By Jordan Rau
Kaiser Health News, October 1, 2019

Medicare cut payments to 2,583 hospitals Tuesday, continuing the Affordable Care Act’s eight-year campaign to financially pressure hospitals into reducing the number of patients who return for a second stay within a month.

The severity and broad application of the penalties, which Medicare estimates will cost hospitals $563 million over a year, follows the trend of the past few years. Of the 3,129 general hospitals evaluated in the Hospital Readmission Reduction Program, 83% received a penalty, which will be deducted from each payment for a Medicare patient stay over the fiscal year that begins today.

These figures do not include 2,142 hospitals that Medicare exempted from the program this year, either because they had too few cases to judge; were veterans hospitals, children’s hospitals, psychiatric hospitals or were critical-access hospitals, which are the only hospitals within reach of some patients.

The hospital industry and some academics have raised concerns that some hospitals may be avoiding readmitting patients who require additional inpatient care out of fear of the financial repercussions, while others have said the program is not showing major benefits.

A few studies have even found an increase in mortality since the penalties took effect, but other studies, including a recent one by the Medicare Payment Advisory Commission (MedPAC), an independent body that helped devise the approach for Congress, identified no such link.

The MedPAC staff’s preliminary analysis, made public last month, found that the frequency of Medicare patients being readmitted within 30 days of discharge dropped from 16.7% in 2010 to 15.7% in 2017.

The penalties are based on the frequency of readmissions of Medicare patients who had originally been treated for heart failure, heart attack, pneumonia, chronic lung disease, hip and knee replacement or coronary artery bypass graft surgery.

“This is like driving your car by looking in the rearview mirror of the car three cars behind you,” Dr. Jonathan Perlin, the chief medical officer of HCA Healthcare in Nashville and a MedPAC commission member, said at last month’s meeting. “It’s very difficult to operationalize.”

Akin Demehin, director of policy at the American Hospital Association, said: “It raises the question: Is the value of the program to improve care or just to enact penalties on hospitals?”

https://khn.org…

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Comment:

By Don McCanne, M.D.

The Medicare Hospital Readmission Program is a penalty program, not a rewards program. It assumes that patients are readmitted after a recent hospitalization because of errors or omissions on the part of the hospitals, and thus the hospitals should be punished. But these are patients who were treated for heart failure, heart attack, pneumonia, chronic lung disease, hip and knee replacement or coronary artery bypass graft surgery. These are disorders that have a high rate of complications or protracted courses and thus would be expected to have a high rate of need for readmission even though given optimal care and followup.

And think about this. Most (83%) of the hospitals evaluated under the program can look forward to a year, and likely many years, when they provide exemplary care for most of their patients and yet they will be financially penalized for each patient for whom they provide care, regardless of how great that care is. That should certainly contribute to the epidemic of burnout.

This program is a dud and should be abandoned if for no other reason than it is a distraction from the need to advance reform that would be greatly beneficial to patients: enactment and implementation of Single Payer Medicare for All. Instead of playing around with gaming through penalties, let’s direct all of our attention to caring for the patients. That’s really what it’s all about.

Stay informed! Visit www.pnhp.org/qotd to sign up for daily email updates.

By Rebecca Mary Myerson, Reginald Tucker-Seeley, Dana Goldman, and Darius N. Lakdawalla
National Bureau of Economic Research, September 2019

Abstract

Medicare is the largest government insurance program in the United States, providing coverage for over 60 million people in 2018. This paper analyzes the effects of Medicare insurance on health for a group of people in urgent need of medical care – people with cancer. We used a regression discontinuity design to assess impacts of near-universal Medicare insurance at age 65 on cancer detection and outcomes, using population-based cancer registries and vital statistics data. Our analysis focused on the three tumor sites with recommended screening before and after age 65: breast, colorectal, and lung cancer. At age 65, cancer detection increased by 72 per 100,000 population among women and 33 per 100,000 population among men; cancer mortality also decreased by 9 per 100,000 population for women but did not significantly change for men. In a placebo check, we found no comparable changes at age 65 in Canada. This study provides the first evidence to our knowledge that near-universal access to Medicare at age 65 is associated with improvements in population-level cancer mortality, and provides new evidence on the differences in the impact of health insurance by gender.

