By Jon R. Gabel, Ryan Lore, Roland D. McDevitt, Jeremy D. Pickreign, Heidi Whitmore, Michael Slover and Ethan Levy-Forsythe
Health Affairs, May 23, 2012

Abstract

The Affordable Care Act creates state-based health exchanges that will begin acting as a market place for health insurance plans and consumers in 2014. This paper compares the financial protection offered by today’s group and individual plans with the standards that will apply to insurance sold in state-based exchanges. Some states may apply these standards to all health insurance sold within the state. More than half of Americans who had individual insurance in 2010 were enrolled in plans that would not qualify as providing essential coverage under the rules of the exchanges in 2014. These people were enrolled in plans with an actuarial value below 60 percent, which means that the plans covered less than that proportion of the enrollees’ health expenses. Many of today’s individual health plans are below the “bronze” level, the lowest level of plan that can be sold through exchanges. In contrast, most group plans in 2010 had an actuarial benefit of 80–89 percent and would qualify as highly rated “gold” plans in the exchanges. To sell to ten million new buyers on the exchanges, insurers will need to redesign benefit packages. Combined with a ban on medical underwriting, the individual insurance market in a post–health reform world will sharply contrast with the market of past decades.

From the Discussion

Using simulated claim payments, we found that the average actuarial value of group plans in 2010 was 83 percent, and the average for individual plans was 60 percent. For an average family, annual out-of-pocket expenses were $1,765 with group coverage, compared to $4,127 with individual coverage. For people in poor health who incurred high medical expenses, the differences between the group and individual markets were even more dramatic.

Our findings have notable policy implications. First, the majority of Americans with individual insurance coverage today are enrolled in a plan whose actuarial value is too low to qualify for a state-based exchange. Insurance reforms that went into effect September 23, 2010, raised the financial protection offered by exchange plans. For example, lifetime maximum benefits were eliminated, effective preventive services must now be offered without cost sharing, and annual limits on insurance coverage were removed. But to qualify for exchanges, insurers will need to lower the average deductible level for individual tin plans, which today average nearly $3,900 for a single person.

Second, about two-thirds of today’s employees are enrolled in a gold or platinum plan. Families with coverage through the exchanges are likely to have less financial protection than employees with employer-based coverage enjoy today. Employers choosing to buy insurance coverage for their employees through the small-employer exchange, which could eventually include employers with more than a hundred workers, will probably obtain less extensive coverage if they opt to buy a plan in the silver tier than if they now offer a plan typical of those provided in the employer-based market today.

Third, very sick patients—those in the top 1 percent of medical spending—incur sizable out-of-pocket expenses regardless of coverage. For example, these top spenders face out-of-pocket expenses of nearly $3,800 in a group platinum plan. But there are substantial differences in out-of-pocket spending between plans with high actuarial value and plans with low value. A family in the top 1 percent of medical spenders with tin coverage in the individual market incurs annual out-of-pocket expenses of more than $27,000. (“Tin coverage” is a fifth tier created exclusively for this study. It is a level below the bronze tier – below 60 percent actuarial value – a level that will not be permitted in the state insurance exchanges.)

http://content.healthaffairs.org/content/early/2012/05/22/hlthaff.2011.1082.full

Comment: 

By Don McCanne, MD

Reports of this study likely will celebrate the fact that very low actuarial value plans which are commonplace in the individual market today – those below 60 percent value (plan pays less than 60 percent of covered health costs) – will have to reduce their deductibles and perhaps make other changes to qualify under the Affordable Care Act. But is this enough?

The study compared group plans with individual plans. Group plans have an average actuarial value of 83 percent, whereas the average actuarial value for individual plans is 60 percent, with 51 percent of them falling below that threshold. Only 14 percent were silver (70% AV) and 2 percent gold (80% AV), and there were no platinum (90% AV) plans in the individual market.

The lower half of all individual plans will have to either bring their value up to 60 percent or drop out of the exchange market. This means that average actuarial values of plans in the individual market – those available through the exchanges – will still be in the low 60s – far below group plans with their average actuarial value of 83.

Further, it is likely that smaller employers will rely on the exchanges to provide coverage for their employees – again with lower actuarial value plans than is typical of employer-sponsored group plans. The impact on patients will be significant.

