Je Suis Charlie!

These words express my opinion quite well.

What a travesty.  Let's see what develops over the next few days...there are a lot of things to investigate here.

My thoughts are with all the French people tonight, especially the family members of those who died.

No Free Health Care in Germany!

One thing that really drives me nuts is when someone gets hurt or sick in some other country, they go to the doctor or hospital...and don't get a bill!  "It was so nice" they typically say..."all my care was free!"

Geez, that is what I want for the new year, free health care.

But now a colleague of mine reports that he had a health care problem in Germany...and he is getting medical bills sent to him!  Achtung! In German!  What efficiency...they are sending them to his US address!

I asked to see them, just to compare them to the bills that we get in this country ("your charges were $10,000 but your health insurer cut out all the nonsense and got them down to just $1,000, saving you $9,000.") Developing...

My colleague also reports that

By the way, the food in the hospital was awful.
Breakfast…one roll & tea OR coffee. Lunch..soup & a small yogurt + tea OR coffee. Dinner 2 pieces of cold cut, one pice of cheese, two slices of bread + tea OR coffee. Not only that, I shared a room with 2 other guys, this was OK, but no curtains between beds.

Germany by the way spends about 11% of its GDP on health care, much less than the US...and they don't have a single payer system.

Medicaid Reimbursement Rates Revisited

One of the lesser-known rules in the Affordable Care Act is that it requires states to reimburse providers at Medicare rates, not at prevailing state-level Medicaid rates.  This is just for "primary care" but that is a pretty large category of care.

I wrote about this back in March 2013 -- see here -- and made this prediction:

Ah, but here is the kicker and relation to the title of my post:  this requirement and in particular that the Federal government will pay for the higher rates only applies for two years!

The phrase "doc fix" refers to a law about ten years ago that was supposed to cut Medicare reimbursement rates to providers by a certain amount each year that the rate of increase in total Medicare expenses was too high.  Starting immediately, Congress overrode the mandated increase.  By now, there is around a 30% cumulative cut that is due, and each year Congress has to pass a law (the "doc fix") that keeps that cut from going into force.

Anyone besides me worry that we are going to get into a "Medicaid doc fix" situation? 

Look forward:  For two years, any Medicaid service that can be legally lumped into the "primary care" category is going to be paid at the relatively lucrative Medicare rates.  But in two years, states like NH are going to go back to the old rate schedule.  Really?

So the time has come for those higher rates to expire, and just like clockwork, here come the calls for extending them.  This NYT article titled "As Medicaid Rolls Swell, Cuts in Payments to Doctors Threaten Access to Care" is pretty good*; it definitely notes that the higher rates were meant to be temporary.  Given the results of the election this fall, it now appears that the higher rates will indeed expire (that should have happened yesterday!)  As the article notes, President Obama did propose an extension of the higher rates, but it was not accepted by Congress.

So my prediction was wrong, but I can live with that!  It should have been a conditional forecast:  IF the 2014 election does not bring a Republican-ruled Congress, then there will be a successful push to extend the Medicaid reimbursement rates.


*My caveat here is that I do think the article was slanted in favor of extending the higher rates.  Start with the title! And it focuses too much -- exclusively? -- on the negative aspects of ending the program.  Are there no positive aspects to leaving determination of Medicaid rates in the hands of the states?

Salmon in the Great Lakes

A family member sent me this link to a three-part series in the Milwaukee Journal Sentinel about the  history of the salmon fishery in the Great Lakes:  http://www.jsonline.com/news/wisconsin/The-man-with-the-salmon-plan-b99397807z1-284550491.html

It is truly an amazing story about the decline of native fish populations (mostly the lake trout) because of invasive species -- the sea lamprey and alewife -- but also about an incredible salmon stocking program that led to decades of excellent sport fishing on the upper Great Lakes.  And not least of all, it is also a story of how that artificial fishery also finally collapsed (or is in a state of collapsing) and is being replaced by...an older native population of fish.

The story is very well done; I commend Dan Egan the author.  Really a fine job.

