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You are here: Home / Anderson On Health Insurance / Wyden waiver, bundled subsidies, increased actuarial value and presumptive eligiblity

Wyden waiver, bundled subsidies, increased actuarial value and presumptive eligiblity

by David Anderson|  December 24, 20158:50 am| 23 Comments

This post is in: Anderson On Health Insurance

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Wyden or Section 1332 State Innovation Waivers can go into effect on 1/1/17.  These waivers would allow states to rework their insurance markets (excluding interaction effects with Medicaid) as long as the resulting coverage was federal deficit neutral or better, covered at least the same services, covered at least the same number of people (with a specific focus on low income and high health risk individuals) at the same or higher actuarial value.  This is a skeleton of a proposal for a state with its own Exchange platform (as CMS won’t tweak Healthcare.gov for Wyden waivers) to significantly simplify the choice space and expand coverage while complying with Wyden Waiver rules.

Three major changes would occur.  The first is bundling subsidies.  The second is a re-calibration of the actuarial value model to reflect actual provider reimbursement rates.  Finally, eligible individuals who do not choose a plan would be placed in the highest actuarial value plan that their projected bundled subsidy would buy.

These changes would increase the choice space, decrease deductibles and other cost-sharing for some plans and dramatically reduce the uninsurance rate.

The first major change is something I proposed last March, relabeling the coverage bands and more importantly, bundling the two sets of subsidies together.

If a state decided to look at the total cost of providing the second lowest Silver in determining subsidy levels instead of just looking at the second lowest premium for Silver, average actuarial value would increase as choice space increases.  The change in subsidy formula would be the.. Premium plus CSR subsidy cost minus the individual contribution = Total Subsidy….

Let’s work through an example.  A 35 year old individual making 140% FPL in zip  code 90210 qualifies for a CSR Silver at $34 per month and a $200 premium tax credit….

The total cost to the government for this person to buy the CSR Silver is about $280 per month.  The total cost is $314 per month.

Inserting total bundled cost of a policy in place of premium into the subsidy formula would re-order the offer a much wider choice set.  This same individual could get a CSR Silver at 94% AV for $34 per month, a Platinum at 90% AV for $20 per month, CSR Silver 87% for $14 per month, Gold at 80% AV for almost nothing in monthly premiums.  Straight Silver and Bronze plans would almost not be worth wasting time looking at.

This increases the choice space.  It makes the decision making a little more complex but it removes the non-intuitive logic that a Silver is sometimes less valuable than Gold but other times it is significantly more valuable than Gold.

Individuals who are shopping on the state Exchange would enter their income and depending on their income which determines the Cost Sharing Reduction Subsidy, their plan choices would be generated.  Someone making 399% of FPL could buy 94% AV at a significant price.  Someone making 148% of FPL and in good health could decide that the Platinum 90% at a net out of pocket monthly cost of $22 a month is a better deal for them then 94% CSR Silver at $34 a month.

The second change is a technical adjustment.  Plans would be required to submit an actuarially justified provider reimbursement level projection for a variety of service types.  Those self-submitted projections would then be run through a model that is similar to but not identical to the current CMS actuarial value model in order to define what band a proposed policy would belong to.  This fixes a data and modeling weakness in the current band assignment process while lowering some out of pocket maximums.

The current CMS actuarial value calculator uses old group and individual claims data as the model baseline (p.9):

HHS began with claims data from the Health Intelligence Company, LLC (HIC) database for calendar year 2010. This commercial database includes detailed enrollment and claims information for individuals who are members of several regional insurers and covers over 54 million individuals enrolled in individual and group health plans.

