10/31/2013
Austin FraktIn association with the Baker Institute’s Oct 25th conference on health care reform, I have a post up that describes a problem for ACOs that probably hasn’t occurred to you. Go read it.
Also, videos of the proceedings of the conference are online here.
10/31/2013 Adrianna McIntyreI’ve been keeping pretty close tabs on the “rate shock” debate—as a healthy twenty-something, it behooves me to know what other people are saying I should think. (I jest, but you all have some pretty firm opinions on that.) It’s a complicated issue, and prophecies about young adult enrollment, including my own, have relied on broad strokes and guesswork. But one thing in particular has been grating on me: when it comes to complaints about redistribution and overly-generous benefits in health insurance, why is the echo chamber limited to the individual market? Where is the outrage over employer-sponsored insurance?
Josh Barro hit the mark on this earlier in the week:
Redistributive public policy is even more of a theme in the group health insurance market, which is nine times larger than the individual market and the dominant source of “private” health coverage. […]
Employers are also limited in their ability to pick and choose whom they offer insurance to. You can limit coverage to full-time workers only, but you have to offer it to all of them on approximately the same terms, without premium adjustments for claims or health status. […] [T]hat benefit ends up being much more valuable to people with high health costs than with low ones.
Some 90% of people with private insurance receive it through an employer, and those plans are generally priced using “pure” community-rating. This means the company serves as one giant risk pool, and a firm’s youngest employees have the exact same insurance premium as their eldest colleagues. The practice has roots in tradition and history; unions started negotiating these kinds of contracts after World War II, and other plans followed suit. But it’s also a matter of law: HIPAA and the ADA prohibit premium variation by health status. Age rating is constrained somewhat—though not entirely—by the Age Discrimination in Employment Act.
Yet, I’ve seen exactly zero Obamacare opponents railing to amend the employer-based practices that require most young healthies to pay more than their “fair share.” No one is plying Congress to amend HIPAA or the ADA so young invincibles can pay premiums appropriate to their health status. No one is calling out employers on their “redistributionist” policies, even though uniform insurance premiums force a substantial transfer from the young to the old. It makes histrionics over Obamacare’s 3:1 age band hard to take seriously.
As an anecdotal aside, I selected a modest HMO plan when I joined the working world at 22, the second-cheapest of my six options. Even so, my monthly premium was about $450 in untaxed dollars, after my employer kicked in their share. I’ve checked out exchange rates in Ann Arbor, and I could get a silver plan from the same insurer for about $270 a month before subsidies. The cheapest plan at my disposal is less than half of that. To recap: I, a healthy 24-year old, can buy an exchange plan that costs less than a third of what my employer-sponsored plan cost in 2011, without a subsidy of any kind (though all apples/oranges caveats apply).
Selective ignorance of employer-based coverage in the rate shock debate is an old gripe of mine. In posing this question to Twitter in the past, the responses I got tended to fall into one of two buckets:
“So what? Employers pay for most of the premium, anyway.” This is stupid, no good, very bad logic. A dollar towards health insurance premiums is a dollar taken out of wages; the evidence is pretty clear on that. It’s true that many Americans don’t realize the full cost of their health insurance because their employer foots a big fraction of the bill, but this is far less true of wonks. Ignorance is hardly a sound policy justification.
“Well, employer-sponsored insurance isn’t compulsory.” Right, it wasn’t compulsory—though Barro makes a good case that the tax exemption makes it coercive. Regardless, put in context with the ACA, it’s about as compulsory as individual market insurance. If you decline to take your employer’s plan, you probably won’t be recouped the full value of the plan you were offered. You’ll have to buy other coverage to avoid the penalty, and—because you have an option from your employer—you’ll be ineligible for subsidies. Moreover, your labor is worth the value of your total compensation package; when you decline benefits, you’re effectively being underpaid.
I know many conservative wonks find fault in ties between employment and insurance, but they haven’t injected that into recent critiques. If messaging around rate shock is more than opportunistic hackery—if it’s genuinely about how “health insurance” ought to be conceived—why are they leaving the most prevalent and most redistributive form of private coverage unscathed? Surprise me.