Repeating a quote from above, “… very sick patients—those in the top 1 percent of medical spending—incur sizable out-of-pocket expenses regardless of coverage. For example, these top spenders face out-of-pocket expenses of nearly $3,800 in a group platinum plan (the very best coverage available). But there are substantial differences in out-of-pocket spending between plans with high actuarial value and plans with low value. A family in the top 1 percent of medical spenders with tin coverage in the individual market incurs annual out-of-pocket expenses of more than $27,000.”

Although “tin coverage” (plans under 60% AV) will be prohibited in the exchanges, the financial burden on patients who need significant amounts of health care will still be great, even with the subsidies and the elimination of maximum lifetime benefits. Instead of adding to the burden of illness, we should be attempting to preserve the financial security of patients, as we would be if we had a single payer national health program – an improved Medicare for all.

More Than Half Of Individual Health Plans Offer Coverage That Falls Short Of What Can Be Sold Through Exchanges As Of 2014

By Jon R. Gabel, Ryan Lore, Roland D. McDevitt, Jeremy D. Pickreign, Heidi Whitmore, Michael Slover and Ethan Levy-Forsythe
Health Affairs, May 23, 2012
Abstract
The Affordable Care Act creates state-based health exchanges that will begin acting as a market place for health insurance plans and consumers in 2014. This paper compares the financial protection offered by today’s group and individual plans with the standards that will apply to insurance sold in state-based exchanges. Some states may apply these standards to all health insurance sold within the state. More than half of Americans who had individual insurance in 2010 were enrolled in plans that would not qualify as providing essential coverage under the rules of the exchanges in 2014. These people were enrolled in plans with an actuarial value below 60 percent, which means that the plans covered less than that proportion of the enrollees’ health expenses. Many of today’s individual health plans are below the “bronze” level, the lowest level of plan that can be sold through exchanges. In contrast, most group plans in 2010 had an actuarial benefit of 80–89 percent and would qualify as highly rated “gold” plans in the exchanges. To sell to ten million new buyers on the exchanges, insurers will need to redesign benefit packages. Combined with a ban on medical underwriting, the individual insurance market in a post–health reform world will sharply contrast with the market of past decades.
From the Discussion
Using simulated claim payments, we found that the average actuarial value of group plans in 2010 was 83 percent, and the average for individual plans was 60 percent. For an average family, annual out-of-pocket expenses were $1,765 with group coverage, compared to $4,127 with individual coverage. For people in poor health who incurred high medical expenses, the differences between the group and individual markets were even more dramatic.
Our findings have notable policy implications. First, the majority of Americans with individual insurance coverage today are enrolled in a plan whose actuarial value is too low to qualify for a state-based exchange. Insurance reforms that went into effect September 23, 2010, raised the financial protection offered by exchange plans. For example, lifetime maximum benefits were eliminated, effective preventive services must now be offered without cost sharing, and annual limits on insurance coverage were removed. But to qualify for exchanges, insurers will need to lower the average deductible level for individual tin plans, which today average nearly $3,900 for a single person.
Second, about two-thirds of today’s employees are enrolled in a gold or platinum plan. Families with coverage through the exchanges are likely to have less financial protection than employees with employer-based coverage enjoy today. Employers choosing to buy insurance coverage for their employees through the small-employer exchange, which could eventually include employers with more than a hundred workers, will probably obtain less extensive coverage if they opt to buy a plan in the silver tier than if they now offer a plan typical of those provided in the employer-based market today.
Third, very sick patients—those in the top 1 percent of medical spending—incur sizable out-of-pocket expenses regardless of coverage. For example, these top spenders face out-of-pocket expenses of nearly $3,800 in a group platinum plan. But there are substantial differences in out-of-pocket spending between plans with high actuarial value and plans with low value. A family in the top 1 percent of medical spenders with tin coverage in the individual market incurs annual out-of-pocket expenses of more than $27,000. (“Tin coverage” is a fifth tier created exclusively for this study. It is a level below the bronze tier – below 60 percent actuarial value – a level that will not be permitted in the state insurance exchanges.)
http://content.healthaffairs.org/content/early/2012/05/22/hlthaff.2011.1082.full