From Comparison with the literature

Medicare beneficiaries can choose to receive their benefits via traditional Medicare (the publicly administered Medicare plan) or Medicare Advantage (a Medicare plan paid for by the federal government but administered by a private company). After a cancer diagnosis, patients become less likely to leave traditional Medicare for a private Medicare Advantage plan, and become more likely to switch from a private Medicare Advantage plan to traditional Medicare.

We are not aware of any prior study of the effect of Medicare coverage on population-level cancer mortality. The most closely related study to ours focused on the impact of Medicare on post-detection survival, a different outcome from the one we study, using data from a different time period.

Importantly, the outcome of survival after cancer detection employed in these prior studies may be subject to diagnosis bias. Diagnosis bias includes lead and length time bias, which can be explained as follows. First, when people are diagnosed with cancer earlier, they may appear to survive longer after detection simply due to becoming classified as a cancer patient earlier – i.e., “lead-time bias.” Second, the additional tumors detected might be so slow-growing that they would never have killed the patient if left undetected, resulting in overdiagnosis and overtreatment – i.e., “length bias.”

For both these reasons, expansions in cancer detection may improve post-diagnosis survival even when they do not actually improve health or save lives.

As a result, analyzing population-level disease-specific mortality rates is considered a best practice to eliminate diagnosis bias.

Prior studies of the impacts of Medicare rarely stratified the data by gender except when studying gender-specific health care such as mammography. Yet, it is plausible that gender could play an important role in determining the impact of insurance on health. Several studies have found women to be more likely than men to use preventive health care, and less likely than men to delay seeking needed health care. Gaps by gender in socio-economic resources could also play a role, as the impact of Medicare could be larger among patients with less-generous prior insurance coverage and fewer financial resources.

From the Discussion

Insurance coverage rose to 97% at age 65, the age of near-universal eligibility for Medicare. This nearly universal Medicare coverage increased cancer detection by 50 per 100,000 population, a 10% increase compared to people aged 63-64; the majority of additional cancers detected were early-stage cancer. These findings are important for population health because prompt detection improves health for the tumor sites we study here, according to systematic reviews by the United States Preventive Services Task Force.

In vital statistics data, we found that cancer mortality increased by less than expected among women at age 65 by 9 per 100,000 population. The lack of significance among men is consistent with the magnitudes and standard errors we estimated. The increases in cancer detection and early-stage cancer detection at age 65 among men were both less than half the magnitude of the increases at age 65 among women.

Our analysis captures a local average treatment effect of the effect of access to Medicare at age 65, i.e., the effect of having access to Medicare compared to lacking access to Medicare at age 65. Given that access to Medicare is nearly universal at age 65 but severely limited prior to age 65, a research design such as ours which compares a “treated” group aged 65 and older to an “untreated” group younger than 65 has been deemed appropriate in closely related studies. While access to Medicare may be particularly beneficial for the previously uninsured, the previously insured also benefit. Within a few weeks of becoming eligible for Medicare, there is a sharp increase in the proportion of people with multiple forms of coverage, and the proportion of people with only managed care is reduced by half. Thus, Medicare provides the already-insured with access to more generous coverage and a broad network of providers. Generosity of coverage and network breadth are particularly important for cancer patients, who require costly specialty care.

In conclusion, access to Medicare insurance was associated with a significant increase in detection of cancers with recommended screening, as well a decline in mortality from these cancers among women. Our estimates provide new evidence of Medicare’s impact on health outcomes for people in need of medical care.

https://www.nber.org…

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Comment:

By Don McCanne, M.D.

