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Health Reform Trends, Research and Analysis Website

This website provides analyses into assorted health care issues in the United States. With the aging U.S. population, there will be a significant increase in demand for health care services.  Under the status quo, these demands will place an extremely heavy burden not only on Federal and state governments but on citizens as health care costs continue to rise faster than inflation, wages, salaries, and benefits.

In 2011 there was an increased interest in 2011 on funding issues. In response, the site adds analyses dealing with wealth and income that may provide potential funding sources, not just for health care but to reduce deficits that have grown sharply during the “great” recession. Analyses focusing on income and wealth issues are now noted separately on the “Research-Analysis” tab on this website.

The analyses on this site rely primarily on data provided by non-partisan government agencies, long-established research institutions, and enterprises whose business is to analyze aspects of health care, be it health insurance or hospitals or health care providers.

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ACA Health Insurance Exchanges – Not All are Competitive

Download PDF Report >>> ACA Exchange Premium Extremes

SUMMARY

The Affordable Care Act (ACA) created state run Insurance Exchanges to stimulate competition among health insurers. Some believe that private insurers are better suited to manage the complex health insurance market. But are they?

Kaiser Health News (KHN) recently published premiums that private insurers charge on ACA Exchanges. KHN identified 10 ACA Exchanges with the highest premiums, and 10 with the lowest. They found extreme differences and attributed them to competition or lack thereof. This analysis confirms those conclusions by comparing actual Medicare costs for those same areas.

Detailed cost data published by Medicare show that medical costs for seniors are fairly consistent across these 20 ACA Exchanges. Though costs for seniors are much higher than for those under 65, they provide a valid proxy for all medical costs when comparing one market area with another.

Medicare payments are based on service costs with pricing input from the American Medical Association. Medicare adjusts for regional differences so costs are consistent across the nation. Medicare essentially ignores hospital and doctor billing prices.

Private insurers, on the other hand, derive their costs more from provider billing prices which have been shown to be highly inconsistent.  (http://insr.us/hospbill) Insurers do negotiate discounts from billing prices, but if the billing basis is inconsistent, it is harder to get a consistent result.

If there are few dominant providers, insurers have less leverage over discounts. If there are few dominant insurers, they are less inclined to aggressively set lower premiums.

Only one conclusion supports the enormous differences in premiums between the high and low cost ACA Exchanges. In areas where little competition exists, whether it be providers or insurers, private insurers are unable or unwilling to offer competitive pricing. The belief that private insurers are better suited to restrain market prices rings false in these instances.

METHODOLOGY

For years, health insurance markets have been divided into areas that coincide with county lines. The ACA insurance Exchanges continue to abide by these market boundaries.

Kaiser Health News (KHN) analyzed these “market areas” and found huge differences in ACA Exchange premiums. They identified 10 most expensive market areas and 10 least expensive areas (listed in Appendices 3 and 4).

ACA Exchanges insure people under 65, and premiums are derived from expected costs based on historical costs in the counties that make up each ACA Exchange.

Medicare publishes medical costs data down to the county level. Though Medicare costs apply primarily to seniors, one can map those costs to align with the 20 market areas. It does not matter that Medicare’s costs are much higher than for those under 65. The relative costs are what are important.

If two market areas have similar Medicare costs, it is fair to assume that medical costs for those not in Medicare will also be similar. Conversely, if Medicare costs are far different, one expects non Medicare costs will also be different.

Medicare data include all costs, while ACA Exchange data is only for premiums. Is this apples and oranges? Well no, because ACA requires insurers to offer plans identical in coverage and which differ only in cost sharing.

With identical coverage, the costs of each plan are identical. All that differs is the cost sharing. Plans called “Bronze” have premiums that cover 60% of expected costs, “Silver” which cover 70%, “Gold” – 80%, and “Platinum” – 90%.

Knowing this, one simply divides the premium by the percent coverage to derive total expected costs. If premiums for a silver plan are $280 per month, total expected costs would be $400 per month (280 / 70% = 400).

Since the KHN report applied to Silver plans for a 40 year old, premium costs were divided by 70% to get total expected costs. Direct cost comparisons can now be made between 40 year olds on ACA Exchanges and seniors on Medicare.

DISCUSSION

Kaiser Health News (KHN) recently published premiums that private insurers charge on ACA Exchanges. KHN identified 10 ACA Exchanges with the highest premiums, and 10 with the lowest. They found extreme differences but did not include an analysis of the causes.

The graph below shows monthly Silver Plan premiums for a 40 year old in the 10 LOWEST ACA Insurance Exchange Areas. As the labels at right show, those market areas occur over multiple geographic regions.

