By Geri Aston
American Medical News
December 27, 2010

As of Nov. 1, only 8,011 people were enrolled in the Pre-Existing Condition Insurance Plan, numbers from the Dept. of Health and Human Services show.

People who have been denied coverage by private insurers because of a preexisting condition and who have been uninsured for at least six months are eligible to participate in PCIP. The idea is to give patients who have no access to private coverage because of their condition a way to get insurance while they wait for the state-based health insurance exchanges to launch in 2014.

Almost 6 million Americans are potentially eligible for the program, which runs through 2013.

http://www.ama-assn.org/amednews/2010/12/27/gvsa1227.htm

Comment:

By Don McCanne, MD

One of the highly touted transitional programs of the Patient Protection and Affordable Care Act is the temporary high risk health insurance pool program designed to provide health insurance for individuals with preexisting conditions. Until the state insurance exchanges are in operation in 2014, this program provides a source of insurance coverage for eligible individuals who have been rejected by private insurers because of preexisting conditions.

How successful has the program been so far? After four months of this three and one-half year program, 99.9 percent of eligible individuals have not yet been enrolled. Only 8,011 out of about 6,000,000 eligible have.

Several explanations have been advanced as to why participation is so low, but they are trivial compared to the most fundamental reason. Our fragmented, dysfunctional health financing system based on private insurance plans will never be capable of bringing everyone in and making the premiums and out-of-pocket spending affordable. As this program demonstrates, trying to apply patches to a rickety financing infrastructure will never be adequate to provide health security for everyone.

We need to dump the crumbling financing infrastructure based on the obsolete model of private plans and replace it with the sturdy structure of an improved Medicare that covers everyone.

Only 8,000 enroll in health plan for preexisting conditions

By Geri Aston
American Medical News
December 27, 2010

As of Nov. 1, only 8,011 people were enrolled in the Pre-Existing Condition Insurance Plan, numbers from the Dept. of Health and Human Services show.

People who have been denied coverage by private insurers because of a preexisting condition and who have been uninsured for at least six months are eligible to participate in PCIP. The idea is to give patients who have no access to private coverage because of their condition a way to get insurance while they wait for the state-based health insurance exchanges to launch in 2014.

Almost 6 million Americans are potentially eligible for the program, which runs through 2013.

http://www.ama-assn.org/amednews/2010/12/27/gvsa1227.htm

One of the highly touted transitional programs of the Patient Protection and Affordable Care Act is the temporary high risk health insurance pool program designed to provide health insurance for individuals with preexisting conditions. Until the state insurance exchanges are in operation in 2014, this program provides a source of insurance coverage for eligible individuals who have been rejected by private insurers because of preexisting conditions.

How successful has the program been so far? After four months of this three and one-half year program, 99.9 percent of eligible individuals have not yet been enrolled. Only 8,011 out of about 6,000,000 eligible have.

Several explanations have been advanced as to why participation is so low, but they are trivial compared to the most fundamental reason. Our fragmented, dysfunctional health financing system based on private insurance plans will never be capable of bringing everyone in and making the premiums and out-of-pocket spending affordable. As this program demonstrates, trying to apply patches to a rickety financing infrastructure will never be adequate to provide health security for everyone.

We need to dump the crumbling financing infrastructure based on the obsolete model of private plans and replace it with the sturdy structure of an improved Medicare that covers everyone.

Can Congress Make You Buy Broccoli? And Why That’s a Hard Question

By Wendy K. Mariner, J.D., M.P.H., George J. Annas, J.D., M.P.H. (corresponding author), and Leonard H. Glantz, J.D. (From the Department of Health Law, Bioethics, and Human Rights, Boston University School of Public Health)
The New England Journal of Medicine
December 22, 2010

The continuing uncertainty over the constitutionality of the Affordable Care Act (ACA), illustrated by conflicting trial court rulings and scholarly commentaries, raises the question of why this constitutional question is so hard to answer. There are at least four reasons.

(The four reasons are discussed in the article.)

