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You are here: Home / 2024 Elections / The insurance trilemma

The insurance trilemma

by David Anderson|  April 27, 20228:26 am| 24 Comments

This post is in: 2024 Elections, Anderson On Health Insurance

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John McDonough, professor of health policy at Harvard, lays out in Politico what he is hearing from Republican health policy wonks on what they want to do about health policy if they have a trifecta again. There is one sentence that I want to really pull apart:

Doug Badger, who doubles at the Heritage Foundation and the Galen Institute, offers a list: “Republicans still believe that ACA premiums are too high, networks are too restrictive, and cost-sharing too burdensome.

The ideal plan from a patient’s perspective is a no premium plan with absolutely no restrictions and no cost-sharing.  That is also a fantasy if we have to vaguely think about costs.

Let’s assume that we have a system where the sick and likely to be sick/expensive individuals can get and maintain coverage as well as a system with little to no governmental price setting. I’ll relax that assumption later but right now, there is a trilemma where we are at a choose two (at most) situation.

** We can have low premiums.  Premiums need to be sufficient to pay for claims. Claims are a function of both utilization which is a function of population health interacting with provider treatment preferences interacting with benefit design and the price per unit of service rendered.  Finding ways to drive down either utilization or the price per unit will lead to lower premiums.

**  We can have plans that have broad networks and few restrictions. In that universe, the clinicians have all the leverage and insurers can’t get good pricing per unit.  These plans will attract high need patients.

** We can have low cost-sharing.  This means the insurer is paying through the premium channel a higher percentage of allowed claims.  This also means that people will use more services (both high and low value services.)

All of these things have tensions.

We can have low cost-sharing and very broad network plans with few if any restrictions.  Those two incentive sets means premiums are likely to be high as hell as insurers won’t have any ability to credibly threaten “NO” in a pricing dispute and utilization will be high.

We can have low cost-sharing and low premiums.  In order to get low premiums this means claims have to be rare and the per-unit pricing has be low.  To get low per-unit pricing, the insurer needs to be able to credibly threaten “NO” in a pricing dispute which means the ability to assemble a massive network with 95% participation and not have government price setting like in Medicare is a massively unreasonable assumption.

We can have low premiums and a broad network as long as the patients are picking up a good chunk of the tab through high cost-sharing.  Claims will be heavily borne by the insured population and high cost sharing may deter some needed and plausibly unneeded care as well.

It is also quite plausible to get a broad network with high cost sharing and high premiums. In almost all of the United States, in the commercial markets, the insurer and consumer is in, at best, a CHOOSE TWO situation.

Now if we are to assume that the policy environment allows for the private insurance markets to bifurcate the market by active and passive underwriting, then the segment of the market that serves mostly healthy people will have dirt cheap premiums, broad networks and low cost-sharing as this is a group that barely uses health care in a given year.  The coverage might have significant holes in it.  Good luck finding maternity coverage and mental health coverage but the premiums will be low to the low chance of receiving a cancer diagnosis in any single year at which point reclassification risk occurs.

This schema will carve out 10-20% of the population that drives most of the predictable costs.  The favored conservative solutions are either tax incentives or high risk pools that are high cost sharing and underfunded but in this domain, carving out most of the expensive people away from the “normal” insurance system.  Now if these carve-outs were adequately funded this could work if we are committed to an insurance market that bears only actuarial and idiosyncratic risk but making sure that these carve-outs are adequately funded means serious money needs to come from somewhere that is not the patients.  And that is a huge question in all of these schemes.

So wrapping things up; if we have a guaranteed issued market without administrative price setting then we have a trilemma of premium-cost sharing-network restrictions.  If we have a bifurcated underwritten market, the carved-out minority is either bearing massive health costs or they need massive explicit governmental subsidies.

Everything else is a detail.

 

 

 

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24Comments

  1. 1.

    Starfish

    April 27, 2022 at 9:02 am

    Even after a pandemic where Norwegians were told to leave the U.S. due to ‘poorly developed healthcare system.’, the Heritage Foundation continues to be unserious about health care.

  2. 2.

    sab

    April 27, 2022 at 9:19 am

    Reminds me when back in the early days of AC I wrote Ohio Senator Rob Portman’s office in defense of the ACA because at that time my life depended on it. Oddly enough, his office actually responded: ACA has problems that need fixing, because the premiums are too high. That was true.