This study of breast, colorectal and lung cancers demonstrated that enrollment in Medicare at age 65 is associated with a significant increase in detection of these cancers with recommended screening, as well as a decline in mortality from these cancers among women. Although mortality did not improve in males, there are other benefits of having coverage through Medicare: for instance, health care can improve quality of life in the presence of other infirmities and through preventive measures, and Medicare can reduce financial hardship caused by medical bills.

One interesting observation is that, when diagnosed with cancer, patients become less likely to leave traditional Medicare for a private Medicare Advantage plan, and become more likely to switch from a private Medicare Advantage plan to traditional Medicare. That should make us wonder why we taxpayers are paying more for the private Medicare Advantage plans and why so many politicians and bureaucrats are trying to push us into those programs, especially when most people want more choices, not less, in the experts and institutions that care for cancer patients.

The main point of today’s message is that Medicare for All is the right choice for reform. People do better after they are on Medicare than they did under our existing, fragmented multipayer system. Further, the single payer model of Medicare for All provides better health care benefits and greater financial protection than does the current Medicare program.

How can people say that they want to keep the plans that aren’t working as well? Don’t they understand what Medicare is all about, and, more importantly, what it could be?

Stay informed! Visit www.pnhp.org/qotd to sign up for daily email updates.

By Sara R. Collins and Munira Z. Gunja
The Commonwealth Fund, September 2019

Replacing private insurance with public insurance like Medicare does not have strong support, but many need more information.

Q: Would you favor or oppose eliminating all private health insurance and making public insurance like Medicare the ONLY health insurance option for everyone, or do you not know enough about this to say?

All
27% – Strongly/somewhat favor
32% – Strongly/somewhat oppose
40% – Don’t know enough to say

Republican
12% – Strongly/somewhat favor
60% – Strongly/somewhat oppose
27% – Don’t know enough to say

Democrat
43% – Strongly/somewhat favor
15% – Strongly/somewhat oppose
41% – Don’t know enough to say

Independent
27% – Strongly/somewhat favor
34% – Strongly/somewhat oppose
38% – Don’t know enough to say

From the Conclusion

Our survey indicates that much of the public currently needs more information before supporting a Medicare-for-all approach.

https://www.commonwealthfund.org…

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Comment:

By Don McCanne, M.D.

This survey question emphasized “eliminating all private health insurance” while making “public insurance like Medicare the ONLY health insurance option.” But the question is somewhat unique in that it also specifically asked if respondents did “not know enough about this to say.”

To no surprise, a significant number agreed that they did not know enough to say. Only Republicans had strong views, and they are opposed, although in my experience, Republicans are even less well informed on the single payer model of Medicare for All; they just don’t seem to know it. Their understanding is more in terms of libertarian ideology than it is in terms of actual health policy.

The important lesson is that we have to do a much better job in communicating the beneficial policy features of single payer Medicare for All. They want to hear how health care can be made more affordable, and we have the answers.

Stay informed! Visit www.pnhp.org/qotd to sign up for daily email updates.

Kaiser Family Foundation, September 25, 2019

This annual survey of employers provides a detailed look at trends in employer-sponsored health coverage, including premiums, employee contributions, cost-sharing provisions, offer rates, wellness programs, and employer practices.

Annual premiums for employer sponsored family health coverage reached $20,576 this year, up 5% from last year, with workers on average paying $6,015 toward the cost of their coverage. The average deductible among covered workers in a plan with a general annual deductible is $1,655 for single coverage. Fifty-six percent of small firms and 99% of large firms offer health benefits to at least some of their workers, for an overall offer rate of 57%.

(An 8 page Summary of Findings and the full 234 page Report are available at the link below.)

