Corporate Research Group’s Weblog

The results of Oregon’s randomized controlled Medicaid trial change nothing for health plans banking on dramatic membership gains from an expanded Medicaid program.  Despite the spin from conservatives and liberals alike, the findings are mixed and unlikely to result in any major policy shifts.  If anything, the results favor expansion.

The headline finding is that for people on Medicaid for two years, there is “no statistically significant effect on measured blood pressure, cholesterol or…diabetic blood sugar control.”  That’s hardly good new for liberals seeking a clear indication that Medicaid improves a person’s health across the board. 

But it’s not the failure conservatives are portraying either.  The study also finds, “Medicaid coverage lowered rates of depression and nearly eliminated catastrophic out of pocket medical expenditures.” 

The study adds that compared to being uninsured, Medicaid increases the use of physician services, prescription drugs, preventive care and screenings, the probability of being diagnosed with diabetes, and the likelihood of having a usual place of care.

By the way, the study isn’t necessarily saying that Medicaid didn’t improve people’s health, but rather that “our power to detect changes in health was limited by the relatively small numbers of patients with these conditions.” 

What the study says to me is that Medicaid is doing pretty much what insurance is supposed to do: help people get access to care and protect them from financial ruin. 

The fact that there wasn’t a meaningful improvement in certain health measures may indeed indicate very real shortcomings in the Medicaid program.  But as the study suggests, the result may also indicate that there isn’t always a clear “connection between insurance coverage and observable improvements in our health metrics.”

Senate Finance Committee Chairman Max Baucus (D-MT) announced he will retire in 2014 after 36 years in the Senate.  He was a key figure in the drafting and passage of ObamaCare, but is blamed by liberals for dismissing single payer healthcare as an option during the ObamaCare debate.  Baucus, who has been a big beneficiary of health insurance industry campaign funds, admitted that ruling out single payer was a negotiating mistake, according to a 2009 article in The New York Times:

He conceded that it was a mistake to rule out a fully government-run health system, or a “single-payer plan,” not because he supports it but because doing so alienated a large, vocal constituency and left Mr. Obama’s proposal of a public health plan to compete with private insurers as the most liberal position.

Regarding concerns over the implementation of ObamaCare by Senate Finance Committee Chairman Max Baucus (D-MT):

Republicans manage to deny Obamacare the anticipated funding required for smooth implementation. This makes implementation go less smoothly. Democrats begin to worry. Republicans use Democratic worries over implementation as a way to attack the law itself.

Yet another reason I would never survive in politics.

Comments from Gail Boudreaux, EVP of UnitedHealth Group, on the company’s  first-quarter 2013 earnings conference call.

Our position on exchanges hasn’t changed….As we think about the contracting side, again, I think I shared this last time that we see the contracting based on a market-by-market assessment and the economics needed to participate effectively in that market and an exchange.  So those rates are going to vary from commercial to something less. We’ve had a  pretty long history of having value-based networks and have been successful at  that. And I would tell you, at this stage, our contracting for the exchange markets is going very well, so we feel positive about that.

Question of the Day: Do you think health plans that administer high risk pools will be more vulnerable to adverse selection in insurance exchanges?  Said another way, will sick members already familiar with the plan that administers their coverage want to stay with that carrier in an exchange? Here’s a list of plans that administered high risk pools by state.

Plans Providing High-Risk Pool Coverage by State

Alabama: BCBS-AL and UnitedHealth
Alaska: First Choice Health PPO
Arkansas: BCBS-AR
California: Kaiser (until 9/1/10) and WellPoint (until 9/1/10)
Colorado: Rocky Mountain Health Plans
Connecticut: UnitedHealth
Florida: NA
Idaho: SelectHealth
Illinois: HCSC
Indiana: NA
Iowa: Health Insurance Plan of Iowa
Kansas: Coventry
Kentucky: NA
Louisiana: Louisiana Health Plan
Maryland: CareFirst
Minnesota: Medica
Mississippi: UnitedHealth
Missouri: WellPoint and BCBS-Kansas  City
Montana: BCBS-MT
Nebraska: Coventry
New Hampshire: New Hampshire Health Plan
New Mexico: HCSC
North Carolina: Inclusive Health
North Dakota: BCBS-ND
Oklahoma: HCSC
Oregon: Cambia
South Carolina: BCBS-SC
South Dakota: NA
Tennessee: BCBS-TN
Texas: HCSC
Utah: SelectHealth
Washington: First Choice Health PPO
West Virginia: Wisconsin
Wyoming: BCBS of WY