A much easier question to answer is why we’re facing this constitutional turmoil. Why, for example, is there no constitutional fuss over Medicare, Medicaid, or veterans’ health care? These programs raise no constitutional issue because they are government benefit programs funded by taxes, and the Constitution explicitly authorizes Congress to tax and spend for the general welfare. Had the ACA expanded Medicare eligibility to everyone, or created a new government health benefit program, there would be no constitutional issue. The constitutional controversy is the direct result of the insistence by conservative legislators that any health insurance reform must preserve the private insurance industry, which necessitated the addition of the individual mandate that is now being fought in the courts by similarly conservative forces.

http://healthpolicyandreform.nejm.org/?p=13457&query=TOC

Although these views on the constitutionality of Medicare have been discussed by others, including PNHP’s leadership, this NEJM article is of prime importance in the continuing health reform debate because it represents the views of respected ethicist George Annas and his colleagues.

The editor’s decision to use broccoli in the title stems from the comments of Florida’s Judge Vinson who questioned whether Congress could require everyone to buy broccoli. Cute. But that distracts from the fundamental issue that should have been selected for inclusion in the title.

Our founding fathers drafted a Constitution that recognizes the primacy of government in the establishment of benefit programs, and explicitly authorizes Congress to tax and spend for the general welfare. That does not extend to taxing and spending for the welfare of the private insurance industry, especially when that is the most expensive and least efficient model of reform – one that leaves so many out, and creates financial hardship for many more.

Is anyone else ready for a national movement to petition Congress to grant us our right to a government health benefit program for everyone – an improved Medicare for all?

Department of Health and Human Services
Filed December 21, 2010

This document contains proposed regulations implementing the rules for health insurance issuers regarding the disclosure and review of unreasonable premium increases under section 2794 of the Public Health Service Act. The proposed rule would establish a rate review program to ensure that all rate increases that meet or exceed an established threshold are reviewed by a State or HHS to determine whether the rate increases are unreasonable.

Under this approach, if a proposed rate increase equals or exceeds a defined threshold, it would be considered “subject to review.” The review process would then determine if the increase is, in fact, unreasonable.

Rates above the threshold would not be deemed or otherwise determined to be unreasonable in advance of this review. As discussed below, for rate increases filed in a State on or after July 1, 2011, or effective on or after July 1, 2011 in a State that does not require a rate increase to be filed, the threshold for whether rates are subject to review would be whether the average weighted increase in the rate filing, alone or in combination with prior increases in the preceding 12 month period, is 10 percent or more.

In establishing the 10 percent threshold for determining which rates are subject to review, HHS has balanced the wide range of available data on rate and medical trend increases. Our review of the limited data available suggests that the majority of increases in the individual market exceeded 10 percent each year for the past 3 years.

These yearly increases significantly exceed some national measures of medical cost inflation, such as the medical component of the Consumer Price Index, whose inflation has typically ranged from 3.7 percent to 4.4 percent. The Centers for Medicare and Medicaid Services’ National Health Expenditures (NHE) data is another measure of health care cost trends based on overall national health care spending. The five most recent years of available NHE data suggest that overall health care expenditures have increased at an annual rate between 4.4 percent to 6.9 percent. Some commenters suggested using these indices as thresholds for a review of rate increases. Another national index, the Standard & Poor’s Healthcare Economic Commercial Index, also measures insurance rate trends.  The S & P Index measures trends in provider claims costs, which encompasses both unit cost and utilization changes; the trend in that index from September 2009 to September 2010 was 8.5 percent.

The 10 percent threshold established in this regulation exceeds these major indices and in doing so balances industry concerns that any threshold would be over-inclusive with the competing concern that it would subject to review too few rates that may be unreasonable. As we discuss below, when better and more specific data on trends in insurance rates in individual States can be collected, State-specific thresholds would be established.

This approach does not provide for the review of every proposed rate increase, no matter how small, to determine whether it is unreasonable. We recognize that the choice of any threshold makes it inevitable that unreasonable rate increases below the threshold will not be reviewed, and that a proposed increase of less than 10 percent would be unreasonable if the actuarial assumptions underlying the increase were invalid or unreasonable. In proposing this approach, HHS also has taken into consideration the fact that many States, as discussed below, conduct a rate review process for all rate increases without regard to the magnitude of the increase. We expect the number of States conducting such reviews to increase in light of additional resources provided under the rate review grants and passage of State legislation. Therefore, as a practical matter, in a growing number of States, there is even less likelihood that an unreasonable increase below the threshold would be implemented.

