Disentangling Moral Hazard and Adverse Selection in Private Health Insurance

By David Powell and Dana Goldman
National Bureau of Economic Research, January 2016

NBER Working Paper 21858

Abstract

Moral hazard and adverse selection create inefficiencies in private health insurance markets and understanding the relative importance of each factor is critical for policy. We use claims data from a large firm to isolate moral hazard from plan selection. Previous studies have attempted to estimate moral hazard in private health insurance by assuming that individuals respond only to the spot price, end-of-year price, expected price, or a related metric. The nonlinear budget constraints generated by health insurance plans make these assumptions especially poor and we statistically reject their appropriateness. We study the differential impact of the health insurance plans offered by the firm on the entire distribution of medical expenditures without assuming that individuals only respond to a parameterized price. Our empirical strategy exploits the introduction of new plans during the sample period as a shock to plan generosity, and we account for sample attrition over time. We use an instrumental variable quantile estimation technique that provides quantile treatment effects for each plan, while conditioning on a set of covariates for identification purposes. This technique allows us to map the resulting estimated medical expenditure distributions to the nonlinear budget sets generated by each plan. We estimate that 53% of the additional medical spending observed in the most generous plan in our data relative to the least generous is due to moral hazard. The remainder can be attributed to adverse selection. A policy which resulted in each person enrolling in the least generous plan would cause the annual premium of that plan to rise by $1,000.

From the Introduction

Moral hazard and adverse selection create inefficiencies in health insurance markets and result in a positive correlation between health insurance generosity and medical care consumption. The policy implications are very different, however, depending on the relative magnitudes of each source of distortion, though isolating the independent roles of both moral hazard and adverse selection is rare in the health insurance literature. This paper separates moral hazard and adverse selection for the health insurance plans offered by a large firm.

The average observed expenditures in the most generous plan are $3,969 more than the per person costs in the least generous plan. We estimate that if selection were random, that the most generous plan would lead to $2,117 in more spending than the least generous plan, implying that 53% of the differential can be attributed to moral hazard. We also estimate adverse selection without restrictive structural assumptions. We find that if everyone in the sample were enrolled in the least generous plan that the premium for that plan would increase by over $1,000.

2.1 Moral Hazard and Adverse Selection

Optimal policy depends on the relative important of adverse selection compared to moral hazard in explaining the correlation between plan generosity and medical care costs. The policy implications for moral hazard are different than those required to confront adverse selection. Adverse selection typically requires risk-pooling, while distortions driven by moral hazard would motivate additional cost-sharing.

3.4 Attrition

If we define attrition as individuals enrolled in 2005 but enrolled for less than 365 days in 2007, the attrition rate in the MarketScan data (selecting on firms in the data in both 2005 and 2007) is 58.3%. Our sample has a 58.7% attrition rate.

Conclusion

Understanding moral hazard and adverse selection in private health insurance is widely- recognized as critical to policy. While the literature has frequently estimated the effect of price on medical care consumption, it has typically resorted to parameterizing the mechanism through which individuals respond to cost-sharing. We show that these assumptions typically contradict economic reasoning, and we provide empirical evidence that these specifications perform poorly. In this paper, we estimate the impact of different health insurance plans on the entire distribution of medical care consumption using a new instrumental variable quantile estimation method. These estimated distributions are the distributions caused by the plans in the absence of systematic selection into plans. We map these causal distributions to the parameters of the plans themselves. We can statistically reject that individuals only respond to the end-of-year price.

We also estimate the magnitude of adverse selection. We find favorable selection in the least generous plan and adverse selection in the most generous. We estimate that adverse selection is responsible for $773 of additional per-person costs in the most generous plan, implying that an individual considering this plan would pay over $60 per month in additional premium payments simply to cover the expected costs of the population selecting into the plan. Similarly, a policy which resulted in our entire sample enrolling in the least generous plan would cause annual premiums for that plan to rise by over $1,000.

We estimate that moral hazard is responsible for 53% of the differences in expenditures between the most and least generous plans. Adverse selection also plays an important role, accounting for the other 47%. In the absence of moral hazard, the difference in average medical expenditures across these plans would be $2,117 instead of $3,969. Finally, we find that using the previous year’s medical expenditures as a metric of selection greatly overstates the magnitude of selection.

http://www.nber.org/papers/w21858

PDF of full paper (53 pages):
http://www.nber.org/papers/w21858.pdf

***

Comment:

By Don McCanne, M.D.

In health insurance, moral hazard occurs when individuals obtain more health care than they would have if it were not paid for by the insurer. Adverse selection occurs when individuals with greater health care needs select plans that provide greater coverage. Both have an impact on health care spending. This paper estimates the relative impact of each of these in spending under private health insurance.

Each is responsible for roughly half of the differences of expenditures between the most and least generous health plans. So enrollees in the more generous plans pay higher premiums because of both moral hazard and adverse selection.

Today’s standard in insurance coverage is shifting towards lower actuarial value plans – plans that pay a lower percentage of the total health care costs. What does this study tell us about premiums for these less generous health plans? As more people enroll in them, which they are, the premiums increase to cover the additional expenditures for those who otherwise would have enrolled in the more comprehensive plans. The lower actuarial value plans are subject to favorable selection (the healthy buying less expensive plans in anticipation of not needing care), but that diminishes as higher cost patients move from the more comprehensive plans into these cheaper plans.