Reports of this study likely will celebrate the fact that very low actuarial value plans which are commonplace in the individual market today – those below 60 percent value (plan pays less than 60 percent of covered health costs) – will have to reduce their deductibles and perhaps make other changes to qualify under the Affordable Care Act. But is this enough?
The study compared group plans with individual plans. Group plans have an average actuarial value of 83 percent, whereas the average actuarial value for individual plans is 60 percent, with 51 percent of them falling below that threshold. Only 14 percent were silver (70% AV) and 2 percent gold (80% AV), and there were no platinum (90% AV) plans in the individual market.
The lower half of all individual plans will have to either bring their value up to 60 percent or drop out of the exchange market. This means that average actuarial values of plans in the individual market – those available through the exchanges – will still be in the low 60s – far below group plans with their average actuarial value of 83.
Further, it is likely that smaller employers will rely on the exchanges to provide coverage for their employees – again with lower actuarial value plans than is typical of employer-sponsored group plans. The impact on patients will be significant.
Repeating a quote from above, “… very sick patients—those in the top 1 percent of medical spending—incur sizable out-of-pocket expenses regardless of coverage. For example, these top spenders face out-of-pocket expenses of nearly $3,800 in a group platinum plan (the very best coverage available). But there are substantial differences in out-of-pocket spending between plans with high actuarial value and plans with low value. A family in the top 1 percent of medical spenders with tin coverage in the individual market incurs annual out-of-pocket expenses of more than $27,000.”
Although “tin coverage” (plans under 60% AV) will be prohibited in the exchanges, the financial burden on patients who need significant amounts of health care will still be great, even with the subsidies and the elimination of maximum lifetime benefits. Instead of adding to the burden of illness, we should be attempting to preserve the financial security of patients, as we would be if we had a single payer national health program – an improved Medicare for all.

By Amartya Sen
The New York Times, May 22,2012

The worthy but narrow intentions of the European Union’s policy makers have been inadequate for a sound European economy and have produced instead a world of misery, chaos and confusion.

There are two reasons for this.

First, intentions can be respectable without being clearheaded, and the foundations of the current austerity policy, combined with the rigidities of Europe’s monetary union (in the absence of fiscal union), have hardly been a model of cogency and sagacity. Second, an intention that is fine on its own can conflict with a more urgent priority — in this case, the preservation of a democratic Europe that is concerned about societal well-being. These are values for which Europe has fought, over many decades.

The cause of reform, no matter how urgent, is not well served by the unilateral imposition of sudden and savage cuts in public services. Such indiscriminate cutting slashes demand — a counterproductive strategy, given huge unemployment and idle productive enterprises that have been decimated by the lack of market demand.

There is, in fact, plenty of historical evidence that the most effective way to cut deficits is to combine deficit reduction with rapid economic growth, which generates more revenue.

There are surely lessons here from John Maynard Keynes, who understood that the state and the market are interdependent. But Keynes had little to say about social justice, including the political commitments with which Europe emerged after World War II. These led to the birth of the modern welfare state and national health services — not to support a market economy but to protect human well-being.

Though these social issues did not engage Keynes deeply, there is an old tradition in economics of combining efficient markets with the provision of public services that the market may not be able to deliver. As Adam Smith (often seen simplistically as the first guru of free-market economics) wrote in “The Wealth of Nations,” there are “two distinct objects” of an economy: “first, to provide a plentiful revenue or subsistence for the people, or, more properly, to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the public services.”

Participatory public discussion — the “government by discussion” expounded by democratic theorists like John Stuart Mill and Walter Bagehot — could have identified appropriate reforms over a reasonable span of time, without threatening the foundations of Europe’s system of social justice.

Europe cannot revive itself without addressing two areas of political legitimacy. First, Europe cannot hand itself over to the unilateral views — or good intentions — of experts without public reasoning and informed consent of its citizens.

Second, both democracy and the chance of creating good policy are undermined when ineffective and blatantly unjust policies are dictated by leaders. The obvious failure of the austerity mandates imposed so far has undermined not only public participation — a value in itself — but also the possibility of arriving at a sensible, and sensibly timed, solution.