This is all very personal and close to home for me.  My father, Martin J. Hansen, worked as a fisheries biologist in Marquette, MI, working on eradication of the sea lamprey.  I have some of the articles he wrote, such as  "Cadmium Sulfide and Mercuric Sulfide for Marking Sea Lamprey Larvae" (April 15, 1963, joint with Thomas M. Stauffer).  I also remember fishing in the spring of 1967 in Lake Superior, trolling with my dad in our little boat off the mouths of Sand River, the Laughing Whitefish River, and Carp River.  We were catching these silvery fish about 20 or 22 inches long, a few pounds each.  Normally we would be catching steelhead -- rainbow trout -- but these weren't rainbows.  My dad had left biology at that time, so maybe he wasn't up on the salmon stocking program.  We took a couple of the fish into the bar where we always stopped after fishing and some folks inside verified that the fish were coho salmon.  They had probably been planted just one year ago and we were catching the first ones.

I will be back in the UP over Christmas, maybe I will get a chance to do some ice fishing for walleye on Little Bay de Noc in Lake Michigan.

Electricity Rates and "Green" Power

In New Hampshire, we are looking at some hefty increases in our electricity prices -- see here for a typical story.  My electricity rates will go up by about 50%.  (Be aware though that this is only the energy part of the bill -- many other charges are on the typical electric bill including distribution and a flat customer charge.  The energy part of my bill is only about 40% of the total bill.)

Before we start blaming the utility, let's be clear that the increase is because of increases in wholesale electricity prices, and those are set about as purely on the basis of supply and demand as one could hope.  Demand is up, and supply is down...because NE has been shutting coal fired plants.  And supply of wholesale power from cheaper, cleaner natural gas-fired electric plants is not filling the void because of a shortage of pipeline capacity coming into New England.

Meanwhile my neighbors have been heating up our neighborhood discussion board with questions on switching electricity suppliers.  One competitor is offering "renewable" source power, at higher prices than normal power.  One person is choosing a particular plan because it is sourced from hydro plants -- "the most green option."

Really?  Dams don't cause any environmental problems?  So is there another reason why we don't have any more salmon runs up the CT river?  Ever think about what slowing down water does to its temperature and clarity and how it affects silt buildup?  And is any of that 100% green power coming from new dams up in Quebec -- do we know what the impact those dams will have on wildlife and even native populations?

This is why incentivizing consumers to weigh environmental costs is so inefficient and, to be honest, economically dangerous.  My neighbors are wonderful folks and very smart, but to think that each one of them should be weighing all the environmental pluses and minuses of their electricity supply...when the average bill is probably only $75 per month!

There is a much better way to incorporate environmental costs into decision-making -- build them into the price we face.  Then we just have to compare prices, like in any other marketplace transaction.

Here is a picture of 100% green hydro.  Bet the fishing is good right there.

Source:  http://www.sakacon.com/2011_08_01_archive.html

Lest we forget: The fall of East Germany, 1989

I was in Leipzig, Germany this last week.  Twenty five years ago, in September and October 1989, Leipzig was the center of demonstrations that were pivotal in tearing down the Berlin Wall and to the downfall of the East German state, the DDR -- Deutsche Demokratische Republik.

In the last two months, in Leipzig and throughout Germany, there have been many events commemorating those events of 25 years ago.  How momentous those events were!  I was in East Germany in 1984 when it was still communist.  It was just amazing to me to see firsthand the lack of freedoms, both political and economic.  I was shocked by actually seeing police with dogs looking under the train with mirrors -- as we were leaving the East.  In 1990 I visited the Berlin Wall -- what was left of it -- and saw the beginning of freedom for the East.

Leipzig today is a tremendous city, beautiful and well on its way to rebuilding its reputation as a marketplace for Germany and indeed for all of Europe.

And look how quickly we forget.  I read the news pretty thoroughly, and I don't remember seeing a single story in the US press in the last two months about those events 25 years ago.