Senate Finance Committee Chairman Max Baucus (D-MT)–a key figure in the drafting and passage of ObamaCare–fears the law will turn into a “train wreck,” the AP reports.  He made the comment in a budget hearing to HHS Sec. Kathleen Sebelius.  AP notes:

He said he’s “very concerned” that new health insurance marketplaces for consumers and small businesses will not open on time in every state, and that if they do, they might just flop because residents don’t have the information they need to make choices.

“The administration’s public information campaign on the benefits of the Affordable Care Act deserves a failing grade,” he told Sebelius. “You need to fix this.”

Sebelius responded later, “We are on track to fully implement marketplaces in Jan. 2014, and to be open for open enrollment,” AP reports, adding HHS is expected to launch a big public outreach push over the summer.

Baucus faces reelection in 2014, and the AP story suggests he’s trying buoy his approval rating, which “nosedived amid displeasure with the health care law in his home state.”

But whatever the motivation, I’m glad he said it.  I’ve spoken to several industry observers who are worried about the same thing.  There seems to be particular concern that Republican states oposed to ObamaCare and opting for the federal exchange won’t provide the necessary leadership, community outreach and support for a successful launch.

All of which represents a huge task for the Obama Administration–especially, as the AP notes, federal exchanges “will be the norm in much of the country, straining resources.”

So if Sebelius is right, we have noting to worry about.  But if there’s a problem, better to know now than later.

Some bullet points from our recently released report:

• In general, health plans are likely to take a measured approach to health insurance exchanges.  However, it’s apparent from our research that health plans with the biggest individual and small group exposure will likely be the most aggressive.
• Both Aetna and UnitedHealth Group, for example, generate a relatively modest level of earnings and revenues from the individual and small group market.  Both companies indicate they will take a measured approach to the exchange market—stressing reasonable rates of return on capital and commercial viability.
• On the other hand, Blue Cross Blue Shield plans like WellPoint and BCBS of North Carolina generate a larger share of their business from individual and small group.  Not surprisingly, both companies indicate they are positioned for growth through the exchanges.
• Health plans face a clear choice between two strategic options when considering exchange participation.  The first is the “wait-and-see” approach, pricing high to protect margin, even if it results in limited enrollment.  The main benefit is limited risk.  The downside is that the competition will likely grab market share.
• The second is the “land grab” or “lifetime value of a member” approach, pricing low to win share.  The benefits include a jump on the competition in terms of market share along with temporary reinsurance and risk-corridor programs to help offset losses until members become profitable.  The main risk is there is no guarantee exchange members will become profitable or deliver a reasonable return on investment.
• The stated strategy of commercial plans we interviewed is to create a narrow or limited network product with provider payment rates somewhere between commercial and Medicare.  Tight deadlines for exchanges may not make this feasible immediately.
• Medicaid plans may turn out to be aggressive players for lower-income, highly subsidized exchange members.  Medicaid plans are already low-cost providers, and they have experience in dealing with low-income populations.  They will also play an important role in providing coverage to members who churn in and out of Medicaid.

The headline is that individual health insurance premiums in California will soar 30% in 2014 for people who currently have coverage, according to a study prepared by Milliman for the state exchange Covered California.  But the numbers require a closer look.

For example, about 9% of the increase has nothing to do with reform.  It relates to expected underlying cost increases driven by provider and drug price hikes and patient utilization.  The rates are also expected to be higher because ObamaCare mandates better coverage and lower out-of-pocket costs than what a lot of individuals have now. 