This is a surely a far cry from the “united democratic Europe” that the pioneers of European unity sought.

(Amartya Sen is a Nobel laureate and a professor of economics and philosophy at Harvard.)

http://www.nytimes.com/2012/05/23/opinion/the-crisis-of-european-democracy.html

Comment: 

By Don McCanne, MD

Although Amartya Sen warns of the threat of unilateral austerity programs to the united democratic Europe, his words can also apply to the current political efforts in the United States to reduce the role of government through austerity measures. The current attack on Medicare exemplifies the fact that the austerity agenda does not spare our government health programs.

Perhaps the most important warning we should extract is implied by Professor Sen’s concern about the undermining of public participation. We should take heed of the fact that a united democratic nation requires not only public involvement but also public awareness of the proposed policies and their ramifications. As he writes, political legitimacy of nations requires “public reasoning and informed consent of its citizens.”

The public has to understand that the rhetoric of unilaterally “reducing taxes” equates with imposing government austerity. They then have to understand what government austerity truly means. It does not mean, “cut my taxes, but leave my Medicare alone.”

The Crisis of European Democracy

By Amartya Sen
The New York Times, May 22,2012
The worthy but narrow intentions of the European Union’s policy makers have been inadequate for a sound European economy and have produced instead a world of misery, chaos and confusion.
There are two reasons for this.
First, intentions can be respectable without being clearheaded, and the foundations of the current austerity policy, combined with the rigidities of Europe’s monetary union (in the absence of fiscal union), have hardly been a model of cogency and sagacity. Second, an intention that is fine on its own can conflict with a more urgent priority — in this case, the preservation of a democratic Europe that is concerned about societal well-being. These are values for which Europe has fought, over many decades.
The cause of reform, no matter how urgent, is not well served by the unilateral imposition of sudden and savage cuts in public services. Such indiscriminate cutting slashes demand — a counterproductive strategy, given huge unemployment and idle productive enterprises that have been decimated by the lack of market demand.
There is, in fact, plenty of historical evidence that the most effective way to cut deficits is to combine deficit reduction with rapid economic growth, which generates more revenue.
There are surely lessons here from John Maynard Keynes, who understood that the state and the market are interdependent. But Keynes had little to say about social justice, including the political commitments with which Europe emerged after World War II. These led to the birth of the modern welfare state and national health services — not to support a market economy but to protect human well-being.
Though these social issues did not engage Keynes deeply, there is an old tradition in economics of combining efficient markets with the provision of public services that the market may not be able to deliver. As Adam Smith (often seen simplistically as the first guru of free-market economics) wrote in “The Wealth of Nations,” there are “two distinct objects” of an economy: “first, to provide a plentiful revenue or subsistence for the people, or, more properly, to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the public services.”
Participatory public discussion — the “government by discussion” expounded by democratic theorists like John Stuart Mill and Walter Bagehot — could have identified appropriate reforms over a reasonable span of time, without threatening the foundations of Europe’s system of social justice.
Europe cannot revive itself without addressing two areas of political legitimacy. First, Europe cannot hand itself over to the unilateral views — or good intentions — of experts without public reasoning and informed consent of its citizens.
Second, both democracy and the chance of creating good policy are undermined when ineffective and blatantly unjust policies are dictated by leaders. The obvious failure of the austerity mandates imposed so far has undermined not only public participation — a value in itself — but also the possibility of arriving at a sensible, and sensibly timed, solution.
This is a surely a far cry from the “united democratic Europe” that the pioneers of European unity sought.
(Amartya Sen is a Nobel laureate and a professor of economics and philosophy at Harvard.)
http://www.nytimes.com/2012/05/23/opinion/the-crisis-of-european-democracy.html

Although Amartya Sen warns of the threat of unilateral austerity programs to the united democratic Europe, his words can also apply to the current political efforts in the United States to reduce the role of government through austerity measures. The current attack on Medicare exemplifies the fact that the austerity agenda does not spare our government health programs.
Perhaps the most important warning we should extract is implied by Professor Sen’s concern about the undermining of public participation. We should take heed of the fact that a united democratic nation requires not only public involvement but also public awareness of the proposed policies and their ramifications. As he writes, political legitimacy of nations requires “public reasoning and informed consent of its citizens.”
The public has to understand that the rhetoric of unilaterally “reducing taxes” equates with imposing government austerity. They then have to understand what government austerity truly means. It does not mean, “cut my taxes, but leave my Medicare alone.”

