Healthcare 2020

Last week, I made a comment at the end of a post about my son and his first asthma attack:

A high first dollar health plan (which is where the entire US system is going)

Very valued and insightful commenter JL asked a very good set of questions about my thoughts on the intermediate future of US healthcare:

” A high first dollar health plan (which is where the entire US system is going) ”
I did not realize that RM’s diagnosis of the overall direction of the US healthcare system was so grim.
Why, oh why, does the US insist on continuing this 30+ year failed experiment? It has been 30 years since Mark Pauly basically drew an X on a piece of paper and asserted that all markets were the same and like minded economists acted like, and even asserted explicitly that the market for health care was the same as the market for ice cream, and if you interfere with perfectly informed consumer decisions, its just a subsidy that will result in people consuming too much care, just as they would eat too much ice cream if the price were kept artificially low.

The thoughts below are 30% technical judgments which I believe I have some particular knowledge and insight on, and 70% political judgment where I know that I am just someone on a blog and my judgment/insight/foresight is no better than societal norm.

My basic thought pattern on this is informed by this quote on American policy making:

You can depend on Americans to do the right thing when they have exhausted every other possibility.

We still have a lot of dumb decisions with very deeply entrenched stakeholders left to buy-out before we can have a fully somewhat rational healthcare system.

So where do I see the US healthcare system in 2020?

Let’s break it down to government programs excluding Medicaid, Medicaid, Exchange programs, and employer sponsored health care. I am assuming that the slowdown in premium spending that we have seen in the past five years is real, and that it is sustainable over the intermediate future. I am assuming there is a 30% chance of a Republican trifecta in sometime between 2016 and 2020 as I am assuming that a year which produces a Republican president has a better than even odds of holding the Senate at no worse than 50-50, so that highlights some of the downside risk. I am assuming the Democrats are extremely unlikely to get the House back this decade even with a good 2016 election.

On government programs, the three big ones in the first bucket are Medicare, VA and CHIP. Medicare will see Medicare Advantage continue to proliferate as right now, it is looking like the insurers are finally being paid for roughly the value-add that they create instead of it being a massive money pit that it was pre-PPACA. I don’t see the age of eligibility increasing, nor do I really see significant benefit changes occurring. If Medicare can grow on a per beneficiary level at the same rate as the nominal economy, the big remaining problem is that my parents and their classmates want to retire.   There are a lot of them, but we knew that 65 years ago.  I project that IPAB (Independent Payment Advisory Board) will still remain a boogeyman and still remain on the books no matter who controls the government for IPAB can functionally perform the same role as the BRAC (the base closure commission) as being the “unaccountable” heavy hitter that can be blamed for tough decisions.  I am counting on the Baby Boomers being protective as hell about their Medicare as they have very little retirement security anywhere else. 

The Veterans Administration will be opened up. I think a lot of their lower priority of care patients will be shuffled off to the private medical sector. Over the long run, I think this weakens the VA value proposition as a well managed and well funded VA that is responsible for lifetime care of its entire eligible population has a very different set of incentives than a VA that mainly treats patients that the private sector does not want to treat. I would like to see some of the VA hospitals in the Rust Belt see if they can open up some of their facilities to the general public as there will be spare capacity — maybe see if the VA could pilot a small program of three or five year insurance contracts to really see what realigning long term care incentives will do. I don’t think the last will happen, but I would like to see it. The Sun Belt VAs will continue to attempt to keep their head above water.

CHIP won’t change too much. It will continue to shrink as more of its target population will be covered by either the Exchanges or Medicaid Expansion, but it will remain a premium support model for a curated list of insurers. Folding CHIP into the Exchanges could be a very good idea if the family is made no worse on the CHIP to Exchange conversion so maybe a subsidy kicker could be created. This would simplify administration and reduce the number of families who have two or more policies covering the entire family.

Medicaid is going to be a mess. I think at least 41 states will either take straight up Expansion or get a 1115 Waiver. The big question on the 1115 waiver is how aggressive does HHS enforce budget neutrality. The first year in the Arkansas private option experiment shows, unsurprisingly, that private full network insurance is more expensive than lower reimbursement Medicaid, the magic manic pixie fairies of the Market ™ can’t do too much there. I think the Healthy PA and HIP 2.0 for Indiana model of basically reinventing the wheel of current programs is more likely to be federal budget neutral. I think the HIP 2.0 model  (the Indiana proposed expansion) of a health savings account (HSA) will be the expansion model most of the remaining hold-out states will go to. HSAs are a pet rock for conservatives despite the massive problems of telling a poor person that they are on the hook for the first $1,000 of coverage. No cost sharing would be better for health outcomes, but that is not the objective function conservatives prioritize.