Said another way, total costs to insured individuals in California (premiums and out-of-pocket costs) will increase about 20% in 2014–with nearly half related to underlying healthcare cost trends.  That’s not too far from the 13% national average increase projected by CBO back in 2009.

Of course, we’re talking averages here.  Rates will vary greater depending on the individual.  For example, the young will end up paying a lot more, while older people will pay less because of ObamaCare’s restrictions on how much more plans can charge based on age.

And then there are the government subsidies.  People who get them–i.e., those who earn up to 400% of the federal poverty level–will see their total costs fall by a lot.  Picking up the difference: taxpayers and people who aren’t eligible for subsidies.

From the Urban Institute:

Considerable attention has been given to the possible “rate shock” in nongroup insurance markets once the full reforms associated with the Affordable Care Act (ACA) are implemented in 2014. The insurance industry warns, in particular, that the 3-to-1 age bands included in the law will substantially increase premiums faced by young adults, pushing them out of the insurance market and leaving them uninsured….However, most young adults currently covered by nongroup insurance will be shielded from the full effects of the narrower age-rating bands by the ACA’s increased eligibility for Medicaid, the tax credits offered through the health insurance exchanges, or through access to employer-sponsored insurance.

From Bloomberg:

Health-care stocks are leading gains in U.S. equities this year for the first time since 1998 as companies cut costs and investors speculate an expansion of insurance programs will benefit hospitals and insurers. 

Drugmakers, health insurers and biotechnology companies in the Standard & Poor’s 500 Index have returned 12 percent in 2013….

The rally has boosted valuations for health-care shares to the highest in five years, narrowing its discount relative to the S&P 500. The industry trades at 15 times earnings, compared with a multiple of 15.2 for the U.S. equity benchmark, data compiled by Bloomberg show….

Expanded insurance coverage will bolster sales and help drive continued multiple expansions, according to Dan Teed, who helps oversee about $125 million as president of Wedgewood Investors Inc. in Erie, Pennsylvania.

“This is the moment of the sun for the industry,” Teed said in a telephone interview on March 19. “We’re looking at increasing the base of the entire industry, not just a few companies.”

Arkansas has released an actuarial analysis projecting that its plan to cover poor people through health insurance exchanges will cost the federal government 13% to 14% more than if the state simply expanded Medicaid.  

That’s not all that much more really–especially if it results in higher payments to physicians than Medicaid and improved access to care.  The analysis–prepared by actuarial firm Optumas and paid for by the state–adds that “in some realistic scenarios, there could be no additional federal costs at all.”

A lot has been written about the Arkansas Medicaid compromise–especially the irony noted by Arkansas Times reporter David Ramsey: i.e., the same Republicans crying over the long-term costs of ObamaCare are the ones who pushed for the higher cost Arkansas compromise. 

There’s another irony.   Consider how Optumas arrived at its 13% to 14% projection for the Arkansas Dept. of Human Services (DHS)–neatly summed up by conservative blogger Avik Roy:

DHS’ actuarial review found that the difference between commercial and Medicaid reimbursement rates in Arkansas was currently “less than 25%.” Adding in a 5 percent discount for the fact that exchange reimbursement rates will be lower than traditional commercial rates, and another 5 percent discount for the fact that the consumer-driven nature of the exchanges would drive prices down another 5 percent, DHS gets to a fiscal premium of 13-14 percent for the exchanges relative to Medicaid.

Implicit in the above paragraph is that exchange  plans are expected be cheaper than commercial insurance outside exchanges–which is one of the things ObamaCare was hoping to achieve. 

Conservatives like Roy have argued that ObamaCare will cause healthcare premiums to soar.  Maybe it’s just me, but it seems odd they would now highlight the possibility that exchange plans will be more affordable than traditional commercial health insurance.

From the Congressional Budget Office.

Total cost of ObamaCare  is projected to be $1.165 trillion for the 10 years from 2013 to 2022, about the same as prior projections. 

