I am a student in the doctoral program at the Duke University Department of Population Health Sciences. I am working towards my my doctorate in Health Services Research with a policy focus. I am fundamentally fascinated by insurance markets, consumer choice and the navigation of complex choice environments. I'm currently RA-ing at the Duke Margolis Center for Health Policy.

I used to be Richard Mayhew, a mid-level bureaucrat at UPMC Health Plan. I started writing here and have not found a reason to stop.

Conflicts of interest: Previously employed at UPMC Health Plan until 12/31/16. I also worked full time as a research associate at the Duke University Margolis Center for Health Policy. I have received direct funding from the National Institute for Healthcare Management, and I have been on projects funded by the Rockefeller Foundation, Kate B. Reynolds Charitable Trust, Gordan and Betty Moore Foundation, Duke University Health System, CMMI, and various value based payment consortiums.

Research Production is here: https://scholar.google.com/citations?user=zof9b4IAAAAJ&hl=en

David Anderson has been a Balloon Juice writer since 2013.

David Anderson

Adverse Selection in New York State

by David Anderson| September 10, 20137:55 am| 26 Comments

This post is in: Anderson On Health Insurance, World's Best Healthcare (If You Can Afford It)

Currently New York State’s individual insurance market is structured with only one of three major components of the Obamacare exchange products. New York state requires insurance companies to sell insurance to anyone who applies for it. This is community rating and it is a shared policy with Obamacare. However, New York state has no mandate so the only people who are looking to buy insurance are those who are either currently sick or very strongly believe that they will soon be using a lot of medical services. New York also has no subsidies to help people pay for their insurance.

Predictably, the New York state individual insurance market is dominated by people who are ill as no one else sees the value in buying insurance that is way too expensive for regular risk. Below is a screenshot of the individual market rates for a single county for September 2013. The rest of the file is here:

The New York Times last June reported on the projected Exchange policy’s premiums. The cost differential is significant:

State insurance regulators say they have approved rates for 2014 that are at least 50 percent lower on average than those currently available in New York. Beginning in October, individuals in New York City who now pay $1,000 a month or more for coverage will be able to shop for health insurance for as little as $308 monthly. With federal subsidies, the cost will be even lower…

Because the cost of individual coverage has soared, only 17,000 New Yorkers currently buy insurance on their own. About 2.6 million are uninsured in New York State.

State officials estimate as many as 615,000 individuals will buy health insurance on their own in the first few years the health law is in effect. In addition to lower premiums, about three-quarters of those people will be eligible for the subsidies available to lower-income individuals….

The politicians are praising the competitive aspect of the exchange marketplace. That is most likely a mild factor, but it is a secondary factor. The big difference between Obamacare individual policies and current New York community issue without mandate policies is the composition of the risk pool. The current risk pool is older and much sicker than the general population. The new Obamacare Exchange risk pool is relatively young and relatively healthy. These people will be jumping into the risk pool because they are mandated to do so and the subsidies in Obamacare makes it possible for them to do so.

Adverse Selection in New York StatePost + Comments (26)

Good morning open thread

by David Anderson| September 10, 20137:29 am| 72 Comments

This post is in: Open Threads

What do you have to look forward to today?

I’m getting ready to see the world premiere of the cutting edge new play “The Very Friendly Fireflies”. Kid #1 is in a critical supporting role as a bumblebee.

Otherwise talk amongs yourselves.

Good morning open threadPost + Comments (72)

What’s the fee cause it ain’t free

by David Anderson| September 9, 20137:50 am| 78 Comments

This post is in: Anderson On Health Insurance, Proud to Be A Democrat, All we want is life beyond the thunderdome

Obamacare’s exchanges go live in three weeks and three days… or as we count time, a gross of coffee spoons.

The big news this week is that actual pricing is starting to be released in a variety of states. The Reality Based Community passes along the fact that Blue Cross and Blue Shield of NorthCarolina released rates on everything they are offering on the North Carolina exchange/marketplace.

(Click to embiggen)

There is massive variance in non-subsidized costs. The cheapest is $145 for catastrophic coverage for a 25 year old while the most expensive is a platinum plan for a 60 year old at $947 per month. Even looking within a single level for a single age, there are significant differences in price.