In establishing an initial 10 percent threshold for whether a rate increase is subject to review, as discussed below, HHS recognizes that rates, underlying costs, and health care trends vary from State to State.

As discussed below, the State-specific threshold would be based on the same analysis used to develop the initial 10 percent threshold, but would be based on data from the specific State, rather than the national data we analyzed in selecting the proposed 10 percent figure.

Applying this regulation to the large group market would result in a process that is not closely aligned with most State processes upon which the regulation is modeled. In addition, many issuers are not accustomed to submitting proposed rate increases for review in this market. Finally, purchasers in the large group market have greater leverage than those in the individual and small group markets, and therefore may be better able to avoid imposition of unreasonable rate increases. For these reasons, under this proposed regulation, rates in the large group market would not be subject to the rate review process we are proposing.

Proposed regulation (136 pages):
http://www.ofr.gov/OFRUpload/OFRData/2010-32143_PI.pdf

Comment:

By Don McCanne, MD

Besides being sure that everyone is covered by a comprehensive system of financing health care, the other important goal of reform was to slow down the intolerable increases in health care costs. The token cost containment measures included in the legislation will likely have little impact, so attention was given to the false proxy of health care costs: the increases in insurance premiums. So how effective will the proposed regulations be in controlling the inexorable rise in insurance premiums?

To begin with, the regulations cover only the individual market, leaving out the much larger market of employer-sponsored health plans. Since the increases in health care costs have placed an undue burden on employers, and indirectly on their employees, this is a serious omission.

As far as setting a threshold for selecting the level of unreasonable premium increases which would be reviewed, Health and Human Services (HHS) has decided that plans with less than 10 percent premium increases would not be reviewed. That is a level well in excess of measures of medical cost inflation. Imagine compounded premium increases of 9.99 percent per year on top of premiums that are already unaffordable. It is true that the 10 percent threshold may be revised, but the change is to be “based on the same analysis used to develop the initial 10 percent threshold.”

Thus, in assuaging the insurance industry’s fears that “any threshold would be over-inclusive,” HHS has made a decision to allow the private insurance industry to keep jacking up its premium rates at unreasonable and intolerable levels. That is no surprise considering the inadequacy of the measures theoretically designed to control the health care spending that the insurers would have to cover.

We can go back and do it right. We can create a beneficent public monopsony that covers everyone with a financing system that slows health care inflation to a tolerable level: an improved Medicare for all. That has to be better than a 9.9 percent compounded increase in premiums that we would be mandated to pay to the perverse, intrusive private insurance industry.

Rate Increase Disclosure and Review

Department of Health and Human Services
Filed December 21, 2010

This document contains proposed regulations implementing the rules for health insurance issuers regarding the disclosure and review of unreasonable premium increases under section 2794 of the Public Health Service Act. The proposed rule would establish a rate review program to ensure that all rate increases that meet or exceed an established threshold are reviewed by a State or HHS to determine whether the rate increases are unreasonable.

Under this approach, if a proposed rate increase equals or exceeds a defined threshold, it would be considered “subject to review.” The review process would then determine if the increase is, in fact, unreasonable.

Rates above the threshold would not be deemed or otherwise determined to be unreasonable in advance of this review. As discussed below, for rate increases filed in a State on or after July 1, 2011, or effective on or after July 1, 2011 in a State that does not require a rate increase to be filed, the threshold for whether rates are subject to review would be whether the average weighted increase in the rate filing, alone or in combination with prior increases in the preceding 12 month period, is 10 percent or more.

In establishing the 10 percent threshold for determining which rates are subject to review, HHS has balanced the wide range of available data on rate and medical trend increases. Our review of the limited data available suggests that the majority of increases in the individual market exceeded 10 percent each year for the past 3 years.

