment for any service obtained by an uninsured person a loan similar to student loans that could not be discharged for any reason. They would carry interest and be payable in full no matter the circumstances.

DISCUSSION

The percent of people with pre-existing conditions is small and to the majority of folks without such a condition, it may seem like a trivial matter. However, the number of people with pre-existing conditions is in the millions, and the cost to them has been and can be horrific. Medical expenses for these people have led to thousands of bankruptcies as health care costs sapped all their savings and more.

Insurers soon will be required to insure ALL persons regardless of medical condition. There is the very real risk of some people will avoid buying insurance, and then when they have an injury, or find they have a chronic condition like asthma or diabetes, they would only buy health insurance AFTER they know they have a medical condition.

One would think that any notion of personal responsibility would have all persons get insurance in order to spread health costs risks over the greatest population. The more people that buy insurance, the lower the cost per person. However, experience has shown that some people will NOT buy insurance if they feel they will not get sick or injured.

Fortunately, many employers offer health insurance for their employees, and by law, health insurers covering insurance through work (group insurance) MAY NOT exclude people with pre-existing conditions after some limited period of time, usually less than a year. However, the same did not apply to individuals until health care reform.

Note that employed individuals usually have access to health insurance.  Full time employees, that is. With rising costs, what have many employers done including some of the largest?  They have reverted to greater use of part time employees who do not enjoy the same privilege and access to health insurance as do full time employees. This is putting more pressure on reforming individual insurance plans.

People do not just dream up laws in a vacuum. Most fall into two categories. One is responses to maintain clean food, air and water, or help disadvantaged people, often the result of some abuse (social laws). The second are financial laws, like taxes or efforts to reduce taxes via special treatment for some (loopholes). ACA addresses the former by adding a financial provision, the individual mandate.

Everyone who works pays into social security and Medicare. Since Medicare is health insurance, there already is a mandate for working individuals to buy health insurance from the government. The only distinction is that Medicare is government-run insurance, while the ACA mandate applies to buying insurance from private companies.

ALTERNATIVE ONE

In the state run insurance exchanges to which any health insurer can join, add a government-run health insurer. Then the individual mandate does not require buying from a private insurer. However, if an individual decided against all private insurers they would have to buy the government-run insurance plan, just like Medicare and clearly legal.

However, politics intervened. Draft legislation DID INCLUDE a government-run insurer. They called it the “Public option”. It would operate on the same level field as private insurers and not be subsidized in any way. Private and government insurers would compete for business. Still, critics objected, and politicians stripped this provision from the final bill.

Why the objections?  Perhaps it was fear of competition.  To understand the public option, all one has to do is look at Medicare. Different in that it would cover people under 65 years old. In addition, women over 65 do not get pregnant, so there would be some differences in coverage.

What few know is government manages Medicare entirely through private health insurers. Insurers use a term Medical Loss Ratio (MLR) do describe how much of a premium dollar goes to pay health care costs. For Medicare, the MLR is over 95% meaning over 95 cents per premium dollar goes for health benefits. For private insurers, not so much. Their average MLR is in the low 80% range, and for individual insurance, which Medicare is, the MLR is even lower. How can private insurers compete with someone whose costs are less than one quarter of their own?

The honest answer is they cannot, at least not as currently structured. However, where does the constitution guarantee private enterprise continued profitability or even existence? “Destructive renewal” is a term used by business to explain competition that virtually by definition requires companies to fail as other more efficient companies market their goods and services for less; or whose new goods and services make prior ones obsolete (think cassette tapes).

It is worth noting that private health insurers used to have MLR’s in the mid 90%, but that was 30 years ago when nearly all insurers were non-profit.  Over time, for-profit insurers became more prevalent, and as they did, they had to show a profit for their investors. Some admin efforts were devoted to marketing. Some to reducing costs. Some to profits. The net effect, however, is that far fewer dollars went for health care costs and more went for overhead and profits. Yet some of these same companies administer Medicare contracts for less than 5 cents on the dollar. What is apparent is that insurers could cut back on what it now costs them to weed out people with pre-existing conditions, but more efficiency are needed to compete.

ALTERNATIVE TWO

Set the ground rules for individual insurance similar to that of group insurance obtained through work. If a person elects not to purchase insurance, and gets sick or injured, a person could still buy insurance but the law would allow pre-existing exclusions to extend for one year. Also like group insurance, if a person previously had health coverage, and not more than 60 days elapsed without coverage, then the person could buy health insurance with no waiting period.