Exchange membership is projected to hit 26 million in 2022, up about 2% from prior projections.  That’s because…

Employer-sponsored membership is now projected to decline by 7 million, compared to a prior projection of 4 million.  In other words, more people will be dumped into exchanges–largely reflecting tax law changes that reduce the tax benefits associated with employer-sponsored insurance.

Medicaid and CHIP enrollment is expected to rise by 12 million, up from a prior projection of 11 million–reflecting HHS’ decision to deny states’ requests for partial Medicaid expansions.

Medicaid and CHIP spending, however, is projected to increase by $500 billion through 2022, down from an original projection of $643 billion–reflecting an improved assessment of the health status of newly eligible members (including more children) and a recent slowdown in Medicaid spending trends. 

Uninsured will decline by 27 million, compared to a prior projection of 30 million.

Maybe it’s spilled milk at this point, but Paul Krugman neatly sums up why I feel so sad and angry when I hear people call for cuts in social programs like Medicare because government spending is out-of-control.

The reality is that we had low debt and no fiscal problem before Reagan; then an unprecedented surge in peacetime, non-depression deficits under Reagan/Bush; then a major improvement under Clinton; then a squandering of the Clinton surplus via tax cuts and unfunded wars of choice under Bush. And yes, a surge in debt once the Great Recession hit, but that’s exactly when you should be running deficits.

It was hard to imagine that healthcare coops proposed by ObamaCare would be much of a substitute for a public option or much competition to health insurers.  With federal funding slashed as part of the fiscal cliff bargain, they will be even less of a factor.

HHS has said no to states wondering if ObamaCare would allow a partial expansion of Medicaid, noting that the law doesn’t allow for a phased in approach. 

In other words, a state must expand Medicaid eligibility to 133% of the poverty level in 2014 if they want the federal government to pay the entire cost of covering the additional members (i.e., the enhanced 100% reimbursement level).  In 2017, however, states can ask for a waiver for a partial expansion at the enhanced level, which will drop to 90% at that time.

The law may indeed be as confining as HHS says.  But it’s also true that the Obama Administration has the upper hand.  Despite the rhetoric from hard-line Republican governors, it’s not clear to me how many will decline the expansion when all is said and done.

How will ObamaCare impact individual health insurance premiums?  That was a big question during the debate over reform–and it’s a big question now that HHS has released a slew of proposed regulations (here and here) regarding the 2014 implementation of the law.   

The general feeling seems to be that individual premiums will rise in 2014 because the law requires guaranteed issue with a weak mandate (i.e., a formula for adverse selection), eliminates setting rates by gender, and limits how much more plans can charge older people.  HHS acknowledges there could be some rate disruption, but overall seems to think that these price drivers will be largely mitigated:

While eliminating gender rating and the limitations on age ratios could affect premium rates for some in some markets, this will be largely mitigated for most people by the availability of premium tax credits, by increased efficiencies and greater competition in the individual market, by measures such as the transitional reinsurance program and temporary risk corridors program to stabilize premiums, and by expected improvements in the overall health status of the risk pool.

Carl McDonald of Citi fundamentally disagrees with HHS’ assessment, noting that average underlying individual premium rates will increase by 20% in 2014.  Along with adverse selection and limits on rates for older members, he cites new industry taxes and assessments.  Conservative blogger Avik Roy translates the above HHS statement as follows: “We will drive up the cost of health insurance for most people, and spend lots more taxpayer money in order to hide that fact from voters.”

What might be helpful at this juncture is to recall CBO’s November 2009 scoring of the Senate version of reform—the bill that essentially became ObamaCare.  CBO projected at the time that individual premiums would rise 10% to 13% by 2016. 

CBO also projected that premiums for large employers (i.e., more than 50 workers) would be unchanged or down as much as 3%, while premiums for small groups (up to 50 workers) would see premiums range from up 1% to down 2%.  Those two categories cover about 160 million people. 