These yearly increases significantly exceed some national measures of medical cost inflation, such as the medical component of the Consumer Price Index, whose inflation has typically ranged from 3.7 percent to 4.4 percent. The Centers for Medicare and Medicaid Services’ National Health Expenditures (NHE) data is another measure of health care cost trends based on overall national health care spending. The five most recent years of available NHE data suggest that overall health care expenditures have increased at an annual rate between 4.4 percent to 6.9 percent. Some commenters suggested using these indices as thresholds for a review of rate increases. Another national index, the Standard & Poor’s Healthcare Economic Commercial Index, also measures insurance rate trends.  The S & P Index measures trends in provider claims costs, which encompasses both unit cost and utilization changes; the trend in that index from September 2009 to September 2010 was 8.5 percent.

The 10 percent threshold established in this regulation exceeds these major indices and in doing so balances industry concerns that any threshold would be over-inclusive with the competing concern that it would subject to review too few rates that may be unreasonable. As we discuss below, when better and more specific data on trends in insurance rates in individual States can be collected, State-specific thresholds would be established.

This approach does not provide for the review of every proposed rate increase, no matter how small, to determine whether it is unreasonable. We recognize that the choice of any threshold makes it inevitable that unreasonable rate increases below the threshold will not be reviewed, and that a proposed increase of less than 10 percent would be unreasonable if the actuarial assumptions underlying the increase were invalid or unreasonable. In proposing this approach, HHS also has taken into consideration the fact that many States, as discussed below, conduct a rate review process for all rate increases without regard to the magnitude of the increase. We expect the number of States conducting such reviews to increase in light of additional resources provided under the rate review grants and passage of State legislation. Therefore, as a practical matter, in a growing number of States, there is even less likelihood that an unreasonable increase below the threshold would be implemented.

In establishing an initial 10 percent threshold for whether a rate increase is subject to review, as discussed below, HHS recognizes that rates, underlying costs, and health care trends vary from State to State.

As discussed below, the State-specific threshold would be based on the same analysis used to develop the initial 10 percent threshold, but would be based on data from the specific State, rather than the national data we analyzed in selecting the proposed 10 percent figure.

Applying this regulation to the large group market would result in a process that is not closely aligned with most State processes upon which the regulation is modeled. In addition, many issuers are not accustomed to submitting proposed rate increases for review in this market. Finally, purchasers in the large group market have greater leverage than those in the individual and small group markets, and therefore may be better able to avoid imposition of unreasonable rate increases. For these reasons, under this proposed regulation, rates in the large group market would not be subject to the rate review process we are proposing.

Proposed regulation (136 pages):
http://www.ofr.gov/OFRUpload/OFRData/2010-32143_PI.pdf

Besides being sure that everyone is covered by a comprehensive system of financing health care, the other important goal of reform was to slow down the intolerable increases in health care costs. The token cost containment measures included in the legislation will likely have little impact, so attention was given to the false proxy of health care costs: the increases in insurance premiums. So how effective will the proposed regulations be in controlling the inexorable rise in insurance premiums?

To begin with, the regulations cover only the individual market, leaving out the much larger market of employer-sponsored health plans. Since the increases in health care costs have placed an undue burden on employers, and indirectly on their employees, this is a serious omission.

As far as setting a threshold for selecting the level of unreasonable premium increases which would be reviewed, Health and Human Services (HHS) has decided that plans with less than 10 percent premium increases would not be reviewed. That is a level well in excess of measures of medical cost inflation. Imagine compounded premium increases of 9.99 percent per year on top of premiums that are already unaffordable. It is true that the 10 percent threshold may be revised, but the change is to be “based on the same analysis used to develop the initial 10 percent threshold.”

Thus, in assuaging the insurance industry’s fears that “any threshold would be over-inclusive,” HHS has made a decision to allow the private insurance industry to keep jacking up its premium rates at unreasonable and intolerable levels. That is no surprise considering the inadequacy of the measures theoretically designed to control the health care spending that the insurers would have to cover.

We can go back and do it right. We can create a beneficent public monopsony that covers everyone with a financing system that slows health care inflation to a tolerable level: an improved Medicare for all. That has to be better than a 9.9 percent compounded increase in premiums that we would be mandated to pay to the perverse, intrusive private insurance industry.