The insurance actuaries set premiums based partly on anticipated moral hazard and adverse selection. Though less comprehensive plans theoretically have less moral hazard and no adverse selection, the lower premiums are attractive even to those with higher health care needs. As Powell and Goldman have shown, increased enrollment in the least generous plans cause premiums for those plans to increase. This likely goes a long way toward explaining why premium increases this year were much higher than the overall rate of inflation, even though the rate of increase in total national health expenditures has slowed.

Under a single payer national health program, adverse selection doesn’t even exist since everyone is in the same plan. Efficiency is an important goal of health care reform, and wouldn’t it be much more efficient putting these health economists to work designing a simple single payer financing system, instead of laboring over the complexities of making a dysfunctional and inequitable market of private health plans somehow work for us, though not very well?

Disentangling Moral Hazard and Adverse Selection in Private Health Insurance

By David Powell and Dana Goldman
National Bureau of Economic Research, January 2016

NBER Working Paper 21858

Abstract

Moral hazard and adverse selection create inefficiencies in private health insurance markets and understanding the relative importance of each factor is critical for policy. We use claims data from a large firm to isolate moral hazard from plan selection. Previous studies have attempted to estimate moral hazard in private health insurance by assuming that individuals respond only to the spot price, end-of-year price, expected price, or a related metric. The nonlinear budget constraints generated by health insurance plans make these assumptions especially poor and we statistically reject their appropriateness. We study the differential impact of the health insurance plans offered by the firm on the entire distribution of medical expenditures without assuming that individuals only respond to a parameterized price. Our empirical strategy exploits the introduction of new plans during the sample period as a shock to plan generosity, and we account for sample attrition over time. We use an instrumental variable quantile estimation technique that provides quantile treatment effects for each plan, while conditioning on a set of covariates for identification purposes. This technique allows us to map the resulting estimated medical expenditure distributions to the nonlinear budget sets generated by each plan. We estimate that 53% of the additional medical spending observed in the most generous plan in our data relative to the least generous is due to moral hazard. The remainder can be attributed to adverse selection. A policy which resulted in each person enrolling in the least generous plan would cause the annual premium of that plan to rise by $1,000.

From the Introduction

Moral hazard and adverse selection create inefficiencies in health insurance markets and result in a positive correlation between health insurance generosity and medical care consumption. The policy implications are very different, however, depending on the relative magnitudes of each source of distortion, though isolating the independent roles of both moral hazard and adverse selection is rare in the health insurance literature. This paper separates moral hazard and adverse selection for the health insurance plans offered by a large firm.

The average observed expenditures in the most generous plan are $3,969 more than the per person costs in the least generous plan. We estimate that if selection were random, that the most generous plan would lead to $2,117 in more spending than the least generous plan, implying that 53% of the differential can be attributed to moral hazard. We also estimate adverse selection without restrictive structural assumptions. We find that if everyone in the sample were enrolled in the least generous plan that the premium for that plan would increase by over $1,000.

2.1 Moral Hazard and Adverse Selection

Optimal policy depends on the relative important of adverse selection compared to moral hazard in explaining the correlation between plan generosity and medical care costs. The policy implications for moral hazard are different than those required to confront adverse selection. Adverse selection typically requires risk-pooling, while distortions driven by moral hazard would motivate additional cost-sharing.

3.4 Attrition

If we define attrition as individuals enrolled in 2005 but enrolled for less than 365 days in 2007, the attrition rate in the MarketScan data (selecting on firms in the data in both 2005 and 2007) is 58.3%. Our sample has a 58.7% attrition rate.

Conclusion

Understanding moral hazard and adverse selection in private health insurance is widely- recognized as critical to policy. While the literature has frequently estimated the effect of price on medical care consumption, it has typically resorted to parameterizing the mechanism through which individuals respond to cost-sharing. We show that these assumptions typically contradict economic reasoning, and we provide empirical evidence that these specifications perform poorly. In this paper, we estimate the impact of different health insurance plans on the entire distribution of medical care consumption using a new instrumental variable quantile estimation method. These estimated distributions are the distributions caused by the plans in the absence of systematic selection into plans. We map these causal distributions to the parameters of the plans themselves. We can statistically reject that individuals only respond to the end-of-year price.

We also estimate the magnitude of adverse selection. We find favorable selection in the least generous plan and adverse selection in the most generous. We estimate that adverse selection is responsible for $773 of additional per-person costs in the most generous plan, implying that an individual considering this plan would pay over $60 per month in additional premium payments simply to cover the expected costs of the population selecting into the plan. Similarly, a policy which resulted in our entire sample enrolling in the least generous plan would cause annual premiums for that plan to rise by over $1,000.

