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You are here: Home / Anderson On Health Insurance / Back to Basics

Back to Basics

by David Anderson|  April 22, 20159:15 am| 6 Comments

This post is in: Anderson On Health Insurance, World's Best Healthcare (If You Can Afford It), All we want is life beyond the thunderdome

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The Basic Plan is part of the Affordable Care Act.  States can request permission from the Center for Medicare and Medicaid Services (CMS) to set up a health plan for people whose incomes are between 138% FPL and 200% FPL.  It is funded by the pooling together of premium tax credit subsidies and cost sharing reduction assistance subsidies.  The state gets 95% of that pool of money while the Feds keep 5% of the cut.  The federal funds can be used to lower premiums but not lower cost sharing past the point that people would have had with cost sharing reduction Silver plans.

This is a public option(ish) for the working poor.  The bet is that states could create programs that are provide better coverage at lower individual and net governmental costs.  Minnesota took the Feds up on this bet in 2015 with MNCare.  New York has announced that they are launching a Basic plan for the next open enrollment period.  New York’s plan is pretty attractive compared to cost sharing assistance Silver plans on the Exchange:

All plans under the BHP will cover essential health benefits, including inpatient and outpatient care, physician services, diagnostic services and prescription drugs among others, with no annual deductible and low out-of-pocket costs. Preventive care, such as routine office visits and recommended screenings will be free. Consumers with income at or below 150 percent of the federal poverty level ($17,655 for a household of one; $36,375 for a household of four) will have no monthly premium. Those with slightly higher incomes at 200 percent of the federal poverty level ($23,540 for a household of one; $48,500 for a household of four) will have a low monthly premium of $20.

A single person making 199.9% FPL is expected to pay $124 per month for a cost sharing subsidized Silver plan.  That plan will pay 87% of the expected actuarial value of medical costs.  The Basic plan will cost this person $20 per month and pay the same 87% of expected costs.  A single person making $17,600 per year would be expected to pay $59 per month for a 94% actuarial value Silver plan; now they are expected to pay nothing for the same level of coverage.

How are costs compressed enough to knock premiums down by $600 to $1,500 per person per year on only 95% of the federal funding?

The New York Basic program is set up by having qualified health insurers in the state express interest in the program.  They are told a risk adjusted rate for membership and told what the minimum network and benefit requirements are.  They then build proposed plans, and submit them to the state for approval.  Since this is a low cost plan, the networks are most likely fairly narrow.  These plans will be on the Exchange and be visible only to people who meet the income qualifications.  People will see this as another Exchange plan basically.

That short precis does not indicate how these plans will be cheaper than current 2nd Silver Exchange plans as those plans are also narrow networks.  The current Silver plans also have aggressive utilization management and gatekeeper functionality as well as aggressive medical management of chronic conditions.  So what could drive the difference in pricing?

The big difference is the base rate that providers are paid.  The 2nd Silver Exchange plans are based on Medicare plus something.  That “plus something” could be four percent, it could be nine percent, it could be twelve percent.  On a per service basis, the low cost Exchange plans pay slightly more for a service than fee for service Medicare.  Both low cost Exchange and Medicare pay significantly less than full price commercial rates.

The Basic plan is paying at either Medicaid plus a decent size kicker or Medicare minus something.  The per unit costs are significantly less than Medicare now, which would create a significant cost savings opportunity.  It slowly continues the trend of slowing per unit medical care cost growth by reducing provider reimbursement.

Why would insurers want to get in on this plan?  For insurers, the answer is simple, this will be basically the only game in town as a $0/$20 Silver like policy will suck up the vast majority of membership from people making under 200% FPL.  The other Silvers will be offered, but they are no longer cost competitive for this population group.

Providers are in on this for two reasons.  The first is that it will be the only game in town for them even if it pays at a lower rate than they previously had accepted.  Secondly, this could improve their cash flow and reduce bad debts due to high deductibles.  Individuals who make under 200% FPL still had $500 deductibles and $2,000 to $2,500 maximum out of pocket limits on cost sharing assistance Silvers.  Deductibles are smaller and cost sharing maximums are lower under the Basic plan.  Docs will see fewer insured patients who can’t pay their deductible.  This will benefit primary care providers while it is minor plus for specialists and hospitals.

The Basic plan should be an intriguing experiment that Blue States should study and replicate with relevant local tweaks as more data comes in from the New York and Minnesota experiments.

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6Comments

  1. 1.

    Roger Moore

    April 22, 2015 at 10:12 am

    It seems to me that this shows large deductibles are a terrible idea. They discourage poor people from using services that they actually need, but they don’t necessarily get paid, so they hurt providers. Why are people pushing high deductible plans, again?

  2. 2.

    Mike J

    April 22, 2015 at 10:16 am

    @Roger Moore: If you believe the problem with healthcare in the US is that (the wrong) people are using too much of it, high deductible plans make perfect sense.

  3. 3.

    Ruckus

    April 22, 2015 at 10:18 am

    Richard
    Is provider reimbursement actually going up, even at a smaller per unit amount what is driving the cost controlling right now? Would seem that smoothing the pricing/reimbursement curve and lessening the under- uninsured market would in a rational market.

  4. 4.

    narya

    April 22, 2015 at 10:45 am

    I have no idea how this will play out with Basic programs, but, at our community health center (FQHC), even though we get a higher Medicaid reimbursement rate, and we have definitely benefited from Medicaid expansion, the Medicaid rate doesn’t cover the actual cost of care, particularly for people who need a lot of case management, vaccines, etc. The yearly Medicare Cost Report helps a tiny bit, but, if other FQHCs are like ours, really being able to detail those higher costs in a way that results in a larger payment is just very difficult.

    In short, the cost of care for these folks is still likely to be high, even with narrow networks and cost control. nevertheless, the cost will eventually go down, if folks get the care they need!

  5. 5.

    richard mayhew

    April 22, 2015 at 11:00 am

    @Ruckus: Lots of things are driving the lower cost increases — the biggest is avoided hospitalizations, and then lower provider reimbursement rates are another contributing factor.

  6. 6.

    RaflW

    April 22, 2015 at 1:41 pm

    So of course the MN GOP is trying to kill MNCare. Because anything that makes the ACA look successful must be destroyed.

    I don’t think the Democratic MN Senate or the governor will go along. But Republicans will be Republicans, and screwing the working poor is a core part of the playbook.

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