The green bar at bottom of the graph shows the average premium which is just over $170 per month.

Premiums 10 lowest

Like the first graph, the graph below shows monthly Silver Plan premiums for a 40 year old in the 10 HIGHEST ACA Insurance Exchange Areas. Again the labels at right show those market areas occur over multiple geographic regions.

The green bar at bottom of the graph shows the average premium which is more than $400 per month.

Premiums 10 highest

Combing the highest and lowest, the graph below compares the monthly premiums, gold for the highest cost areas and green for the lowest. The differences in premiums are huge. The lowest ACA Exchange areas have average premiums less than half (about 40%) the premiums of the highest.

Prem hi vs lo

Having a direct comparison between high and low premiums, the next step is to compare all these 20 ACA premiums with another measurement common to all the same market areas. Medicare spending fits that bill, as it not only occurs in every area, it also comprises half of ALL medical spending in them.

This works only if Medicare costs are an appropriate proxy for ACA Exchange costs. To test, one needs comprehensive data on personal health care (PHC) spending by age group. Medicare provides that data which covers millions of people though only through 2004 as shown in the graph below.

Health Spend all ages

The top line, seniors 65 and older, incurred a sharp increase in health care spending 1987 – 1996. Since 1996, cost increases have been proportional among all age groups. A closer look within Medicare age groups is done to assure Medicare is an acceptable proxy for all health care spending.

The following graph subdivides Medicare only costs into three age groups. The sharp rise in 1996 average cost was most affected by those 85 and older. Since 1996, all age group’s costs have risen proportionately. As cost trends for all age groups are similar since 1996, Medicare costs offer a good proxy for medical costs of other age groups as well.

Health Spend Medicare

The graph below combines the prior graphs of total Personal Health Care Spending per capita into seven age groups. The four left bars include all groups under 65 years old. The next three bars (aqua, gold and light blue) represent the three Medicare age groups. The last two bars on the right show national averages for all those under 65 (red) and all those 65 and older (green).

HC Spend all n avg

It is clear that health costs rise rapidly with age, accelerating more in senior years. The average costs for 40 year olds are included in the second (yellow) bar from the left which costs average less than $400 per month.

Averages for Medicare health costs, as shown in the far right green bar, are some three times greater than for 40 year olds. While this data is only through 2004, all medical costs have risen at about the same rate. One can expect Medicare costs today to still be about three times that of a 40 year old.

The above graph shows costs. To directly compare these total costs with ACA Exchange premiums, just covert premiums to total costs. As noted in the Methodology, divide premiums by 70% to get expected costs for each ACA Exchange.

The next graph shows these total estimated costs for each of the 20 market areas. For the 10 most expensive areas, costs average about $600 per month. For the 10 least expensive areas, total average costs are about $245 per month, 40% of the high cost areas. The graph is the same as that for premiums above, but with 40+% higher monthly costs.

HC Cost hi vs lo

With total costs available for all, the graph below compares Medicare costs with costs of 40 year olds in each of the 10 lowest cost ACA Exchange areas. The low Medicare costs in the 4th series is Hawaii, which is the only outlier in this series.

In these competitive ACA Exchange areas, the average spread between Medicare and ACA is over four times. On a national average as shown above, the spread is around three times which shows competition really can reduce premiums.

Medicare vs 10 low

Before comparing total Medicare costs with the highest cost ACA Exchange areas, it is helpful to know what Medicare costs are in the highest cost areas relative to lowest cost areas. The graph below shows Medicare costs in all 20 market areas. While there are variations in total Medicare costs between market areas, there are no trends that favor either high or low cost ACA Exchange areas.

Medicare 20 hi n lo

The conclusion drawn from this graph is that high cost ACA Exchange areas have Medicare costs similar to low cost ACA Exchange costs. Nothing is inherently different for seniors.

The next graph compares total Medicare costs with total costs of 40 year olds in each of the 10 highest cost ACA Exchange areas. As expected, seniors’ Medicare costs are higher than are 40 year olds costs. However, with the national average spread around three times for this age group and Medicare, the difference here is one tenth of that, less than a 30%.

Since Medicare costs are not so different between high and low cost areas, the only conclusion is that ACA Exchange costs are too high. These high cost estimates have led to private insurer premiums far higher expected.

Medicare vs 10 hi

In conclusion, Medicare costs do not differ much between high and low cost ACA Exchange areas. By extension, health care costs for a 40 year old should not differ by much. Yet, the difference in premiums is huge.