We estimate that moral hazard is responsible for 53% of the differences in expenditures between the most and least generous plans. Adverse selection also plays an important role, accounting for the other 47%. In the absence of moral hazard, the difference in average medical expenditures across these plans would be $2,117 instead of $3,969. Finally, we find that using the previous year’s medical expenditures as a metric of selection greatly overstates the magnitude of selection.

http://www.nber.org/papers/w21858

PDF of full paper (53 pages):
http://www.nber.org/papers/w21858.pdf

In health insurance, moral hazard occurs when individuals obtain more health care than they would have if it were not paid for by the insurer. Adverse selection occurs when individuals with greater health care needs select plans that provide greater coverage. Both have an impact on health care spending. This paper estimates the relative impact of each of these in spending under private health insurance.

Each is responsible for roughly half of the differences of expenditures between the most and least generous health plans. So enrollees in the more generous plans pay higher premiums because of both moral hazard and adverse selection.

Today’s standard in insurance coverage is shifting towards lower actuarial value plans – plans that pay a lower percentage of the total health care costs. What does this study tell us about premiums for these less generous health plans? As more people enroll in them, which they are, the premiums increase to cover the additional expenditures for those who otherwise would have enrolled in the more comprehensive plans. The lower actuarial value plans are subject to favorable selection (the healthy buying less expensive plans in anticipation of not needing care), but that diminishes as higher cost patients move from the more comprehensive plans into these cheaper plans.

The insurance actuaries set premiums based partly on anticipated moral hazard and adverse selection. Though less comprehensive plans theoretically have less moral hazard and no adverse selection, the lower premiums are attractive even to those with higher health care needs. As Powell and Goldman have shown, increased enrollment in the least generous plans cause premiums for those plans to increase. This likely goes a long way toward explaining why premium increases this year were much higher than the overall rate of inflation, even though the rate of increase in total national health expenditures has slowed.

Under a single payer national health program, adverse selection doesn’t even exist since everyone is in the same plan. Efficiency is an important goal of health care reform, and wouldn’t it be much more efficient putting these health economists to work designing a simple single payer financing system, instead of laboring over the complexities of making a dysfunctional and inequitable market of private health plans somehow work for us, though not very well?

Long-term care must become a more prominent part of the single-payer campaign

By Henry Moss, PhD
January 11, 2016

We are facing a perfect storm. AARP’s Public Policy Institute points out that as boomers age into their 80s, there will be a sharp drop in available family caregivers due to the “birth dearth” following the postwar baby boom.  At the same time, longevity is increasing due to effective treatments of heart disease, lung disease, diabetes, cancer, and other conditions.  A longer life, however, will likely mean more years with severe disability for boomers due to the secondary effects of increased obesity, including high blood pressure, high cholesterol, and inflammation due to metabolic disorders.

These secondary effects include damage to brain blood vessels and a likely increase in the incidence of dementia, including Alzheimer’s disease.  We already know that the prevalence of dementia will grow due to the sheer size of the boomer cohort.  In addition, however, it now appears that a recent steady decline in the incidence of cognitive impairment and dementia have ended and are starting to reverse. Dementia is by far the most care-intensive of conditions.  More years with dementia (and other disabling conditions fed by the effects of obesity, including mobility disorders) will mean more need for 24/7 care in the face of declining numbers of family caregivers.

Hence the perfect storm.  Hence the “2030 crisis.”  2030 is when boomers start becoming the “oldest old” in large numbers.
 
The boomer generation is defined by a dramatic rise in home ownership.  This trend, coupled with real and perceived problems in nursing homes, means that home care has become, by far, the preferred approach to long-term care.  With declining numbers of family caregivers, an army of personal care aides, well-trained and better-paid, will be needed to address the coming crisis.  Medicare or another universal plan will need to cover the cost.

PNHP and the single-payer bills circulating in Congress fail to place enough emphasis on long-term care and severely underestimate the costs associated with an aging population and declining numbers of caregivers.  There is no way to separate long-term care and health care.  Living at home alone with dementia, frailty syndrome, or a mobility disorder are an invitation to falls and other safety-related events, a major source of healthcare costs for older adults.  Shortages of physicians, nurses, psychiatrists, and social workers with specialties in geriatrics and mental health will create serious concerns for elderly patients both in and out of nursing homes.  Medication management will be severely compromised.  The health of stressed family caregivers will also suffer.

Over the course of its history, Medicare has added mental health services, prescription drug benefits, and hospice care.  Long-term care is the next frontier and boomers and their future caregivers represent a massive potential constituency.  It must become a prominent part of the single-payer campaign.

(Henry Moss is a retired baby boomer doing independent academic and public policy research and writing. He has a PhD in philosophy and has written on cognitive science and the history and philosophy of technological progress.  His public policy interests include health care, housing and urban development, technological progress, and theories of social democracy.)

The 2030 Caregiving Crisis: A Heavy Burden for Boomer Children, by Henry Moss (250 pages)
For paperback, eBook or free PDF download:
http://www.2030caregivingcrisis.com

***

Comment:

By Don McCanne, M.D.

Most single payer advocates certainly support inclusion of coverage for long-term care in a national health program. Inevitably there is concern about the magnitude of the problem, including defining the conditions requiring long-term care, and the costs that care will entail.

In his book, “The 2030 Caregiving Crisis,” Henry Moss discusses the pending crisis when a disproportionately large number of baby boomers will require long-term care at a time when there will be a disproportionate decline in available family caregivers. Addressing this problem now will provide a policy platform which will ease the problems of long-term care once the surge in baby boomers diminishes through attrition.