Discussion

Trends in the market for employer-based coverage have been moderate for several years now. Premiums go up each year, but in the low to mid-single digits, which seems tame for those who remember the much higher increases in the early 2000’s and periods before. Cost sharing, particularly deductibles, has increased meaningfully over time, but the largest percentage increases were now a few years ago. New ideas and new approaches – things like narrow networks, value-based pricing, telemedicine, direct contracting – are tried and sometimes gradually implemented, but with modest impact on the basic structure of the market or the overall cost of coverage. Even though actual cost levels are quite high (the average family premium exceeds $20,000 for a family of four), an expanding economy and historically low underlying health care cost growth appear to have dampened any impatience for big changes, although predicted economic slowing over the next couple of years could push employers to consider more significant actions.

One thing that is new this year is the context: the public debate over expanding Medicare or creating public program options is raising questions about the performance of employer-based coverage that are rarely triggered when looking only at annual performance. In particular, those suggesting a bigger role for public programs raise issues about the cost and affordability of health care for the society overall and for individuals and families. Although premium growth has been low, it still exceeds inflation, and the prices employer plans pay for care are rising faster than either Medicare or Medicaid. One side of the coin calls this a cost shift from public plans to private payers; the other side suggests a lack of any real cost-control efforts in private plans. Negotiating lower prices means that plans have to be willing to tell higher-priced providers they cannot be in the network, but as the survey finding show, narrowing networks is both unpopular with employers and, due to dispersed workforces and rural challenges, impractical for many. Other than increasing cost-sharing, this is the most (and maybe only) powerful cost-reducing tool that private plans have, but it is rarely employed.

How to best assure affordable access to care for individuals and families is really the main theme in the debate about public plan options, and our polling suggests this issue raises important questions about the adequacy of employer-based plans. In a recent survey conducted by KFF and the LA Times, 40 percent of non-elderly adults with employer-based coverage said that they or a family member had difficulty affording health insurance or health care or had problems paying medical bills. Roughly one-in-two said that they or a family member had skipped or postponed getting health care or prescriptions in the past 12 months due to costs. Among those with employer-based coverage who say that someone under the plan has a chronic health condition, roughly three in five say they are confident that they have enough money or health insurance to afford the cost of a major illness; this percentage falls to just one-in-three for those in plans with the highest deductibles ($3,000 for single coverage; $5,000 or more for family coverage).

This survey shows other affordability issues as well, particularly for some identifiable groups. Covered workers in small firms face relatively high deductibles for single coverage and a meaningful share face substantial premium contributions if they choose family coverage. Covered workers in firms with large shares of lower-wage workers on average face higher deductibles for single coverage and must contribute a greater share of the premium for family coverage than workers in firms with a smaller share of lower-wage workers. When people talk about the 153 million people with employer-based coverage they often gloss over the very real cost differences for different groups of workers across the marketplace.

Regardless of its outcome, the national debate about expanding Medicare or creating public program options provides an opportunity to step back and evaluate how well employer-based coverage is doing in achieving national goals relating to costs and affordability. In doing so, it will be important to look past averages and examine how well the market serves the many different types of employers and working families in the many different circumstances that they face.

https://www.kff.org…

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Comment:

By Don McCanne, M.D.

This somewhat mundane report on employer-sponsored health plans is apt to be glossed over since it represents more of the same – that costs of the largest source of health insurance in the United States continue to increase. Some might celebrate the fact that increases in premiums have slowed to 5 percent this year, but that is still over twice the rate of inflation! Our most prized source of insurance (if you believe the media) has failed miserably in its quest to make health care affordable for individuals and families.

Health insurance premiums for a family of four now average over $20,000. Though a portion of that is nominally paid by the employer, it is actually paid entirely by the employee because the employer’s portion is paid through forgone wage increases of the employee. Further, employees of small firms and low-income employees receive less generous health benefits even though they are less capable of paying premiums and out-of-pocket cost sharing. In fact, the health benefit offer rate overall is only 57 percent. That great insurance that the media keeps telling us we want to keep has premiums that continue to rise faster than inflation, fails to provide adequate financial protection for low- and middle-income families, and isn’t even offered to 43 percent of the workforce, particularly disconcerting when considering that there have been 67 million job separations in the past year (Bureau of Labor Statistics) – not exactly a stable source of insurance coverage.