If the insurer has near monopoly power, it has little reason to demand deep discounts. Insurers’ margins are constrained by ACA law to 20%. In short, 20% of a higher cost is more profitable than 20% of a lower cost. So why press harder for lower costs?

If the provider has near monopoly power, the insurer has little leverage since there are no competitive providers as an alternative. Either way, individuals in some ACA Exchanges are paying higher costs than expected.

Medicare doesn’t worry about either dominant insurers or dominant providers. It has a national payment scale, and with Medicare amounting to half a provider’s business, the providers are virtually forced to accept Medicare’s terms.

ONE SOLUTION IDEA

There is a solution that could remedy this situation. Amend the ACA with a proviso to apply only to any ACA Exchange market area in which the spread between insurers’ premiums and Medicare payments is greater than some threshold.

If the spread exceeds that maximum, ACA could create a public insurance option and where the public option requires providers to accept both Medicare and the option or neither. Public option premiums would key off Medicare payments plus an added profit margin to level the playing field with private insurers. This would force competition regardless of whether the insurer or the provider was dominant.

APPENDIX 1

One further check on Medicare as a proxy is a deeper dive into its major components to see if any are skewing total costs. The two graphs below highlight hospital admissions and emergency room visits per thousand beneficiaries in the 20 ACA Exchange areas. As expected, variations exist, but no consistent pattern appears between Medicare admissions between ACA Exchange areas.

CMS Hospital

CMS ER visit

There is one outlier and that is Medicare costs in the highest cost ACA Exchange area, a ski resort area. Here Medicare hospital and emergency room visits are markedly lower. It is likely that seniors living here may be more active in winter sports. This suggests they may be generally fit than the average senior, and thus incur fewer hospital and ER visits.

APPENDIX 2

Source for the 10 least expensive and 10 most expensive ACA Health Insurance Exchange areas were compiled by Kaiser Health News (KHN) from data developed by the Kaiser Family Foundation Program for the Study of Health Reform and Private Insurance, healthcare.gov, and ACA Exchanges. The costs analyzedwere for a 40 year old person.

KHN is a nonprofit news organization committed to in-depth coverage of health care policy and is an editorially-independent program of the Kaiser Family Foundation, a non-profit private operating foundation, based in Menlo Park, Calif., dedicated to producing and communicating the best possible analysis and information on health issues.

APPENDIX 3: 10 Least Expensive Areas (Counties)

$154: Minneapolis-St. Paul. Anoka, Carver, Dakota, Hennepin, Ramsey, Scott, Sherburne and Washington counties.

$164: Pittsburgh and Northwestern Pennsylvania. Allegheny, Armstrong, Beaver, Butler, Crawford, Erie, Fayette, Greene, Indiana, Lawrence, McKean, Mercer, Warren, Washington and Westmoreland counties.

$166: Middle Minnesota. Benton, Stearns and Wright counties.

$167: Tucson, Ariz. Pima County.

$171: Northwestern Minnesota. Clearwater, Kittson, Mahnomen, Marshall, Norman, Pennington, Polk and Red Lake counties.

$173: Salt Lake City. Davis and Salt Lake counties.

$176: Hawaii. All counties.

$180: Knoxville, Tenn. Anderson, Blount, Campbell, Claiborne, Cocke, Grainger, Hamblen, Jefferson, Knox, Loudon, Monroe, Morgan, Roane, Scott, Sevier & Union counties.

$180: Western and North Central Minnesota. Aitkin, Becker, Beltrami, Big Stone, Cass, Chippewa, Clay, Crow Wing, Douglas, Grant, Hubbard, Isanti, Kanabec, Kandiyohi, Lac qui Parle, Lyon, McLeod, Meeker, Mille Lacs, Morrison, Otter Tail, Pine, Pope, Renville, Roseau, Sibley, Stevens, Swift, Todd, Traverse, Wadena Wilkin and Yellow Medicine counties.

$181: Chattanooga, Tenn. Bledsoe, Bradley, Franklin, Grundy, Hamilton, Marion, McMinn, Meigs, Polk, Rhea and Sequatchie counties.

Source: http://www.kaiserhealthnews.org/Stories/2014/February/13/10-Least-Expensive-Health-Insurance-Markets-In-US.aspx

 

APPENDIX 4: 10 Most Expensive Areas

$483: Colorado Mountain Resort Region. Eagle, Garfield and Pitkin counties, home of Aspen and Vail ski resorts. Summit County premiums are $462.

$461: Southwest Georgia. Baker, Calhoun, Clay, Crisp, Dougherty, Lee, Mitchell, Randolph, Schley, Sumter, Terrell and Worth counties.

