Download Noon Hour Philosophers -Nov 2016

The Patient Protection and Affordable Care Act
(aka Obamacare):
An Efficient and Equitable Path to Life, Liberty, and the
Pursuit of Health?
Noon Hour Philosophers
November 16, 2016
Merton D. Finkler, Ph.D.
John R. Kimberly Distinguished Emeritus Professor in the
American Economic System
Overview of Talk
• Key Provisions of the ACA
• Efficiency and Equity Defined and Illustrated
• Outcomes of Interest
• Effects on Life Expectancy
• Choice (health plan, providers)
• Health Status
• Conjectures About the Future
ACA and the Three Legged Stool
• Three Key Features
• Insurance market reform – no exclusions and community rating
• Mandated purchase – individuals and businesses
• Subsidized purchase based on income and expanded Medicaid
• Delivery system and payment reform as well as cost control were
second order considerations.
Ten Component Sections of the ACA
PPACA A Few Pertinent Provisions
(from 900+ page document)
• No exclusions for pre-existing conditions
• No limits on amount of coverage
• Individual mandate to purchase insurance or face a tax penalty of $695+ or
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2% of income, whichever is greater.
Employer mandate to provide “affordable” insurance (<9.5% of income) if
50+ FTEs, else $2,000 penalty
Subsidized insurance through market exchanges up to 400% of the FPL and
further subsidies for those with incomes between 100% and 250% of FPL
Coverage for 10 essential benefits, full coverage for approved preventive
services – plans should parallel those provided by employers
Children can be covered under a parent’s policy until age 26
PPACA (Continued)
• Federal funding (option) of Medicaid expansion for those up to 138% FPL
• Eligibility limited to legal, non-incarcerated residents
• A variety of experiments with different payment structures including bundled
payments, Accountable Care Organization (ACO) gain sharing, and incentives to
reduce hospital readmissions and avoid patient harms.
• Restructured Medicare Advantage and Part D plans
• “Cadillac Tax” on plans with premium > $10.2k (individual)/ $27.5k (family) and
review of plans w/ medical loss ratio < 80% (small group)/85% (large group)
• Summary available at Kaiser Family Foundation http://kff.org/health-reform/factsheet/summary-of-the-affordable-care-act/
Bloomberg Healthcare Efficiency Index
• US ranks 50th out of 55 countries – just below Serbia and above
Jordan
• Based on Life Expectancy (60%), HC$% of GDP (30%) and
HC$/capita (10%)
• Top 3 are Hong Kong, Singapore, and Spain
• Life expectancy provides a very limited representation of health
status
• Conjecture: Few in US would choose Serbian health care at
Serbian prices over US options.
• October 4, 2016 – Bloomberg online
Efficiency Defined
• Minimized cost of delivering a prescribed set of benefits
or reaching a particular set of outcomes or
• Maximized set of benefits or potential outcomes from a
given amount of available resources (or budget)
• Efficiency cannot be judged without understanding what
is to be delivered – not by cost alone
• IOM study (2010) estimated 31% excess cost:
unnecessary services, inefficient delivery, excess admin $,
high prices, too few preventive services, and fraud
Uwe Reinhardt On American Ambiguity
• Americans have an instinctive distrust of government and
have faith in private markets
• Yet, Americans are unwilling to accept the harsh verdicts of
markets
• RESULT: “a bewildering system of half-hearted competition
and half-hearted regulation”
• “This approach encourages in health care an economic free-
for-all in a highly imperfect market which increasingly turns
patients into blind-folded shoppers thrust into a health-care
shopping mall that is only haphazardly controlled by ad-hoc,
often mutually inconsistent, regulations that further distort the
health-care market.”
Equity Defined: Two Key Principles
• Ability to Pay Principle
• Horizontal Equity: People in similar circumstances
should be treated similarly – based on income, family
composition & size, wealth, and health status
• Vertical Equity: People who are “better off ” than others
should pay (at least) proportionately more than those
deemed “less well off.”
• Benefit Principle: Those who benefit should pay for
what they receive.
Inequities in Employer Health Insurance
Effects of the ACA
• Cost Trends
• Insurance Coverage Trends
• Competition and Choice
• Effects on Health
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Cumulative Increases in Health Insurance Premiums, General Annual
Deductibles, Inflation, and Workers’ Earnings, 2011-2016
70%
Overall Inflation
63%
Workers Earnings
60%
Single Coverage Deductibles, all Workers
Single Coverage Premiums
50%
40%
30%
20%
19%
11%
10%
6%
0%
2011
2012
2013
2014
2015
NOTE: Average general annual deductible is among all covered workers. Workers in plans without a general annual
deductible for in-network services are assigned a value of zero.
SOURCE: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2011-2016. Bureau of Labor Statistics, Consumer Price
Index, U.S. City Average of Annual Inflation (April to April), 2011-2016; Bureau of Labor Statistics, Seasonally Adjusted Data
from the Current Employment Statistics Survey, 2011-2016 (April to April).
2016
Medical Cost, Not ACA, Dominates Spending Trends
20 Million Adults Have Gained Coverage
Medicaid Expansion: State by State
Health Insurance and Income Inequality
Competition and Choice
Market Exchanges for Health Plans
• Job Lock – No longer a critical factor
• Withdrawal of United Health Care, Aetna, and Humana from many county
exchanges –(very limited large commercial insurance participation in 2014).
• Premiums and administrative costs for individual health plans are lower inside
exchanges than outside.
• Local insurers (many provider-based) have offered the lowest premium and
largest benefit packages. Some of these offerings are based on narrow
networks of physicians and hospitals.