This is serious. We are being told that the majority of the public will accept Medicare for All only if they continue to have the option of being insured through private plans, especially those offered by their employers. Yet the public is deliberately being confused as to what Medicare for All is. Is it single payer, or is it merely another option in our fragmented system of a multitude of private and public plans? The distinction is crucial. Too many still don’t understand what single payer is, even if they think they do.

Providing Medicare as an option leaves in place all of the dysfunctions of our current health care financing system. Today’s report shows that even employers have been unable to make a dent in the rate of health care cost escalation, leaving care unaffordable for the majority, while remaining incapable of tackling the profound administrative waste that is a major driver of our uniquely high costs, plus they cannot possibly benefit those who are not in their employ, not to mention failing to benefit the 43 percent of their employees who do not enroll in their plans.

On the other hand, a bona fide single payer model of Medicare for all automatically includes everyone for life, recovers hundreds of billions of dollars in administrative waste, switches to an equitable method of financing that everyone can afford (yes, progressive taxes!), and provides better benefits than essentially all employer-sponsored plans. The other proposals mislabeled as some variant of Medicare for All accomplish none of these goals.

Though many still object to the single payer label as being too wonkish and not well understood by the general public, unfortunately the Medicare for All label has been stolen from us and is being used frequently to refer to some form of Medicare as a public option, accomplishing essentially none of our goals of reform. Until we can agree on a better term, we should insist on “Single Payer Medicare for All,” and then we should be sure that everyone understands what single payer means – affordable, comprehensive care for everyone.

Stay informed! Visit www.pnhp.org/qotd to sign up for daily email updates.

By Andrew B. Bindman, Denis Hulett, Isabel Ostrer, and Taewoon Kang
California Health Care Foundation, September 2019

In the 1970s, California was the first state to introduce Medicaid managed care. It is now mandatory in 57 of 58 counties for most Medi-Cal enrollees. In 2018, approximately 10.4 million (80%) of Medi-Cal enrollees received services through one of 22 insurers who provided managed care plans (MCPs) specific to the counties in which they operated.

This report examines the performance of Medi-Cal MCPs over the past decade in quality of care provided to members. In addition to reporting on overall trends in performance, this report also examines differences by type of MCP ownership (public, nonprofit, for-profit) and model of managed care (County Organized Health System, Two-Plan model, and a few different models of competing commercial MCPs).

Key Findings

• From 2009 to 2018, quality of care in Medi-Cal managed care was stagnant at best on most measures. Among 41 quality measures collected in two or more years, more than half (59%) remained unchanged or declined. The picture looks only slightly better when limited to the 31 quality measures still collected by DHCS. Of those, 52% remained unchanged or declined. Specifically, quality of care significantly declined for Medi-Cal enrollees on 4 measures and was unchanged on 12 measures. There was significant quality improvement on 15 measures.
• While declines in quality in some cases were relatively small on a percentage basis, the clinical significance in all cases could be interpreted as substantial, given the size of the impacted population. The same is true for observed improvements in quality.
• Three of the four current measures that declined over time were related to the care of children. Six of the nine quality measures currently in use that are related to children declined or stayed the same; there was improvement in only three of these measures.
• Medi-Cal enrollees’ rating of their experiences with their MCP were consistently below the 50th percentile nationally. The only CAHPS measure that improved significantly over time was the one that asked enrollees to rate how well doctors communicate.
• Medi-Cal MCPs’ quality scores varied markedly within and across MCPs by ownership during the past decade. Most striking was the substantially lower quality scores of the for-profit MCPs, on average, relative to the nonprofit and public MCPs. These differences in quality scores by MCP ownership were not explained by observed demographic differences or the physician supply in the counties in which they were operating.
• While there was variation of MCP performance within each of the Medi-Cal managed care models, counties that rely on a single public MCP (County Organized Health Systems) had on average better quality scores than counties that furnish Medi-Cal services through either a Two-Plan or competing commercial model. This remained the case after adjusting county demographics and physician supply, and was even true for the quality measures used as the basis for the enrollment-based “auto-assignment” incentive in counties with competing MCPs.

https://www.chcf.org…

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Comment:

By Don McCanne, M.D.

