08/24/2016
Austin FraktMy new AcademyHealth post provides an update on how ACA Marketplaces help (or don’t help) consumers select plans. If you’ve ever tried to select a plan among many choices, you know how important certain information (like which doctors and drugs are covered) and functionality (like sorting and filtering) can be. If you haven’t, trust me, it’s very important. Go read!
01/07/2016 Aaron CarrollMy latest post at the AcademyHealth blog:
Although the main thrust of the Affordable Care Act was to get more people health insurance, access is about more than just being uninsured. You still need to be able to see the doctors you need. One of the concerns expressed most often by consumers and experts alike involves the adequacy of networks in the plans offered in the exchanges.
Insurance companies can often reduce the cost of premiums by making deals with limited networks of physicians for reduced rates. By steering more patients into those networks, physicians can make up in volume what they might give up in per-patient reimbursement. Regulations mandate that all plans include “reasonable access” to “a sufficient number and type of providers”, but the devil is in the details. Research can inform us as to the adequacy of networks in exchange plans.
11/13/2015 Nicholas BagleyTwo weeks ago, a district court judge in Washington, D.C. dismissed West Virginia’s lawsuit challenging the “like it, keep it” fix. The fix gave the states permission to decline to enforce the Affordable Care Act’s new insurance rules for select health plans, effectively grandfathering them.
I’m sympathetic to West Virginia’s claim that the administrative fix is unlawful. The threshold question, though, was whether the state had standing to sue over it. West Virginia’s theory was that the administrative fix put it into a bind. It had to choose whether to implement the fix in the state—and then take the political lumps for whatever choice it made. When I wrote about the case last August, I was dubious.
For all practical purposes, West Virginia faced the same choice before and after the administrative fix: whether to use state resources to enforce the ACA. And it was a bona fide choice: prior to the fix, insurance commissioners in six states had announced they wouldn’t enforce the statute.
All the administrative fix did was change the political stakes of a non-enforcement decision. But that sort of shifting-the-political-stakes claim doesn’t tend to fare well in standing analysis. It’s too speculative—too non-concrete—to license federal courts to referee what is, even in West Virginia’s telling, essentially a fight about political optics.
In a careful opinion (h/t to Josh Blackman), the district court agreed with that analysis:
West Virginia’s claimed injury, at bottom, involves a general desire to challenge the legality of federal action, relying on the abstract concept of political accountability to define its alleged harm, which is itself rooted in abstract concepts of federalism and state sovereignty. The Supreme Court held long ago, however, that a State’s general challenge to the lawfulness of federal action, predicated on an abstract injury to the State’s sovereignty, is not sufficient to confer standing.
The court’s decision should put an end to West Virginia’s lawsuit. There’s only a slim chance that the D.C. Circuit will reinstate the lawsuit on appeal, and the Supreme Court isn’t likely to intervene, even at West Virginia’s urging.
That said, the current litigation out of Texas over the Obama administration’s immigration plan raises some similar questions about the standing of states to challenge federal administrative action. The outcome in the Texas case, which is likely to be heard at the Supreme Court this term, could bolster West Virginia’s standing argument.
By the time the Court decides the Texas case in June, however, the “like it, keep it” fix will be coming to an end, making West Virginia’s lawsuit moot. Whatever the Court decides in the Texas case, this lawsuit appears to have run its course.
11/04/2015 Austin FraktThe following originally appeared on The Upshot (copyright 2015, The New York Times Company).
It’s open enrollment season for almost every kind of health insurance in America. Millions of Americans using Medicare plans, employer-sponsored health insurance or Affordable Care Act marketplaces select health plans each fall. Many consumers face numerous options, and research shows that they make many mistakes, often paying more than they need to.
Some err by selecting deductibles that are too low. Lower deductibles can be a fine choice for some consumers, but trying to save money with a lower deductible can be a poor choice if a person pays even more in premiums. For instance, at one large American company in 2010, employees could reduce their deductible by $250 — to $750 from $1,000 — by paying $500 more in premiums. Trading $500 for $250 is clearly a bad deal for the consumer.
Yet a majority of the firm’s workers made bad deals like this, according to a study by Saurabh Bhargava, a Carnegie Mellon economist, and his colleagues. Workers were offered a choice of 48 plans that were identical except in cost sharing and premiums. Though no plan would have been optimal for every employee, a $1,000 deductible plan would have been better for many and at least a no-worse choice for 97 percent of employees who chose a lower deductible.
People make mistakes like this for a variety of reasons. Some don’t understand basic health insurance concepts. In an experiment accompanying Mr. Bhargava’s study, 71 percent of people couldn’t identify fundamental cost-sharing features of health insurance plans. This type of illiteracy was highly predictive of mistakes like overpaying for a lower deductible.