$456: Rural Nevada Esmeralda, Eureka, Humboldt, Lander, Lincoln, Elko, Mineral, Pershing, White Pine and Churchill counties.

$445: Far western Wisconsin. Pierce, Polk and St. Croix counties. (across the border from St. Paul, Minn.)

$423: Southern Georgia. A swath of counties adjacent to the even more expensive region. Ben Hill, Berrien, Brooks, Clinch, Colquitt, Cook, Decatur, Early, Echols, Grady, Irwin, Lanier, Lowndes, Miller, Seminole, Thomas, Tift and Turner counties.

$405: Most of Wyoming. All counties except Natrona and Laramie.

$399: Southeast Mississippi. George, Harrison, Jackson & Stone counties. In Hancock County, the lowest price plan is $447.

$395: Vermont.* (Unlike other states, Vermont does not let insurers charge more to older people and less to younger ones. Its ranking therefore will differ depending on the ages of the consumers)

$383: Connecticut. Fairfield County. (The southwestern-most county, which includes many affluent commuter towns for New York City.)

$381: Alaska. All counties.

Source: http://www.kaiserhealthnews.org/Stories/2014/February/03/most-expensive-insurance-markets-obamacare.aspx?p=1

APPENDIX 5: Source-healthcare spending by age group:

http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/downloads/2004-age-tables.pdf

 

APPENDIX 6: Source-Medicare Costs and Utilization by geographic area:

Table_State County_All_December 2013.zip from Centers for Medicare & Medicaid Services (CMS).

Website: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Medicare-Geographic-Variation/Downloads/State_County_Table_All.zip

 

APPENDIX 7: Some Relevant Provisions of the Affordable Care Act.

It now appears that some market areas have less competition and the only way for an insurer to offer qualified plans is for ACA to ease a bit regarding condition (B) “ensuring sufficient choice of providers”.

Section 1311. AFFORDABLE CHOICES OF HEALTH BENEFIT PLANS (emphasis added)

1311(c) (1) Qualified Health Plans

(1) IN GENERAL.—The Secretary shall, by regulation, establish criteria for the certification of health plans as qualified health plans. Such criteria shall require that, to be certified, a plan shall, at a minimum—

(A) meet marketing requirements, and not employ marketing practices or benefit designs that have the effect of discouraging the enrollment in such plan by individuals with significant health needs;

(B) ensure a sufficient choice of providers (in a manner consistent with applicable network adequacy provisions under section 2702(c) of the Public Health Service Act), and provide information to enrollees and prospective enrollees on the availability of in-network and out-of-network providers;

(C) include within health insurance plan networks those essential community providers, where available, that serve predominately low-income, medically-underserved individuals individuals, such as health care providers defined in section 340B(a)(4) of the Public Health Service Act and providers described in section 1927(c)(1)(D)(i)(IV) of the Social Security Act as set forth by section 221 of Public Law 111–8, except that nothing in this subparagraph shall be construed to require any health plan to provide coverage for any specific medical procedure;

1311(c) (2) Rule of Construction

RULE OF CONSTRUCTION.—Nothing in paragraph (1)(C) shall be construed to require a qualified health plan to contract with a provider described in such paragraph if such provider refuses to accept the generally applicable payment rates of such plan.

.

Download PDF Report >>> ACA Exchange Premium Extremes

MSNBC misses on Medicare reforms

Lawrence O’Donnell commented on Medicare reforms in Obama’s State of the Union speech. He seemed to imply that Obama was shifting from “fee for service”, the current model, to  “capitation”, or HMO model. That is neither what Obama said nor implied.

What the Affordable Care Act (ACA) promotes is not the HMO or capitation model, but “payment for results”. This is something of a hybrid of “fee-for-service” and “capitation”. Fee-for-service IS unsustainable while a Medicare HMO would put the entire cost risk on the providers — both the risk [1] for the cost of each incident AND [2] for the frequency of incidents.  That is too much risk for Providers. But there is a middle road.

“Payment for results” in the ACA “constrains” the cost for an incident but for NOT the frequency of incidents. So if twice as many seniors got the flu, providers would receive flu reimbursement for each senior treated.  Just as occurs now, there is no added risk to providers if more people get sick or injured.

What changes is the reimbursement for an individual incident.  “Payment for results” ends the one-for-one fee-for-service where hospitals and doctors are reimbursed a dollar for every eligible dollar billed.