California has been a leader in moving Medicaid patients into Medicaid managed care plans. It is now a mature program that can provide us with lessons on the wisdom of such a conversion. So how have these plans performed over the past decade?

One of the main motivations behind this shift was that managed care plans supposedly would improve the quality of care. Yet quality was “stagnant at best on most measures.” “Among 41 quality measures collected in two or more years, more than half (59%) remained unchanged or declined.”

“Six of the nine quality measures currently in use that are related to children declined or stayed the same.”

“Medi-Cal enrollees’ rating of their experiences with their MCP were consistently below the 50th percentile nationally.”

By ownership, “most striking was the substantially lower quality scores of the for-profit MCPs, on average, relative to the nonprofit and public MCPs.”

“Counties that rely on a single public MCP (County Organized Health Systems) had on average better quality scores than counties that furnish Medi-Cal services through either a Two-Plan or competing commercial model.”

We can conclude that for-profit, commercial Medicaid managed care plans often provide lower quality care, and levels of patient satisfaction are low.

More importantly, as stated above, counties that rely on a single public managed care plan (County Organized Health Systems) have better quality scores than counties that rely on competing health plans, belying the claim that health plan competition improves quality. This should speak well for the single payer model of Medicare for All.

Stay informed! Visit www.pnhp.org/qotd to sign up for daily email updates.

Hart Research Associates/Public Opinion Strategies
NBC News/Wall Street Journal Survey, September 13-16, 2019

Q16: From what you know, do you strongly support, somewhat support, somewhat oppose, or strongly oppose each of the following proposals?

Percentage who say strongly or somewhat support:

Data shown among registered voters:

67% – Allowing people under the age of 65 the option to buy their health coverage through the Medicare program just like one might buy private insurance

41% – Adopting Medicare for All, a single payer health care system in which private health insurance would be eliminated and all Americans would get their health coverage from one government plan

43% – Eliminating the Affordable Care Act, also known as Obamacare

36% – Providing government health care to undocumented immigrants

Data shown among Democratic primary voters:

78% – Allowing people under the age of 65 the option to buy their health coverage through the Medicare program just like one might buy private insurance

63% – Adopting Medicare for All, a single payer health care system in which private health insurance would be eliminated and all Americans would get their health coverage from one government plan

16% – Eliminating the Affordable Care Act, also known as Obamacare

64% – Providing government health care to undocumented immigrants

https://www.documentcloud.org…

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Comment:

By Don McCanne, M.D.

The latest NBC/WSJ poll has been reported widely this past week as showing that Americans support expanding Medicare but not eliminating private health insurance. The actual poll shows that 67% of registered voters support being allowed to buy health coverage through the Medicare program, but only 41% prefer the adoption of single payer Medicare for All knowing that private insurance would be eliminated. The support among Democratic primary voters is greater for both options – 78% support a Medicare buy-in and 63% support single payer Medicare for All with elimination of private insurance. This does not seem to represent much of a shift in voter opinion even if reported as such.

Confusing the picture is that only 16% of Democratic voters support eliminating the Affordable Care Act. If most of the remaining 84% support continuation of ACA then that suggests that they do not support single payer, a view inconsistent with 63% support for single payer Medicare for All. Although about one-third of registered voters support providing government health care to undocumented immigrants, closer to two-thirds of Democratic voters do, suggesting that they have a greater sensitivity to issues of health care justice.

In general, I would say that we have much more work to do to educate not only the public but the media (including the pollsters!) on the profound differences in the single payer model of Medicare for All and Medicare as one component of our fragmented, dysfunctional system of financing health care. One is effective, efficient, equitable, affordable, and truly universal, and the other is not.