This is a problem.  The problem is that in 2010, there were very few commercially available networks that paid their providers at Medicare plus a little bit rates.  Instead they paid their providers on Medicare plus a whole lot. The recent paper on private insurance costs notes that private insurance pays a much higher per service rate than Medicare.  Andrew Sprung highlights an important section:

This thought experiment holds quantity constant (i.e., assumes no behavioral response). If inpatient care was paid at 100 percent of Medicare rates, it would lower spending by 31.2 percent. Similarly, paying at 110 percent of Medicare, 130 percent of Medicare, and 140 percent of Medicare would lower spending by 24.2 percent 10.5 percent and 3.7 percent, respectively. – See more at: http://xpostfactoid.blogspot.com/2015/12/what-if-all-private-health-insurers.html#sthash.7kmYGRwI.dpuf

The data source consists of almost all claims paying at 140% of Medicare rates or higher.  If the Exchange markets were only broad network, non-restrictive gatekeepers, this assumption could make sense.  However, in competitive regions, there are numerous Exchange plans that are paying at 110% of Medicare rates or lower.  However those low cost plans are being assigned to metal bands by assuming their service utilization is being paid at high costs.

plan design standardizedThe 2017 plan regulations propose a standardized plan design.    For the straight Silver plan with a  $3,500 deductible, that deductible level is calculated by assuming that all plans are paying at standard commercial rates.  For broad network plans, the deductible and cost sharing produces a plan that should be very close to 70% of actuarial value.  However if a plan is paying on average 110% of Medicare rates, the level of deductible and cost-sharing is too high.  The actual costs borne by the members insured by a low cost plan is above the 30% that they as a collective pool should bear in a standard Silver plan.  Instead they could be paying 32% or 35% of the plan.

Recalculating actuarial value based on projected reimbursement rates would more accurately calculated deductible and cost sharing.  Using the standardized Silver as a suggestion, a high reimbursement rate plan would see no changes to their cost sharing.  A plan with low provider reimbursement rates would see the deductible drop to $3,000 instead of $3,500 and total out of pocket exposure decrease to $6,200.  The downside is that the concept of a standard plan goes out the window.

This policy would lead to fewer broad network plans as they would be beaten on both price and cost sharing by lower reimbursement narrow networks.  However the average actual actuarial value of covered lives would increase.

The final major change would apply to individuals in a state that do not sign up for insurance.  The Kaiser Family Foundation recently pointed out that half of the currently uninsured could get Bronze coverage for less than the current individual mandate tax.

About 7 million uninsured people are eligible for marketplace premium subsidies and are a key target group for increasing marketplace enrollment. Almost half (48%) of them could, in fact, buy a bronze plan for a zero premium contribution or for less than the penalty they would owe for remaining uninsured, including 28% who could buy a bronze plan using their premium subsidy for a zero premium.  In other words, 3.5 million subsidy-eligible uninsured people could either get coverage for free or end up paying less by enrolling in marketplace coverage than by remaining uninsured and paying the individual mandate penalty. However, bronze plans come with high deductibles and low-income enrollees may be better off financially enrolling in silver plans that have higher premiums but are eligible for cost-sharing subsidies.

Using state tax data combined with information from the IRS 1095 series, the state would identify individuals who are uninsured but are subsidy eligible.  These individuals would then be preemptively enrolled in health plans.  The objective would be to enroll eligible but uninsured and non-active buying individuals into plans with the maximum reasonable actuarial value.  The plans would be paid for by the application of 90% of the combined advanced premium tax credit and cost sharing reduction tax credit (as discussed in the first change).  That means instead of 48% of people being able to get at least a Bronze plan for less than the cost of the mandate penalty, a significantly higher proportion will be as most of the people who are uninsured and eligible for advanced premium tax credits will also be eligible for cost sharing reduction subsidies.

These people would be auto assigned to a state owned (but potentially privately run) uninsured coverage pool which pays a narrow network of providers 110% of Medicare rates.  There would be coverage tiers starting at 60% actuarial value and going to 94% actuarial value matching the same value bands that are on the Exchange.  The state pool would be part of the risk adjustment process to minimize cherry picking.  I think utilization would be fairly low as most people who were covered in this pool would not realize that they are covered until they hit a major crisis/emergency.  But when an individual does get a major diagnosis, they would be faced with a $4,000 or $5,000 shock instead of a $50,000 shock.