Here is a nice film clip from Die Deutsche Welle about the demonstrations in Leipzig in October, 1989 and the brave men who filmed the events from a church and then smuggled the tapes out to the West.  Remember...no internet back then, so the East Germans had effectively shut down any news about large scale demonstrations.

http://www.dw.de/secret-heroes-on-the-rooftops-of-leipzig/av-17969031

Why should "preventive care" in health care and cars be free?

The Affordable Care Act mandates that certain preventive care -- well visits, annual checkups, certain bloodtests and screenings -- be made free to anyone covered by insurance.

As an economist, I usually cringe at such policies, as a basic principle of economics is that insurance is meant to cover large and infrequent events.  My usual response to covering things like annual checkups is, "Do we have insurance for oil changes on our cars?"  Incurring the transaction costs of insurance in paying for routine care just seems senseless.

But then I started noticing that some auto manufacturers in fact provide for free maintenance care for new cars -- see here for BMW's plan for example.

Why would new cars come with free maintenance?  What might be the reasons for this, and might we learn something about free preventive health care in thinking this through for cars?

A few things come to my mind as to why BMW and other car manufacturers might offer free maintenance.  I put analogous explanations for free preventive care in italics alongside.

1.  Consumers don't bear the full cost of not maintaining vehicles.  There is some truth to this, certainly a lot of truth for leased vehicles.  Even for owned vehicles, the used car market classically suffers from adverse selection, making well-maintained vehicles sell for low prices that reflect the average quality of all cars.  The manufacturers have an interest in maintaining the value of used cars, so they optimally lower the price of maintenance. This explanation should have less weight to the extent that the maintenance being considered is easily documented.  In health care, the analogy would be that people will have insurance for large ticket illnesses, so the incentive to pay even a little for preventive care is lessened.  Also Medicare in later life means that we have less incentive to take care of ourselves now.

2.  Consumers face monopoly prices from dealerships for maintenance, so the manufacturers negotiate on behalf of new-car buyers.  I like this explanation, as I always feel that the car dealers exploit both their local monopoly power and any power they have from giving "authorized warranty" coverage.  The analogy to health care is self evident, with monopoly pricing (price exceeding marginal cost) by providers being common.  Insurers have incentive to bargain with providers to give preventive care at the lowest possible price when the insurers bear the cost.

3.  It is all a marketing ploy, with consumers overestimating the value of free maintenance care.  I think there might be some truth to this one too.  Car manufacturers know how little maintenance a new car really needs; consumers overestimate that and therefore over-respond to offers of free maintenance.  The analogy in health care is that we should have seen insurers offering free preventive care without being forced to (and I think we did).  

4.  A last one, not my favorite, which is that consumers are irrational and skip maintenance even when the value of the maintenance exceeds its cost.  As always, we have to look on both sides of the coin:  I agree that consumers make mistakes, but why do we think they will under-maintain rather than over-maintain?  I know lots of people who change their oil way too frequently.  In health care, my guess is that most analysts would say that consumers will irrationally take too little health care if they have to pay for routine care.

5.  This is a good one:  free maintenance is a way to get consumers into the dealerships so they can be sold additional services ("we changed your oil but what you really need are new shocks").  This depends on consumers not figuring out the game entirely, although again information asymmetries make it possible.  I especially like the analogy to health care here:  come in for your free check-up and let's see what else you need.  Blood tests, scans, ....?

Bottom line?  I think that in health care we give away too much preventive care.  Point 5 above is an especially good one.  Not addressed by any of the points above is another big concern of mine, which is that free care perpetuates a belief that all health care "should" be free to all.

Transition from ICD9 to ICD10 Codes: Strategic effect on reimbursements?

This fall, the US government requires pretty much all health care providers to transition from the old set of codes for medical diagnoses, known as ICD9, to a new larger set of codes, ICD10.  According to the Center for Medicare and Medicaid Services, ICD10 allows for 7 digits while ICD9 allowed only for 5.