What are the factors that drive these cost differences?

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What’s the fee cause it ain’t freePost + Comments (78)

The biggest drive of differential within the same plan is age. PPACA allows for up to a difference of 300% between the premiums for the youngest person who can buy a plan on the Exchange to a 64.999 year old. Age is an extremely good single predictor of medical expenses because as we get older, more things break down and recovery time gets longer. Late teens and early 20 somethings tend not to have too many chronic conditions nor do they fall and can’t get up. Furthermore, this age group just tends not to use basic medical services as much as they should. A 62 year old’s body has started to break down more often than my 1977 Chevy Nova plus by that point, most people have at least a chronic condition of some sort.

The next differential driver is the actuarial level of coverage. Catastrophic coverage is true “hit by a bus” insurance where the insurance only kicks in when a massive medical event occurs. It won’t help someone who has a clean broken leg, or needs an appendectomy or has an non-complicated pregnancy. Catastrophic coverage is available on the Exchange for people under the age of 30, as well as people whose employers offer insurance but it is not deemed affordable insurance.

The vast majority of people will buy a “metallic” product. Bronze has the lowest actuarial value at 60% while Platinum plans cover 90% of the expected average health care expenses of members. The higher the actuarial value of the product that a person buys, the more the insurance company is on the hook, and thus the higher a premium the insurance company charges to cover their anticipated cost. Doing some back of the envelope calculations, there is minimal pricing differentials within the lowest price metallic levels based on anticipated adverse selection usage rates. I don’t have their models in front of me to say for sure, but if there is adverse selection pricing, it is in the range of a good burrito to a decent lunch per month between levels.

Now within the Bronze plan for the 25 year old, there are six different plans being offered and their pricing is different. There are two major drivers of the differentials. The first is location. Typically community hospital and individual provider pricing is cheapest in the inner ring suburbs of a major metropolitan area as there is significant competition and comparatively cheap land. Within the anchor city of a metropolitan area like Charlotte, the basic hospital services and specialist services are a bit more expensive as the city is just more expensive. Charolotte would also typically host most if not all of the very high end specialty services (transplants, high end trauma centers, high end cancer centers). And once you get out into the boonies, pricing goes up again as there are very few providers out there. So location will drive some premium pricing as someone living in the local burbs is cheaper to cover than someone living in the center city or the boonies.

Within a single level, the location of the buyer matters to some degree, but the more important provider network driver of differences will be the type of network selected. I am betting that BCBS of North Carolina is offering a full network and a narrow network. The full network will be effectively a clone of one of their current networks with a new marketing name on top of it. The providers in the new full network will get paid commercial or near commercial rates.

The cheaper, but much more limited narrow network is a network that might have 50% of the doctors and 30% of the hospitals (including all of the high end services). The reason why it is a cheaper network is that the insurance company can got to five provider groups whose current rate structures are based on Medicare and the following multiples: 150%, 148%, 127%, 165% and 150% and make the following pitch: “We project that we’ll have 10,000 new patients in your area who are willing to travel for services, we’re paying 115% of Medicare, and we only need two of you… so who wants in?”

There is one other factor that can increase the cost of a plan. Tobacco usage allows an insurance company to apply a 50% surcharge on their age/location adjusted base rate for a given plan.

To review, in descending order of cost drivers for the exchange plans are the following:

Age
Value of plan
Network breadth
Buyer location
Tobacco usage

There are a couple of important things that are no longer being considered in pricing policies. The biggest one is gender. Men tend to be cheaper than women from the insurance company perspective because men tend to use far fewer services (even when they should) and we can’t get pregnant. This fact is where the whining about the disadvantaged 23 year old male who is making $45,000 a year without employer/group sponsored health insurance and now he is getting screwed argument comes from. Yes, he is getting screwed because he is actuarially dirt cheap to cover but is now paying into covering everyone else.