Adrianna (@onceuponA)
10/31/2013 Aaron CarrollI’m going to make this a Halloween tradition, like I do with Thanksgiving and the turkey/sleepy myth. This is a chapter from our first book:
As October draws to a close and children begin to pick their Halloween costumes and anticipate candy feasts, a barrage of child safety warnings begins. Among the most frightening for parents and children are the warnings to check candy carefully because of the risk of razor blades, poison, or similar frightening substances hidden within the candy. Who wouldn’t be paralyzed by worry that poison or a dangerous object has been placed in the candy and then randomly handed out to children by strangers? Parents carefully check each item of candy for any marks or tears in the packaging. Some families abandon neighborhood trick-or-treating all together and head to the mall. How afraid do we need to be about Halloween candy? Could this parental nightmare be a figment of our collective imagination?
Why did we become so afraid of tampered Halloween candy in the first place? News reports of Halloween candy tampering have been popping up since 1950. In one story from 1964, a woman named Helen Pfeil was arrested for what she had considered an obvious joke – giving packages containing dog biscuits, steel wool pads, and ant poison buttons (labelled with the word “poison”) to teenagers who she considered too old to be trick-or-treating. Since she meant no malice, she made sure to also tell the teenagers about her “joke,” and therefore no one got hurt. Even so, she was charged and sentenced for “endangering children.” While she hardly sounds like a sinister stranger just waiting to give an unsuspecting child a poisoned treat, the case was used as an example of the dangers of Halloween candy in the media.
Amazingly, despite the widespread fear of Halloween poisonings, no evidence of a genuine Halloween poisoning can be located. A professor of sociology and criminal justice at the University of Delaware, Dr. Joel Best, has tried to debunk this myth repeatedly. After scanning major newspapers between 1958 and 1993 for stories about Halloween candy tampering, Dr. Best found nearly 100 stories that he followed up with phone calls to police and hospitals. Of those stories, Dr. Best found absolutely none that could be positively attributed to random Halloween violence. The majority were the result of pranks. The reported incidents usually involved the discovery of contaminated treats, but with no actual injury to the children. When these cases were followed up, even the contamination usually turned out to be a hoax – often one initiated by the children themselves.
In 1975, Newsweek magazine claimed that several children had died from Halloween candy-tampering in recent years. Surprisingly, this claim was not based on any actual events. In the only two documented cases of child deaths associated with Halloween candy, strangers were not to blame. Members of the child’s immediate family were intentionally or unintentionally responsible for the poisonings, and those responsible placed blame on random Halloween poisonings. In a case from Detroit, Michigan in 1970, 5-year-old Kevin Toston died four days into a coma that was later found to be caused by an overdose of heroin. Subsequently, heroin was found in his Halloween candy. A thorough investigation revealed that the heroin had not come from a stranger – it had come from his uncle’s obviously poorly hidden stash of heroin. When his family realized that they might be found guilty of neglect, they put some of the heroin in his candy in the hopes of covering up their part in his death. In 1974, 8-year-old Timothy Mark O’Bryan died as a result of consuming Pixie Stix® poisoned with cyanide after Halloween, a crime for which his father was subsequently convicted and executed. His father made use of the myth of Halloween poisonings to cover up his own actions. While these deaths are undeniably tragic, the real danger to the children involved came from their own homes, not faceless strangers.
A 1990 case involved Ariel Katz, a 7-year-old girl who died while trick-or-treating, but her death was subsequently found to be due to congenital heart failure. In 2001, a 4-year-old in Vancouver died the day after trick-or-treating (resulting in police alerts to dispose of all Halloween candy), but the autopsy revealed that she died from an overwhelming bacterial infection (her candy wasn’t contaminated). Although both the website www.snopes.com and Dr. Best’s research have detailed these and other cases, and neither their searches nor ours revealed any evidence of actual random Halloween poisonings, this myth still persists. Tainted cupcakes will be blamed for adolescent abdominal pain, only to have the teenager later admit that he overdosed on prescription medications (this has actually happened). Reviews of the medical literature also fail to turn up evidence of random acts of Halloween violence. We cannot definitively prove that no child has ever been killed by a stranger poisoning their Halloween candy, but we can state that no such event has been documented in the media to the best of our knowledge.
