This tweet and a few other conversations that I’ve seen has me thinking hard. I’m method agnostic as long as preferred ends are met. This is a scratchpad post as I am trying to figure out the model.
Hearing that analysis by insurance companies projects individual insurance market will deteriorate and collapse under House GOP health plan
— Ed Lorenzen (@CaptainPAYGO) February 26, 2017
One of the plausible pool participation mechanisms is the use of late enrollment penalties. Medicare Part B uses a late enrollment penalty for people who do not sign up. Those penalties are significant, scaled to time and persistent.
if you don’t sign up for Part B when you’re first eligible, you’ll have to pay a late enrollment penalty. You’ll have to pay this penalty for as long as you have Part B. Your monthly premium for Part B may go up 10% for each full 12-month period that you could have had Part B, but didn’t sign up for it. Also, you may have to wait until the General Enrollment Period (from January 1 to March 31) to enroll in Part B. Coverage will start July 1 of that year….EXAMPLE
Your Initial Enrollment Period ended September 30, 2009. You waited to sign up for Part B until the General Enrollment Period in March 2012. Your Part B premium penalty is 20%. (While you waited a total of 30 months to sign up, this included only 2 full 12-month periods.) You’ll have to pay this penalty for as long as you have Part B.
Medicare Part D is similar in using a late enrollment penalty. The Part D penalty is 1% of the national average premium cost per month of non-coverage. Both penalties are persistent as they are permanent increases in premium for the rest of the life of the Medicare beneficiary.
The House Republican Repeal bill has a late enrollment penalty but it is not persistent. Their late enrollment penalty for non-continuous credible coverage starts on p.41 of the bill. It is a 30% surcharge for a single twelve period. After that point, the individual gets the standard rate.
Update as the rest of my post was cut off
So what is going on here that causes health insurance actuaries to potentially freak out about a late enrollment penalty as the pool participation mechanism in the individual market while the Medicare LEPs seem to work well enough?
I’ll advance a story that could make sense.
We’ll assume that all of the people who know that they are expensive to treat will buy insurance at effectively any price. The question is whether or not low cost and low utilization people will buy insurance. We know under the leaked bill that quite a few people who are both healthy and relatively low income (at 5:1 and 60 years old or higher, “low income” is a big number) who will have a massive gap between what they are subsidized for and what they can afford to buy. And that policy will have a $7,000 or more deductible. So the question becomes how do healthy people get in the pool? Medicare uses persistant late enrollment penalties. One bad decision follows you for life. The House bill has a temporary late enrollment penalty that fades quickly.
To make the math easy, let’s assume that the cheapest policy for me costs $5,000 per year after my subsidy. The deductible will be high and I will be buying hit by a meteor coverage. In 2016, I incurred $250 in claims, in 2017, I’ll incur $300 in claims as my likeliest projection. At some point due to soccer, I will need work on my knees. Hopefully, I can delay the $15,000-$20,000 per knee for as long as possible.
The actuaries would be worried that under the proposed late enrollment penalty structure, the incentive for me would be to stay out of the pool in 2018 while incurring low claims expenses, jump into the pool in 2019, pay a 30% penalty for a total premium of $6,500 while getting $30,000 worth of work on my knees, and then run naked in 2020 as I have a claims expense of $500 or less. As premiums get lower, that decision to jump in and out of the pool and stitch together coverage with underwritten plans gets even easier to run like hell from the community rated, guaranteed issue coverage.
That I think is where the death spiral concern is coming from. I need to think about this some more.
marcion
well, here’s hoping the ignorance of low-info voters (“everything bad that happens to healthcare is the President’s party’s fault”) can work for good instead of evil this go around
Baud
Is this the bill that says everyone gets free catastrophic coverage unless they opt out? It’s hard to see who would take the effort to drop out. If that’s true, the penalty seems to not matter much.
Ed
I don’t know the details, would the late penalty in the GOP proposal go to the insurance companies or the government? Where do the Medicare late payments go?
Iowa Old Lady
When the ACA was under discussion, I recall Howard Dean saying an enrollment period might serve as well as the mandate for getting people to buy insurance. I don’t know what he was using as evidence.
Ed: The Medicare late payments go to the govt. They’re taken directly from your social security check.
? Martin
The problem with a risk of the individual market deteriorating and collapsing is that the ideological solution to that problem isn’t to come up with a better individual market plan, rather to eliminate the employer group market so the individual market has no choice but to survive. I expect they will take a more serious run at that than the whispers we’ve heard thus far.
David Anderson
@Baud: no, that is Cassidy-Collins.. I am referring to the leaked Repeal via Reconciliation bill that Politico ran late last week.
encephalopath
Sounds like a coverage mandate to me. I thought the Republicans were supposed to be against that sort of thing, mandates being the work of the Devil and all.
jl
@Baud: ‘free’ catastrophic coverage. I think I heard news report that the GOP House reactionary hardliners are going to oppose that and it is a non starter.
I think this is the critical part “You’ll have to pay this penalty for as long as you have Part B.” That is a lifelong penalty, which doesn’t seem to exist in what DA reported.
Edit: I see DA already replied to Dr. Bnad’s query. Sorry
jl
Looking around, looks like GOP hardliners are talking about opposing the proposal leaked last week too.
Leader Of GOP’s House Hardliners Shoots Down O’Care Replacement Draft
TPM blog
“Rep. Mark Meadows (R-NC), who heads the House Freedom Caucus, told CNN Monday he would vote against a bill that looked like the leaked draft, and that other conservatives had similar concerns about the proposals’ tax credits for individual insurance as well as its tax on the most generous employer-based plans.”
talkingpointsmemo.com/dc/house-freedom-caucus-replacement-draft
The GOP hardline reactionaries seem to think it is a good idea to destroy the very idea of comprehensive health insurance. Maybe they will start muttering about what is wrong with cash-n-carry medicine. Or trading chickens and big screen TVs for some health care.
Edit: Oops. I read too quickly. Looks like the GOP hardliner reactionaries don’t want to go against employer group policies.
Villago Delenda Est
You are born, your basic health care is covered for life. You sign up by having a birth certificate.
Easy peasey.
Clem
If you are young and healthy and you have to drop out, why pay the penalty to get back in if you are healthy especially if the tax credits don’t cover the cost and the best you can’t afford is a plan with low AV and high deductible?
Clem
Oh yeah, @Avik said the flat tax credit wasn’t going to work. Low incomes will fall out.
Yurpean
Is that a Buzzcocks reference in the post title, because if so, kudos!