However, Medicare’s “results” payments would apply only to combined groups of hospitals and doctors called “Accountable Care Organizations” (ACO). To encourage formation of ACO’s, ACA offers a carrot. If the ACO members working together can treat, for example, a flu incident for less, Medicare will first pay the ACO that lower cost but it will also share with the ACO the savings between billed cost and an imputed fee-for-service cost.  Further, Medicare would make one combined payment to the ACO and not be involved in how the ACO divides that payment between hospitals and doctors.

Along with the carrot is a stick. If the ACO over-treated (higher cost) or mistreated that led to a relapse (poor result) and additional treatments,  the ACO would not get reimbursed the full amount for these “extra” services. The ACO’s have a two-edged incentive to become more efficient.

With fee-for-service, efficient providers that bill less are paid less. Medicare keeps ALL the savings, so why should providers bust their butts to lower costs. Under ACA these ACO providers now get to share in the savings.  This idea is not only good for providers and Medicare, but the entire health insurance industry. Providers are rapidly forming ACO’s across the country, not just for Medicare patients but for the entire population. Even some insurers are forming ACO’s, becoming both the insurer and provider.

For decades, hospitals or doctors have competed somewhat “softly” in that you never see price wars between providers.  The business model of for-profit insurers closely mirrored the “cost-plus” model of some  military contracts that led to $600 toilet seats.  Insurers had limited incentive (or success) to put heavy pressure  on providers. Instead, insurers spent more time cherry picking their membership to reduce claims instead of constraining  provider costs.

Under ACA’s prohibition of excluding people with pre-existing conditions, insurers will no longer be able to cherry pick their membership. To compete, they will have to focus more attention on lowering provider costs. Hence, their incentive is also to promote ACO’s.

Finally, the ACA made payment for results a pilot program since this model is untested in the United States. Not being mandatory, the CBO has not factored in any savings arising from this program.  The savings could be substantial and we have some evidence that savings will occur.

One analyses on this site, “Medicare – Fewer Benefits or Less Waste” compares Mayo Clinic’s all-in costs versus the highest cost 20% of hospitals. Mayo’s prices are higher than industry average, but their intensity was lower (fewer days, fewer treatments). If the 20% highest cost hospitals had costs comparable to Mayo’s, the savings could exceed $250 BIllion over 10 years. A significant savings indeed.

Response to Essential Health Benefits Bulletin

Download PDF Report >>> Response to Essential Health Benefits Bulletin

SUMMARY

Health and Human Services (HHS) Bulletin sets guidelines for defining Essential Health Benefits (EHB). It ingeniously allows each State to have a say in its own EHB definition, yet provides a method to bring closure to the process should any State not reach an agreement. It also allows States to add benefits, but at their own expense. With federally providing premium assistance to lower income enrollees, it is important that only minimum State EHB premiums be supported.

The bulletin will likely require every State to add or enhance some services that are not now offered to small groups and individuals. This may lead to a premium increase for small groups and individuals not eligible for premium assistance.  Until actuarial efforts identify these costs, this remains an unanswered issue.  Everyone is concerned about higher costs, but Insurers have added concerns about adverse selection. The Affordable Care Act (ACA) mitigates this concern by reinsurance and risk adjustment provisions in the act. Continue reading

Tell Me Something I Don’t Know

Download PDF Report >>> Tell me something I dont know

You know the good features in the Affordable Care Act. You know Republicans want to repeal it.  Fine, so “tell me something I don’t know”.

REPUBLICAN PROPOSALS

For instance, did you know that Nixon proposed a comprehensive health reform plan in 1974, or that Republicans countered Clinton’s health reform with their own in ‘93? What were some of their reforms?

Start with the ever-popular individual mandate. Republicans were strongly for it. Now they are solidly against it.  Banning exclusions due to pre-existing conditions?  They were for that before they were against it.   Continue reading

Individual Mandate not necessary – But will you like the alternative?

Download PDF Report >>>Individual Mandate Alternative

SUMMARY

Of all the issues in the Patient Protection and Affordable Care Act (ACA or PPACA), one that has drawn an extraordinary amount of attention is the Individual mandate. Looked at in isolation, it may seem like an overreach. However, a broader view indicates why this provision or similar was included at all.

It is included because another section of ACA prohibits Health Insurers from rejecting people with pre-existing conditions as they do now. Some medical conditions may be avoidable, but the vast majority of pre-existing conditions occur through no fault of the individual. Insurance of all types is to spread risk, and the more skewed the risk the greater the need for insurance. Health costs are extremely skewed making health insurance vital to a modern economy.