Of note, children do face some real health risks on Halloween, but the risks come from cars, not candy. The National Safety Council reports that children are at an increased risk of injury as pedestrians, being four times more likely to be killed by a car while walking around on Halloween than on any other night of the year. So, if you really want to keep your kids safe, focus on making sure they are visible to cars and are very careful about crossing the street, particularly as darkness falls.
References:
From Don’t Swallow Your Gum by Dr. Aaron E. Carroll and Dr. Rachel C. Vreeman. Copyright © 2009 by the authors and reprinted by permission of St. Martin’s Griffin.
10/30/2013 Austin FraktThe American College of Cardiology is changing its guidelines for when implanting coronary stents is appropriate — by banishing the term “inappropriate.”
With 700,000 procedures in the U.S. annually — at an estimated cost of $14 billion — appropriate use of coronary stents has become one of the hottest issues in cardiology. Eight studies have found stents are no better than drug-based therapy in preventing heart attacks and death in patients with stable heart disease.
Next year, the main U.S. heart-doctor group will remove the word it has used since 2009 to describe cases where people don’t need the metal-mesh tubes in their blood vessels. The label has become a liability in treatment disputes with insurers and regulators, said Robert Hendel, who led the effort that updated the wording.
“The term ‘inappropriate’ caused such a visceral response,” said Hendel, a cardiologist at the University of Miami. “A lot of regulators and payers were saying, ‘If it’s inappropriate, why should we pay for it, and why should it be done at all?’”
The cardiology group replaced the “Inappropriate” label with “Rarely Appropriate.” Another category — cases in which there’s medical doubt — will switch from “Uncertain” to “May be Appropriate.”
–Peter Waldman, Bloomberg
10/30/2013 Aaron CarrollI’ve been traveling to give a talk yesterday and today, which means that I’m missing the hearings today. I couldn’t care less. If anyone thinks anything of value, policy-wise, is going to come out of that then I’ve got a bridge to sell you.
What people hope for is a gaffe. They hope a politician they don’t like will say something stupid, or make a mistake that they can use to attack a policy from the sides. Gaffes can be fun, but only in the realm of politics. Gaffes can be useful when they allow us to highlight problems with policy.
Such was the case with Senator Cruz’s spokesperson and the “subsidies” given to employer based health insurance. We can use the statement to highlight a policy issue that needs fixing. But we are interested in the policy – and will continue to write about that – not the gaffe. That will fade away quickly.
On the other hand, I don’t care how many times you email me or tweet me to say that President Obama “lied” when he said you could keep your plan if you like it. I immediately recognized that was untrue when he said it. I called him out on that. I did that because I thought it was important to highlight the policy of the ACA and explain that there were many mini-med plans and the like that were going away no matter how much people liked them. And then I moved on. Austin recently wrote on how it was indefensible again.
This “mistake” is on the administration, not the policy. It’s how the ACA was supposed to function, and it’s unfortunate that the President got it wrong. But that’s on the people who said it, not the ACA. If there are any members of Congress who voted for the law because they believed that to be true, then they have a gripe. If there are any voters who voted for the President because they believed that to be true, then they have a gripe. Everyone else wouldn’t have changed their behavior much. Could they hate (or love) the law more?
Moreover, these are politicians. Everyone has short-term memory problems, or else they would remember that Senator Obama made huge gains against Senator Clinton for attacking her for having an individual mandate in her health care plan. Then he flip-flopped in office and made a law with one. People make mistakes. Will the next major breaking news story be that President Obama lied about the individual mandate?
When I spoke last night, I was confronted by people who immediately assumed I loved the law and would defend it to the death. Others assumed that any criticism I made meant that I wanted to repeal it and put us back to the status quo ante. We have to get past this. We will be much better off as a country if we work to fix our health care system and if we work together to make it function more optimally than if we continue to try and win this “game”.