Another study, led by George Lowenstein, a professor of economics and psychology at Carnegie Mellon, found that people misunderstood plan features and costs. Even with plan details right in front of them, only 40 percent of privately insured Americans could identify how much they’d have to pay for an M.R.I. scan. Only 11 percent could report what a four-day hospital stay would cost them. Yet study subjects were overconfident. All said they understood what a “co-pay” was, but 28 percent could not correctly answer a question testing their understanding of the term; only 7 percent would admit to not knowing what “maximum out-of-pocket” meant, but 41 percent couldn’t define it.
Another study found that less than a third of respondents could correctly answer questions about coverage features of their own plan. Yet another found that only a minority of workers at a large firm could answer questions about plan characteristics or their own, recent health care spending.
Without a doubt, choosing a plan can be daunting. A shopper in the Affordable Care Act marketplace can choose from 40 plans, on average. A typical Medicare beneficiary can choose from among nearly 20 Medicare Advantage plans and 30 stand-alone prescription drug plans.
In selecting plans, consumers are prone to mental shortcuts that often lead to poor choices. Plan labels — like the “gold,” “silver” or “bronze” — can fool people. To some, “gold” sounds better than “bronze,” even if it isn’t. In one study, people were asked to select hypothetical plans with these labels, but the researchers reversed the meaning of “gold” and “bronze” for half of them. It didn’t matter. Most people picked “gold” anyway.
The ordering of choices also matters. Consumers tend to select plans near the top of a list, a phenomenon that arises in other contexts: Economists download more papers from the tops of lists of new studies, as my colleague Neil Irwin reported; politicians at the top of ballots receive more votes.
Eric Johnson, a Columbia business professor, led a study that found that without substantial additional assistance, a consumer’s likelihood of selecting the lowest-cost plan is no better than chance. The researchers conducted a series of experiments on people similar to those who would shop for marketplace coverage. Each study participant was asked to presume he’d use a certain amount of health care and, based on that, to choose the lowest-cost plan from among eight choices, which varied by premium, doctor co-pay and deductible. Only 21 percent could accomplish this task, a figure not statistically different from chance. The annual cost of errors was about $250.
A separate analysis showed that participants had a stronger aversion to an increase in costs in deductible or co-pay than to the same increase in premium. Because a dollar is a dollar, no matter how you spend it, this is another indication of irrational decision making.
But when study subjects were provided with a tutorial or with a calculator that revealed the full cost of each plan, or if they were placed in the lowest-cost plan by default (from which they could voluntarily switch), their chance of selecting the cheapest plan was much higher, upward of 75 percent in some experiments.
Though some Medicare beneficiaries switch to lower-cost drug plans over time, another way consumers get stuck with bad deals is by staying in plans as their premiums increase, a status quo bias. One study found that New Jersey enrollees in Medicare prescription drug plans paid an average of $536 more over three years because of this kind of inertia. Some insurers strategically enter markets with low prices and increase them over time, exploiting consumers’ inertia. This “invest then harvest” pricing strategy has been observed in markets for Medicare Advantage plans, commercial health insurance and others.
Providing consumers with easier access to cost comparison information can help. A study published in The Journal of Economics in 2012 found that when a random sample of Medicare beneficiaries got letters that compared prescription drug plan costs, they were more likely to switch plans and to save money, relative to nonrecipients. When pharmacy students helped California Medicare beneficiaries understand drug plan costs, 60 percent switched plans.
Few consumers get this much help. When researchers at the University of Pennsylvania examined the Obamacare online marketplaces last year, they found only a few that provided some of the tools consumers need. Most marketplaces presented plans in order of the cost of the premium, which doesn’t take other cost sharing into account. (However, California ranked plans according to total cost, Kentucky listed them randomly, and Minnesota ranked them based on best match according to a series of preference questions, similar in spirit to an approach recommended by University of California, Berkeley economists in a recent Brookings policy paper.)
Only three states offered cost estimators. The federal government’s site, HealthCare.gov, will offer more information about plans — like which physicians are in plan networks — and cost comparison tools.
If last year is any guide, once again few consumers will actively shop for a more beneficial plan. An analysis by the Department of Health and Human Services showed that more than 70 percent could have found a cheaper plan. The research is clear: Most won’t find that cheaper plan without a great deal more help.
10/23/2015 Aaron CarrollWe missed a birthday for Healthcare Triage! On October 1, we turned two years old.
October 1, 2013 was the day that the ACA, or Obamacare, insurance exchanges opened for the first time to pre-order insurance for January 1, 2014. So let’s celebrate, or cry depending on your political persuasion, with an update on the ACA. This is Healthcare Triage News.