ACA mandated that everyone buy insurance and that makes sense. However, the objection is forcing people to buy from a private company. There are several options to resolve that. One is to create a government-run insurer. That would eliminate forcing people to buy from a private insurer. A second is to make payment for any service obtained by an uninsured person a loan similar to student loans that could not be discharged for any reason. They would carry interest and be payable in full no matter the circumstances.

DISCUSSION

The percent of people with pre-existing conditions is small and to the majority of folks without such a condition, it may seem like a trivial matter. However, the number of people with pre-existing conditions is in the millions, and the cost to them has been and can be horrific. Medical expenses for these people have led to thousands of bankruptcies as health care costs sapped all their savings and more.

Insurers soon will be required to insure ALL persons regardless of medical condition. There is the very real risk of some people will avoid buying insurance, and then when they have an injury, or find they have a chronic condition like asthma or diabetes, they would only buy health insurance AFTER they know they have a medical condition.

One would think that any notion of personal responsibility would have all persons get insurance in order to spread health costs risks over the greatest population. The more people that buy insurance, the lower the cost per person. However, experience has shown that some people will NOT buy insurance if they feel they will not get sick or injured.

Fortunately, many employers offer health insurance for their employees, and by law, health insurers covering insurance through work (group insurance) MAY NOT exclude people with pre-existing conditions after some limited period of time, usually less than a year. However, the same did not apply to individuals until health care reform.

Note that employed individuals usually have access to health insurance.  Full time employees, that is. With rising costs, what have many employers done including some of the largest?  They have reverted to greater use of part time employees who do not enjoy the same privilege and access to health insurance as do full time employees. This is putting more pressure on reforming individual insurance plans.

People do not just dream up laws in a vacuum. Most fall into two categories. One is responses to maintain clean food, air and water, or help disadvantaged people, often the result of some abuse (social laws). The second are financial laws, like taxes or efforts to reduce taxes via special treatment for some (loopholes). ACA addresses the former by adding a financial provision, the individual mandate.

Everyone who works pays into social security and Medicare. Since Medicare is health insurance, there already is a mandate for working individuals to buy health insurance from the government. The only distinction is that Medicare is government-run insurance, while the ACA mandate applies to buying insurance from private companies.

ALTERNATIVE ONE

In the state run insurance exchanges to which any health insurer can join, add a government-run health insurer. Then the individual mandate does not require buying from a private insurer. However, if an individual decided against all private insurers they would have to buy the government-run insurance plan, just like Medicare and clearly legal.

However, politics intervened. Draft legislation DID INCLUDE a government-run insurer. They called it the “Public option”. It would operate on the same level field as private insurers and not be subsidized in any way. Private and government insurers would compete for business. Still, critics objected, and politicians stripped this provision from the final bill.

Why the objections?  Perhaps it was fear of competition.  To understand the public option, all one has to do is look at Medicare. Different in that it would cover people under 65 years old. In addition, women over 65 do not get pregnant, so there would be some differences in coverage.

What few know is government manages Medicare entirely through private health insurers. Insurers use a term Medical Loss Ratio (MLR) do describe how much of a premium dollar goes to pay health care costs. For Medicare, the MLR is over 95% meaning over 95 cents per premium dollar goes for health benefits. For private insurers, not so much. Their average MLR is in the low 80% range, and for individual insurance, which Medicare is, the MLR is even lower. How can private insurers compete with someone whose costs are less than one quarter of their own?

The honest answer is they cannot, at least not as currently structured. However, where does the constitution guarantee private enterprise continued profitability or even existence? “Destructive renewal” is a term used by business to explain competition that virtually by definition requires companies to fail as other more efficient companies market their goods and services for less; or whose new goods and services make prior ones obsolete (think cassette tapes).

It is worth noting that private health insurers used to have MLR’s in the mid 90%, but that was 30 years ago when nearly all insurers were non-profit.  Over time, for-profit insurers became more prevalent, and as they did, they had to show a profit for their investors. Some admin efforts were devoted to marketing. Some to reducing costs. Some to profits. The net effect, however, is that far fewer dollars went for health care costs and more went for overhead and profits. Yet some of these same companies administer Medicare contracts for less than 5 cents on the dollar. What is apparent is that insurers could cut back on what it now costs them to weed out people with pre-existing conditions, but more efficiency are needed to compete.

ALTERNATIVE TWO

Set the ground rules for individual insurance similar to that of group insurance obtained through work. If a person elects not to purchase insurance, and gets sick or injured, a person could still buy insurance but the law would allow pre-existing exclusions to extend for one year. Also like group insurance, if a person previously had health coverage, and not more than 60 days elapsed without coverage, then the person could buy health insurance with no waiting period.