His book is well researched and well referenced, plus he provides his own constructive thoughts as to addressing this problem. Hopefully it will be a helpful resource as PNHP members clarify and organize our concepts on the financing of long-term care, as a part of our mission to achieve health care justice for all.

Long-term care must become a more prominent part of the single-payer campaign

By Henry Moss, PhD
January 11, 2016

We are facing a perfect storm. AARP’s Public Policy Institute points out that as boomers age into their 80s, there will be a sharp drop in available family caregivers due to the “birth dearth” following the postwar baby boom.  At the same time, longevity is increasing due to effective treatments of heart disease, lung disease, diabetes, cancer, and other conditions.  A longer life, however, will likely mean more years with severe disability for boomers due to the secondary effects of increased obesity, including high blood pressure, high cholesterol, and inflammation due to metabolic disorders.

These secondary effects include damage to brain blood vessels and a likely increase in the incidence of dementia, including Alzheimer’s disease.  We already know that the prevalence of dementia will grow due to the sheer size of the boomer cohort.  In addition, however, it now appears that a recent steady decline in the incidence of cognitive impairment and dementia have ended and are starting to reverse. Dementia is by far the most care-intensive of conditions.  More years with dementia (and other disabling conditions fed by the effects of obesity, including mobility disorders) will mean more need for 24/7 care in the face of declining numbers of family caregivers.

Hence the perfect storm.  Hence the “2030 crisis.”  2030 is when boomers start becoming the “oldest old” in large numbers.

The boomer generation is defined by a dramatic rise in home ownership.  This trend, coupled with real and perceived problems in nursing homes, means that home care has become, by far, the preferred approach to long-term care.  With declining numbers of family caregivers, an army of personal care aides, well-trained and better-paid, will be needed to address the coming crisis.  Medicare or another universal plan will need to cover the cost.

PNHP and the single-payer bills circulating in Congress fail to place enough emphasis on long-term care and severely underestimate the costs associated with an aging population and declining numbers of caregivers.  There is no way to separate long-term care and health care.  Living at home alone with dementia, frailty syndrome, or a mobility disorder are an invitation to falls and other safety-related events, a major source of healthcare costs for older adults.  Shortages of physicians, nurses, psychiatrists, and social workers with specialties in geriatrics and mental health will create serious concerns for elderly patients both in and out of nursing homes.  Medication management will be severely compromised.  The health of stressed family caregivers will also suffer.

Over the course of its history, Medicare has added mental health services, prescription drug benefits, and hospice care.  Long-term care is the next frontier and boomers and their future caregivers represent a massive potential constituency.  It must become a prominent part of the single-payer campaign.

(Henry Moss is a retired baby boomer doing independent academic and public policy research and writing. He has a PhD in philosophy and has written on cognitive science and the history and philosophy of technological progress.  His public policy interests include health care, housing and urban development, technological progress, and theories of social democracy.)

The 2030 Caregiving Crisis: A Heavy Burden for Boomer Children, by Henry Moss (250 pages)
For paperback, eBook or free PDF download:
http://www.2030caregivingcrisis.com

Most single payer advocates certainly support inclusion of coverage for long-term care in a national health program. Inevitably there is concern about the magnitude of the problem, including defining the conditions requiring long-term care, and the costs that care will entail.

In his book, “The 2030 Caregiving Crisis,” Henry Moss discusses the pending crisis when a disproportionately large number of baby boomers will require long-term care at a time when there will be a disproportionate decline in available family caregivers. Addressing this problem now will provide a policy platform which will ease the problems of long-term care once the surge in baby boomers diminishes through attrition.

His book is well researched and well referenced, plus he provides his own constructive thoughts as to addressing this problem. Hopefully it will be a helpful resource as PNHP members clarify and organize our concepts on the financing of long-term care, as a part of our mission to achieve health care justice for all.

Insurers Say Costs Are Climbing as More Enroll Past Health Act Deadline

By Robert Pear
The New York Times, January 9, 2016

Eager to maximize coverage under the Affordable Care Act, the Obama administration has allowed large numbers of people to sign up for insurance after the deadlines in the last two years, destabilizing insurance markets and driving up premiums, health insurance companies say.

The administration has created more than 30 “special enrollment” categories and sent emails to millions of Americans last year urging them to see if they might be able to sign up after the annual open enrollment deadline. But, insurers and state officials said, the federal government did little to verify whether late arrivals were eligible.

That has allowed people to wait until they become ill or need medical services to sign up, driving up costs broadly, insurers have told federal health officials.

“Individuals enrolled through special enrollment periods are utilizing up to 55 percent more services than their open enrollment counterparts” who sign up in the regular period, the Blue Cross and Blue Shield Association, whose local member companies operate in every state, told the administration.

“Many individuals have no incentive to enroll in coverage during open enrollment, but can wait until they are sick or need services before enrolling and drop coverage immediately after receiving services, making the annual open enrollment period meaningless,” Steven B. Kelmar, an executive vice president of Aetna, said in a letter to Sylvia Mathews Burwell, the secretary of health and human services.

A quarter of the applications that Aetna received in the health law’s public insurance marketplace last year came through special enrollment periods, he said.

