The ACA risk adjustment system uses the average premium of a state to determine the risk adjustment value for a given disease. The dollar value is the state average premium times a national fixed co-efficient per disease category and metal band. For instance, nationally, a person with lung cancer (HCC08) has a disease specific multiplier of 12.392 if they bought Platinum and 11.807 if they bought a Bronze plan.
Average premium varies dramatically between bordering states. I am picking on Balloon-Juice world headquarters of West Virginia’s northern panhandle as the geography is something that I’m familiar with.
| State | 2017 Avg Individual Market Premium |
| Pennsylvania | $ 421.63 |
| Ohio | $ 518.50 |
| West Virginia | $ 693.60 |
| https://www.cms.gov/CCIIO/Programs-and-Initiatives/Premium-Stabilization-Programs/Downloads/Interim-RA-Report-BY2017.pdf |
On Route 22, one can drive through Burgettstown PA, Weirton WV and Steubenville OH in less than six miles. That is three states and therefore three state average premiums. All three of those towns will send air ambulance cases to Pittsburgh. The really tough cases are likely heading to Pittsburgh as well. If someone is not going to Pittsburgh, they are likely to use Weirton Medical Center or Trinity in Steubenville without regard to what state they live in.
Let’s see what the risk adjustment value is for someone buying an individual market Bronze while having lung cancer.
In Burgettstown: $58,400
In Steubenville: $73,400
In Weirton: $98,270
These are big spreads in risk adjustment value in less than a 10 minute drive.
I’m not sure what it means.
I think that if I am an insurer that is operating in multiple states (Highmark for instance in this example), I want to get as many lung cancer patients from West Virginia into my plans as possible as I can ship them to cheaper locations for treatment. Working with the assumption that Burgettstown cancer patients are not a money pit of despair at the $58,400 risk adjustment payment level, the Weirton and Steubenville patients should be massive profit centers.
This would advantage insurers that can straddle state lines and ship/steer highly advantaged risk adjusted patients to low cost treatment centers that can provide needed care at a “reasonable” price point for the folks in the low average premium state.
There are downsides to this, I’m just not fully sure what they are yet.
Booger
Is there an approved list of metal bands? Do Hair Metal bands count?
Tony
This would advantage insurers that can straddle state lines and ship/steer highly advantaged risk adjusted patients to low cost treatment centers that can provide needed care at a “reasonable” price point for the folks in the low average premium state.
And, hey, whaddya know…
What better way to siphon the money-making* patients into your most profitable centers than to control both the insurance and delivery markets in all of the neighboring states!
* Oh, sorry, forgot that UPMC is “non-profit”.
David Anderson
@Tony: Yep, the UPMC Borg Cube is powerful — resistance is futile. The big question for UPMC (among others) is how much of their value proposition mainly about better integrated care leading to better outcomes versus pure monopoly power with a good marketing department front-end?
Over the very long run, larger market regions where Weirton residents ship out to lower cost regions would mean lower average West Virginia premiums which makes this game far less profitable while increasing consumer and social surplus. It is not a bad thing, but just something that I need to think about.
scav
There’s also the “hidden” costs that are oh! so merrily magically whipped out of thin air but ignored as borne by others or not as easily quantified. Hotel bills, additional transportation, food, etc for anybody so misguided as to sctually visit the shuffled patient. The intangibles of lost visits / support and any emotional medical influence they may have had. The longer-term issues of building a health care system with less redundency (all specialized care concentrated in fewer and fewer least-cost centers) where those concentrations suddenly becomes points of monopoly (whee!) — or just accidentially become unavailable to a wide swathe of the population because a single hospital goes belly-up. Lots to ponder. Not to say the current system is sane, rational or in any way ideal!
p.a.
I guess the potential (-) is if the low cost target state’s outcomes are statistically significantly worse than the higher cost in-state’s providers. Other things being equal, the MLR could serve to smooth this issue out a bit. (Hey I think I got an acronym right!)
BurntOutDoc
I am a primary care physician in West Virginia, and the numbers are in line with what I would have expected. I assume the $98,000 for West Virginia lung cancer patients is a statewide average. I would attribute its elevation (compared to neighboring states) to our operating-in-chronic-crisis-mode medical system, and an always struggling social/economic situation. While some of the costs can be reduced at a cheaper specialty center, that will not help with the lack of support systems for the patient back at home, the lack of primary care providers to help coordinate care, and on and on. Thinking back over my years of practice, most of the lung cancer patients that I helped care for had a litany of “avoidable” complications, including unfilled prescriptions for critical medications, missed radiation therapy visits, and chronic lack of support services. And as the other commenter noted above, there are many other “costs” to family and friends that are not captured by insurance billings. Decades ago, costs were lower in poorer states, because much of the care was never provided. If in the future we are going to provide the same level of care to everyone, more cost differentials than just the hospital will have to be taken into consideration. I am sure that UPMC could take good cost-effective care for the higher-income patients in the northern panhandle, but would struggle mightily to help the rest of the state.
Chris Johnson
If you don’t know what this means, the rest of us are fucked. Also
Can you not?
David Anderson
@Chris Johnson: I use the insurer lens quite frequently, so I am and will continue to suss out the incentives, including profit motive.