The other big thing is health condition is no longer being considered. This how community rating is implemented. Everyone gets access to the same health insurance at the same rate structure. A thirty something diabetic epiletic can now get coverage on the individual market; previously that person would have been underwritten out of the market. So yes, the young triathelete is subsidizing their twin brother who weighs 400 pounds and is hypertensive, but that is any insurance scheme where the healthy subsidize the unhealthy. There are other systems in place in Obamacare to try and get those with controllable risk factors under control.

Lieberdouche, Medicare for All, 218, 50, 1

by David Anderson| September 6, 201310:37 pm| 78 Comments

This post is in: Election 2008, Free Markets Solve Everything, Fuck The Middle-Class, Lindsey Graham's Fee Fees, NANCY SMASH!, World's Best Healthcare (If You Can Afford It), All we want is life beyond the thunderdome, Blogospheric Navel-Gazing, Clap Louder!, Democratic Cowardice, Even the "Liberal" New Republic, Fools! Overton Window!, I Reject Your Reality and Substitute My Own, Nobody could have predicted, OBAMA IS WORSE THAN BUSH HE SOLD US OUT!!, The Dirty F-ing Hippies Were Right

Jay Ackroyd laughs when I state that there is serious path dependency issues on transitioning the US health finance and health care providing systems from the current set of kludges that are based on heavy but hidden governmental involvement in both for most working age adults, and then single payer systems for the elderly, the disabled and the poor.

He thinks that path dependency can be waived away by changing the eligibility age for Medicare.

The US has a single payer system in place already. Just change the Medicare eligibility age. Set premiums. Compete!

If my memory serves me correctly, there was a recent proposal to do just that and it failed.

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Lieberdouche, Medicare for All, 218, 50, 1Post + Comments (78)

New York Times December 2009:

The group of 10 senators put forward a plan to set aside the public option in favor creating at least two national health plans modeled after those offered to federal workers and allowing some people to buy coverage through Medicare beginning at age 55.

Mr. Lieberman had supported the Medicare buy-in proposal in the past — both as the Democrats’ vice presidential nominee in 2000 and in more recent discussions about the health care system. In an interview this year, he reiterated his support for the concept.

But in the interview, Mr. Lieberman said that he grew apprehensive when a formal proposal began to take shape. He said he worried that the program would lead to financial trouble and contribute to the instability of the existing Medicare program.

And he said he was particularly troubled by the overly enthusiastic reaction to the proposal by some liberals, including Representative Anthony Weiner, Democrat of New York, who champions a fully government-run health care system….

Yes, I believe Jay will agree with me that Sen. Lieberman is a douchnozzle extraordinaire, but he was not and is not categorically unique within any Democratic caucus of the past thirty years, nor is his behavioral pattern and being in-hoc to insurance and other FIRE interests unique to Democrats who represent certain states and are sponsored by certain groups.

The minimal coalition for single payer or even a break-even self-funding Medicare buy-in proposal is 218 Democratic representatives, a Democratic vice president, a friendly Senate parliamentarian and 50 Democrats. All of the Democrats who would need to vote yes need not to be scared of being defeated by a combination of Tea baggers, insurance industry flacks and hacks and Wall Street cash.

The actual probable minimal coalition is 230 or so Democrats in the House willing to vote yes, sixty Democratic senators, and five Supreme Court justices who don’t want to invent new legal doctrine for shits and giggles.

Again, in an ideal world, a Medicare buy-in at 55 or even better, full Medicare expansion to 55 would be a significant improvement over putting the 55 to 64.999 age cohort on exchanges. But just believing that there is an easy way to get there is Green Lanternism or belief in the power of the Bully Pulpit ™.

Hey baby, what’s your network….

by David Anderson| September 6, 20138:33 am| 40 Comments

This post is in: Anderson On Health Insurance, C.R.E.A.M., World's Best Healthcare (If You Can Afford It), All we want is life beyond the thunderdome, Fucked-up-edness

Phoenix Rising asked a good question in my last health insurance post:

If you can explain a bit about in-network vs. out-of-network co-pays & deductibles, that might be really helpful for those who don’t already have an oncologist.