Kevin J. Counihan, the chief executive of the federal insurance marketplace, said nearly 950,000 people used special enrollment periods to get coverage through HealthCare.gov from late February to the end of June 2015.

“On average,” Aetna said, “special enrollment period enrollees stay with us for less than four months, while enrollees who come to us during the annual open enrollment period maintain their coverage on average for eight to nine months.”

Daniel J. Schumacher, the chief financial officer of UnitedHealthcare, the insurance unit of UnitedHealth Group, said more than 20 percent of its marketplace customers signed up after open enrollment ended last year. And they used 20 percent more health care than people who signed up before the deadline, he said.

Such concerns could portend higher insurance rates broadly. In setting current premiums, insurers say, they did not realize how many people would sign up after the deadline and how much care they would use. That information may affect future rates and benefits.

The federal government allows people to sign up or switch health plans outside open enrollment for various reasons. Lawyers said it was not easy to find a complete list of the eligibility criteria, which have been set forth in regulations, bulletins, official policy statements, manuals and informal “guidance documents.” Some of the reasons are straightforward, like getting married or having a baby.

Others are more complicated and less clear-cut. Consumers may, for example, be eligible for a special enrollment period in “exceptional circumstances” and in “other situations determined appropriate” by the Centers for Medicare and Medicaid Services. The circumstances may include “a serious medical condition” that kept a person from enrolling.

“Most consumers are confused by the rules on special enrollment periods and do not understand the system well enough to try to game it,” said Christine Speidel, a lawyer at Vermont Legal Aid. On the other hand, she said, “many people feel that insurance is not affordable, even with subsidies, and they will call the marketplace to see if they qualify for insurance when they get sick.”

http://www.nytimes.com/2016/01/10/us/politics/insurers-say-costs-are-climbing-as-more-enroll-past-health-act-deadline.html?ref=business&_r=0

***

Comment:

By Don McCanne, M.D.

Open enrollment periods for the ACA exchange health plans are limited in duration to prevent people from buying insurance only when a need arises, and then canceling the insurance after the need is met. This “adverse selection” would reduce premium revenues for the insurers while increasing expenditures for medical benefits. This drives up the cost of premiums for everyone else which can cause the healthy to bail out, driving premiums up even more and resulting in the “death spiral,” which is very disruptive to insurance markets.

Circumstances for individuals do change when enrollment is closed, thus the law allows special enrollment so that individuals don’t have to wait up to a year to gain coverage. The problem with special enrollment during closed enrollment periods is that it is the individuals with changing circumstances who also have pressing medical needs that will be compelled to enroll. Thus the payouts by the insurers will increase during these closed enrollment periods. Also, many healthy individuals who feel that they cannot afford their premiums will drop their coverage, decreasing revenue for the insurers. Increased expenditures and reduced revenues is not exactly the business model that insurers seek.

This creates a dilemma for the actuaries. To ensure solvency, premiums will have to be set higher than would be warranted based strictly on the better health of those enrolling during the open enrollment period. Higher premiums then threaten the insurers’ ability to gain market share. This is a problem for even the nation’s largest insurers, as we now see UnitedHealth is withdrawing from the exchanges for this very reason.

The Affordable Care Act perpetuates a market of private plans theoretically designed to use competition to improve quality while reducing costs. But because insurers are not allowed to exercise pure market forces since they must sell their products to people who will actually need to use them, the regulated market of private plans fails under these countervailing forces. Waste escalates because of the greater administrative burden of this defective market, and because of the need of the insurers to distort the functioning of their plans (e.g., higher deductibles and narrower networks) in an attempt to protect their bottom lines.

We can’t keep pretending that we will figure out a way to make private insurance markets work for everyone. We already have over half a century of failure. That’s enough. It’s time to enact a publicly-administered and publicly-financed single payer national health program – an improved Medicare for all.

Insurers Say Costs Are Climbing as More Enroll Past Health Act Deadline

By Robert Pear
The New York Times, January 9, 2016

Eager to maximize coverage under the Affordable Care Act, the Obama administration has allowed large numbers of people to sign up for insurance after the deadlines in the last two years, destabilizing insurance markets and driving up premiums, health insurance companies say.

The administration has created more than 30 “special enrollment” categories and sent emails to millions of Americans last year urging them to see if they might be able to sign up after the annual open enrollment deadline. But, insurers and state officials said, the federal government did little to verify whether late arrivals were eligible.

That has allowed people to wait until they become ill or need medical services to sign up, driving up costs broadly, insurers have told federal health officials.

“Individuals enrolled through special enrollment periods are utilizing up to 55 percent more services than their open enrollment counterparts” who sign up in the regular period, the Blue Cross and Blue Shield Association, whose local member companies operate in every state, told the administration.

“Many individuals have no incentive to enroll in coverage during open enrollment, but can wait until they are sick or need services before enrolling and drop coverage immediately after receiving services, making the annual open enrollment period meaningless,” Steven B. Kelmar, an executive vice president of Aetna, said in a letter to Sylvia Mathews Burwell, the secretary of health and human services.

A quarter of the applications that Aetna received in the health law’s public insurance marketplace last year came through special enrollment periods, he said.

