Tuesday, July 22, 2014

And another ACA decision...

The United States Court of Appeals, DC circuit, this morning issued a decision that cuts to the heart of the Affordable Care Act...deciding that subsidies for insurance purchase are only valid for state-run exchanges.  More than 30 states have let the Federal government set up and run their insurance exchanges; these are the states that will be affected if the decision is held up.

This will be challenged in many ways, and personally I find it hard to believe it will stand, but who knows.  Recall that many thought the initial case against ACA, on the basis of it being an unconstitutional regulation of commerce, was scoffed at by many.

I will have to read the decision carefully to see what the judges said.  In the meantime, I attach here a link to the opinion (WSJ), and also a link to a post by Jonathan Adler at The Volokh Conspiracy.


Tuesday, July 01, 2014

Another ACA Supreme Decision: Burwell v. Hobby Lobby

The latest Affordable Care Act Supreme Court decision makes people line up pretty clearly on one side or another.  Here are a few observations on the case, with the first two points being on some good economic issues that were addressed.

  1.  Supporters (amici) of the Health and Human Services position made the argument that Hobby Lobby could just drop insurance coverage for its employees if it objected to providing the required birth control coverage. Since the penalty of $2,000 per person is less than the cost of providing insurance, this would be an easy way for Hobby Lobby to avoid the problem, supposedly.  The majority put this one to bed quite elegantly by pointing out (page 34 of the opinion) that benefits such as health care are part of employees' overall compensation, so that dropping such a benefit will have implications for either employment or the level of cash wages.  The majority even make the subtle points that health insurance is likely to be of greater value than cash because it is done on a pretax basis and because the individual coverage market is not very efficient. These are great points, which get to the heart of a bigger question:  Should and will employers drop health care coverage, and what will the employer mandate do for the level of employment?
  2. Another interesting point is the alternative that the majority says is probably feasible for Hobby Lobby and that has been actually set up by HHS to let religious nonprofits get out from under the birth control coverage requirement (see the opinion, pages 9-10, for discussion).  HHS permits insurers of employers who want an exemption from the birth control coverage requirement to pull such coverage out of the main health plan but then to offer it separately and to not charge the employees anything for the coverage.  Interesting, the claim is that the insurers will be happy to do this, rather than not offer the coverage at all, as the cost of the coverage will be less than the savings in health care expenses as fewer women go through pregnancy.   But what about self-insured employers -- there, putting the burden of coverage onto a third party administrator (TPA) is simply a cost to them; any savings from less childbirth goes to the employer.  Ah, HHS has a solution to that, which is to reduce the fee that such TPAs pay under another part of the ACA.  Boy, this is getting complicated!
  3. It was fun to see Dartmouth College mentioned in Ruth Bader Ginsburg's dissent!  I will let the curious reader find that.
  4. In arguing that for-profit corporations should not be excluded from having rights under the Religious Freedom Restoration Act (RFRA, the statute at the heart of the dispute here), the majority points out how many for-profit corporations now pursue objectives other than pure value-maximization for shareholders (opinion, page 23).  Touche!  Their point here is that for-profit companies can pursue many objectives, such as reducing carbon emissions or giving to charity, even when these cost the company and its owners profits.  "If for-profit corporations may pursue such worthy objectives, there is no apparent reason why they may not further religious objectives as well."  So all that work by some activists to allow corporations to escape from the evil trap of pure profit maximization has come back to haunt them.  Ah, poetic justice.
  5. My position overall?  I am swayed by the logical consistency in thinking that the word person in the RFRA includes natural persons as well as nonprofit and for-profit corporations.  There is no logical way to say that it excludes some kinds of corporations or business organizations but not others.  The owners of Hobby Lobby are a family, it is an extremely closely-held business, and if Congress passes a law giving people the right to express religion free from undue regulatory interference (RFRA) then it applies to the family's corporation.  Plus, there are other ways to deal with what may well be a sound public policy issue -- the desire to give all women access to many forms of birth control.  Put that out in the open, through some general mechanism, rather than forcing it onto the employers.
  6. I do find Justice Ginsburg's dissent informative.  This quote by her really defines, I think, the difference between her and the majority:  "In the Court's view, RFRA demands accommodation of a for-profit corporations religious beliefs no matter the impact that accommodation may have on third parties who do not share the corporation owners' religious faith -- in these cases thousands of women employed by Hobby Lobby and Conestoga or dependents of persons those  corporations employ."  That gets to the heart of it.  Justice Ginsburg would interpret all the language and issues in favor of the women employees; the majority sides with the owners of the business.   