For those of you who want to read more, here are some references:
10/02/2015 Austin FraktIn my third post in my series on how bad people are at choosing health plans, I continue to summarize studies relating to commercial market plans, which I started in my second post. (See post 1 for research pertaining to Medicare plans.) My third post is on the AcademyHealth blog. Go read it!
09/18/2015 Austin FraktI concluded a prior post, which focused on Medicare, with two stylized facts I claimed generalized beyond Medicare: (1) people are bad at choosing plans; (2) providing easy access to cost comparison information makes them better. My new post on the AcademyHealth blog backs up that claim, as does another I will post in the future.
08/31/2015 Austin FraktVery bad. Go read Margot Sanger-Katz for the evidence-based details. For all the reasons she explains, and others, I never understood the appeal of this idea. It only makes sense if you don’t know what you’re talking about.
04/15/2015 Nicholas BagleyThe Seventh Circuit yesterday released an opinion dismissing a lawsuit, brought by Senator Ron Johnson and his legislative counsel, challenging yet another aspect of the Affordable Care Act’s implementation. Good riddance, I say.
The case involves an ACA requirement that members of Congress and their staff secure health coverage through one of the new exchanges. To implement that provision, the Obama administration decided that members and their staff—most of whom don’t make a ton of money—would be eligible for subsidies to help defray the cost of new exchange plans. The federal rule implementing that decision has become known as the “Hill fix.” Senator Johnson and his counsel think it’s unlawful. (I don’t.)
I was skeptical of the lawsuit from the moment it was filed. The most pressing problem was standing: how could Johnson and his counsel claim to be injured by a federal rule that offered subsidies to them? “Getting a windfall from Uncle Sam,” I wrote at the time, “isn’t exactly an injury.”
That’s basically what the Seventh Circuit held. Johnson and his counsel advanced three arguments in support of their standing, none of which the court found persuasive. First, the plaintiffs said that they didn’t want to shoulder the administrative burden of separating those staffers who had to go on the exchange from those who, under the ACA, could retain their employer-sponsored coverage. But the Seventh Circuit rightly held that, “even if the Rule does place an administrative burden on plaintiffs, that does not give them standing to challenge the aspects of the Rule that they allege are illegal, which are unrelated to the imposition of an administrative burden.”
Second, Johnson argued that the rule violated his right, under the ACA, to be treated the same as his constituents. The Seventh Circuit couldn’t quite make head or tail of this argument: the plaintiffs “do not make clear which groups are to be treated equally or what ‘equal treatment’ would even mean in this context.” At any rate, the court reasoned, the ACA doesn’t create any right to equal treatment. To contrary, the statute treats members of Congress as a distinct and unusual group, cutting hard into the view that they have a right to complete equality with anyone.
Third, Johnson said he will suffer reputational and electoral harms arising from the “special treatment” that his constituents see him getting. It’s a peculiar claim: the whole point of requiring members of Congress to go on the exchanges was to avoid claims of unfair treatment. In any event, the Seventh Circuit found this alleged injury too ephemeral to support standing. “Respectfully, we do not see how Senator Johnson’s reputation could be sullied or his electability diminished by being offered, against his will, a benefit that he then decided to refuse.”
Nothing in the Seventh Circuit’s analysis should come as a surprise; indeed, the decision closely tracks arguments I offered last year. There’s one interesting wrinkle, however. The D.C. Circuit, in a 1994 case involving Representative John Boehner, upheld standing on a reputational-electoral theory similar to the one that Johnson has advanced in this lawsuit. Although the Seventh Circuit tried to distinguish the D.C. Circuit decision, it also noted explicitly that it was “parting from the D.C. Circuit’s analysis in Boehner.”
Arguably, then, the Seventh Circuit’s decision creates a very minor circuit split on a narrow question involving the standing of members of Congress. That shallow split is not, in my judgment, substantial enough to warrant Supreme Court review. When it comes to the ACA, though, all bets are off.
02/25/2015 guest contributorThe following is a guest post by Michael Chernew and Aaron Schwartz. Michael is a health economist and Professor of Health Care Policy at Harvard Medical School. He has written extensively on issues of benefit design, particularly Value Based Insurance Design. Aaron is a MD/ PhD candidate at Harvard University. His research focuses on quantifying waste in the health care system and evaluating strategies to eliminate it.
Recently, there has been much discussion of innovations in benefit design, including on this blog, where there was a recent post about a split benefit design. Given the range of proposed options it is useful to revisit the connection between benefit design and theory.
The goal of optimal insurance design is to maximize societal welfare, which consists of two elements. First, an optimal plan steers beneficiaries toward high value services, minimizing moral hazard. Second, an optimal plan provides protection against risk, ensuring that beneficiaries can expect to experience relatively similar welfare across a range of possible life outcomes (i.e. in sickness and in health).