Kevin J. Counihan, the chief executive of the federal insurance marketplace, said nearly 950,000 people used special enrollment periods to get coverage through HealthCare.gov from late February to the end of June 2015.

“On average,” Aetna said, “special enrollment period enrollees stay with us for less than four months, while enrollees who come to us during the annual open enrollment period maintain their coverage on average for eight to nine months.”

Daniel J. Schumacher, the chief financial officer of UnitedHealthcare, the insurance unit of UnitedHealth Group, said more than 20 percent of its marketplace customers signed up after open enrollment ended last year. And they used 20 percent more health care than people who signed up before the deadline, he said.

Such concerns could portend higher insurance rates broadly. In setting current premiums, insurers say, they did not realize how many people would sign up after the deadline and how much care they would use. That information may affect future rates and benefits.

The federal government allows people to sign up or switch health plans outside open enrollment for various reasons. Lawyers said it was not easy to find a complete list of the eligibility criteria, which have been set forth in regulations, bulletins, official policy statements, manuals and informal “guidance documents.” Some of the reasons are straightforward, like getting married or having a baby.

Others are more complicated and less clear-cut. Consumers may, for example, be eligible for a special enrollment period in “exceptional circumstances” and in “other situations determined appropriate” by the Centers for Medicare and Medicaid Services. The circumstances may include “a serious medical condition” that kept a person from enrolling.

“Most consumers are confused by the rules on special enrollment periods and do not understand the system well enough to try to game it,” said Christine Speidel, a lawyer at Vermont Legal Aid. On the other hand, she said, “many people feel that insurance is not affordable, even with subsidies, and they will call the marketplace to see if they qualify for insurance when they get sick.”

http://www.nytimes.com/2016/01/10/us/politics/insurers-say-costs-are-climbing-as-more-enroll-past-health-act-deadline.html?ref=business&_r=0

Open enrollment periods for the ACA exchange health plans are limited in duration to prevent people from buying insurance only when a need arises, and then canceling the insurance after the need is met. This “adverse selection” would reduce premium revenues for the insurers while increasing expenditures for medical benefits. This drives up the cost of premiums for everyone else which can cause the healthy to bail out, driving premiums up even more and resulting in the “death spiral,” which is very disruptive to insurance markets.

Circumstances for individuals do change when enrollment is closed, thus the law allows special enrollment so that individuals don’t have to wait up to a year to gain coverage. The problem with special enrollment during closed enrollment periods is that it is the individuals with changing circumstances who also have pressing medical needs that will be compelled to enroll. Thus the payouts by the insurers will increase during these closed enrollment periods. Also, many healthy individuals who feel that they cannot afford their premiums will drop their coverage, decreasing revenue for the insurers. Increased expenditures and reduced revenues is not exactly the business model that insurers seek.

This creates a dilemma for the actuaries. To ensure solvency, premiums will have to be set higher than would be warranted based strictly on the better health of those enrolling during the open enrollment period. Higher premiums then threaten the insurers’ ability to gain market share. This is a problem for even the nation’s largest insurers, as we now see UnitedHealth is withdrawing from the exchanges for this very reason.

The Affordable Care Act perpetuates a market of private plans theoretically designed to use competition to improve quality while reducing costs. But because insurers are not allowed to exercise pure market forces since they must sell their products to people who will actually need to use them, the regulated market of private plans fails under these countervailing forces. Waste escalates because of the greater administrative burden of this defective market, and because of the need of the insurers to distort the functioning of their plans (e.g., higher deductibles and narrower networks) in an attempt to protect their bottom lines.

We can’t keep pretending that we will figure out a way to make private insurance markets work for everyone. We already have over half a century of failure. That’s enough. It’s time to enact a publicly-administered and publicly-financed single payer national health program – an improved Medicare for all.

Health Plan Watchdog Still Seeks Progress After 25 Years

By Phil Galewitz
Kaiser Health News, January 8, 2016

The nation’s oldest private arbiter of what defines high-quality health plans turned 25 last year. The National Committee for Quality Assurance (NCQA) started soon after HMOs became popular in the 1980s, measuring the effectiveness of the first managed care plans as millions of consumers flocked to join them.

Today, NCQA accredits health plans in every state, covering 109 million Americans or about 70 percent of all Americans enrolled in private coverage.

Founding and current president Margaret “Peggy” O’Kane discussed her organization’s past and future recently with KHN’s Phil Galewitz.

Phil Galewitz:  What do you see as NCQA’s biggest achievement after 25 years?

Margaret O’Kane:  Just getting the measurements out there in a systematic way. We are now finally at a stage where the delivery system is getting it and trying to reorganize itself with primary care medical homes and accountable care organizations.

Galewitz:  Is the United States doing a better job for consumers in measuring health plans’ quality of care?

O’Kane:  Maybe the glass is half full on measurement, or less than that. I think our strategy was to always walk behind the evidence. We have good measures where there is good evidence on preventive services and chronic diseases like hypertension and diabetes. What we are missing is often in areas where the science is unclear. These also tend to be high-stakes areas of care, like cancer or other complex illnesses.

Galewitz:  Are health plans receptive to being evaluated by NCQA?