Wednesday, November 27, 2013

Another Obamacare Delay Announced -- Day Before Thanksgiving!

I do feel angry when the government or companies announce important things either on Fridays or before a major holiday.  Where's the honesty in that?

Here's the latest example of such shenanigans.  The SHOP exchanges, one of the potentially better parts of Obamacare, will now be delayed for an entire year.  And when is this announced?  When most people are either traveling, shopping, or just daydreaming about eating turkey.

SHOP, in case you aren't aware, stands for Small Business Health Options Exchange.  The idea is to give employees of small business employers and employees a more efficient way to provide and shop for health care coverage.  This is the second setback for SHOP already.

I suspect that all available government resources are devoted to the consumer-facing health exchanges, as they are getting most of the bad publicity.  SHOP and the back-office programming for risk mitigation and insurer payments are no doubt on the back burner.  Too bad, as small business insurance was one of the problem areas of the old system.

Tuesday, November 19, 2013

More on Risk Mitigation in Obamacare

Senator Marco Rubio of Florida has an editorial in the WSJ noting some of the issues with risk mitigation.  As I said in my post below, stay tuned for action on this front.  Should be interesting.

A short quote from the article, which might be behind the WSJ paywall:

"Buried deep in the Department of Health and Human Services' press release that accompanied the president's Nov. 14 speech was this sentence: "Though this transitional policy was not anticipated by health insurance issuers when setting rates for 2014, the risk corridor program should help ameliorate unanticipated changes in premium revenue. We intend to explore ways to modify the risk corridor program final rules to provide additional assistance."
Risk corridors are generally used to mitigate an insurer's pricing risk. Under ObamaCare, risk corridors were established for the law's first three years as a safety-net for insurers who experience financial losses. While risk corridors can protect taxpayers when they are budget-neutral, ObamaCare's risk corridors are designed in such an open-ended manner that the president's action now exposes taxpayers to a bailout of the health-insurance industry if and when the law fails."


Monday, November 18, 2013

Risk Mitigation for Insurers on the Exchange

I have posted once before on the three risk mitigation mechanisms built into the ACA Health Exchanges:  Reinsurance (to compensate insurers who have high cost individuals); Risk Corridors (to compensate or penalize insurers who perform financially worse or better than they expected); and Risk Adjustment (to minimize adverse selection by paying or charging insurers who get less or more healthy consumers than the average.   See this presentation for a description.

I expect that there is a fair amount of consternation over these risk mitigation schemes right now, from insurers and from the folks in the US government.  We won't hear as much though because these things are not consumer-based.  But they could be even more important.

First, the risk mitigation schemes are going to take a fair amount of manpower and computing power to implement.  Is the system up for this?  Given what we have seen to date, I would be surprised it it were.  And if the risk mitigation systems aren't already ready to roll, I doubt there is sufficient spare capacity in HHS and CMS to help at this point -- everyone is working on the consumer-facing exchanges.   If the enrollment numbers continue on the low side, with mostly high cost individuals enrolling, there are going to be a ton of claims from insurers for risk adjustment payments -- from all three risk mitigation programs.  If I were an insurer, I wouldn't be expecting my accounts payable from CMS to be paid anytime soon.