So under the new system, we could have up to 9,999,999 different codes while under the old there was only the possibility for 99,999 -- and as the ICD10 is alphanumeric, this is an understatement.  I guess however they never maxed out on usage of the total possibilities, as the article referenced below says ICD9 had only 13,000 distinct codes while ICD10 will have only 68,000.  Quite a difference to be sure, and still room to grow.  CMS provides a fact sheet if you want to learn a bit more.

The key thing is that these diagnostic codes are used for billing purposes.  Submit a code to Medicare, and you get the payment associated with that code.

Naturally the pundits are having a grand time with this one.  Here are the "16 most absurd ICD10 codes."  Here are just a couple:

• W55.41XA: Bitten by pig, initial encounter​.
• W220.2XD: Walked into lamppost, subsequent encounter. 
• Y93.D: V91.07XD: Burn due to water-skis on fire, subsequent encounter​.
• W61.12XA: Struck by macaw, initial encounter. 

These actually seem too bizarre to be true, but who knows.

Anyway, I have a serious question:  How will the move to a more-granular coding system affect billings?

What I have in mind here is thinking about the hospitals as trying to maximize their revenues given the procedures they did to a patient -- strategic coding of procedures to maximize revenue.  (I am actually on some email list that sends me announcements for seminars to teach me how to code "properly," so strategic coding is certainly not a crazy idea.)

I expect that many first answers would be that a more accurate (more granular) coding system would reduce billings.  Why -- I don't really know.  More precision avoids mis-classification.  Sure, but what is the effect on revenue?

My knee-jerk reaction is that billings will likely increase. Why?  Well, suppose there was an old ICD9 code that had some average reimbursement attached to it, say $1000.  Now there are two subcodes for that old diagnosis, and the reimbursement for one code is $500 while the other is $1500.  These payments were set on the thinking that half of the old diagnoses were of one new type while the other half were of the other new type.  Assuming there is some wiggle room in the new codes (coding systems, like contracts generally, cannot delineate every possible outcome) the hospitals will shift whatever procedures they can into the higher rate category.  So while there was an even split of sub-diagnoses in the population, there will be some strategic over-billing that happens.

This is admittedly incomplete, for we have to think of the whole coding system, and we have to specify a bit more about who knows what and what the constraints are.

Another way to think about it is to go in reverse:  Suppose we reduce the number of codes, and take an extreme case of going down to just one code (capitation, sort of!).  Then if there was any strategic overbilling going on previously, going to one code has to reduce the total reimbursements, it would seem.  A single code is actually more accurate, as we get the true average rather than an average biased by strategic coding.

This might be an interesting project to work on.  There was a Rand study in 2004 that looked at the transition to ICD10 but it doesn't really take this perspective.  

And yet another ACA decision...

Two appeals courts looked at the issue of subsidies on Federal exchanges under ACA and both issued decisions yesterday.  The DC circuit decision is covered in my post below, the Virginia circuit ruled in favor of the government:  See this story in the LA Times.

The Administration has announced its intent to ask the DC circuit to rehear the case, with the full set of judges rather than just a three-judge panel.  That would seem a reasonable thing to do, and could well remove the split between two appeals courts that would call for the Supreme Court to step in.  But as Jonathan Adler points out at the Volokh Conspiracy, the full rehearing is not a sure thing and there are other pending cases in other circuits.  The Supremes might get another shot at ACA yet.

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.

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.   

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.

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."

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.

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.

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.

Delaying the Individual Mandate is Difficult

There is still talk about delaying the individual mandate, and there are some reasonable arguments in favor of that position -- not the least of which are the ongoing difficulties with the Federal health exchanges.

But, the fact is that health insurers have already posted health insurance policies with prices, available to buy.  The prices (premia) of those policies reflect expectations about who will sign up (premia have to cover expected health costs of the enrollees).  Importantly, who signs up depends on whether or not the individual mandate is in force or not.

The tax for not signing up is $95 or 1% of income, whichever is greatest (with a cap equal to the average cost of  a bronze plan).  This is not insignificant.  Dropping the mandate/tax will definitely induce some individuals to go without insurance, and there will certainly be adverse selection in that choice -- the healthiest individuals will tend to not buy insurance, the least healthy will tend the other way.  This will distort the pool of insured people from what the insurers would have expected when they posted their premia for the 2014 year.