These three changes could lead to increased coverage, and better choice space while conforming to Wyden Waiver regulations.

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23Comments

  1. 1.

    Ken

    December 24, 2015 at 9:12 am

    a state with its own Exchange platform (as CMS won’t tweak Healthcare.gov for Wyden waivers)

    I didn’t know that but it makes sense. But do the red state governors who’ve applied for a waiver know that it requires them to set up a hated Obamacare exchange in their state?

  2. 2.

    Richard Mayhew

    December 24, 2015 at 9:17 am

    @Ken: Two distinct waivers.

    1115 is the Medicaid waiver (Arkansas, Iowa, Montana, Michigan etc) That has nothing to do with the Exchanges. It is a request to tweak the Medicaid program and thus it does not need to play nicely with healthcare.gov

    1332 is the Wyden Waiver in PPACA may need to play very nicely with the Exchange platform.

  3. 3.

    Ken

    December 24, 2015 at 9:29 am

    @Richard Mayhew: I see. So have any red states gone for the Wyden Waiver?

  4. 4.

    MomSense

    December 24, 2015 at 9:37 am

    Richard, one of my frustrations (more like seething rage!) is how to help people in the Medicaid gap access the federal exchange in my non-expansion state.

    It seems like an auto enrollment system wouldn’t work with these folks because they do fall in that awful gap.

  5. 5.

    Richard Mayhew

    December 24, 2015 at 9:40 am

    @MomSense: If I am reading the 1332 waiver regulations correctly, most of the people in the Medicaid gap (<100% FPL) are still screwed as the 1332 waiver can not directly touch the Medicaid population without a 1115 waiver. And Lepage et al won't file for a 1115 waiver, so they are SOL.

  6. 6.

    Richard Mayhew

    December 24, 2015 at 9:41 am

    @Ken: Not that I know of as of yet. However, the deadline for 1/1/17 implementation is not until late winter.

    More likely the first round of waivers will go to Blue states.

  7. 7.

    Docg

    December 24, 2015 at 9:42 am

    I am just a lowly mental heath practitioner with no policy wonk credentials at all. My six decades of living has taught me that when someone offers you a game with massive amounts of confusing rules and options, you are being hustled and you will lose.
    Health is not just another commodity for Wall Street to bleed to death. I am tired of these posts that attempt to make the writer appear to cheerlead for improving the system, rather than dealing directly with the con game that health insurance and health care has become. No wonder Trump’s ridiculous braggabully talk of cutting through the bullshit resonates so strongly.

  8. 8.

    MomSense

    December 24, 2015 at 9:48 am

    @Richard Mayhew:

    It really is tragic. I’m amazed at how little attention is paid to this by our “liberal media”. Too many of us don’t want to know about being poor in this country. The Americans gap plus all the other attacks on food assistance are causing some terrible consequences. We could really use a Charles Dickens up here.

  9. 9.

    MomSense

    December 24, 2015 at 9:51 am

    @Docg:

    So I should have just waited without access to health care another how many years until someone could magically deal with the con game that is health insurance and health care?

  10. 10.

    dr. bloor

    December 24, 2015 at 10:36 am

    @Docg: The ACA boat had holes in it the day it was built. People laughed at me when I was OK with the passage because it was (a) better than nothing, but (b) so obviously constructed to maintain the status quo for the money players that everyone would be forced back to the table inside of ten years to rethink the strategy altogether.

    I was actually a little too conservative in guessing how quickly the boat would sink. Unfortunately, the FUIGM crowd still runs the show in DC, and the out-of-pocket expenses for folks getting insurance through employers isn’t going up quickly enough to catalyze real change. That leaves us, at best, with well-intentioned folks like Richard trying to make the best of a bad situation, which is a double-edge sword.

    Always hope for the next generation, I suppose.

  11. 11.