Second, as Megan McArdle points out today, the government is already making noises about increasing the risk mitigation payments.  She doubts the law permits that to happen, but let's not think that mere rules will stand in the way!  The government is increasingly having to rely on those terrible insurers (remember all the rhetoric to get Obamacare passed) to make the whole damn thing work in any kind of way at all, so they might try real hard to create the necessary incentives.  I would not be surprised at all to hear of changes in the risk mitigation to compensate insurers for losses incurred from low and adverse enrollments.

Sunday, November 17, 2013

Senseless Health Care Pricing or Efficiency?

This is an old subject, see Steve Brill's Steve Brill's Time article.

But having just received a bill from a physician's group practice and thought about it, I have come to think there might be more going on than meets the eye.

Take a look at this bill.  The "amount billed" is $986.06.  These are just lab tests ordered by the doctor and done at that facility, and these are the list prices.  Cigna, my employer's health care administrator (not insurer!) has negotiated with this facility for a discount from those list prices.  In this case the discount is a whopping $713.55, or 72%!!


My first reaction was that this is either stupid or greedy.  It would seem stupid if nobody actually pays those list prices, in which case they are meaningless and a waste of ink.  Come on, let's stop the charade and admit that real prices bear no resemblance to what is listed.

It would seem greedy if someone is actually paying those prices, because my first thought is that the only people paying the list prices would be the uninsured, and as Brill and others have pointed out, it is really sad to be making the uninsured pay the highest prices.

Stupidity and greed are still two good candidates to explain these billing practices but I think there is a third.

It is not only the uninsured who pay the list prices.  Suppose I am a Cigna customer and suppose this physician's group I went to see was not in Cigna's network.  I will still give them my Cigna card and they will bill Cigna first.  Cigna will get the bill and tell me that they will consider those services to be worth only $272.51.  In my case, since I had not yet met my yearly deductible, they would credit that amount toward my deductible.  But I would be responsible for paying this provider the full list price!

My point is that as cruel as this seems, it serves a purpose, which of course is to keep me within the Cigna network.  The higher those list prices, the more control Cigna has over its network.  That can be very efficient, letting Cigna work with a smaller set of providers to improve quality and value of care given to its customers.  Under this view, Cigna actually cares not only about the price they pay -- the discounted price -- but also the list price that they never will pay!

So maybe the high list prices are not stupid and not based on greed but are really to let the insurers use networks efficiently.




Thursday, October 17, 2013

Health Insurance Premia, Competition, and Endogeneity

An interesting article ran in our local paper today; the original was from Vermont Digger which provides news for Vermont.

The article looks at health insurance premia in Vermont versus the rest of the country; Vermont turns out to have the 5th highest rates out of 48 states.  These rates are for 2014 plans, offered on the exchanges, and are pre-subsidy.

The article mentions the lack of competition as one reason for high rates in Vermont, and it correctly notes that competition is relevant at two levels:  that at the supplier (hospital) level and that at the insurer level.

Vermont turns out to have little competition at both levels.  There are only two insurers offering policies on the Vermont exchange, and there is only one large hospital system in the state, Fletcher Allen.  Dartmouth Hitchcock, based in NH, would be the second largest supplier, with many Green Mountain folks driving across the Connecticut River for their care.

The only problem with the article's analysis is the problem of endogeneity.  Why does Vermont have only two insurers offering policies?  No doubt it is to a great extent because of Vermont's low population.  States with large populations tend to have more insurers, states with small populations tend to have fewer insurers.  Larger populations allow for economies of scale in insurance operations, and by itself will lead to lower rates.  So is it just the low population of Vermont that drives up rates, or is there an independent effect of little competition?  I suspect it is both.

The same is true on the health care supplier side. Why only one (relatively small) hospital system in Vermont?  There is just not enough market for more than one supplier of even close-to-efficient size. Again, economies of scale are limited by the extent of the market.  This alone will drive up health costs and hence insurance rates.  But it also limits competition, and that has an independent effect on rates.

Is small really so beautiful?  If nothing else, it comes at a price.