This alternative needs to have a bit more teeth to be effective. This is because there is a law that hospitals have to treat EVERYONE, regardless of ability to pay, and a healthy person could delay for years purchase of health insurance. They would only buy insurance when they get sick.

The current Medicare drug program provides a template for solving this issue. If a senior fails to purchase drug insurance, the premium continues to rise for as long as one remained uninsured. One can apply a similar index to health insurance. But how does one provide assurance of payment? Since the person required services, it should be legal to require the person to purchase insurance to pay for those services, and if the person is unable or unwilling to pay, the government could advance a loan similar to student loans.

That loan would bear interest, need to be paid over time (though shorter than for student loans), and could not be discharged by bankruptcy. If not paid by retirement, payments would be deducted from that person’s social security, just like student loans.  Gone is the mandatory requirement. Replacing it is an automatic loan that the individual must repay in full with no exits.

Since the government would initially pay the hospital, it also could determine the ability to pay of the person getting treatment. If that person was indigent, they could be put on Medicaid, and no medical loan would be created.  If the person’s income were within the subsidized amount, they would have been eligible for had they carried insurance, the loan would be reduced by the amount of the subsidy. Since the hospital is paid in full, there would be no cost shifting to those who bought insurance.

ALTERNATIVE THREE

As noted above, a law requires hospitals to treat EVERYONE, regardless of ability to pay. One could rescind that law and force everyone to either have insurance, pay for service, or be denied service. But few would be willing to take that backward step. From a practical standpoint, this is not a viable option.

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Democrats “Steal” Republican Health Reform Ideas

Download PDF Report >>> Democrats steal republican ideas

Now that the Patient Protection and Affordable Care Act (ACA) is law, one might expect people to learn what is in the law and settle down a bit.  However, Republicans continue to rail against it as bad law and even unconstitutional.

Republicans might well review a bit of their own history.  In 1993, President Clinton attempted healthcare reform and like today, Republicans railed against that plan.  However, 23 Republicans co-sponsored a counter proposal, the “Chafee bill”.  That bill even received the endorsement of the AMA and the U.S. Chamber of Commerce.  The table below highlights 19 key areas and compares the new law with the 1993 Republican proposal.  Note that nearly all the key elements that include the most contentious items were initially proposed by Republicans.

In three areas, the current law includes items not in the Republican proposal: Medicaid expansion, prohibiting insurers from setting lifetime spending caps, and extending coverage to dependents.  In two areas, the Republican proposal includes items not in the law: Medical malpractice reform, and equalizing tax treatment for insurance of self-employed.  With the possible exception of Malpractice reform, none of these were major areas of contention. Continue reading

Key Healthcare Provisions – Kaiser Foundation

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Kaiser Foundation Source

Some of the items that go into effect in the first year include:

NEW HELP FOR SOME UNINSURED: People with a medical condition that has left them uninsurable may be able to enroll in a new federally subsidized insurance program that is to be established within 90 days. The legislation appropriates $5 billion for this, although that may not be enough to cover all who apply; it’s not clear how much consumers would pay as their share of the cost. About 200,000 people are covered in similar state programs currently, at an estimated cost of $1 billion a year, says Karen Pollitz, a research professor at Georgetown University.

DISCOUNTS AND FREE CARE IN MEDICARE: The approximately 4 million Medicare beneficiaries who hit the so-called “doughnut hole” in the program’s drug plan will get a $250 rebate this year. Next year, their cost of drugs in the coverage gap will go down by 50 percent. Preventive care, such as some types of cancer screening, will be free of co-payments or deductibles starting this year.

COVERAGE OF KIDS: Parents will be allowed to keep their children on their health insurance plan until age 26, unless the child is eligible for coverage through a job. Insurance plans cannot exclude pre-existing medical conditions from coverage for children under age 19, although insurers could still reject those children outright for coverage in the individual market until 2014.

TAX CREDITS FOR BUSINESSES: Businesses with fewer than 25 employees and average wages of less than $50,000 could qualify for a tax credit of up to 35 percent of the cost of their premiums.

CHANGES TO INSURANCE: All existing insurance plans will be barred from imposing lifetime caps on coverage. Restrictions will also be placed on annual limits on coverage. Insurers can no longer cancel insurance retroactively for things other than outright fraud.

