Nougat asked a good question yesterday:
Slightly off topic, but is it possible that the mandate repeal today raises premiums so much that even people with 90% APTC won’t buy insurance? Why is everyone so confident that APTC will be enough to prevent a death spiral? It seems like insurers should just abandon the individual market entirely if there’s no medical underwriting allowed and no mandate.
TLDR: Complete Death Spirals are very difficult to achieve in a single ACA insurer state due to subsidies.
This is an awesome question. I don’t think death spirals are likely to occur for the entire qualified health plan (QHP) market because of the subsidy structure. I do think that the non-subsidized portion of the QHP market will look a lot like a death spiral in some states. Let’s work through the insurance financing logic using a single state with a single person who can buy or not buy insurance.
We’re going to use my mom. She is in her mid-60s and just had brain surgery. Recovery is going well. She has a medical history that makes her real popular at Mass General as a teaching tool for the young interns and residents.
Since she is the only person buying insurance in the state of Mayhewville, her expected claims plus administrative costs will drive the offered premium.
She is highly likely to be costly for the next policy year. The insurance company actuary will look at her medical history and project that the expected claims expense plus reinsurance for outlier experience will run somewhere between the high five figures or low six figures.
If my parents make too much to be subsidized (~$64,000 for a couple), the premium is all of their income before mortgage, taxes, food and baubles for the grand children. Mom would not buy insurance at that price and the individual market in Mayhewville will have death spiraled.
Now if my parents either make less than the subsidy cut-off point or can engineer their income to count as less than the subsidy cut-off point, things are different.
Let’s assume they make just under $64,000. The benchmark Silver plan costs them slightly more than $500 a month. $6,000/year in premiums for $5,000 deductible and $7,000 out of pocket max is not cheap but it is doable for someone who knows that they are highly likely to run up $50,000 or more in claims in the next year.
If Mom is smart, she asks her insurance nerd son for some more help. He would direct her to buy a low cost Bronze plan where the out of pocket maximum is a touch higher but post-subsidy premiums are under $100 a month. She buys a policy in this scenario. The Federal Advanced Premium Tax Credit (APTC) covers the rest of her premium.
I think that insurers that are offering only off-Exchange plans will seriously reconsider their participation. They will likely be only getting the sickest of the sick who will be facing strong use it and then lose it incentives. However insurers that can load a lot of the off-Exchange morbidity challenges into on-Exchange rates where the Federal APTC eats all of the incremental increase in premiums should be able to price products that are attractive to subsidized buyers and still sufficient to pay for the care of a fairly sick population.
I think that the incentives for multiple, competing insurers in low density markets and states will decrease. I think that we’ll see a lot more single insurer counties. I think that we’ll see a scramble to cover bare counties next year. States and regions where there are multiple insurers could see a shake-out year as multiple insurers offer products designed to make them the last insurer standing. My opinion is that a single insurer in a region with an APTC optimizing strategy is a stable equilibrium that gets rid of a lot of risk adjustment challenges.
Frank Wilhoit
“…the non-subsidized portion of the QHP market will look a lot like a death spiral in some states….”
…e.g. Ohio.
SFAW
Best wishes to your mom for a full and complete recovery.
Jager
David I read your posts, I finish them and every time I am so damn glad I have Kaiser Permanente for my Medicare Supplement. 12 bucks a month. This week I had a blood test (INR) $25. I filled 4 scripts, 3 months worth for $50.01. Last year I had a cataract operation, my co-pay? $465. My self employed wife has a Kaiser Silver plan, $186 a month. We compare numbers with friends in MA, WI, FL and AZ …they are getting their asses handed to them by insurance companies.
When I had Anthem Blue Cross/Blue Shield through my last employer, (before I qualified for medicare) I was paying a 20 dollar co-pay for a generic blood pressure drug. My pharmacist tipped me off that if I bypassed Anthem I could buy the generic for 9 dollars a month. The entire system is bullshit.
Nougat
Thanks for the analysis, David. Will be very interesting to see how the rate filings start to shake out next spring and summer.
Matt
FFS, the GOP can’t even capitalism correctly. This entire tap-dance with insurers etc was supposed to induce competition and therefore lower prices – instead, we’re getting a Shocker from the invisible hand.
Le Comte de Monte Cristo, fka Edmund Dantes
I’m a healthy non smoker, mid 50s. Because I’m in the Trumpian shithole of Kentucky, my cheapest option as a self-employed person is a bronze plan with a $7500 deductible.
