'Premium Shock' and 'Premium Joy' Under the Affordable Care Act - NYTimes.com Uwe Reinhardt

Community Rating Under the Affordable Care Act
Under the law, an individual health plan selling policies in the small-group and nongroup market — whether it sells policies through the state’s exchange or not — will be free to set its own premium for a given policy. But within a given age group, it must apply the same premium to all comers, regardless of their health and their gender. Furthermore, the health plan cannot reject any applicant willing to pay that premium, a provision called “guaranteed issue,” or cancel existing policies.
In other words, the X_i based on the individual’s health status in the equation above will be replaced by the average expected health spending per insured, with the average calculated over the insurer’s entire anticipated risk pool of insured members of a given age. To calculate the average, the insurer must consider as one single risk pool all enrollees in all health plans offered by the insurer, whether or not they are offered on the exchange.
This form of premium setting is known as “community rating.” Because it forces healthier individuals to subsidize sicker individuals through the community-rated premiums, it has been much debated.
Community rating invites “cherry-picking” by insurers — i.e., attempts to attract mainly low-risk applicants. To limit the profit potential from cherry-picking, there will be post-enrollment risk adjustments through which funds are transferred from insurers ending up with relatively healthier risk pools to those ending up with relatively higher risk pools.
The community rating under the law is not the pure version found in the social insurance systems of Europe (e.g., Switzerland, the Netherlands and Germany) or Asia, where even age is not considered in setting premiums. Rather, the American version is called adjusted community rating, because it does allow insurers to adjust the community-rated premium for the age of the applicant.
Age-adjusting is done by multiplying the community-rated premium for the youngest members in the expected risk pool by a standard, multiplicative age ratio to be used by all insurers. Thus the quoted premium can increase step by step with age, but only up to a multiplicative factor of 3. At a given age, smokers can be charged up to 1.5 times the regular premium.
The change from what was in place before the Affordable Care Act to post-law arrangements in the nongroup market can be illustrated graphically. In the chart below, we assume initially that all members of a given population are covered by either medically underwritten or community-rated health insurance, with a given package of covered health benefits. The white line represents the premium individuals would have to pay under medical underwriting. The dashed segment of that line is meant to show the actuarial cost and the premium range in which insurers in the real world would reject applicants outright. The green line shows the community-rated premium for this same population. We assume here that age is either not factored into the premium or the population in question is all of the same age, which is why the green line is horizontal.

Premium Shock
As the chart illustrates, a switch from medically underwritten premiums to community-rated ones raises the premiums for the relatively healthier members of the insurer’s risk pool. Many of them will suffer what has come to be called premium shock.
Younger and healthier members of the pool should realize that, in effect, they are buying a call option that allows them to buy coverage at a premium far below the high actuarial cost of covering them when they are sicker. The price charged the healthy for this call option is the difference between the premium they must pay and the current lower actuarial cost of covering them.
Furthermore, for Americans in households with incomes below 400 percent of the federal poverty line, the green and red lines exaggerate the impact of the law on their spending. These Americans will be granted often quite generous, income-dependent federal subsidies toward the premiums they face on the exchanges and their out-of-pocket costs for health care. This makes it well-nigh impossible to make general statements, based on averages, about the net after-subsidy impact of the law.

'Premium Shock' and 'Premium Joy' Under the Affordable Care Act - NYTimes.com

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Wendell Potter: A Rare Bipartisan Idea to Improve Medicaid and Save Money

 

The problem is referred to by policy wonks as "churn." Because of the way Medicaid is administered by the states, millions of Americans enrolled in the program lose coverage temporarily every year because of often minor fluctuations in their income or even a change of address. Many are removed from the rolls simply because they can't take time off from work to go to a Medicaid office to re-verify their incomes every three months, which some states require.

It's called churn because most people who are "disenrolled" -- to use insurance industry jargon -- are eventually reinstated. Their eligibility for Medicaid never changed. They lost coverage solely because of paperwork requirements or a slight and fleeting bump in pay from working overtime during a given week.

This is unknown in the private insurance world because once you enroll in a health plan, you can stay enrolled in that plan for a year, so long as you keep paying the premiums on time. It doesn't matter if you move from one street to another or work an extra shift to make a few extra bucks.

But staying covered for a full year under Medicaid is not a given, and the consequences of this churn are costly, and not just for those most directly affected. The situation is costly to taxpayers, too, because of the unnecessary administrative expense. It costs hundreds of dollars per enrollee to verify income multiple times a year and to process all the paperwork involved in reinstating a beneficiary. When you consider that 58 million of Americans are currently enrolled in Medicaid -- a number that will grow substantially next year when many states expand coverage under the Affordable Care Act -- billions of taxpayers' dollars are being wasted because of churn.

Those who fare the worst, though, are eligible beneficiaries who get dumped into the ranks of the uninsured.

"Even short gaps in coverage can lead to delay or avoidance of needed care," says Leighton Ku, director of the Center for Health Policy Research at George Washington University's School of Public Health and Human Services, who along with colleague Erika Steinmetz studied the effects of churn. They released their findings in a report last month.

Please read on…

Wendell Potter: A Rare Bipartisan Idea to Improve Medicaid and Save Money

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Colonoscopies Explain Why U.S. Leads the World in Health Expenditures - NYTimes.com

By ELISABETH ROSENTHAL | Published: June 1, 2013

MERRICK, N.Y. — Deirdre Yapalater’s recent colonoscopy at a surgical center near her home here on Long Island went smoothly: she was whisked from pre-op to an operating room where a gastroenterologist, assisted by an anesthesiologist and a nurse, performed the routine cancer screening procedure in less than an hour. The test, which found nothing worrisome, racked up what is likely her most expensive medical bill of the year: $6,385.
That is fairly typical: in Keene, N.H., Matt Meyer’s colonoscopy was billed at $7,563.56. Maggie Christ of Chappaqua, N.Y., received $9,142.84 in bills for the procedure. In Durham, N.C., the charges for Curtiss Devereux came to $19,438, which included a polyp removal. While their insurers negotiated down the price, the final tab for each test was more than $3,500.
“Could that be right?” said Ms. Yapalater, stunned by charges on the statement on her dining room table. Although her insurer covered the procedure and she paid nothing, her health care costs still bite: Her premium payments jumped 10 percent last year, and rising co-payments and deductibles are straining the finances of her middle-class family, with its mission-style house in the suburbs and two S.U.V.’s parked outside. “You keep thinking it’s free,” she said. “We call it free, but of course it’s not.”
In many other developed countries, a basic colonoscopy costs just a few hundred dollars and certainly well under $1,000. That chasm in price helps explain why the United States is far and away the world leader in medical spending, even though numerous studies have concluded that Americans do not get better care.
Whether directly from their wallets or through insurance policies, Americans pay more for almost every interaction with the medical system. They are typically prescribed more expensive procedures and tests than people in other countries, no matter if those nations operate a private or national health system. A list of drug, scan and procedure prices compiled by the International Federation of Health Plans, a global network of health insurers, found that the United States came out the most costly in all 21 categories — and often by a huge margin.
Americans pay, on average, about four times as much for a hip replacement as patients in Switzerland or France and more than three times as much for a Caesarean section as those in New Zealand or Britain. The average price for Nasonex, a common nasal spray for allergies, is $108 in the United States compared with $21 in Spain. The costs of hospital stays here are about triple those in other developed countries, even though they last no longer, according to a recent report by the Commonwealth Fund, a foundation that studies health policy.

Colonoscopies Explain Why U.S. Leads the World in Health Expenditures - NYTimes.com

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