10/30/2013 Austin FraktIn association with the Baker Institute’s Oct 25th conference on health care reform, I have a post up that explains how some kinds of vertical integration can be pro-competitive. Go read it.
Also, videos of the proceedings of the conference are online here.
10/29/2013 Austin FraktRedistributive public policy is even more of a theme in the group health insurance market, which is nine times larger than the individual market and the dominant source of “private” health coverage. The government massively subsidizes this market by excluding employer-provided health benefits from income and payroll taxes. Federal tax advantages for health insurance add up to $300 billion a year.
These tax subsidies are highly coercive. Take a family with salary income of $60,000 and a health plan worth $15,000. If this family instead took all of its income as $75,000 in cash salary, it would face an income and payroll tax hit of around $4,500, or about 6% of its income. For comparison, the individual mandate penalty in Obamacare will be limited to 2.5% of income.
–Josh Barro, Business Insider
@afrakt (via phone)
10/29/2013 Bill GardnerThere are young people who will pay more for insurance as a result of the ACA. Cathy Reisenwitz thinks this is unfair:
The problem with [the ACA] is that it hoses young, relatively poor people like me right when we least need high bills for services they’re not using. And it helps older, relatively rich people who should be able to afford the care they need. If America’s downtrodden and struggling young people are smart, they’ll opt out.
She thinks it’s unfair because young people entering the job market earn less than older people and they also have lower health care expenses, so they are subsidizing the health care of older rich people.
Reisenwitz has mischaracterized who receives the ACA transfer. But first, let’s note that there is a program that transfers her money to the elderly. It’s called Medicare. Medicare is funded through Reisenwitz’s taxes now, but it will not benefit her for decades. It seems odd that she does not mention it in her post.
However, it would be misleading to call Medicare a transfer from the young to the elderly rich, because many beneficiaries are either poor or would be impoverished by their health care expenses, but for the Medicare program. Before Medicare, the elderly were by far the most impoverished group in America (US Census data).
After Medicare, elder poverty dropped swiftly, while poverty among those 18-64 and among children has slowly climbed. Reisenwitz could plausibly argue that Medicare and Social Security have transferred too much to the elderly, or that these programs should be means tested. But such criticisms should be balanced by acknowledgement of how much Medicare has improved the lives of the elderly.
There is another ‘program’ that also transfers Reisenwitz’s funds to well-off older people. From her internet profiles, she appears to be a freelance writer. If so, she is paying for health insurance (if she has it) using dollars that have already been taxed. Many well-off older people, however, receive health insurance as a benefit from their employer. The value of that benefit is not taxed as it would be if the employee received it in wages or salary. (The ACA’s ‘Cadillac tax’ on high end health plans, is in part an attempt to address this inequity.) So Reisenwitz contributes to a tax subsidy for people who are often a lot wealthier than she is. One of the people she subsidizes is Senator Ted Cruz, spouse of a Goldman Sachs partner.
The ACA, however, doesn’t transfer resources to the elderly rich. The ACA transfers resources to people who are uninsured, many of whom are low income or have pre-existing medical conditions that excluded them from the private insurance market. As Josh Barro explains, this is why health insurance will now cost more for some young people.
It’s a lot cheaper to provide health insurance coverage if you exclude a lot of the people who need it most. Making insurance available to people with pre-existing health conditions costs money. Obamacare funds this transfer to the chronically ill in part by raising premiums on healthy people… The question is “is it better than the old system, where huge subsidies go to people with no need for them and tens of millions are left uninsured?” That answer, if you consider the costs and benefits honestly, is yes.
Barro has sharp words for conservative pundits:
For the last few weeks, I have seen a vast outpouring of conservative sympathy for young, healthy, prosperous people whose health plan premiums are going up. These poor, poor things. How could Barack Obama do this to them? …But what about the tens of millions of Americans who currently lack health insurance and are about to get access to available, affordable coverage? Where is the conservative sympathy for people who would be worse off if the law doesn’t go forward?