The motivation for cost sharing in standard economic models is to balance these sometimes competing objectives. Early models of optimal coinsurance were based on a single coinsurance rate. More recent innovations have more nuance. The unifying theme is that optimal cost-sharing should be targeted to situations where patients can respond by making different health care choices. For instance, a patient suffering a heart attack will almost surely exceed most deductibles. So, the cost sharing associated with a high deductible plan will have very little impact; there is no incentive for the patient to follow a more fiscally conservative treatment path or choose a less expensive facility.
One strand of new designs (e.g., reference pricing and tiered networks) focuses on choice of provider. These designs recognize the widespread variation in prices. They allow beneficiaries that seek care from low cost providers to share the savings. Reference pricing focuses on specific services. Typically a fixed price is paid by the insurer and the beneficiary must pay the difference if they get care from a higher priced provider. Tiered network plans typically identify preferred providers (physician and hospitals) based on cost, and sometimes quality and place them in a preferred “tier”.
Both reference pricing and tiered network designs will be more effective with better search tools, but they still must contend with complexities of the delivery system. For example, tiered network products sometimes place hospitals and the physicians with admitting privileges at that hospital in different tiers. Reference pricing, which is more targeted than tiered networks, may be practical for only a relatively small share of spending. Tiered networks may affect more spending, but may disadvantage patients that have conditions best treated at the high tier facilities. In both cases the effectiveness of these products depends on the variation in provider process and existence of sufficient choice. If there is only one provider these benefit designs will be ineffective.
Another strand of design, value based insurance designs (VBID), focuses on which services are used. The idea is that cost sharing should be low for high value services and higher for low value services. These designs recognize the underutilization of high value services (which may be exacerbated by across the board coinsurance increases) and the overuse of low value services (which have received increasing attention through campaigns such as Choosing Wisely and evidence on widespread geographic variation in use). Commonly, VBID designs are applied to low unit cost preventive services, but the theory is much broader. In these cases, traditional cost sharing acts like a tax, with few beneficial incentive effects. VBID allows patients who choose low cost treatment options to share in the savings.
Split benefit design applies similar principles to patients with high cost illnesses. These patients often face little cost-sharing because they have exceeded their annual out-of-pocket limits. Unlike the previous examples, split benefit design involves a cash rebate to patients who choose less-expensive treatment options. This rebate is forfeited if the patient instead chooses the more expensive treatment option.
An intriguing aspect of split benefit design is that, relative to fully covering expensive treatments, this design does not increase the financial burden of sick patients receiving expensive care, and yet it still encourages the choice of less expensive treatment alternatives. However, this feature comes at a cost of reduced income smoothing (risk protection); indeed, premiums could increase substantially under certain circumstances. Consider the extreme case in which the rebate equals the price difference between the low-price and high-price care options. This split benefit design would ensure that the low-price option effectively costs the insurance company the same amount as the high price option, and premiums would be as high as if all patients chose a fully-covered high-price option.
Chernew, Encinosa and Hirth (CEH) worked out the math in a related scenario. The insights from the CEH model is that the optimal benefit design charges patients who choose the high cost treatment a fee and pays the patients who choose the low cost option a rebate. The sum of the fee and the rebate is less than the full incremental cost (which dilutes incentives to choose the low-cost option but helps insure against the “risk” that a patient prefers the high cost treatment). This model, described in detail in the paper, does a better job at smoothing utility across different states of the world than reference pricing (in which beneficiaries may pay the incremental fee for high-cost care) or split benefit design (in which beneficiaries are paid a rebate if they choose the low cost option). Specifically, CEH is based on a utility maximizing model that recognizes the need to transfer income from the healthy to sick state of the world, and in the context of that model derives the optimal way to do that.
A key distinction among split benefit, reference pricing, and CEH is distributional. Reference pricing has low premiums and charges people who fall ill and opt for the high cost option more. Split benefit has high premiums and refunds a portion to those who get sick and choose the low cost option. The CEH model falls in between. If all beneficiaries can equally expect to become sick, then CEH maximizes patient welfare. But if risk is heterogeneous, distributional issues become important. For example, reference pricing favors relatively healthy people because premiums are low and out of pocket costs if one becomes ill could be high. Split benefit favors less heathy people because premiums are high and individuals who use care may receive a rebate. Economic efficiency criteria say nothing about these distributional issues, which depend on concepts of fairness.
As benefit designs evolve, these and other innovations are likely to get more attention. Implementation issues will be important. Currently, many insurers do not offer these more innovative designs. Over time, if insurers, employers, benefit consultants and most importantly patients, become more comfortable with these designs they will become much more common and offer mechanisms to improve the efficiency of the health care system.