O’Kane:  It’s less than voluntary, I would say. It’s in the health law for exchange plans (to be accredited by NCQA or another accrediting group) and has been driven by employers traditionally. Some plans really question whether it matters what (their) quality is. You see narrow networks emerging and if they are chosen just based on price, that isn’t going to go well among consumers.

Galewitz:  How much has NCQA’s work improved the quality of health care that Americans receive?

O’Kane:  In the areas we have measured, you can point to real improvements. My main gripe now is what I see as contradictory strategies of high deductibles versus a delivery system reform promoting primary care. If you have to spend out of your own pocket $2,000 or $5,000 before you get to see your primary care physician (for free), many Americans don’t have that money. We are reforming the delivery system and then people can’t afford to see their primary care doctor. That makes no sense.

http://khn.org/news/a-health-care-watchdog-for-consumers-turns-25/

***

Comment:

By Don McCanne, M.D.

As our health care system is being refined to supposedly replace quantity with quality in the delivery of health care services, we should learn from the experience of the National Committee for Quality Assurance (NCQA) – one of the more credible and experienced organizations attempting to improve quality in health care. Their founder and president, Margaret “Peggy” O’Kane, has a few lessons for us.

How are we doing on quality measurements? The glass is “half full… or less.” We are not doing well on “high-stakes areas of care, like cancer or other complex illnesses.” How can you ignore the quantity of care that is required for these complex cases and pretend that you are going to make payments based instead on quality that you can’t measure?

And the reception by the exchange health plans of the ACA requirement that they be accredited for quality? O’Kane says that the involvement of the plans is “less than voluntary.” She says, “Some plans really question whether it matters what (their) quality is.” Wow! Plans are setting up narrow networks that are based on price (while ignoring quality – DMc).

Her most important message: “My main gripe now is what I see as contradictory strategies of high deductibles versus a delivery system reform promoting primary care. If you have to spend out of your own pocket $2,000 or $5,000 before you get to see your primary care physician (for free), many Americans don’t have that money. We are reforming the delivery system and then people can’t afford to see their primary care doctor. That makes no sense.”

As the policy and political communities divert their efforts to structural reforms that have not been demonstrated to have more than a negligible impact on quality, the private insurance industry has moved forward with changes that are making health care unaffordable and inaccessible for far too many Americans. When what we need is a strong primary care infrastructure, our health care leaders are allowing the insurers to erect intolerable financial barriers to care. As O’Kane says, “That makes no sense.”

It’s great that we have dedicated organizations such as NCQA and AHRQ to help ferret out and correct quality problems. But we cannot let that distract us from what we really need to do: enact a well designed single payer national health program that will bring us the structural reforms that we desperately need, so all of us can have affordable, accessible, high quality health care.

Health Plan Watchdog Still Seeks Progress After 25 Years

By Phil Galewitz
Kaiser Health News, January 8, 2016

The nation’s oldest private arbiter of what defines high-quality health plans turned 25 last year. The National Committee for Quality Assurance (NCQA) started soon after HMOs became popular in the 1980s, measuring the effectiveness of the first managed care plans as millions of consumers flocked to join them.

Today, NCQA accredits health plans in every state, covering 109 million Americans or about 70 percent of all Americans enrolled in private coverage.

Founding and current president Margaret “Peggy” O’Kane discussed her organization’s past and future recently with KHN’s Phil Galewitz.

Phil Galewitz:  What do you see as NCQA’s biggest achievement after 25 years?

Margaret O’Kane:  Just getting the measurements out there in a systematic way. We are now finally at a stage where the delivery system is getting it and trying to reorganize itself with primary care medical homes and accountable care organizations.

Galewitz:  Is the United States doing a better job for consumers in measuring health plans’ quality of care?

O’Kane:  Maybe the glass is half full on measurement, or less than that. I think our strategy was to always walk behind the evidence. We have good measures where there is good evidence on preventive services and chronic diseases like hypertension and diabetes. What we are missing is often in areas where the science is unclear. These also tend to be high-stakes areas of care, like cancer or other complex illnesses.

Galewitz:  Are health plans receptive to being evaluated by NCQA?

O’Kane:  It’s less than voluntary, I would say. It’s in the health law for exchange plans (to be accredited by NCQA or another accrediting group) and has been driven by employers traditionally. Some plans really question whether it matters what (their) quality is. You see narrow networks emerging and if they are chosen just based on price, that isn’t going to go well among consumers.

Galewitz:  How much has NCQA’s work improved the quality of health care that Americans receive?

O’Kane:  In the areas we have measured, you can point to real improvements. My main gripe now is what I see as contradictory strategies of high deductibles versus a delivery system reform promoting primary care. If you have to spend out of your own pocket $2,000 or $5,000 before you get to see your primary care physician (for free), many Americans don’t have that money. We are reforming the delivery system and then people can’t afford to see their primary care doctor. That makes no sense.

http://khn.org/news/a-health-care-watchdog-for-consumers-turns-25/

As our health care system is being refined to supposedly replace quantity with quality in the delivery of health care services, we should learn from the experience of the National Committee for Quality Assurance (NCQA) – one of the more credible and experienced organizations attempting to improve quality in health care. Their founder and president, Margaret “Peggy” O’Kane, has a few lessons for us.

