The Healthcare Blog has a great interview with Mark Pauly. One part made me laugh, all of it made me think long and hard through multiple states on my drive back to North Carolina. There is one part that left me scratching my head that I want to work through a bit here.
Here is the piece that has me scratching my head. Dr. Pauly is arguing that community rating is an effective but very inefficient way to make sure that high cost individuals get the effective coverage that they need.
What’s your prescription so that the high-risk aren’t financially fleeced?
MVP: If insurers are permitted to risk rate, the premiums for the healthy will fall and more healthy people will voluntarily buy insurance – let’s agree that’s a healthy outcome. The premiums for the high-risk will surely rise. My proposal– let the insurers risk rate but let us subsidize the premiums for the high-risk.
He clarifies later on that by risk, he means chronic condition risk. There are two ways this can be done. The first is to carve a set of chronic, high cost conditions out of the general risk pool and into a high cost, high risk pool. That high cost, high risk pool would then need to be financed by general taxation so that the people with chronic conditions are not decimated by only high cost people paying for each others’ care. This would be 5% to 10% of the total covered population and forty to fifty percent of the total costs. There are other high cost individuals but they are transient high cost individuals due to cats trying to assassinate them, four corner bed impalement or other one-off events. John Cole is personally a chronic risk. John Cole is statistically not a chronic risk.
That is one way to do what Dr. Pauly suggests. The other is to do a risk adjusted individual subsidy. This is where I scratch my head. It makes elegant theoretical sense but the implementation hurdles are large.
I spent the last three years at my previous job working on risk adjustment. Risk adjustment is needed and it is fundamentally ugly.
Most current risk adjustment systems rely on medical and/or pharmacy claims within a defined period of time to create a creditable diagnosis category. If a claim with a particular diagnosis is not submitted in the current study period, the risk adjustment system will drop the category from the risk score. One of the last projects I worked on before I left UPMC was looking through procedure code data to identify high cost non-reversible, non-curative surgeries that should be coded every year but were not coded. A fairly significant number of cases were found. These cases were worth quite a bit of money.
For instance, an individual can have a status diagnosis Z94.1 (heart transplant status) in 2012, 2013, 2014 and 2015 for a transplant that happened in 2011. In 2016, they got a new PCP and while a history of heart transplant was placed in the notes, the diagnosis code was never entered on a claim. Unless there is allowable retrospective chart review, the risk adjustment system will no longer consider that person to be a heart transplant recipient and they would lose the subsidy money. Retrospective chart review is where quite a bit of the Medicare Advantage questionable coding comes in.
So this system would rely on providers to continually and correctly code for diagnoses for patients. The risk adjustment algorithm would then bucket people into fairly wide categorical buckets where the dollar value of the bucket is usually an average of expected costs for a wide population of people with similar conditions. There are a couple of major operational challenges to individual subsidies based on risk adjusted conditions.
The first major concern is that this relies on continual coding. This could be somewhat addressed by carving out a subset of diagnosis and procedure codes that indicate true lifelong conditions and then marking those conditions as permanent. Amputations, transplants, genetic diseases and the like would be good candidates for carve-outs. The carve out codes could be up-coded based on clinical observation but they would always be part of a person’s baseline score along with age and demographics. Secondly the conditions have to be correctly coded. When I worked with risk adjustment, we basically assumed that anything coming out of the Emergency Room or an Urgent Care for diagnosis was useless or next to useless. Their incentive is to treat, stabilize and move the patient along. An ER doc who sees a patient for more than a day is in a very unusual case so they’ll code idiosyncratically. This is how I have “gout” on my history.
The next major operational issue is figuring out how to actually collect, store and disseminate this data. My first thought is that CMS would need to have a national data clearinghouse with individual level category check boxes for each year. The data feeds would be from every insurer for every line of business, every provider as they treat people who are not insured (including Direct Primary Care) and then an attestation process for international care episodes and other unusual cases. It would need to be curated, it would need to be searchable, it would need to be a massive vaccuum of data from systems that don’t talk to each other now. Could this be done? Sure! Will it be done easily or quickly? No.
Now let’s look at an incentive problem. If the condition has a tight range, insurer cherry picking incentives will be minimized. However if a condition has a wide variance cherry picking incentives will be strong. Insurers, especially insurers that are already covering an individual with a chronic condition, can use recent claims history to determine if an individual in a risk adjusted category is a profit center after risk adjustment revenue or a loss even after accounting for the increased risk adjustment. Insurers can’t kick people off their plans but they can nudge certain people off of their plans during open enrollments. These strategies range from dropping providers, upping the cost-sharing on certain drugs that are indicators of higher than risk adjusted average spending, not sending reminder mailers/phone calls or any number of things. Insurers will compete to attract the members who have high risk adjusted premiums but fairly low projected costs. Yes, guarantee issue will counteract this to some extent, perhaps 105-E will do so to, but this incentive will be real and pervasive for a Gresham Law scenario.