By Amita Parashar
Kaiser Health News
December 20, 2010

McKinsey and Co., an international consulting company, estimates the number of people residually uninsured will be as high as 40 million in 2016. Dr. Robert Kocher, director of the firm’s Center for U.S. Health System Reform and a former special assistant to President Barack Obama on health care, recently spoke with Kaiser Health News’ Amita Parashar about the center’s estimates and who might not get insured as the health law takes effect.

Q. How did you come up with the figure that 30 million to 40 million people might remain uninsured after the individual mandate kicks in?

A. We built a simulation that allows us to model each county in the country. The model looks at businesses and individuals, coverage flows and changes over time. The model factors in health conditions, incomes, age and can allow one to make forecasts. … It is difficult to predict how big the residually uninsured market will be since it depends on many factors — how effective the individual mandate proves to be, how well auto-enrollment works [a provision of the law that will require large employers to enroll employees in a health plan, unless workers choose to opt-out], and how effectively exchanges and Medicaid programs work to enroll people. Depending on what you believe about these factors leads you to a large range for how many people will be residually uninsured. In some scenarios, that pool may be as large as 30 to 40 million people.

Q. Who are the residually uninsured?

A. There will always be a residual pool of uninsured that includes the following populations: undocumented [foreigners], people between jobs, those who may lose coverage from either changes in income [or from] rolling off of Medicaid. Also, the [people whose employer-based coverage] was dropped but who haven’t yet purchased insurance; those eligible and not enrolled in Medicaid; and those [who have not enrolled in insurance] by choice.

Q. Who do you think will choose to pay the penalty instead of getting insurance?

A. I’m not sure how big that population will be, but I think it’s conceivable that there will be people who are offered employer-sponsored insurance and choose not to take it when they don’t have an alternative and are above the income levels that would allow them to get other options. Naturally, there is going to be turnover, too, as people change jobs or move across state lines. There will be gaps in coverage that will hopefully be easier to remedy than they are today. But there will certainly be people who are in transit in the system, too. And there are some people that ideologically may choose not to get coverage, or to self-insure. While I think that’s going to be a relatively small population, I expect that there will be some that make that choice.

http://www.kaiserhealthnews.org/Checking-In-With/kocher.aspx

Comment:

By Don McCanne, MD

McKinsey and Co. estimates that as many as 30 to 40 million people will still be uninsured after the new health care law goes into affect. Telling people to do something they can’t do – buying subsidized health insurance that they still can’t pay for – will never succeed as a policy to eliminate the uninsured.

Enrollment needs to be automatic for everyone, with an automatic, equitable system of funding that makes it affordable for all – progressive taxes. That’s not such a difficult concept. I’ll bet you could easily solve it right now: an improved (fill in the blank) for all.

Checking In With Dr. Robert Kocher On Who Might Stay Uninsured In Spite Of The Individual Mandate

By Amita Parashar
Kaiser Health News
December 20, 2010

McKinsey and Co., an international consulting company, estimates the number of people residually uninsured will be as high as 40 million in 2016. Dr. Robert Kocher, director of the firm’s Center for U.S. Health System Reform and a former special assistant to President Barack Obama on health care, recently spoke with Kaiser Health News’ Amita Parashar about the center’s estimates and who might not get insured as the health law takes effect.

Q. How did you come up with the figure that 30 million to 40 million people might remain uninsured after the individual mandate kicks in?

A. We built a simulation that allows us to model each county in the country. The model looks at businesses and individuals, coverage flows and changes over time. The model factors in health conditions, incomes, age and can allow one to make forecasts. … It is difficult to predict how big the residually uninsured market will be since it depends on many factors — how effective the individual mandate proves to be, how well auto-enrollment works [a provision of the law that will require large employers to enroll employees in a health plan, unless workers choose to opt-out], and how effectively exchanges and Medicaid programs work to enroll people. Depending on what you believe about these factors leads you to a large range for how many people will be residually uninsured. In some scenarios, that pool may be as large as 30 to 40 million people.

Q. Who are the residually uninsured?

A. There will always be a residual pool of uninsured that includes the following populations: undocumented [foreigners], people between jobs, those who may lose coverage from either changes in income [or from] rolling off of Medicaid. Also, the [people whose employer-based coverage] was dropped but who haven’t yet purchased insurance; those eligible and not enrolled in Medicaid; and those [who have not enrolled in insurance] by choice.

