Ineffective catastrophic schemes

A few weeks ago, I read that the House had passed a bill that would expand eligibility for Catastrophic plans while tying those plans into the single metal risk adjustment process.

This irked me. It is dumb policy on any evaluation lens as it won’t do much of anything including what its sponsors want it to do namely — offer lower premiums for non-subsidized individuals. The mechanics just won’t work. So I decided to write up what I’ve been ranting about here at Balloon Juice and sent it to Health Affairs.

Unfortunately, these proposals work against themselves. In its analysis of the Alexander-Murray bill, the Congressional Budget Office estimated no change in covered lives and miniscule federal savings. Both HR 6311 and Alexander-Murray copper plan proposals suffer from the same defect. Risk-adjustment mechanics limit the impact of copper plans as currently proposed….

Bringing the tiny but generally healthy and young population that is currently in the stand-alone catastrophic pool into the much larger and more morbid metal risk pool will lower the average risk and thus lower premiums. This will lead to marginally lower index premiums, which will lead to slightly lower premium tax credit obligations for the federal government and slightly lower premiums for current metal band buyers who do not receive subsidies.

If you want lower premiums via the mechanism of tinkering with eligibility and benefit design there are few choices:

• Lower actuarial value
• Segregate low risk from high risk risk adjustment transfers as it is currently done with the Catastrophic while expanding access to the low risk pool to similar folks in the high risk pool.

If you want to get more ambitious, then you need to do aggressive outreach to pull in a massive number of low risk and low cost folks so that average morbidity goes down and therefore premiums go down.

It is not magic.