The next big issue I have with this is a health equity issue. Two individuals who live next door to each other with identical objective medical situations will get very different subsidies and thus treatment possibilities if one individual is well connected to the medical system and has doctors who aggressively and legally code every diagnosis while the other individual either does not see medical professionals on a regular basis or sees clinicians who have a propensity to code very lightly. Well connected individuals with sophisticated skills to manipulate the medical system in order to maximize their allowed subsidy will doctor shop and there will be a small consulting industry to assist in this. Individuals without upfront capital resources or sophisticated system navigation skills will rely on chance to get an appropriate subsidy.
These are some of the issues that I can think of when I think of individualized risk adjusted subsidies. And until I see good answers to these concerns plus others that I can’t think of, I like the idea in theory but hate it in practice.
I will say it 10,000 times if I have to: Anyone who sees any kind of “high risk pools” as any kind of solution is admitting right out of the gate that there is no “free market” solution to providing health insurance. When you have to take 20% or more of your potential customers out of the market in order to have any hope of making any kind of market work, you do not actually have a “free market” solution.
Second, there is no set population of people with chronic conditions. As the population ages, a higher and higher percentage of people at any given age are diagnosed with things like high blood pressure, high cholesterol, type 2 diabetes, and whatever else is considered to be a chronic condition. What this portends is that whenever anyone gets sick enough, their insurance rates will be raised to an unaffordable level. It completely undercuts the point of having health insurance at all if you lose it as soon as you need it. To be blunt, I would rather have high deductibles than high risk pools, which intentionally segregate sick people, while still leaving healthy people at the risk of quixotic practices, like rescission.
That’s a pretty complex set of problems for just one specific health insurance issue. Thank fsm we have the tRump team taking over this stuff: the Best and the Brightest.
As someone with a chronic condition, let me tell you how this plays out: subsidies are allowed to be fazed out eg through lack of indexation for inflation.
If you don’t see eugenics as part of future govt policy, you are more optimistic than me.
@Barbara: In theory, I am not intrinsically opposed to well funded, well managed, well regulated high risk pools.
In practice, I am in 100% agreement with your comment.
So, instead of a system where high risk individuals’ premiums are subsidized by other members of the insurance pool, they’ll be subsidized by the taxpayers under a complex, burdensome system? Sounds like the same system, except more complex and easier for Republicans to eventually kill off high risk middle class and poor folks.
@David Anderson: Seems like some kind of reinsurance is the most free market way to handle high risk people. Cap the insurance company exposure. No idea what a reasonable cap is but should be straightford to figure out. I believe this is what the risk corridor stuff Rubio killed was trying to do.
@Kelly: Reinsurance is how most insurers and self-insured employee benefit plans deal with outlier conditions. There are two kinds of triggers for invoking reinsurance: “catastrophic” cases that exceed a certain threshold amount; and overall experience that exceeds a liability cap. So, for instance, your reinsurer might cover the balance of any case that exceeds $25,000 per event, and total experience that exceeds $2.5 million. Any kind of combination is feasible, the premium depends on the allocation of the risk between the parties and the overall riskiness of the population. The important point is that most people with chronic illnesses are NOT outliers by and large. In many high deductible plan designs, people with chronic conditions never even trigger coverage that exceeds the deductible.
@Barbara: Ah, chronic vs catastrophic. I had them blended together. I see the difference now.
Thanks for the insights. The more you and Richard dig into the weeds on this, the more I come around to supporting a single payer system which wins because it simpler and more straightforward. Yes, I know it is nearly impossibleto get to single payer in the current political environment, but one can dream.
It is interesting that most conservative approaches to healthcare carve out high risk pools as a significant part of the answer to the healthcare dilemma, but fail to recognize the underlying complexity involved in managing such a system.
Look they have to find SOME way of killing off the old and frail! We’re not gonna have enough ice floes around to do the job.
@azllib: Of COURSE the conservative approaches recognize the complexity, but if their divide and conquer approach to destroying any sort of social safety net is to succeed, they’ll have to deal with some temporary complexity. They’ll be putting the burden of dealing with it on the
victims‘consumers’ of their plans…
Richard I think there is a simpler way to handle this:
a. let insurers charge what they want, i.e. no individual rating
b. limit anyone’s individual premium to 8.5% of income, as proposed by Linda Blumberg and John Holohan recently…..
So if the insurer charged $3,000 a month and the person earned $5,000 a month, the most a person would owe would be $425 a month. A government subsidy would pay the rest of the premium.
There would be no ‘clifffs’ or ‘caps’ as we now see with the ACA.
The ACA itself has some large subsidies but on the whole the public is not aware of them in detail.