Q. Who do you think will choose to pay the penalty instead of getting insurance?

A. I’m not sure how big that population will be, but I think it’s conceivable that there will be people who are offered employer-sponsored insurance and choose not to take it when they don’t have an alternative and are above the income levels that would allow them to get other options. Naturally, there is going to be turnover, too, as people change jobs or move across state lines. There will be gaps in coverage that will hopefully be easier to remedy than they are today. But there will certainly be people who are in transit in the system, too. And there are some people that ideologically may choose not to get coverage, or to self-insure. While I think that’s going to be a relatively small population, I expect that there will be some that make that choice.

http://www.kaiserhealthnews.org/Checking-In-With/kocher.aspx

McKinsey and Co. estimates that as many as 30 to 40 million people will still be uninsured after the new health care law goes into affect. Telling people to do something they can’t do – buying subsidized health insurance that they still can’t pay for – will never succeed as a policy to eliminate the uninsured.

Enrollment needs to be automatic for everyone, with an automatic, equitable system of funding that makes it affordable for all – progressive taxes. That’s not such a difficult concept. I’ll bet you could easily solve it right now: an improved (fill in the blank) for all.

By Peter J. Cunningham
Center for Studying Health System Change
December 2010

A key provision of the national health reform law is the creation of state-based exchanges to provide more affordable insurance options for people, especially the uninsured. Despite premium subsidies for people with incomes up to 400 percent of the poverty level, or $88,200 for a family of four in 2010, and an individual requirement to enroll in coverage, no one knows who will enroll in the exchanges and who will not, at least initially. Almost 40 percent of uninsured people eligible to receive subsidies through the exchanges have chronic conditions or report fair or poor health, and another 28 percent report recent problems with access to care or paying medical bills, according to a new national study by the Center for Studying Health System Change (HSC). However, about one-third of uninsured people eligible for subsidies have had no recent problems with their health, access to medical care or paying medical bills. Enrolling these apparently healthy uninsured people is likely to be challenging but essential to avoiding adverse selection, or enrolling sicker-than-average people, in the exchanges. Otherwise, health insurance costs in the exchanges could be higher than expected.

Contrary to popular perception, many of these healthy and low-cost uninsured people view themselves as risk-averse, which could motivate them to gain coverage in the absence of health or access problems. Also, most uninsured people believe they need health coverage, although fewer believe that health insurance is currently worth the cost, a situation that could change once premium subsidies are available in 2014.

http://www.hschange.org/CONTENT/1170/

Comment: 

By Don McCanne, MD

One concern of the authors of the Patient Protection and Affordable Care Act was that the state insurance exchanges called for in the legislation might be subject to adverse selection. That is, individuals with greater health care needs would buy the government-subsidized plans if they could afford them, whereas healthy individuals might well choose to remain uninsured, feeling that their portion of the premium was too expensive or frankly unaffordable. This would concentrate high-cost patients in the insurance plans, resulting in the death spiral of skyrocketing premiums.

Healthier individuals who tend to be younger – the so-called “young invincibles” – have been perceived to be greater risk takers and thus more willing to go without health care coverage. This study suggests that these healthy individuals are just as risk-averse as uninsured people with health problems. Everyone wants to be insured.

Thus it is not so much the willingness to take risks that causes these individuals to forgo insurance coverage, but rather it is more whether the additional cost of the premium over the penalty provides enough perceived value, or whether they even have enough funds to pay the premium after their other basic needs are met.

In writing the bill, the authors struggled to balance the actuarial values of the plans (what percentage of costs the plans pay), the subsidies for the premiums and out-of-pocket expenses, and the penalties for non-compliance in purchasing the plans. They wanted the premiums to be affordable, so they pushed actuarial values down, shifting more costs to patients in need. They wanted to limit the burden on the federal budget, so they limited the government-provided subsidies for premiums and out-of-pocket expenses. They didn’t want to press too hard on requiring individuals to purchase expensive private plans from an industry in such disfavor, risking public furor, so they kept the non-compliance penalties low.