By Michael Geruso, Timothy J. Layton, Grace McCormack, and Mark Shepard
National Bureau of Economic Research, September 2019

Abstract

Insurance markets often feature consumer sorting along both an extensive margin (whether to buy) and an intensive margin (which plan to buy). We present a new graphical theoretical framework that extends the workhorse model to incorporate both selection margins simultaneously. A key insight from our framework is that policies aimed at addressing one margin of selection often involve an economically meaningful trade-off on the other margin in terms of prices, enrollment, and welfare. For example, while a larger penalty for opting to remain uninsured reduces the uninsurance rate, it also tends to lead to unraveling of generous coverage because the newly insured are healthier and sort into less generous plans, driving down the relative prices of those plans. While risk adjustment transfers shift enrollment from lower- to higher-generosity plans, they also sometimes increase the uninsurance rate by raising the prices of less generous plans, which are the entry points into the market. We illustrate these trade-offs in an empirical sufficient statistics approach that is tightly linked to the graphical framework. Using data from Massachusetts, we show that in many policy environments these trade-offs can be empirically meaningful and can cause these policies to have unexpected consequences for overall social welfare.

From the Introduction

Some of the most important problems in health insurance markets stem from adverse selection, or the tendency of sicker consumers to exhibit higher demand for insurance. Concerns about adverse selection have motivated a variety of regulatory interventions in the U.S. and around the world, including insurance mandates, penalties for being uninsured, subsidies for purchasing insurance, risk adjustment transfers, benefit regulation, and reinsurance. Policy discussions about how to address adverse selection have become salient in the U.S. as many public programs have shifted toward providing health insurance via regulated markets.

But, a deeper look reveals that not all policies combating adverse selection are targeted at the same problem. Policies such as mandates and subsidies combat selection on the extensive margin (or “against the market”). This type of selection is characterized by sicker people being more likely to buy insurance. It leads to higher insurer costs and higher consumer prices and causes some healthy people to opt out. Policies such as risk adjustment and benefit regulation, on the other hand, combat selection on the intensive margin (or “within the market”). This type of selection is characterized by sicker people being more likely to purchase more generous plans within the market. Intensive margin selection drives up the price of generous plans relative to skimpy ones and results in too many consumers choosing skimpy plans. In some cases, selection within the market may be so strong that generous contracts cannot be sustained, and the market for them unravels entirely.

In this paper, we generalize the canonical insurance market framework to address both margins simultaneously. The benefit of doing so is not merely a technical curiosity. It has first-order policy importance in settings like the ACA Marketplaces where both the generosity of coverage and rates of uninsurance are serious concerns. To see why, consider an insurance mandate—a policy that aims to correct extensive margin selection by bringing healthy marginal consumers into the market. Our framework shows how a mandate that succeeds in increasing rates of insurance coverage will likely worsen selection on the intensive margin. Intuitively, the mandate brings more healthy/low- cost consumers into the market. Because these new consumers tend to select the lower-price (and lower-quality) plans, the risk pools of those plans will get even healthier. In equilibrium, these plans will further reduce prices, siphoning additional consumers away from higher-quality plans on the intensive margin, causing prices for high-quality coverage to spiral upwards. These two offsetting effects (improving take-up and inducing within-market unraveling) represent a clear example of the intensive/extensive margin interactions that are the focus of our paper.

Our insights about cross-margin interactions are relevant for active policy debates in the ACA and other insurance settings. For example, recently states have been given increasing flexibility to weaken ACA Essential Health Benefits or risk adjustment transfers (intensive margin policies)—with the stated goal being to lower plan prices and reduce uninsurance (a cross-margin effect). On the other hand, state efforts to simplify enrollment, auto-enroll certain consumers, or enact mandate penalties (all extensive margin policies) may create unintended consequences on the intensive margin. More broadly, our model is also relevant to other settings with two selection margins, including the Medicare program (with its Medicare Advantage option), employer programs with a plan choice decision and a participation decision (e.g., CalPERS), national health insurance systems with an opt-out (e.g., Germany), other insurance markets such as auto insurance and long-term care insurance where both the intensive and extensive margins may be important, and other non-insurance markets like consumer credit where there is evidence of both extensive and intensive margin risk selection.