GAO (Government Accountability Office)
May 14, 2012

Fewer small employers claimed the Small Employer Health Insurance Tax Credit in tax year 2010 than were estimated to be eligible. While 170,300 small employers claimed it, estimates of the eligible pool by government agencies and small business advocacy groups ranged from 1.4 million to 4 million. The cost of credits claimed was $468 million. Most claims were limited to partial rather than full percentage credits (35 percent for small businesses) because of the average wage or full-time equivalent (FTE) requirements. 28,100 employers claimed the full credit percentage. In addition, 30 percent of claims had the base premium limited by the state premium average.

One factor limiting the credit’s use is that most very small employers, 83 percent by one estimate, do not offer health insurance. According to employer representatives, tax preparers, and insurance brokers that GAO met with, the credit was not large enough to incentivize employers to begin offering insurance. Complex rules on FTEs and average wages also limited use. In addition, tax preparer groups GAO met with generally said the time needed to calculate the credit deterred claims. Options to address these factors, such as expanded eligibility requirements, have trade-offs, including less precise targeting of employers and higher costs to the Federal government.

http://www.gao.gov/assets/600/590832.pdf

Comment: 

By Don McCanne, MD

One of the benefits of the Affordable Care Act is the tax credits offered to small businesses to help them obtain health insurance coverage for their employees. This evaluation by the GAO shows that, in 2010, 83 percent of small businesses eligible for the full credit did not even offer health insurance.

According to the report, “small employers do not likely view the credit as a big enough incentive to begin offering health insurance and to make a credit claim, according to employer representatives, tax preparers, and insurance brokers we met with.”

Though the complexity of the rules and the modest amount of the credits are cited as causes for the low participation rates, the fundamental flaw is that this program was designed to comply with our fragmented, dysfunctional system of financing health care – a model that will always fall short of reform goals.

Instead of trying to patch our fragmented program of private plans and pubic programs, we need to replace it with a single payer national health program – an improved Medicare for all.

Small Employer Health Tax Credit: Factors Contributing to Low Use and Complexity

GAO (Government Accountability Office)
May 14, 2012
Fewer small employers claimed the Small Employer Health Insurance Tax Credit in tax year 2010 than were estimated to be eligible. While 170,300 small employers claimed it, estimates of the eligible pool by government agencies and small business advocacy groups ranged from 1.4 million to 4 million. The cost of credits claimed was $468 million. Most claims were limited to partial rather than full percentage credits (35 percent for small businesses) because of the average wage or full-time equivalent (FTE) requirements. 28,100 employers claimed the full credit percentage. In addition, 30 percent of claims had the base premium limited by the state premium average.
One factor limiting the credit’s use is that most very small employers, 83 percent by one estimate, do not offer health insurance. According to employer representatives, tax preparers, and insurance brokers that GAO met with, the credit was not large enough to incentivize employers to begin offering insurance. Complex rules on FTEs and average wages also limited use. In addition, tax preparer groups GAO met with generally said the time needed to calculate the credit deterred claims. Options to address these factors, such as expanded eligibility requirements, have trade-offs, including less precise targeting of employers and higher costs to the Federal government.
http://www.gao.gov/assets/600/590832.pdf

One of the benefits of the Affordable Care Act is the tax credits offered to small businesses to help them obtain health insurance coverage for their employees. This evaluation by the GAO shows that, in 2010, 83 percent of small businesses eligible for the full credit did not even offer health insurance.
According to the report, “small employers do not likely view the credit as a big enough incentive to begin offering health insurance and to make a credit claim, according to employer representatives, tax preparers, and insurance brokers we met with.”
Though the complexity of the rules and the modest amount of the credits are cited as causes for the low participation rates, the fundamental flaw is that this program was designed to comply with our fragmented, dysfunctional system of financing health care – a model that will always fall short of reform goals.
Instead of trying to patch our fragmented program of private plans and pubic programs, we need to replace it with a single payer national health program – an improved Medicare for all.