No matter how much you adjust these variables, you cannot ever get everyone to agree to purchase insurance. The numbers of individuals declining to purchase plans will be significant, and they will be predominantly healthy. It is absolutely inevitable that the exchange plans will experience adverse selection and will need to keep pushing premiums up.

Households with an income of 400 percent of the federal poverty level ($88,200 for a family of four) will feel the full brunt of the premiums inflated by the death spiral. How high? $25,000? $50,000? And should the family need health care, none of their out-of-pocket expenses are subsidized.

Trying to fudge the numbers won’t work in this structurally unsound financing scheme. We should quit playing games simply to keep the middlemen private insurers in play. Instead, let’s go for an improved Medicare for everyone.

Who Are the Uninsured Eligible for Premium Subsidies in the Health Insurance Exchanges?

By Peter J. Cunningham
Center for Studying Health System Change
December 2010

A key provision of the national health reform law is the creation of state-based exchanges to provide more affordable insurance options for people, especially the uninsured. Despite premium subsidies for people with incomes up to 400 percent of the poverty level, or $88,200 for a family of four in 2010, and an individual requirement to enroll in coverage, no one knows who will enroll in the exchanges and who will not, at least initially. Almost 40 percent of uninsured people eligible to receive subsidies through the exchanges have chronic conditions or report fair or poor health, and another 28 percent report recent problems with access to care or paying medical bills, according to a new national study by the Center for Studying Health System Change (HSC). However, about one-third of uninsured people eligible for subsidies have had no recent problems with their health, access to medical care or paying medical bills. Enrolling these apparently healthy uninsured people is likely to be challenging but essential to avoiding adverse selection, or enrolling sicker-than-average people, in the exchanges. Otherwise, health insurance costs in the exchanges could be higher than expected.

Contrary to popular perception, many of these healthy and low-cost uninsured people view themselves as risk-averse, which could motivate them to gain coverage in the absence of health or access problems. Also, most uninsured people believe they need health coverage, although fewer believe that health insurance is currently worth the cost, a situation that could change once premium subsidies are available in 2014.

http://www.hschange.org/CONTENT/1170/

One concern of the authors of the Patient Protection and Affordable Care Act was that the state insurance exchanges called for in the legislation might be subject to adverse selection. That is, individuals with greater health care needs would buy the government-subsidized plans if they could afford them, whereas healthy individuals might well choose to remain uninsured, feeling that their portion of the premium was too expensive or frankly unaffordable. This would concentrate high-cost patients in the insurance plans, resulting in the death spiral of skyrocketing premiums.

Healthier individuals who tend to be younger – the so-called “young invincibles” – have been perceived to be greater risk takers and thus more willing to go without health care coverage. This study suggests that these healthy individuals are just as risk-averse as uninsured people with health problems. Everyone wants to be insured.

Thus it is not so much the willingness to take risks that causes these individuals to forgo insurance coverage, but rather it is more whether the additional cost of the premium over the penalty provides enough perceived value, or whether they even have enough funds to pay the premium after their other basic needs are met.

In writing the bill, the authors struggled to balance the actuarial values of the plans (what percentage of costs the plans pay), the subsidies for the premiums and out-of-pocket expenses, and the penalties for non-compliance in purchasing the plans. They wanted the premiums to be affordable, so they pushed actuarial values down, shifting more costs to patients in need. They wanted to limit the burden on the federal budget, so they limited the government-provided subsidies for premiums and out-of-pocket expenses. They didn’t want to press too hard on requiring individuals to purchase expensive private plans from an industry in such disfavor, risking public furor, so they kept the non-compliance penalties low.

No matter how much you adjust these variables, you cannot ever get everyone to agree to purchase insurance. The numbers of individuals declining to purchase plans will be significant, and they will be predominantly healthy. It is absolutely inevitable that the exchange plans will experience adverse selection and will need to keep pushing premiums up.

Households with an income of 400 percent of the federal poverty level ($88,200 for a family of four) will feel the full brunt of the premiums inflated by the death spiral. How high? $25,000? $50,000? And should the family need health care, none of their out-of-pocket expenses are subsidized.

Trying to fudge the numbers won’t work in this structurally unsound financing scheme. We should quit playing games simply to keep the middlemen private insurers in play. Instead, let’s go for an improved Medicare for everyone.