This alternative needs to have a bit more teeth to be effective. This is because there is a law that hospitals have to treat EVERYONE, regardless of ability to pay, and a healthy person could delay for years purchase of health insurance. They would only buy insurance when they get sick.

The current Medicare drug program provides a template for solving this issue. If a senior fails to purchase drug insurance, the premium continues to rise for as long as one remained uninsured. One can apply a similar index to health insurance. But how does one provide assurance of payment? Since the person required services, it should be legal to require the person to purchase insurance to pay for those services, and if the person is unable or unwilling to pay, the government could advance a loan similar to student loans.

That loan would bear interest, need to be paid over time (though shorter than for student loans), and could not be discharged by bankruptcy. If not paid by retirement, payments would be deducted from that person’s social security, just like student loans.  Gone is the mandatory requirement. Replacing it is an automatic loan that the individual must repay in full with no exits.

Since the government would initially pay the hospital, it also could determine the ability to pay of the person getting treatment. If that person was indigent, they could be put on Medicaid, and no medical loan would be created.  If the person’s income were within the subsidized amount, they would have been eligible for had they carried insurance, the loan would be reduced by the amount of the subsidy. Since the hospital is paid in full, there would be no cost shifting to those who bought insurance.

ALTERNATIVE THREE

As noted above, a law requires hospitals to treat EVERYONE, regardless of ability to pay. One could rescind that law and force everyone to either have insurance, pay for service, or be denied service. But few would be willing to take that backward step. From a practical standpoint, this is not a viable option.

Download PDF Report >>> Individual Mandate Alternative

Words Have Consequences

Download PDF Report >>>  Words Have Consequences

Download ACA PDF file >>> Affordable Care Act

Download HIPAA PDF file >>> Public Health Service Act

Illinois appears to follow guidelines for enrolling individuals into the state’s Affordable Care Act’s (ACA) pre-existing condition insurance plan, but Illinois’ interpretation of  the  ACA’s wording may be questioned. In its interpretation, Illinois does not allow enrollment if a person has insurance coverage even though it excludes pre-existing conditions.

A virtually contradictory interpretation can be found on the federal government’s website HealthCare.gov.  The federal government sets conditions of who is eligible to apply to the government for pre-existing condition insurance plans in states that opted out of participation. To apply, you will need to provide a copy of one the following documents:

  • A denial letter from an insurance company licensed in your state for individual insurance coverage (not health insurance offered through a job) that is dated within the past 6 months.  Or, you may provide a letter dated in the past 6 months from an insurance agent or broker licensed in your state that shows you aren’t eligible for individual insurance coverage from one or more insurance companies because of your medical condition.
  • An offer of coverage from an insurance company licensed in your state for individual insurance coverage (not health insurance offered through a job) that is dated within the past 6 months. This offer of coverage has a rider that says your medical condition won’t be covered.
govt pre-existing condition insurance apply

It is not logical that if a state runs the program, it can exclude people, while if the federal government runs the program, those same people could be included in the plan.

This analysis explores in more detail how Illinois and by extension, other states may have come to the conclusion they did and why that may not be the correct interpretation.

Illinois Pre-existing Condition Insurance Plan (IPXP)

To qualify for insurance in IPXP, a person must meet three conditions that seem to mirror the text of the Affordable Care Act. The Affordable Care Act (ACA) established eligibility criteria for federally funded high risk pools like the IPXP.  The pertinent wording of the Affordable Care Act that states in section 1101 (d).  An individual shall be deemed to be eligible … if such individual:

  1. Is a citizen or national of the United States or is lawfully present in the United States
  2. has not been covered under creditable coverage (as defined in section 2701(c)(1) of the Public Health Service Act as in effect on the date of enactment of this Act) during the 6-month period prior to the date on which such individual is applying for coverage through the high risk pool; and
  3. Has a pre-existing condition

These same provisions in IPXP require that
To enroll, a person must:

  1. Be a U.S. citizen, national, or legal resident;
  2. Be uninsured for 6 months; and
  3. Have a preexisting condition.”

The IPXP application specifically notes regarding item 2, “that if you currently have insurance coverage that doesn’t cover your medical condition, you are not eligible for IPXP”.

This raises the question of how Illinois adopted their meaning of ACA’s wording. Words have consequences and so it is important to determine what the Public Health Service Act (HIPAA) actually said and meant by its use of the phrase “creditable coverage” and did Illinois misinterpret it?