Health Care Cost Institute
May 2012

The Health Care Cost Institute (HCCI) was created in September 2011 to provide comprehensive data on health care costs and promote independent, nonpartisan research and analysis on the causes of the rise in U.S. health spending.

HCCI’s research activities are based on de-identified data voluntarily provided by Aetna, Humana, Kaiser Permanente, and UnitedHealthcare, four of the nation’s largest insurers.

The 2010 HCCI Health Care Cost and Utilization Report is the first report of its kind to track changes in expenditures and utilization of health care services by those younger than 65 covered by employer sponsored, private health insurance (ESI).

$4,255 –
Average annual per capita health care spending for beneficiaries younger than 65 and covered by employer-sponsored group insurance in 2010.

1.6% & 3.3% –
The consumer price index (CPI-U), a measure of price inflation, and the growth rate of average per capita spending on group ESI beneficiaries younger than 65 (2009-2010). Per capita spending outpaced overall price inflation in 2010.

2.6% & 7.1% –
Growth rate of estimated per capita health care spending by insurers and beneficiaries, respectively, between 2009 and 2010.

Summary of the Executive Summary

We find continued growth in per capita and estimated aggregate health care spending in this population, although that growth is less than 4 percent. This is consistent with the Centers for Medicare & Medicaid Services’ findings regarding national health expenditures. Patients’ out-of-pocket share of prices paid went up, although the cost-sharing rate on a per capita basis (including beneficiaries who did not use services) did not change much. Prices increased across all categories of service, with outpatient services experiencing the fastest growth. Unlike other recent reports on health care spending, we find that the increased spending is mostly due to unit price increases rather than changes in the quantity or intensity of services.

http://www.healthcostinstitute.org/files/HCCI_HCCUR2010.pdf

And…

S&P Healthcare Economic Indices

March 2012 Update

7.84% – S&P Healthcare Economic Commercial Index
2.41% – S&P Healthcare Economic Medicare Index

http://www.standardandpoors.com/indices/sp-healthcare-economic-indices/en/us/?indexId=sp-healthcare-economic-indices

Comment:

By Don McCanne, MD

Until now, much of our information on health care costs has been obtained from government sources – especially Medicare and Census data. The Health Care Cost Institute is an effort on the part of the private insurance industry to share their data in an effort to improve research and analysis on the causes of the rise in U.S. health care spending.

Cooperating in this effort are Aetna, Humana, Kaiser Permanente, and UnitedHealthcare. Conspicuously absent are Cigna, and especially WellPoint.

Many reasons are given for our very high health care costs, but this study adds to the evidence that price increases are the most important factor (except, of course, for the administrative waste that is usually ignored in studies like this). The excess increase in prices is a particularly relevant observation since this study was limited to individuals under 65 with employer-sponsored, private health insurance.

This report establishes beyond any doubt that the nation’s largest private insurers have been ineffective in controlling health care prices (not to mention generating more administrative waste). In spite of the contracts that the private insurers have with health care providers, health care price increases continue to greatly exceed the rate of inflation. Also, the most recent S&P Healthcare Indices confirm, once again, that our government Medicare program has been far more effective in controlling per capita health care costs than have the private commercial insurers.

All other nations control health care prices. Medicare controls health care prices. Only our private insurers have been incompetent in slowing price escalation. This is yet more evidence that private insurer intermediaries functioning relatively autonomously in the health care marketplace are ineffective in bringing us better pricing of health care products and services. This is a job for government, not the marketplace.

We are often accused of being unfairly critical of the private insurers since it is not their fault that health care prices are so high. Do we really care whether or not it is their fault? Prices are high, and they haven’t helped. They are a profoundly expensive administrative industry. We should continue to waste our vast sums on their ineffective model of price containment?

Look at the growth rates of per capita health spending that they report in this study of their own industry. The spending by the insurers increased at a rate of 2.6%, a feat that they were able to accomplish partly by increasing beneficiaries costs by 7.1%! Is that the kind of assistance that we need from this industry?

It’s time to throw them out of the Temple (a biblical proxy for all religious and secular moralists).