• So efficient you can’t afford not to buy it: Medicaid private option edition

    David Ramsey of the Arkansas Times has done a ton of great reporting on the private option. His latest post begins,

    The strangest part of the “private option” is that the plan grew out of pressure from local Republican lawmakers, the very same folks who had the loudest concerns about costs of the original Medicaid expansion. That’s strange because the new “private option” is going to cost more (not necessarily for the state — see here and here — but almost certainly for the feds).

    It’s going to cost a lot more. This sort of thing has been studied. There are a number of reasons that offering coverage via private insurance is costlier than offering it via Medicaid but the main one ain’t rocket science: private insurers reimburse at higher rates. Even conservatives that like the “private option” better agree that it will cost more.

    Well here’s the thing. Despite a broad consensus about cost, Republicans at the forefront of advocating for a “private option” as a possible alternative to Medicaid expansion do not agree. They think that the “private option” might not be any more expensive for the feds, and could even cost less.

    He gives those Republican views a generous airing in the rest of his piece. Go read it! I didn’t see anything in it that I didn’t touch on in my “prebuttal.”

    (I should be clear. I’m not against expanding the scope of exchanges. I just think it will cost more and we should not be deluding ourselves that it won’t.)

    It’s crucial to separate two propositions: (1) Competition can be efficiency increasing; (2) Competition on a state insurance exchange of the type permitted under the ACA can bring spending below that of Medicaid. The former can be true even if the latter isn’t. That’s a reasonable expectation if Arkansas or any other state goes forward with the private option, as we currently know it (which is not very well).

    @afrakt

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    • Unless the federal government requires all residents by law to become medicare/medicaid participants, few physicians will agree to care for patients in medicaid at the current level of reimbursement. This is already resulting in 2 tier medicine. At private reimbursment rates there will be better access. That should count for something.

    • I thought this was a nice summary. Along with the dogma that competition always brings lower prices compared to inefficient government, they thought:

      1) Medicaid’s lower cost = poor care = more expense later. This assumes hospitals give differential care based on the price paid, as we know payments for the same procedure vary greatly in the same facility, depending on who’s paying.

      2) Exchanged based medicine will greatly reduce churn, causing:

      A) lower prices and

      B) insurers to invest in the long term care of clients

      Frankly, it seems to me that putting Medicaid on the exchanges will allow long-term Medicaid clients — people who are probably going to be on Medicaid for life, to churn through different policies. It’s also assuming some pretty big cost savings from reducing churn.

      At least it hints they used some logic, however flawed, to reach their conclusion.

      • I don’t necessarily agree with your conclusion that putting Medicaid on the exchanges will increase churn. (I’m assuming that you mean that they will switch carriers often due to their own choice.)

        Right now, the majority of churn in Medicaid is caused by people going in and out of eligibility. Remember, the majority of Medicaid enrollees now are moms and kids. They may be sporadically employed. Their income might go above the threshold, or they might fail to document their continuing eligibility (not necessarily through their own fault). So they churn. They usually can only change plans once or twice a year afaik (much like you probably have an annual open enrollment through your employer). The elderly and disabled have much more stable enrollment in Medicaid (albeit they are often in FFS Medicaid, so they don’t need to worry about selecting plans).

        We don’t necessarily know that people on an exchange will churn through plans just because they can. They might churn because they get employer coverage, of course, since employment can be quite unstable for lower-income adults, but your phrasing seemed to imply that they might churn at their own choice.

        • Can’t churn happen on the exchange simply because a different carrier becomes the 2nd cheapest silver plan, on which subsidies are based? That doesn’t seem too far fetched. I presume Medicaid won’t fully cover more expensive plans and those individuals won’t be able to afford them.

          • I am not challenging, but asking…

            With switching costs and comparison frictions–especially in a highly subsidized group like these folks, will you expect major churn? Premiums may not be a driver.

            If Part D, or phone bills serve as a guide, once individuals settle in with a plan, change not likely common.

            I would assume though, once a patient’s provider departs plan, or a benefit of need drops, then beneficiary will take action.

            Brad

            • I really don’t know what to expect. Perhaps the Massachusetts’ exchange experience would be informative, but I don’t happen to know how much plan switching occurs within it and why.

            • Good point on Medicare D change here. However, one point to remember is that in the first few years, many dual eligible beneficiaries were enticed to change through advertising and promotional activities such as door-to-door soliciting, cold calling, etc. which CMS later saw fit to ban. And phone-slamming was rampant at some point as well.

    • As to the assumptions expressed by the legislators that Ramsey interviewed, I’ll say this.

      High prices are a big source of waste in health care. Private insurance packages pay higher prices for the same services than Medicaid or Medicare do. Their approach ignores this.

      Another big problem is administrative complexity, like payers’ failure to standardize forms, or regulators or insurers writing faulty rules (like unwarranted preauthorization requirements). Going to single payer really cuts this down (but doesn’t eliminate it, CMS could still write a stupid preauth requirement).

      Overtreatment is another big problem. This means that providers provide excessive care that does not help (e.g. antibiotics for viral infections, too many MRIs, too much prostate cancer treatment, etc). It is not clear that privatization necessarily helps. It may – insurers may become more willing to deny care, whereas with Medicare there is only one regulatory body to capture, and Congress certainly has interfered with the regulator before. But that is not a given.

      Failures of care coordination are a known problem with Medicare and Medicaid beneficiaries. A number of them have complex clinical conditions, and they tend to use a diversity of primary care providers, specialists and other providers (e.g. LTSS, behavioral health). In FFS, there isn’t currently a mechanism to pay providers to coordinate care, so they don’t (but the ACA enables such a mechanism, and CMS and the states are working on it). I can buy that private insurers are more flexible with this. But failures of care coordination may not even account for the majority of waste in Medicare and Medicaid. There is waste there, but it is dwarfed, I think, by other failures.

    • 1) On churn, my corporation has changed insurers 7 years out of the last 10 to hold down premiums. Small businesses are affected by broker fees and underwriting, leading to higher costs and extreme variability. Being able to buy into a larger, more stable plan on an exchange should greatly reduce that.

      2) We are speculating that private insurers will now be able to reduce costs lower than Medicaid spending. Why dont they do that now if they can? Next, how will they be able to charge so much less for the Medicaid equivalent patients they will be acquiring, and not offer the same low rates to their other consumers? Since the Medicaid population is sicker than the privately insured population, this latter part might be possible, but then see my first question.

      Steve

    • Austin brought up a interesting idea about churning: Whoever is the second cheapest silver plan, wins?
      As long as we continue to look at health insurance as a pay-as-you-go, who has the “best” plan for the next year, we will continue to see excessive churning.
      Excessive because for AN INSURER TO HAVE TO REPLACE ITS CUSTOMER BASE EVERY 5 YEARS (ASSUMING ONLY A 20% CHURN FACTOR), IS EXTEREMELY EXPENSIVE.
      IN OUR COMMENTS TO THE HHS, WE ARE TRYING TO GET THEM TO CONSIDER A PLAN WHOSE POSITIVE IMPACT MAY TAKE 2-3 YEARS.
      Don Levit

    • Why isn’t the word “voucher” being used in this potential instance of privatization of a portion of an entitlement population? Is “private option” being used just like premium support is – it doesn’t have the negative connotation that voucher does? Or is there some key difference I’m missing between this proposed plan and a premium support or voucher program?