    What wasn’t explained is that their solution is reduce premiums by having high cost sharing where expensive patients get hammered. The rich pay well for medical expenses and the not rich go bankrupt (stiffing their doctors.) Better than the pre-ACA because you aren’t wasting money on fake insurance, but that is about all that can be said in its favor.

  3. 3.

    Steve in the ATL

    April 27, 2022 at 9:31 am

    Tl; dr: this shit is complicated

  4. 4.

    dstraws

    April 27, 2022 at 9:36 am

    So has this scenario been presented to Mr. Badger and how did he respond?

  5. 5.

    Bill K

    April 27, 2022 at 9:43 am

    The problem I see with this discussion is assuming Republicans have legitimate complaints.  The Heritage Foundation exists to make up arguments to support whatever Republicans believe at the moment.  They hate the ACA with a white-hot passion.  They do NOT care about higher premiums or restrictive networks.  That’s just their latest excuse for destroying ACA.  Notice Mr. Badger did not have an alternate plan.

  6. 6.

    sab

    April 27, 2022 at 9:56 am

    @Bill K: Isn’t that the point of the discussion? We need to know that there are three constraints and we have to work within them. Republicans are always happy to bring up one constraint (premiums) but are never willing to discuss the other two.

  7. 7.

    David Anderson

    April 27, 2022 at 10:10 am

    @sab: Yep, the odds that there is full fat and full flavor chocolate ice cream that I can eat without limits without gaining weight while not exercising rigorously nor making other dietary trade-offs are extremely low.

    The key to realistic policy making is to acknowledge trade-offs.

  8. 8.

    Another Scott

    April 27, 2022 at 10:12 am

    It’s Krugman’s “three-legged stool” problem again, isn’t it?

    The GQP cares about insurance companies being able to sell what they want and deny any claim they want.  And being able to tell people buying the policy that it’s great, and not being responsible for their lies and misrepresentations.  They don’t care about hospitals and doctors offices, because those are run by pinko-liberal democrats – and besides, the government will pay them if people scream loudly enough.  They don’t care about people actually needing health care because bootstraps and good genes and picking your parents takes care of those issues.  If not, sucks to be you, magic of the marketplace is inviolable, except for my monopoly rents, thank you very much.

    tl;dr – The GQP is all about enabling the scammers.

    I’m sorry you have to deal with these disingenuous, bad-faith arguments that you’ve heard a thousand times before.  Keep fighting the good fight.

    Cheers,
    Scott.

  9. 9.

    JaneE

    April 27, 2022 at 10:14 am

    In IT, the saying was “Systems – Good, Fast, Cheap – pick any two”   You can’t have everything – sometimes not even part of the time, when what you want is contradictory.   Striking an optimum balance is hard, even when everyone agrees on what an optimum balance looks like.

    Something like Medicare for all, with freedom for the government to negotiate costs for all medical services and prescriptions and devices, and optional supplemental private policies seems a good balance of “socialism” and “capitalism”.  But even that is anathema to the current version of the GOP.

  10. 10.

    Brit in Chicago

    April 27, 2022 at 10:18 am

    Great analysis! It’s striking (but not, I suppose, surprising) that these Republican organizations put forward a list of problems for which the only solution is… more subsidies for health insurance, something I assume they are adamantly opposed to.

  11. 11.

    WaterGirl

    April 27, 2022 at 10:20 am

    Whether it’s technology or graphic design or any other fucking thing in the world, it really is the “You can have it good, you can have it fast, you can have it cheap… Pick two.”

  12. 12.

    sab

    April 27, 2022 at 10:37 am

    @Brit in Chicago: They don’t want subsidies. They want insurers to charge lower premiums. Their tradeoff is insurers then cover less (ACA makes them cover a lot of popular and possibly expensive  things they don’t want to cover.)

    In the preACA days you didn’t actually know what your coverage was until it was denied. And anything could and would be treated as a pre-existing condition. People actually avoided treatment they needed (hypertension pills) because they didn’t want a pre-existing condition on their record while they hung in there waiting for medicare eligibility.

  13. 13.

    Parmenides

    April 27, 2022 at 10:43 am

    While I can see how creating a network and therefore funneling patients to a doctor or group could give the insurance leverage, I’m less sure how the denial power and doesn’t in itself give a lot of pricing power to any individual insurer as the patient can’t exactly jump around at any particular no point.  In the short term its really painful for the patients which might make the whole thing not work, but with enough time and education of hospitals and doctors couldn’t a general price list be created by the insurer where no’s become yes’s if prices are within line?