I do recognize per my earlier post that there is risk-sharing on the exchanges.

That said, delaying the individual mandate seems quite unfair and dare I say in violation of principles that libertarian-oriented folks would generally respect.  How can the government induce businesses to offer contracts at binding prices and then significantly change the rules so as to increase the cost of fulfilling the contracts?

I have not seen anyone offer the insurers the chance to re-price their policies if the individual mandate were delayed. 

Why insurance premia on the new exchanges are not comparable to existing policies

Are prices for health insurance on the new insurance exchanges lower than what was available before? A number of articles have suggested that prices are at least lower than expected -- see for example here and here.

What I have not seen noted anywhere is that the Affordable Care Act creates extensive loss-protection subsidies for insurers on the exchanges.  Because of these loss-protection measures, it is extremely difficult if not impossible to compare prices on the exchanges to prices that existed before.  

Indeed, if prices were not lower, it would be very surprising.   

There are three loss-protection measures for insurers offering policies on the exchanges; two are temporary (two years) and one is permanent.

The one that I think is most significant in regard to pricing is known as Risk Corridors.  Insurers compare their premium income less administrative cost to their actual claims payments.  If that difference is negative (claims exceed premiums less admin costs) the government (aka you and me) bears up to 80% of the loss.  Symmetry prevails, so the government will also tax any "excess" profits.

With problems of adverse selection and with expected stickiness of consumer choices, this policy has to induce lowball pricing for the two years that it will be in force.  Why not price low and lock in consumers?

The second major risk reduction policy for the exchanges is known as Reinsurance.  Insurers that have high-claim individuals will be eligible for reimbursement of losses.  Who pays for this?  Self-funded plans (again, aka you and me) pay a tax to fund this reinsurance scheme.  This policy also obviously encourages low prices for insurance policies while the reinsurance scheme is in effect.

The third risk reduction scheme is permanent and is known as Risk Adjustment.  Insurers compare the risk of their insured populations; insurers with higher risk individuals receive payments from insurers with lower risk individuals.  The technical details of this are very important and I expect some good careers for previous bankers who can figure out how to game the risk-adjustment formulae.  I agree that in principle risk adjustment is good, as it reduces the problem of adverse selection on the exchanges.  Also, this policy does not have any net inflow of government funds, so if the policy reduces prices on average there can be little argument that the policy is efficient.

Where else has anyone read about the risk reduction policies built into ACA and how those policies invalidate the debate over whether prices are lower on the exchanges relative to prior individual health insurance policies?

The complex math of iPhone security

Heard on CNBC this morning, only slightly paraphrased, after a remark about the security of the new fingerprint feature on Apple's iPhone:

"Supposedly the chances of someone cracking the password on the current iPhone is 1 in 10,000"

It's a four digit password.

:)

Understanding of Affordable Care Act is Overstated

According to a new WSJ/NBC poll,

Overall, nearly 70% of poll respondents said they didn't understand the health-care overhaul passed by Democrats in March 2010 or only understood a part of it.

That is incredible.  Over 30% understand most or all of ACA?!  I have studied the ACA quite thoroughly and am not sure I would say that I understand all or even most of it.  How about the taxes on employer based insurance?  Where exactly do the hundreds of billions of savings from Medicare come from?  How will Medicare Advantage plans be affected?  What are the SHOP exchanges?  Can I buy insurance anytime during the year or only during enrollment periods?  What kind of high deductible plans will be allowed? How will premia be affected for the young and healthy vs. the older?

When will the Independent Payment Advisory Board be appointed and what will it do?

And that leaves out all the quality improvement and reimbursement experiments.

The survey also had findings relating to the likelihood of people signing up for new subsidized insurance:

Only 32% of the uninsured thought they were "fairly" or "very" likely to use the exchanges. 

If I were a hospital with any reasonable population of uninsured patients, I would set up a desk to help patients sign up for insurance when they show up in a hospital.  Think of the return on investment to that.