I think this is a powerful argument, but I doubt that it will sway many conservative critics of the ACA. Are they really concerned about the relative wellbeing of the young and old? My guess is that they object in principle to government transfers of any kind. (How conservative policies work in practice is for another post.) What’s unfair is the transfer itself, not the pattern of wellbeing that results from it.
The ACA comes from a view of justice in which severe and prolonged differences in wellbeing between social groups do pose questions of fairness. On this view, some patterns of relative wellbeing can justify redistributive government transfers. If the ACA does half as well as Medicare, it’ll be worth these years of struggle.
10/29/2013 Austin FraktIn association with the Baker Institute’s Oct 25th conference on health care reform, I have a post up that dives further into the recent, AEI-sponsored health reform proposal. Go read it.
Also, videos of the proceedings of the conference are online here.
10/29/2013 Adrianna McIntyreGiven some of the recent developments, I wanted to quickly follow up on my post from last week, which weighed potential consequences of a mandate delay if the administration couldn’t get their act together with HealthCare.gov sometime soon. They’ve since brought on Jeff Zients who has promised front- and back-end functionality by November 30. Moreover, the administration has extended the deadline for enrollment without penalty by six weeks, from February 15 to March 31.
I hardly meant to suggest that delaying the individual mandate for one year would be a carefree policy move (I think I described it as the “worst-case scenario”). But I do think that risk corridors make the prospect—however unlikely and unpalatable—less apocalyptic than if that provision didn’t exist.
To clarify, it’s true that reinsurance and risk adjustment (the other risk mitigation programs in the ACA) are narrowly tailored to redistribute profits and losses between insurers. Under reinsurance, fees collected from insurers are redistributed exchange plans with high proportions of high-risk beneficiaries until 2016. Risk adjustment is a permanent program that shifts funds from plans with relatively healthy enrollees to those with relatively sick populations. These discourage insurers from cherry-picking beneficiaries. But the regulations conceive of risk corridors differently:
The temporary risk corridors program permits the Federal government and QHPs to share in profits or losses resulting from inaccurate rate setting from 2014 through 2016.
I’m not saying that risk corridors were constructed with a delayed mandate in mind. Surely they weren’t! But I do think that they’re a feature that could (very, very temporarily) help insurers weather systemic selection problems, with or without such a delay.
Though Megan McArdle doesn’t seem to share my cautious optimism with regard to risk corridors, she makes a good point about the role of subsidies in mitigating adverse selection. This was echoed in the comments on last week’s post, and it’s something Austin has touched on previously.
Jonathan Cohn summarized this incredibly well:
What you may not realize (because few people do) is that the subsidies, by design, protect people from rising premiums. The law basically dictates what these folks pay for the typical, “silver-level” Obamacare plan, no matter what the insurer charges. This is critical. It means that rising premiums won’t affect the willingness of those people to enroll—which means, in turn, they’d still have incentive to sign up next year, as long as the technological bugs were gone and Obamacare online was working. (Subsides were a missing element of those ill-fated reform experiments in New Jersey and elsewhere.)
The exchanges could experience adverse selection with or without the mandate in place during the first year. But a “death spiral” isn’t some inevitable consequence of that; the phenomenon requires a stepwise cycle of prices rising and people dropping coverage. By limiting price increases borne by beneficiaries, eliminating incentives to drop coverage—and thus, future price increases—subsidies create a kind of ceiling on adverse selection.
About three-quarters of people we might expect to shop on the exchanges (those who are currently uninsured or have individual coverage, and won’t qualify for Medicaid) have incomes below 400% FPL. The chart below* breaks out that population by age and income level.
People above 400% of the poverty line could still encounter rate increases, but those should be fairly tempered by the ubiquity of subsidies. Even if enrollment through HealthCare.gov is distorted by the website’s glitches, insurers won’t be completely blind in pricing for 2015; functional state exchanges (like Kentucky’s) will offer some guidance on what “normal” enrollment expectations might look like.
Obamacare’s “death spiral” woes are overblown. The law was designed to survive a messy rollout.
* You can find the data used for this chart, its methodology, and a further breakdown of the 18-35 set here.
Adrianna (@onceuponA)