From the Conclusion

Adverse selection in insurance markets can occur on either the extensive (insurance vs. uninsurance) or intensive (more vs. less generous coverage) margin. While this possibility has been recognized for a long time, most prior treatments of adverse selection focus on only one margin or the other. This focus misses important cross-margin trade-offs inherent to many selection policies.

Specifically, (1) strengthening uninsurance penalties can help some consumers by getting them into the market while hurting other consumers by inducing them to enroll in lower-quality coverage, and (2) strengthening risk adjustment transfers can help some consumers by inducing them to enroll in higher-quality coverage while hurting other consumers by forcing them out of the market. Additionally, we find that price-linked subsidies for low-income consumers can weaken some of these trade-offs (i.e. effects of risk adjustment and benefit regulation) but not others (i.e. mandates/uninsurance penalties). Finally, we show that trade-offs related to risk adjustment are often more pronounced when the advantageously selected plan has a cost advantage.

Because many policies lead to coverage gains on one margin and coverage losses on the other, in some cases the unintended effects of policies are first-order with respect to welfare. We show cases in which the welfare losses from coverage losses on the unintended margin exceed welfare gains from coverage gains on the intended margin. This happens most often with a penalty for choosing to be uninsured.

The issues we highlight here are relevant for future reform of the individual health insurance markets in the U.S. Many have observed that the overall quality of coverage available to consumers is low in these settings, with most plans characterized by tight provider networks, high deductibles, and strict controls on utilization. Additionally, others have observed that take-up is far from complete, with many young, healthy consumers opting out of the market altogether and choosing to remain uninsured. These two observations are consistent with adverse selection on the intensive and extensive margins, respectively. Our framework highlights the unfortunate but important conceptual point that budget-neutral policies that target one of these two problems are likely to exacerbate the other due to the inherent trade-off between extensive and intensive margin selection. This point is often absent from discussions of potential reforms by policymakers and economists, and our intention is to correct this potentially costly omission.

https://www.nber.org…

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Comment:

By Don McCanne, M.D.

Okay, this is another one of those mundane technical papers from academics in the policy community. But you really don’t have to wade through the intricacies of their treatise to understand the important point they make.

They consider the interactions of two margins in insurance markets: 1) the extensive margin that guides people on whether or not to buy insurance, and 2) the intensive margin that guides individuals on which plan to buy. Adverse selection, which concentrates higher cost individuals into segregated risk pools, can occur at either margin: 1) being insured or uninsured, or 2) having more generous versus less generous coverage. They show that a favorable shift in either margin can result in an unfavorable shift in the other. That is, efforts to expand the number of people insured at one margin can result in less generous coverage for those act the other margin. Likewise, efforts to expand benefits at the other margin can result in more people remaining uninsured.

It is easy to see that these adverse consequences are a direct result of our politicians and the policy community insisting on maintaining our highly fragmented system of financing health care through a plethora of private and public insurance programs. Currently their support of employer-sponsored plans and private Medicare Advantage plans are prime examples. Imagine if we had one single universal risk pool; adverse selection disappears. Automatically including everyone in an improved Medicare program means that nobody would be left uninsured and that everyone would have the same comprehensive package of essential health care benefits.

It is perplexing that these economists state that their their intention is to correct the potentially costly omission in the failure to recognize the inherent trade-off between extensive and intensive margin selection, almost as if they are saying, “deal with it, stupid, take your choice.” Yet they remain totally silent on the obvious solution of the single payer model of Medicare for All, in which you could have both truly universal coverage and comprehensive benefits for all.

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