Every insurance product in this country has a network. Federally administered Medicare has a network, and the smallest boutique insurance company has a network. A single insurance company that sells multiple types of insurance (HMO, PPO, CHIP, Medicare Advantage, Exchange etc) will have multiple networks. So let’s understand why insurance companies have networks first, and then we’ll talk about in and out of network pricing.

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Hey baby, what’s your network….Post + Comments (40)

At the most basic level, a network is a list of providers who have agreed to take a certain payment matrix for services rendered to people who have bought a particular insurance product. Insurance companies will reach these agreements in order to control costs.

Right now, there are three basic fee baselines in this country. The lowest price per service is the Medicaid baseline. Medicaid pays roughly the marginal cost of a service so it is the lowest level of payment. Most providers will take Medicaid payments for some of their patients becuase Medicaid traditionally has been a fast payer, so it helps with cash flow management. Furthermore, Medicaid makes it easy for new med-school graduates to qualify for payment so what often happens is a young doc at a small practice will see a higher percentage of their revenue and patients come from MA than they’ll see in fifteen years when they can afford to move to the burbs. The big issue with the Medicaid fee schedule is that it is very low so some providers won’t take it or more often they’ll take it for exisiting patients but not new patients. PPACA/Obamacare has raised the fee schedule to Medicare levels for PCP services to increase the number of PCPs who take Medicaid patients.

Medicare roughly pays out at average cost of procedure (with some serious back-end adjustments). Medicare’s fee schedule was the basis of the public option pricing scheme in 2009/2010 as the proposal was Medicare plus 5%. Obamacare has significant changes to the structure of the Medicare fee schedule that has begun to tie quality metrics, most notably hospital re-admission rates, to bonuses and clawbacks. But right now, Medicare is still fairly conventional fee for service at a fairly low price.

The third pricing baseline is chargemaster. Chargemaster is also known as usual and customary pricing and it is effectively the provider asking for the moon. Time Magazine had a great article on chargemaster last spring:

For example, the first line in the more than 163,072 lines of data in the CMS file released May 8 covers the treatment of “extra cranial procedures” (“without complications”) at the Southeast Alabama Medical Center in Dothan, Ala. When Medicare reviewed the list prices on bills it received for 91 patients getting that treatment at the Dothan hospital in 2011, the average chargemaster bill claimed by the hospital was $32,963. Medicare paid only an average of $5,777.

The second reason the compilation and release of this data is a big deal is that it demonstrates the point I tried to make in spotlighting the seven sample medical bills in Time’s “Bitter Pill” report: most hospitals’ chargemaster prices are wildly inconsistent and seem to have no rationale. Thus the release of this fire hose of data—which prints out at 17,511 pages—should become a tip sheet for reporters in every American city and town, who can now ask hospitals to explain their pricing.

Someone without insurance will be billed at the chargemaster rates and then negoatiated down to only 50% of the list price while still being massively ripped off.

Insurance companies negoatiate their rate structure agreements with providers based as either Medicare plus some more or as some percentage of Chargemaster. The reason for an agreement is that an insurance company can tell a provider that it can deliver 5,000 potential patients if they reach an agreement, or send those 5,000 patients elsewhere. When an insurance company has the preponderance of leverage, the rate is Medicare plus a kicker. When the providers have leverage, the rate is Chargemaster minus something.

The insurance company will build a network of docs and facilities that are willing to work for a given fee matrix. Providers out of network will submit chargemaster rates for their services to the insurance company. Depending on how a policy is written, the insurance company will pay between nothing and some percentage of the charged amount with the remainder being the responsibility of the individual policy holder. There are exceptions, most notably for emergency care and very specialized services that none of the network providers can provide, then the insurance company will take responsibility for the full charge. Even with the individual getting balanced billed for the rest of the out of network charge, the insurance company is on the hook for a signifcant sum.

The in-network matrix is far cheaper for the insurance company. The goal is to drive as many of their members to use as many services as possible from providers within this cheaper network. That is why the in-network deductible, co-payment and co-insurance are much lower for in-network services than out of network services. The idea, from the insurance company point of view, is to get the lowest possible price per service by having the patient stay in network if at all possible. Making a co-pay for a visit to an in-network doc $20 versus $100 for an out of network doc is one way to steer patients to network providers.