How are we doing on quality measurements? The glass is “half full… or less.” We are not doing well on “high-stakes areas of care, like cancer or other complex illnesses.” How can you ignore the quantity of care that is required for these complex cases and pretend that you are going to make payments based instead on quality that you can’t measure?

And the reception by the exchange health plans of the ACA requirement that they be accredited for quality? O’Kane says that the involvement of the plans is “less than voluntary.” She says, “Some plans really question whether it matters what (their) quality is.” Wow! Plans are setting up narrow networks that are based on price (while ignoring quality – DMc).

Her most important message: “My main gripe now is what I see as contradictory strategies of high deductibles versus a delivery system reform promoting primary care. If you have to spend out of your own pocket $2,000 or $5,000 before you get to see your primary care physician (for free), many Americans don’t have that money. We are reforming the delivery system and then people can’t afford to see their primary care doctor. That makes no sense.”

As the policy and political communities divert their efforts to structural reforms that have not been demonstrated to have more than a negligible impact on quality, the private insurance industry has moved forward with changes that are making health care unaffordable and inaccessible for far too many Americans. When what we need is a strong primary care infrastructure, our health care leaders are allowing the insurers to erect intolerable financial barriers to care. As O’Kane says, “That makes no sense.”

It’s great that we have dedicated organizations such as NCQA and AHRQ to help ferret out and correct quality problems. But we cannot let that distract us from what we really need to do: enact a well designed single payer national health program that will bring us the structural reforms that we desperately need, so all of us can have affordable, accessible, high quality health care.

Up With Extremism

By Thomas L. Friedman
The New York Times, January 6, 2016

It’s time for a true nonpartisan extremist, one whose platform combines the following:

*  A single-payer universal health care system. If it can work for Canada, Australia and Sweden and provide generally better health outcomes at lower prices, it can work for us, and get U.S. companies out of the health care business.

http://www.nytimes.com/2016/01/06/opinion/up-with-extremism.html

***

Comment:

By Don McCanne, M.D.

In his opinion piece, Thomas Friedman calls for electing a nonpartisan extremist for president. The first in his recommended list of extremist policy positions is a single payer universal health care system. Great!

The significance of this is that the debate over health care reform is not limited to tweaking the irreparable deficiencies of the Affordable Care Act (Democrats) versus paring back the government role in health care by shifting more of the financial responsibility to patients (Republicans). Although single payer was rejected during the campaign that led to the election of President Obama, it is now clear that Obamacare has perpetuated a wasteful, inefficient system that is increasing financial burdens and further impairing access for patients, even if greater numbers are nominally insured. And the tentative Republican proposals would make affordability and access even worse.

There is now a much broader understanding that single payer would provide the infrastructure that would ensure affordable care for everyone. The spark which has injected this into the presidential campaign is the strong endorsement by Bernie Sanders along with a token acknowledgement by the poll-leading Republican candidate – Donald Trump. We are seeing more single payer endorsements along with limited press coverage confirming that single payer is in play in this election. We should continue our efforts to amplify that. Low odds admittedly, but it’s there.

Just a note on Friedman’s article. He calls for “a nonpartisan extremist for president who’s ready to go far left and far right — simultaneously.” His list of policy recommendations includes some that are simply not acceptable in an enlightened society (mind you, I’m a pacifist). So we should make it clear that, though we are quite pleased with Friedman’s endorsement of single payer, we cannot reciprocate with an endorsement of several of his other policy positions.

Up With Extremism

By Thomas L. Friedman
The New York Times, January 6, 2016

It’s time for a true nonpartisan extremist, one whose platform combines the following:

*  A single-payer universal health care system. If it can work for Canada, Australia and Sweden and provide generally better health outcomes at lower prices, it can work for us, and get U.S. companies out of the health care business.

http://www.nytimes.com/2016/01/06/opinion/up-with-extremism.html

In his opinion piece, Thomas Friedman calls for electing a nonpartisan extremist for president. The first in his recommended list of extremist policy positions is a single payer universal health care system. Great!

The significance of this is that the debate over health care reform is not limited to tweaking the irreparable deficiencies of the Affordable Care Act (Democrats) versus paring back the government role in health care by shifting more of the financial responsibility to patients (Republicans). Although single payer was rejected during the campaign that led to the election of President Obama, it is now clear that Obamacare has perpetuated a wasteful, inefficient system that is increasing financial burdens and further impairing access for patients, even if greater numbers are nominally insured. And the tentative Republican proposals would make affordability and access even worse.

There is now a much broader understanding that single payer would provide the infrastructure that would ensure affordable care for everyone. The spark which has injected this into the presidential campaign is the strong endorsement by Bernie Sanders along with a token acknowledgement by the poll-leading Republican candidate – Donald Trump. We are seeing more single payer endorsements along with limited press coverage confirming that single payer is in play in this election. We should continue our efforts to amplify that. Low odds admittedly, but it’s there.

Just a note on Friedman’s article. He calls for “a nonpartisan extremist for president who’s ready to go far left and far right — simultaneously.” His list of policy recommendations includes some that are simply not acceptable in an enlightened society (mind you, I’m a pacifist). So we should make it clear that, though we are quite pleased with Friedman’s endorsement of single payer, we cannot reciprocate with an endorsement of several of his other policy positions.