GOVERNMENT OVERSIGHT: Insurers must report how much they spend on medical care versus administrative costs, a step that later will be followed by tighter government review of premium increases.

Some of the major changes the reconciliation proposal would make to the Senate-passed bill:

HEFTIER SUBSIDIES: Compared to the Senate legislation, the reconciliation bill would provide more generous subsidies to low- and moderate-income Americans to help them buy health coverage.

THE “MASERATI” TAX: The levy on high-cost insurance plans is scaled back and delayed, rendering it more a “Maserati” than a “Cadillac” tax. It would apply only to the portion of plans costing more than $10,200 a year for individuals, up from $8,500, and $27,500 for families, up from $23,000. The tax wouldn’t kick in until 2018, reducing the projected revenue to the government by 80 percent. Over time, however, the tax would hit more and more plans, because the tax’s threshold is set to increase at the rate of inflation while premiums are expected to continue to grow much more quickly than that.

CLOSING THE DOUGHNUT HOLE: Unlike the Senate bill, the reconciliation measure would eventually close the coverage gap, called the “doughnut hole,” for Medicare beneficiaries enrolled in Part D drug plans. (Currently, seniors who hit the gap must bear the full cost of their medications until they spend a certain amount, when coverage kicks back in.)

Under the new bill, seniors who hit the gap this year would get $250 to help cover the costs of their medications. Starting next year, they’d get a 50 percent discount on brand-name drugs, with the cost borne by the drug industry. In subsequent years, the discounts would expand and begin covering generic drugs, with the expense picked up by the government. By 2020, the discounts would reach 75 percent.

SHIFT IN MEDICARE ADVANTAGE PAYOUTS: Government payments to Medicare Advantage, the private-health plan alternative to traditional Medicare, would be cut back more steeply than under the Senate bill: $132 billion over 10 years, compared to $118 billion.

The government currently pays the private plans an average of 14 percent more than traditional Medicare. The new bill, besides reducing payments overall, would shift the funding; some high-cost areas would be paid 5 percent below traditional Medicare, while some lower-cost areas would be paid 15 percent more than traditional Medicare. The Senate’s plan that would have shielded some areas of the country such as South Florida from major cuts was largely eliminated.

A RAISE FOR DOCTORS: Primary care doctors would get a Medicaid payment boost in the reconciliation bill. Beginning in 2013 and 2014, the doctors’ payment rates would be on par with Medicare rates, which typically are about 20 percent higher than Medicaid. The goal is to ensure that there will be a sufficient number of doctors willing to care for the millions of additional people who would become eligible for Medicaid under the health care overhaul.

PUSHING UP THE MEDICARE TAX: The Senate bill adds a 0.9 percentage point to the Medicare payroll tax on earned income above $200,000 for individuals, or $250,000 for couples. Under the reconciliation bill, starting in 2013, people in those income brackets also would face a 3.8 percent tax on investment income, such as interest, capital gains and dividends.

PENALTY FOR NOT HAVING INSURANCE: Under the new bill, most Americans without insurance would face an annual penalty, starting in 2014 at $95 – the same as in the Senate bill. But in following years, the penalties in the reconciliation bill are slightly different. Those without insurance in 2016, for example, would pay the greater of two alternatives: a flat fee of $695, down from the Senate’s $750, or 2.5 percent of their income, up from 2 percent in the Senate bill.

EXPANDING MEDICAID: The reconciliation package differs from the Senate-passed bill in several ways. It would delete a provision dubbed the “Cornhusker kickback” that would have exempted Nebraska from paying any cost of a Medicaid expansion included in the bill. But it would provide full federal funding to all states for newly eligible Medicaid recipients for three years. And it would give additional funding to states like Vermont and Maine that have already moved to cover adults without children, which isn’t required under the Medicaid program.

MEDICARE SPENDING BOARD: The Senate bill would create an independent, 15-member board to recommend ways to control Medicare spending. The board remains in the reconciliation package, but would be expected to produce just about half of its original projected savings of $23 billion in the Senate bill. That’s because the new proposal would make greater cuts in Medicare Advantage plans.

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Summary – Health Care Reform: Separating Wheat from Chaff

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Insurance reform has three fundamental goals:

  1. lowering costs,
  2. increasing availability,
  3. maintaining or improving quality.