Unsubsidized individuals—about 14 million people—would pay more largely because they would be getting much better coverage, CBO said.  Subsidized individuals—about 18 million people who need help from taxpayers to pay for insurance—would see premiums fall by a lot.

Meanwhile, Justin Lake of J.P. Morgan notes that elements of the proposed regulations may serve to mitigate both rate increases and the risk to health plans of under-pricing and incurring heavy losses.  These include government-backed risk corridors, industry-backed reinsurance cross-subsidization and risk adjustment mechanisms to offset plan-specific adverse selection. 

Lake estimates that reinsurance cross-subsidization (funded by the entire commercial insurance market) will provide a 10% individual market pricing cushion during the shift to guaranteed issue and community rating in 2014.  “Pricing will be buffered here somewhat” by the cross-subsidization, Lake says, “meaning that the end consumer will see more modest rates than they would have otherwise.”

Finally, HHS points to another likely offset—a reduction in uncompensated care for the uninsured, the cost of which is typically shifted to health plans in the form of higher provider rates.  Fewer uninsured “would reduce the amount of uncompensated care and could lead to a decrease in private health insurance rates,” HHS says.

Bottom line: the ultimate impact of ObamaCare on individual premium isn’t completely clear; what is clear is the government is aware of the risks inherent in reform of this magnitude and is taking steps to mitigate the disruption.  Meanwhile, tens of millions more people will benefit from good, basic health insurance.

There’s a word for all the give-and-take I’m outlining above.  It’s called compromise.

Sharon Cunninghis, U.S. business leader for health and benefits for Mercer, points to an interesting trend identified in the company’s annual survey of employers concerning healthcare benefits and costs. 

[ObamaCare] requires that health plans cover, at a minimum, 60% of eligible health plan expenses…Some employers are resetting their health plan value to move closer to that minimum, and saving money as a result.

Said another way, employers are shifting costs to employees by raising deductibles and migrating toward consumer-directed health plans.  That’s nothing new–but the notion that the healthcare reform law may be a driver is an interesting take.

Beth Umland, director of research for health and benefits at Mercer, elaborated in an email:

The typical CDHP meets the 60% plan value rule. The typical PPO offered by large employers generally has a higher value — closer to 80%. So moving employees out of PPOs into CDHPs, and raising cost-sharing in PPOs, would both be examples of resetting the plan value to get closer to the 60% minimum.

It would be ironic if the law most vilified by proponents of consumer choice and free markets turns out to be a key factor in pushing consumer-directed healthcare over the tipping point.

“The economy,” stupid.  According to a Kaiser Family Foundation survey, 19% of voters say the economy was the biggest factor in deciding who to vote for president. 

Tied for second with 15% each, “The direction the country is headed” and “President Barack Obama’s job performance over the last four years.”  Fourth at 9%, “The candidate’s ability to relate to the middle class.”  Fifth at 6%, “The candidate’s views on women’s health issues.” 

And in sixth place at just 5%, “The 2010 health care law.”  Said another way, when asked what was the “biggest factor” in deciding on who to vote for president, 95% didn’t say ObamaCare.

That doesn’t mean it wasn’t a big factor.  In fact, 69% said it was a “major factor,” again behind the economy (87%), the country’s direction (87%), Obama’s job performance (78%) and the future of Medicare (70%).

Still, you’d think ObamaCare would be the “biggest factor” for more people–especially the way the law is sometimes portrayed by opponents as the end of America as we know it.  Even women’s health was the “biggest factor” in the election for more voters than ObamaCare. 

One of two things can be concluded from these numbers.  1. Maybe the law isn’t as unpopular as some might think.  (The survey also shows fewer people are calling for repeal).   2. THE POLLS ARE WRONG!!!

As expected, President Obama won reelection to a second term.  The margin of victory wasn’t a big as in 2008, but it was still a convincing win.  What does this mean for healthcare reform?  Basically, it brings a high degree of certainty that reform will move forward as planned–considerable benefits and potential pitfalls intact.  So I guess it’s time to get to work.