I get to pay $491 for the privilege of meeting 100% of my foreseeable needs out of my own pocket. It has been this way for years, with shifting carriers offering shit benefits while hoovering over $5000 per year from my pocket.
Plus, wife pays about $200/mo on her shitty high deductible employer plan, and the daughters under 26 amount to $100 apiece on their individual market plans, as neither of us could fit them in without breaking the bank.
Last time my premiums for shit coverage that paid for nothing for the whole family was under $400 was at least 10 years ago, maybe more.
I’ve been working professionally for 30 years. In the last 10, I’ve paid insurers probably $60,000.00 to do nothing.
I’m really considering going naked. I resent every premium paid because we’ve never come to grips with the moral hazard of “for profit” health insurance, and have failed to recognize a fiduciary obligation with regard to health insurance renewals even when a market is withdrawn from. I look at every premium paid as a payment to lobbyists to fuck me.
jk
OT
Wall Street Journal Killed Editorial on Trump’s Mob Ties
h/t http://nymag.com/daily/intelligencer/2017/12/wall-street-journal-killed-editorial-on-trumps-mob-ties.html
dr. bloor
Six grand for a seven grand out-of-pocket max Bronze plan? I want to move to Mayhewville. Mrs. Dr. Bloor and I look to be 7-10 years younger than your parents, and will be paying 15K for the privilege of a 12K deductible and 13K out-of-pocket max next year.
All of which is to say, I’m not sure your example really gets to the pinch that unsubsidized buyers are already feeling, and not many will be able to jigger the numbers to get into subsidy land. Like the federal government, the insurance industry is likely to come up against the limits of middle class wealth much faster than they imagine.
stinger
David, best wishes to your mother! If she is mid-60s, I would hope she’d soon reach the Safe Haven of Medicare. At least that’s how I’ve been thinking of it for myself as I enter my mid-60s. I realize that may not be the case much longer. Luckily I’m healthy, so far.
WereBear
Glad to hear your mom is doing well. Best wishes for the whole family, because even those circumstances are a tough one.
WereBear
The thing that keeps life insurance afloat is that they can explore suicide and other policy-violating issues, but when a person passes on, it can’t be argued with. The contract holds.
With health care, all sorts of excuses and hoops to jump through can be added as science advances (or retreats) and What To Do shifts around.
David Anderson
@dr. bloor:
The example is subsidized buyers pay $6,000 for insurance and non-subsidized buyers in this example are paying tens of thousands of dollars. The split in the market is what prevents death spirals
“If my parents make too much to be subsidized (~$64,000 for a couple), the premium is all of their income before mortgage, taxes, food and baubles for the grand children. Mom would not buy insurance at that price and the individual market in Mayhewville will have death spiraled. “
dr. bloor
@David Anderson: Ah, got it. Misread a couple of lines.
TenguPhule
So Death Spirals for some, Little American Waving Flags for others.
daddyj
David, I’d be interested in reading your thoughts on another aspect of death-spiraling: we here in NW suburban Chicago are seeing a palpable degradation in the quality of care being offered by BCBS narrow networks. My family (non-subsidized) felt driven onto a far more expensive Silver plan rather than stick with last year’s narrow-network Bronze, as we have seen with our own eyes in the past 6 months what looks like hospitals/docs in the narrow network having the life squeezed out of them by the dominant insurer. Dirty facilities, wierd/hostile attitudes. At my company (10 employees) we were given less than 24 hours to review plans and make a decision.
Raoul
As someone who likely can’t engineer my income to qualify for an Exchange plan, it seems I’m heading for the chasm in a year or two.
Do I move overseas now? Do I force my partner to stay at his job and join his more expensive (for now) but likely to last longer employer plan? Because their previous insurer dumped them (in a way that seems like it could be deserving of investigation, but someone would have to ask the ins commission here and I can’t see that in a shop with three covered employees), the stupid open enrolment is a month early — yep, Dec 1 (can be signed up thru Dec 31 retroactive, but my current plan is calendar year).
It’s all just a f—ing cluster.
The GOP needs to pay with pounds of flesh for their skuduggery. Did everyone on the right forget the anguish of 8 or more years ago? Yes, yes they did. And it is infuriating.
Still, thanks for the calm explanations, David.
David Anderson
@daddyj: post on that tomorrow morning — TLDR: subsidy structure matters a lot here.
Daddio7
@Le Comte de Monte Cristo, fka Edmund Dantes: That is how Socialism works, those with more money over pay for things so those with less money can afford them.