What are those charges…

by David Anderson| September 5, 20139:43 pm| 125 Comments

This post is in: Anderson On Health Insurance, C.R.E.A.M., Domestic Politics, First Posts, Politics, World's Best Healthcare (If You Can Afford It), All we want is life beyond the thunderdome

I’m a bureaucrat at a health insurance company which most of you have never and will never hear about. My job is to be a subject matter expert on a fairly arcane set of knowledge. I have seen some posts and some great comment threads at Balloon Juice where great questions are being asked and basic mechanical knowledge would be very useful. I will be writing a series of posts over the next couple of weeks/months that attempts to explain why a profit seeking insurance company does what it does.

And yes, before I get started, I agree with the vast majority of the commenteriat here that absent massive path dependency and being able to make policy behind a veil of ignorance, I would not choose the US model or the modifications to the model that are being made by Obamacare. I would have chosen a far more comprehensive single payer system that is not a kludge of multiple previous kludges. However, that is not the world that we live in, so I am assuming profit seeking insurance companies will be around for a while.

Why do insurance companies charge deductibles, co-payments and co-insurance? What is the point of three forms of making the buyer of insurance pay? Why wouldn’t there be a single form? What are the incentives and how do the different cost share payments save the insurance company money?

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What are those charges…Post + Comments (125)

These three types of pocket payments have slightly different purposes but they all serve to minimize costs for the health insurance company. One things that we need to remember as we go through the mechanics of non-universal health insurance along the lines of either Canadian Medicare or British NHS is that members/buyers of insurance know way more about their health than the insurers. That knowledge fuels the buyer’s ability to seek the best deal. This is known as adverse selection.

Let’s look at JC for an example. A mid-40s something male still on average has reasonably low health care costs without too many high expense outliers. Someone of his general demographics is still in the sweet spot for insurance risk as the long term chronic conditions of late middle age and old age aren’t too common yet. John knows he is a klutz and that Steve is plotting to kill him slowly. So if he selects a plan with low cost sharing because he knows that in the next year he needs to worry about a repeat of the mop incident or the first failed attempt on his life by Steve. That is unusual and therefore valuable information for an insurance company as John would have self-identified as riskier than typical for someone his age.

Deductibles serve two purposes. The first is to transform insurance from being purely pre-payment of average medical expenses for a particular population into an insurance product. Insurance is the payment of defined sums for protection against uncertain losses for an individual. The first purpose of deductibles is to get the insurance company off the hook for the first chunk of expenses.

A zero deductible plan is very attractive to people who know that they have major medical expenses coming their way. A very high deductible plan is attractive to people who anticipate very low health care expenses due to their general good health or belief in their own invincibility. An employer group that offers a $500 deductible plan and a $2,500 deductible plan to its employers will not see random selection of those two choices by its employees. Most of the time, older, sicker employees will choose the lower deductible plan, which is extremely valuable information for the insurance company. They expect high usage of expensive services, so premiums are higher. Conversely, the high deductible plan is more attractive to the younger, healthier and typically a more male population that statistically don’t use expensive services all that much. Bigger spreads between deductible amounts allows for insurance companies to aggressively identify adverse selection risks and then appropriately price that risk.

Co-payments are fixed dollar amounts that members pay for services that don’t apply to deductible sums. There are two reasons for co-pays. The first is to make a service slightly less expensive for the insurance company. This is a minor factor. The main factor is to add a marginal cost for a service from the member’s perspective after a deductible has been satisfied. This is supposed to make members slightly cost sensitive. A $100 co-pay for an MRI is supposed to get the member to question whether or not they really need an MRI or whether the no co-pay X-ray is sufficient. Co-pays for cost sensitivity purposes are extremely common for prescription drug benefits where generic or cheap brand name drugs have nominal co-pays, while patented drugs that have reasonably available and effective substitutes have very high co-pays.