When reviewing the paths to these “end points” of healthcare reform, the question is, whether they progress toward achieving them (goals) or whether the means to get there are simply different paths with no discernible difference in outcome.

ISSUES ON WHICH THERE IS BROAD AGREEMENT

ACCESSIBILITY:  Insurance policies should (a) not exclude pre-existing conditions; (b) not allow cancellation of an existing policy; (c) guarantee issuance and renewals; (d) extend dependent child coverage to 26 years.

AFFORDABILITY:  Insurance policies should (a) not set lifetime or annual limits on benefits; (b) set reasonable annual limits for deductibles and co-pays; (c) not allow price differentials based on sex; (d) set reasonable restraints on age-related differentials; and (e) create a national high risk reinsurance pool to protect insurers from enrollees who incur extremely high cost medical treatments.

QUALITY:  Insurance policies should (a) not require cost-sharing for basic, preventive health care services; (b) require an essential benefits package that covers all basic health care needs; (c) standardize forms to reduce inefficiency in processing claims and enrollment; and (d) further computerizing medical information.

ISSUES ON WHICH THERE IS LESS AGREEMENT

PUBLIC OPTION: Arguments in favor are that a government non-profit insurer would provide basic insurance with less overhead.  Arguments against are that it adds government insurance into the mix, pulling business and profit margins away from private insurers.  Note: private insurers did not object to government Medicare for seniors which took the lion’s share from private insurers.

ANTI-TRUST: Removing private insurers’ anti-trust exemption increases competition.  Exemptions allow insurers to not only collude on setting premium prices, but also to monopolize markets resulting in higher prices.

SALES ACROSS STATE LINES: There are two ways to sell.  The first is leveling the playing field with a uniform set of rules similar to what CAFE mileage standards do for car manufacturers when mandating “corporate average fuel economy” that apply in all states.  A national exchange is the health equivalent for enforcing uniform standard rules.  The other alternative is to use the credit card “model”, where different rules apply depending upon the insurer’s home state.  The question becomes, would the public prefer insurers to act more like credit card companies (banks) with no federal intervention, or to participate on a level playing field with federal enforcement?

TORT REFORM: Many states already have such reform; this would be a federal cap on non-economic damages.  The argument in favor is there would be less defensive-medicine and overall health care costs would drop significantly.  The argument against is there is minimal relationship between caps and health care costs; that “defensive medicine” has more to do with generating income than avoiding liability.

AFFORDABILITY CREDITS: Affordability credits are a sliding scale subsidy for individuals and families earning less than some multiple of the federal poverty level (FPL).  To fund affordability credits (subsidies), a tax could be levied on individuals with adjusted gross income exceeding $250K ($500K for families), and taxing plans with Cadillac benefits.  Arguments for and against tend to center on the method of funding.

PURCHASE MANDATE: This mandates that all citizens purchase health insurance.  Arguments in favor are that by adding millions of customers, insurers would incur lower average costs.   Mandatory insurance would also have the salutary effect of reducing the number of those without insurance who rely on hospital emergency rooms for non-emergency health care—a very inefficient way to render treatment.  Arguments against include whether such a requirement is constitutional, though it seems similar to Medicare insurance through withholding work; and whether or not insurers will increase premiums for new insurance reforms, like no pre-existing condition barring coverage.

The only way a mandate works is if affordability credits are extended to millions of financially disadvantaged.  Affordability credits will come from government subsidies, and because taxpayers are responsible for these monies, many believe it fair to expect insurers to discount, or reduce, premium charges when setting rates.

MANDATE EXPECTS LOWER PRICES: Insurers are not likely to do this voluntarily.  Price controls are one way to restrain premium rates, but are not viewed as a long term solution.  The current mix of for-profit and not-for-profit insurers has also not been successful in restraining prices.  The best solution remains more competition, and is the impetus behind those advocating a strong public option.

DISCOUNTED DRUGS:  Allow Medicare to negotiate drug discounts and cross-border purchases.  Arguments against are that margins are needed for research into new drugs and that the quality of imported drugs cannot be assured.  Arguments in favor are that the current no discount policy has resulted in U.S. drug prices far above what prescription drugs cost in other industrialized countries.  As for quality, many of the drugs purchased here are the very same that buyers in other industrialized countries purchase.

© 2009 Andrew Kurz and Miles Zaremski

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