I don’t think any states will drop their expansion once the Feds only pick up 90% of the costs. I also don’t think the 90% match will decrease. I would like to see the Feds take over all of Medicaid and get it off the states backs to resolve the Mississippi/Alabama problem. I can see that being sold on humanitarian/social justice grounds to Democrats, and “Big state tax cuts easily available” to Republicans. The big selling point in my mind, besides resolving the Mississippi/Alabama problem, is macro-economic stabilization. If we get hit with another big recession, we will have 50 mini-Hoovers cutting back way less. I don’t see that happening, but I would like to see it brought into the discussion.

Some other states will embrace the Basic health options for the entire population making under 200% FPL. This should reduce churn and simplify administration as someone who makes between 130% and 150% of FPL could easily go into three different programs in a year depending on whether or not they are having a good month.

On the Commercial and Exchange side, as I will treat them as part of the same segment as I think these markets will converge in form if not in actuality, I see a Copper plan that covers 50% being introduced as meeting the minimal acceptable coverage. Copper type plans will have a $7,500 or more dollar deductible and will be even less popular than Bronze plans. I don’t think this is good policy, but the function a Copper will serve will be slightly lower premiums for the young.

Employers will shift their employees over to exchanges, either the public SHOP exchange or the several dozen private exchanges that are being run by consulting firms right now. Employer sponsored insurance will be transitioning even more to the defined contribution model where everyone gets a lump sum and a URL. If an individual wants to buy skimpy coverage, they either pocket the difference or have it put into an HSA. If an individual wants to buy Platinum coverage, the employer will cover the cost of a decent Silver, and the employee picks up the remainder. This schema will benefit the young, the healthy and the childless while the old, the chronically sick, and heads of households/parents, will be worse off as they currently receive a much larger de facto subsidy from the current arrangements. I think this push to Exchanges with defined employer contributions will be one of the most common Cadillac tax avoidance/minimizing systems out there.

The PPACA Exchanges will continue to work reasonably well. I think there will be a shake-out in 2017-2020 as companies that were willing to go on Exchange and take losses for a couple of years to build membership will start dropping plans that are money losers and opt-out entirely in regions where they have almost no healthy membership. I could actually see Medicare Advantage companies petition to be able to list their products on Exchange for 65+ populations in order to cut out the broker middleman. Small group employer sponsored insurance will shrink as a market segment because the combination of community rating and higher benefit levels will price Joe’s Auto Body out of the market, so I think this will lead to higher Exchange enrollment.

I don’t think there will be experiments of two or three year locked-in contracts. I think there is some value in seeing what the longer time frame does to preventative and chronic disease care management. I think there is room for an agreement to replace the individual mandate with other risk pool management techniques. Late enrollment penalties, limited open-enrollment, back-end catastrophic coverage as a public default could all work to manage the free rider problem; I really don’t care which way things go, as long as the pool is reasonably managed.

Vermont will try single payer. 2017 will be a mess for Vermont as that transition will make the PPACA transition look like a tiny reshuffling. I think Vermont’s biggest problem is that it does not have a forcefield around it to New York, New Hampshire and Massachusetts, so it will bleed money outside the state. I think it can work, but it will be a mess for a year or two as the transitional details get worked out. Honestly, if Vermont is to launch single payer on 1/1/17, plumbing needs to start within the next six months. I don’t think that is happening. Other states will begin to emulate Massachusetts’s global budget approach (Maryland would be a good candidate).

On the provider side, I see a lot more insurers also be providers and vice versa. There are at least two consulting firms whose entire business model is teaching hospitals how to become integrated payer-providers. Rural providers will continue to close, and urban providers will continue to merge. A stronger FTC would be a wonderful thing, but I don’t see that happening. More integrated providers will lead to, all else being equal, higher costs. I think this is one of the flaws of PPACA, as it encourages consolidation  by imposing fairly high capital and risk bearing capacity costs on providers, and then it fragments the insurance/payer market even more.