Co-insurance is a percentage of costs that a member is responsible for after their deductible has been satisfied. The primary purpose is to make the member become extremely cost sensitive. For instance, a 20% co-insurance for a non-complicated labor and delivery when my wife gave birth to Reproductive Success #1 and #2 could have put me on the co-insurance hook for roughly a paycheck at the local mid-wife center or a couple of paychecks at the hospital. These type of variable marginal costs for identical services are designed to get people going to the cheaper providers or to eliminate the less essential services.

To review – deductibles are designed for adverse selection identification and effective repricing of risk while co-payments are designed to steer people to cheaper option with fairly simple incentives. Co-insurance is designed to get members to price compare between a variety of providers for a single array of services. Finally, total out of pocket exposure is often capped because there is no reasonable ability of people to finance $30,000, $40,000, or $50,000 in medical expenses from a single incident.

The more cost-sharing through deductibles, co-pays and co-insurance, the less risk the insurance company bears, and the more risk the individual carries on their own. A high deductible, high co-pay, high co-insurance plan is an adequate plan for individual members who either have significant free cash flow OR have a high degree of confidence in their health AND have some ability to access assets in an oh-shit hit by a bus scenario. High deductible, high co-payment, and high co-insurance plans will be the dominant plans on the Catastrophic and Bronze exchanges. Conversely, low deductible, low co-payment and low co-insurance are “rich” coverages that are used by people who can either afford a high premium but few surprises, OR know they need to use a lot of medical resources.

The next post will talk about how insurance is regulated.

NB: Actually going through all the Balloon Juice categories for the first time is pretty damn awesome

Just a Reminder

by David Anderson| March 21, 200511:24 pm| 117 Comments

This post is in: Politics

Before I lose all my regular readers because of my opinions on the Schiavo case, let me just state that I think that Democrats are still wrong on:

– taxes
– the military
– entitlements
– education
– foreign policy
– gun control
– affirmative action

It is precisely the fact that I believe so strongly in the individual- I believe that Americans will do the right thing when given a chance, especially with their family and loved ones- that this intervention by Congress into the lives of private citizens disgusts me so much. Well- the lying about Michael Schiavo and the rejection of medical science for hopes of miracles pisses me off, too. And the fact that my party seems so damned cozy using scum like Randall Terry and Bo Gritz. And the sheer cynicism of the outright pandering to the religious base, along with the damage this does to our public faith in government and the court system.

Alright- there are a lot of things my party is doing regarding this case that piss me off- but I still think of myself as a moderate Republican. So don’t make plans for me to leave the party yet. The party I know and love would respect the rights and human dignity of Terri and Michael Schiavo- they wouldn’t pretend to care about the due process rights of Terri Schiavo while waving her lifeless body around as a rallying call for right to life votes.

And now, in a post meant to explain why I am still a Republican, I have gone and probably pissed off all of MY base again. Sigh…

Just a ReminderPost + Comments (117)

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He really is that stupid.

Republicans are radicals, not conservatives.

This has so much WTF written all over it that it is hard to comprehend.

They’re not red states to be hated; they are voter suppression states to be fixed.

“Jesus paying for the sins of everyone is an insult to those who paid for their own sins.”

Red lights blinking on democracy’s dashboard

Something needs to be done about our bogus SCOTUS.

No offense, but this thread hasn’t been about you for quite a while.

Consistently wrong since 2002

Usually wrong but never in doubt

And we’re all out of bubblegum.

Battle won, war still ongoing.

Why is it so hard for them to condemn hate?

Balloon Juice has never been a refuge for the linguistically delicate.

DeSantis transforms Florida into 1930s Germany with gators and theme parks.

Fuck these fucking interesting times.

Let’s finish the job.

Republican obstruction dressed up as bipartisanship. Again.

“Squeaker” McCarthy

When your entire life is steeped in white supremacy, equality feels like discrimination.

Republicans are the party of chaos and catastrophe.

Republicans do not pay their debts.

It’s easy to sit in safety and prescribe what other people should be doing.

A democracy can’t function when people can’t distinguish facts from lies.

Adverse Selection in New York State

Good morning open thread

What’s the fee cause it ain’t free

Lieberdouche, Medicare for All, 218, 50, 1

Hey baby, what’s your network….

What are those charges…

Just a Reminder