Public Health Service Act (HIPAA)

HIPAA’s opening paragraph sets forth its purpose: “… to improve portability and continuity of health insurance coverage in the group and individual markets, to combat waste, fraud, and abuse in health insurance and health care delivery …”

HIPAA contains five main components or “Titles”, the first of which is “HEALTH CARE ACCESS, PORTABILITY, AND RENEWABILITY”.  That title is divided again into two subtitles, “Group Market” and “Individual Market”.

In general, under Individual Market Section 2741(a)(1) health insurers may not decline coverage to or impose any pre-existing condition exclusion on “eligible individuals”.  However, Section 2741(a)(2) allows states to implement an “acceptable alternative mechanism”.  One acceptable alternative is a state managed high risk pool which Illinois has, so private health insurers in Illinois may deny coverage or include pre-existing exclusions in their policies since an alternative is available.

However, the act does not change the definition an “eligible individual” which is one who (a) has 18 or more months of “creditable coverage” and (b) whose most recent prior “creditable coverage” was under a group health plan.

CREDITABLE COVERAGE DEFINED

HIPAA defines “creditable coverage” in Section 2701(c)(1) to mean with respect to an individual, coverage of the individual under any of the following:  a group health plan; health insurance coverage; or… any of 8 other government health insurance plans.  “Such term does not include coverage consisting solely of coverage of excepted benefits (as defined in section 2791(c))”.

GROUP HEALTH PLAN DEFINED

Creditable coverage refers to coverage in a “group health plan” that also needs definition. A group health plan Sec. 701(a)(1) means an employee benefit plan that provides payment for medical care directly through insurance, reimbursement, or otherwise.  In short, what most people think of as basic group health insurance.

EXCEPTED BENEFITS DEFINED

Creditable coverage also introduces another concept – “excepted benefits”. Including this definition allows a contrast to group health plans that provide creditable coverage.  Given the number of excepted benefits, of which only a sample is shown below, it is clear that HIPAA intended only a few basic types of basic health benefits to be considered creditable coverage.

Excepted benefits as defined in Section 2791(c) includes but is not limited to:

  • Coverage only for accident, or disability income insurance, or any combination thereof.
  • Coverage issued as a supplement to liability insurance.
  • Liability insurance, including general liability insurance and automobile liability insurance.
  • Workers’ compensation or similar insurance.
  • Limited scope dental or vision benefits.
  • Benefits for long-term care, nursing home care, home health care, community-based care, or any combination thereof.
  • Coverage only for a specified disease or illness.
  • Medicare supplemental Insurance.

Combining references and definitions from HIPAA, to be eligible for ACA’s pre-existing condition insurance plan, prerequisite #2 requires an individual to:

  • have 18 or more months of a group health plan that provides payment for medical care, AND
  • have not been covered for 6 months under either a group health plan or a health insurance coverage

Now if an adult person is unemployed, has recently graduated or lost a job, that individual is not likely to be covered by a group health plan. Such individual, however, may be insured under individual health insurance coverage of which there are several types, of which one of the more common is “short-term limited duration insurance.”

INDIVIDUAL HEALTH INSURANCE COVERAGE

Section 2791 (b) (5) states: The term ‘individual health insurance coverage’ means health insurance coverage offered to individuals in the individual market, but does not include short-term limited duration insurance. Oops.  This means that HIPAA considers one of the more common forms of individual health insurance not to be insurance at all.

PULLING IT ALL TOGETHER IN ILLINOIS

Recall from the beginning of this essay, the IPXP application form specifically states “that if you currently have insurance coverage that doesn’t cover your medical condition, you are not eligible for IPXP”. This requirement is NOT one of the ACA requirements.  And ACA in turn, references HIPAA that pointedly declares “short-term limited duration insurance” does NOT constitute insurance coverage at all. Conclusion: Illinois may have incorrectly defined short-term limited duration insurance as health insurance which definition specifically contradicts HIPAA definition.

CONCLUSION

It is clear that both the intention as well as the wording of the ACA  and HIPAA acts allow persons who once had but were later denied health coverage or who have coverage but with pre-existing exclusions, to apply for and receive coverage under the ACA pre-existing condition insurance plans.

Allegedly, enrollment in state ACA pre-existing condition insurance plans has been running behind projections. Is it possible states are restricting enrollment in a manner similar to Illinois?  It is something worth investigating further.

Disclaimer: While having extensive years of legal experience demonstrated in this analysis, the author is not a licensed attorney. What has not been verified is whether later amendments to the HIPAA changed any of the provisions mentioned above.

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Download ACA PDF file >>> Affordable Care Act

Download HIPAA PDF file >>> Public Health Service Act