  14. 14.

    sab

    April 27, 2022 at 10:50 am

    @sab: My husband had an expensive (and unknown to us experimental) procedure at the Cleveland Clinic that didn’t actually work. When the bill came in my company’s insurer dropped us (the whole company), so they fired me. They were then out on the insurance market as higher risk (less risky since we were gone) and I was out in the private market which was a joke, but you have to have insurance to even get in the door with most doctors.

    There were lots of legal rules about how everyone down the chain couldn’t drop everyone, but nobody had the money or time to legally challenge so there we all were, dropped.

    That was life pre ACA.

  15. 15.

    Anonymous At Work

    April 27, 2022 at 10:51 am

    Are there any credible outfits with decent plans on the right side of the aisle?  Heritage is a tax-break after-effect and generator for the Kochs, et alia.  AEI is to think tanks what bushy eyebrow glasses are to disguises, etc.
    Or, put another way, will we see efforts to tinker with ACA in legitimate ways or a showy repeal-and-replace strategy that falls flat (again)?

  16. 16.

    daveNYC

    April 27, 2022 at 10:58 am

    @Anonymous At Work: 
    I doubt there’s many good ideas from the right. About the only thing I can think of that wouldn’t be anathema to their way of thinking is better price transparency, but that’s not going to help a lot of people. Nobody is doing comparison shopping for the ambulance ride if they have any sort of medical emergency.

  17. 17.

    JAFD

    April 27, 2022 at 10:59 am

    @WaterGirl: ​
     For housekeeping, it’s ease / elegance / economy,
    for batttleships, it’s guns / speed / armor

  18. 18.

    David Anderson

    April 27, 2022 at 11:02 am

    @daveNYC:

     

    @Anonymous At Work:

    I think price transparency is going to be useful not at the patient level but at the insurer-hospital level.

    I think ICHRA (I have a post lined up on that tomorrow) has the potential to be a big fucking deal in a pretty decent way as long as we get risk adjustment right(er)

  19. 19.

    RaflW

    April 27, 2022 at 11:55 am

    @Steve in the ATL: “this shit is complicated” and we now know that conservatism long ago abandoned wanting to understand, much less fix, complicated issues.

    I appreciate David’s post. But I’m deeply skeptical that there are more than a tiny handful of actual conservative health care wonks. And I simply do not believe that if they exist, any of them work at Heritage. That outfit went to sh*t decades ago.

  20. 20.

    Edmund Dantes

    April 27, 2022 at 12:38 pm

    @WaterGirl: quality, speed, cost was the way my engineering professor framed it.

    but it’s all the same stuff Re-packaged.

  21. 21.

    StringOnAStick

    April 27, 2022 at 1:57 pm

    The R’s can’t give up on attacking the ACA because they need to stick with their strategy of undermining it for as long as possible; it keeps the so called think tank guys safe in their phony high paying jobs while they pursue the white whale that the Koch’s, et al want killed at all costs: no government involvement in healthcare, insurance, retirement funding or regulation of anything that cuts into their profits and control. In other words, the ACA was the first step on the slippery slope to universal coverage, and that costs money likely to come from their profits. Their ray guns are always set on “destroy”.

  22. 22.

    Ishiyama

    April 27, 2022 at 2:32 pm

    So, now that I am on medicare, and don’t have to deal with many of the issues that plagued me annually with the ACA (which I agree was better for me than what I had before), I ask: why not medicare for all?

  23. 23.

    TonyG

    April 27, 2022 at 4:27 pm

    The Republican Party has had 13 years to come up with a workable alternative to the Affordable Care Act.  Instead we get this nonsense.  It’s almost as though they have not realistic policy ideas, and instead rely upon the bigotry and stupidity of their base.

  24. 24.

    sab

    April 27, 2022 at 6:08 pm

    @Ishiyama: I think the big problem with medicare for all is the networks.  That is just short term (a generation or so with patients and with doctors.) I am 68 and my medical needs are entirely different from from stepkids and my grandkids ( or mine 20 years ago. ) Different doctors, different specialists, different needs., different pricing,

    Long term yes it’s obvious. But the transition will take a while, and if we rush it it will fail.

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