From the Los Angeles Times:

Not to be overly dramatic, but for me the Supreme Court decision on the Affordable Care Act was a matter of life and death….

When I was diagnosed with an aggressive form of breast cancer late last year, I had no health insurance, which meant my options were extremely limited. No insurer would pick up someone in my circumstances. But luckily, the Pre-existing Condition Insurance Plan had already kicked in, and it made it possible for me to purchase insurance under a government program.

I was uninsured not because I’m a lazy, freeloading deadbeat but because my husband and I are self-employed. We had been purchasing health insurance on the individual market along with 6% of the rest of the population. But after exhausting all of our resources trying to keep up with premiums of $1,500 a month, we had no choice but to cancel it.

Six months ago, when I first wrote about my situation in this newspaper, I got hate mail from people who said I deserved to die. But there was also a lot of curiosity and a lot of encouragement and support. Much of the curiosity was from abroad. Canadians, French, Italian, British and Swiss cannot understand why healthcare reform is so politicized here; why most people don’t know anything about the Affordable Care Act; how we can be so cruel to one another; and why we criticize their healthcare systems.

There but for the grace of god….

Merrill Goozner in The Health Care Blog:

Many states – often the same ones that oppose the Medicaid expansion – insure a relatively low proportion of their Medicaid-eligible residents by doing a poor job of outreach. Advocates sometimes accuse these states of deliberately trying to hold down their own costs at the expense of the poor.

A federalized Medicaid program that successfully reached into all corners of the country like Medicare would come much closer to providing universal coverage than what even Obamacare contemplates. But it would cost a lot more, too.

The Daily Show on the Supreme Court’s decision to uphold ObamaCare.

Here’s the link to the decision–a 5-4 ruling with Chief Justice Roberts the tiebreaker–that upholds ObamaCare, including the individual mandate.  The ruling does put a limit on the government’s ability to enforce the Medicaid expansion, noting that the federal government can’t withhold a state’s entire Medicaid funding as punishment if the state decides not to implement the expansion.  

“It is likely that at least some of the most dogmatic Republican states will consider opting out despite the fact that the federal government is picking up 100% of costs through 2016 and 90% beyond,” says Justin Lake of J.P. Morgan.  Florida and Texas would be two states to watch. 

Either way, the ruling is viewed as positive for managed Medicaid stocks.  “There’s joy in the Medicaid world today,” says Carl McDonald of Citi.  In morning trading, pure-play Medicaid health plan stocks are up considerably (Amerigroup, +4%; Centene, +4%; Molina, +4%; and WellCare, +9%). 

However, diversified health plans are way down (Aetna, -5%; Cigna, -5%; Coventry, -3%; Health Net, -4%; Humana, -3%; and WellPoint, -6%).  Christine Arnold of Cowen notes that companies like Aetna, United and WellPoint had the most to gain if the court struck down the individual mandate, guaranteed issue and community rating–which threaten profit margins in the individual and small group markets.

Overall, I like Austin Frakt’s comments on the ruling:

Though the Supreme Court’s ruling on the ACA has many implications, what its focus on the law doesn’t do by itself is make progress on the problems of cost, quality, and access in our health care system. Those problems remain in approximately the same state they were in when the ACA was passed in 2010. That law is an attempt to begin to address each of them, to various degrees and over time. But even its strongest advocates know it is only a first step. If health reform is to be further advanced, it will be through legislation, not litigation.

I also enjoyed a sound bite I heard on the radio (sorry, I didn’t catch the speaker’s name) that the ruling means healthcare in the U.S. will be more like the National Football League than Major League Baseball.

From a Citi analysis.  Probability that the Supreme Court’s healthcare ruling will….

Strike everything: 15%
Uphold everything: 30%
Strike mandate, strike insurance reforms; uphold Medicaid expansion: 30%
Strike just the individual mandate; uphold Medicaid expansion: 10%
Strike mandate, strike insurance reforms, strike Medicaid expansion: 10%
Strike the individual mandate, strike Medicaid expansion: 5%