    Davis X. Machina

    December 24, 2015 at 10:37 am

    @MomSense:
    Hey, no revolution without martyrs.
    Especially when it’s someone else.

  12. 12.

    jurassicpork

    December 24, 2015 at 11:32 am

    We’re in desperate need of a Xmas miracle to help stave off eviction after the holidays. Even if you can’t help, please spread the word.

  13. 13.

    Roger Moore

    December 24, 2015 at 12:02 pm

    @Docg:

    My six decades of living has taught me that when someone offers you a game with massive amounts of confusing rules and options, you are being hustled and you will lose.

    And my experience is that when somebody proposes a simple, “common sense” solution to a very complex problem, you’re also getting hustled. Providing health care to 320 million people is inherently complex, and any policy solution that attempts to deal with it in detail- and Mr. Mayhew is definitely getting down into the policy details- will have to be extremely detailed.

    That’s not to say that Obamacare is a great solution. It may be true that any healthcare solution is going to be complex, but Obamacare is more complex than a healthcare solution needs to be; single payer or (ideally) NHS would be ultimately simpler. Obamacare is a good example, and Mr. Mayhew’s proposed tweaks to Obamacare are an even more extreme example, of an American tendency to create policies that are unnecessarily complex in order to simplify the politics of getting them passed.

  14. 14.

    Royston Vasey

    December 24, 2015 at 12:13 pm

    Merry Christmas from New Zealand!

    RV in NZ

  15. 15.

    Richard Mayhew

    December 24, 2015 at 12:16 pm

    @Docg: Okay, while we wait for simple, straightforward health care provision and financing proposals whose implementation details are limited to 20 pages double spaced 12 point type, who do you want to tell to go die in a corner as their current health insurance is too complicated and is a mug’s game?

    Please name names, there are several people here at Balloon Juice who you can volunteer for misery to please your aesthetic sense.

  16. 16.

    Richard Mayhew

    December 24, 2015 at 12:19 pm

    @Roger Moore: Actually in this case, I think I am simplifying the system slightly (one set of subsidies instead of two, more accurate calculations of actuarial value at least are simplifications)

    But otherwise, yes, I am dealing with the plausible and not the fantastic.

    And even single payer systems like OHIP (Ontario Health Insurance Plan) will have 2,000 pages of 10 point print regulations and technical memorandums regarding risk adjustment and disease category prioritization and RA trump mechanisms. This is complex stuff.

  17. 17.

    Richard Mayhew

    December 24, 2015 at 12:31 pm

    @Docg: Second round of questions for you.

    If I cheer lead for an improved system, when do we see implementation of that superior system?
    What is the cost of not improving/tweaking the current system in order to heighten the contradictions to get the better system?
    Who pays those costs?
    How long?
    Is there a lifetime limit or is the cost limited by death only?

    How do you assemble a coalition of 218-60-1-5 that will pass your simpler and more straightforward plan?

    (remember 70% of the House Republicans voted against CHIP reauthorization in 2009 https://www.govtrack.us/congress/votes/111-2009/h50 and the House GOP caucus has become even more reactionary and mean spirited since then, so where are the votes coming from?)

    This may be cognitive dissonance minimization, but in my opinion, a simplified system that you seem to prefer is not on the table for the next decade or more. In my morality, tell people to go suck it and suffer to heighten the contradictions (a strategy that seldom works) is evil and stupid. PPACA is the world that we live in, so that means making it better where possible, minimizing perverse incentives when needed and creating the grounds for an improvement when change is possible. That is what I’m doing here.

    If you don’t like my basic mission statement, please find someone else who is willing to give you a whole lot of free ice cream on detailed healthcare policy implementation. Zero Hedge and the refugees of Firedoglake are recommended.

  18. 18.

    Steeplejack

    December 24, 2015 at 1:32 pm

    @Royston Vasey:

    And Merry Christmas to you, too! You’re already there, aren’t you?

  19. 19.