• Exchanges have had a difficult time reaching healthy, young adults
• Premiums ↓ with ↑ in the number of insurance company competitors.
Exchange Market History
• Rates and degree of competition have varied a great deal both across
2014-2016 and across markets.
• 2017 Rates: 2nd lowest price silver plan projected to ↑ by 22% -average –
some plan switching will take place. With subsidies (80% of enrollees)
and those switching (between 40 and 50% each year)- ↑4%
• Many insurers have lost money in particular markets and are either
dropping out or raising premiums markedly. (e.g., United Health Care,
Aetna, and Humana)
• Wisconsin counties have among the most stable of exchanges because
many insurance offerings are locally owned. In 2016, Outagamie
County exchange offered 56 different plans from 7 insurers (including
nationals Molina, Anthem, and United HC). In 2017, its 36 plans and 4
insurers.
Are the Exchanges in a Death Spiral?
• Enrollment growth has slowed and is well below original
CBO projections (though up this month.) Penalties for lack
of coverage exist, but they are not sufficient to induce the
healthy to sign up.
• Competition amongst insurers has decreased in many markets
because most commercial insurers have not been profitable.
The only successful strategies have been low premium, high
deductible plans or narrow network (provider based) plans.
• Risk pool attracted to the exchange is dominated by relatively
poor and relatively unhealthy enrollees.
• Funding to cover the 3 Rs – Risk-adjustment, Re-insurance,
and Risk corridors has been insufficient.
Perverse Incentives Still Dominate
• Consider this example from a recent Health Affairs study:
• Family of four – Roanoke, VA – income of $60,000 – 2016
• Premium payment of $4,980 for the year for the second-lowest-cost silver plan.
• $5,000 deductible.
• Almost one-sixth of their pre-tax income on health costs before they received any
insurance payment (except for MD visits and RX.)
• Going uninsured cost less than $1,000
• Family could enroll at any point w/o premium penalty
• Family of four in Wisconsin – income of $60,000 – 2016
• Second lowest silver plan cost $4,860 per month (before premium tax credit)
• Other factors above apply – except more narrow networks available
• http://kff.org/interactive/subsidy-calculator/
Effects on Health of Expanded Insurance
• Oregon Study on Medicaid
• Randomized control trial generated no significant improvements in
health for those added to Medicaid rolls over first 2 years.
• ↑ use of health care services & rates of diabetes detection &
management; lower rates of depression and reduced financial stress.
• Waiver provisions within the ACA enable states to move $ upstream to
primary prevention, which will affect health over time.
• Changes in incentives, especially regarding reduced Medicare payment for
hospital acquired conditions and re-admissions w/in 30 days. There exists
some debate about the effects on hospitals that serve low income people.
Quality of Hospital Care Has Improved
Life, Liberty, and the Pursuit of Health
• Effects on life expectancy are not yet discernable. To the degree resources
are moved “upstream” from intensive medicine, life expectancy will
improve. - Too early to tell
• The penalty for not purchasing insurance or purchasing “bare bones”
insurance has increased; however, within both the government run exchanges
and private exchanges, choice of plan benefits and provider networks has
expanded for individuals – especially in urban areas – It depends upon
what one means by liberty or optimal choice. (OPM – role of Other
People’s Money)
• We have yet to make serious headway in reallocating resources to where they
have the greatest influence on health improvement. – Improved potential
related to treating chronic disease and illness prevention
Is This the Beginning of the End or the
End of the Beginning for the ACA?
• Total repeal will not take place since 60 votes in the Senate
required; budget related items only require a majority in both
houses.
• Attempts to develop stable markets for individual plans based on
a diversified risk pool, local market competition, and a focus on
quality of care and service have not had much success. This is bad
news for stable exchanges.
• Early insurer search for market share (through relatively low
premiums) has been replaced by premium hikes and much entry
and exit. National insurers will continue to abandon selling on the
exchanges unless there is more $ to assist enrollees.
Removal of Title 1 of the ACA –
A Common Feature of Republican Repeal Proposals
Repeal and Replace? A Few Conjectures
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Mandated individual and employer purchase of insurance will be ended
Medicaid expansion will stop, and program will be shifted to block grants
Broader consumer choice – including across states will be encouraged
Subsidies for low income insurance purchasers will be reduced and
restructured -with either a refundable tax credit (Ryan plan) or deductible
individual premiums (Trump)
• CMS Innovation Center and Medicare Payment Advisory Board could be
eliminated (as too much Federal power)
• Medicare might be pushed from a defined benefit to a premium support
(defined contribution) program such as Medicare Advantage
• Trump administration through a variety of executive actions can gut funding
for some programs especially for the 3 Rs.
• Medicare and other related provisions might not be addressed.
Conclusions
• Exchanges are likely to whither away
• States will follow independent paths with increased
differences between Medicaid expanders and nonexpanders
• Am I optimistic about improved efficiency and equity in
the delivery of health services?
• Not at the national or state levels
• There exists potential at local levels where effects might be
more clear.
Thank You For Listening
Viable Strategies to Stabilize the Exchanges
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Increase penalties for those who don’t purchase insurance
Reduce conditions under which special enrollment can take place
Require continuous coverage for enrollees to receive subsidy
Increase subsidy for middle class – especially for those who face
high out-of-pocket payment
• Extend and improve 3 Rs
• Decrease premiums for young enrollees (increase range from 3:1
to 4 or 5:1) or increase premiums for older enrollees
• Not clear how a public option helps – it depends upon how premiums
are set and subsidies are made available