    Satby

    December 24, 2015 at 3:17 pm

    @Docg: Trump resonates with idiots. And as one of the people who spent more of my life without health insurance, thus without health care, I am happy to “settle” for being covered against catastrophe. As a “lowly mental health care practitioner”, I assume you’ve enjoyed many of your six decades with health insurance and the ability to get care. About 1/2 of my six decades I have gone without.

  20. 20.

    gene108

    December 24, 2015 at 4:45 pm

    @dr. bloor:

    Why do you think increases out of pocket costs in employer based coverage would cause change?

    18 years ago I started shopping insurance for my medium sized employer. In 1998 we paid $100.83 per month for single medical, plus dental and a $50k life insurance policy.

    I think the policy had either a $10 or $15 co-pay per office visit, similarly low Rx co-pays and no deductible.

    The premium was 100% paid by the employer.

    In 2015 we pay $358 per month for ONLY medical insurance. 60% of the cost is paid by the employee. The plan is a high deductible plan with a $3500 for singles and $7000 for families. As an employer we provide an HRA rap on the back-end of the deductible so the employee pays $2000 out of pocket and the family pays $4000.

    If this sort of situation is not getting business owners and employees to call their Congress people and demand universal single payer health care no amount of pain will cause it.

  21. 21.

    dr. bloor

    December 24, 2015 at 5:51 pm

    @gene108:

    In 2015 we pay $358 per month for ONLY medical insurance. 60% of the cost is paid by the employee. The plan is a high deductible plan with a $3500 for singles and $7000 for families. As an employer we provide an HRA rap on the back-end of the deductible so the employee pays $2000 out of pocket and the family pays $4000.

    You’re getting warm, but you’re still not there. It looks like your employees with family coverage are looking at about $6600 per year out of pocket if they blow through their deductible (not sure what copays look like for them after they’ve met the deductible). They’re probably not happy about that, but what if they had to foot the whole $11,200 it costs–think they’d take a little more interest in the real costs of insurance and healthcare then? And oh, as individuals, they probably couldn’t get the rates that you get as a group purchaser for the same level of coverage. Bigger premium, bigger deductible, heavy duty copays, or all three.

    There are a lot of folks out there, some with and some without chronic conditions, many of them not approaching wealthy or even upper middle class, who have to pencil in $15-20K+ a year out of pocket. If every middle class person/family who’s costs are being buffered by their employers had to budget for that every January, you’d see some change right quick.

  22. 22.

    Elie

    December 28, 2015 at 2:51 pm

    Ahhhch Richard — you tried to do a good thing here and found out that there can be no happiness in the land of the progressives on anything.

    We are the first to complain, point out flaws. We are the first to threaten to “self-deport” from the US as soon as there is strident opposition — we always laud the Netherlands and almost anywhere else cause they “get it”, we don’t — and Lord, it just don’t seem worth fighting for here. Sure, there is the structure of our government and the politics of things makes it hard to get things like we would like them, but shit, there is just no excuse for it not being exactly like we would like them.

    I find many of the left progressives to be tiring and worse, destructive. Their goal seems to be to be “right” — not really to try to make things better and feel good about that. No — you should never feel good about anything that is less than the perfect solution already implemented in Sweden, Norway or the Netherlands.

  23. 23.

    Bob Hertz

    January 2, 2016 at 10:33 am

    Thanks for digging into this, Richard.
    Let me add 3 points.

    1. At least one of the Republican alternatives to the ACA included the ‘default insurance’ concept, where unused tax credits caused automatic enrollment in a bronze plan.

    2. If we passed Hillary Clinton’s proposal to reimburse up to $2500 in deductibles and coinsurance for anyone, this would make all bronze plans more tolerable.

    3. My own idea for the last year has been this:

    – take the ACA penalty, make people pay it if they are uninsured, but use the penalty dollars to buy Part A of Medicare for the individual. That way, if they were hospitalized, the basic charges would be paid. I see no problem in forcing all citizens to pay something for emergency care.

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