ObamaCare Clusterfuck: Why the health exchanges will not drive prices down
Let me begin by admitting that the top-grade ObamaCare plan -- available only to the most virtuous -- is not Gold, but Platinum.* I don't know how I've been missing Platinum; I must have been thinking Olympic medals, not credit cards. Anyhow, the plan
for losers for minimum coverage is still Bronze. Alrighty then. So how are we citizens hapless dupes consumers supposed to compare plans and, by making informed choices in the marketplace, do our bit to bring heath care prices down? Kaiser explains [PDF], and by "explain" I mean "embarks on a lengthy explanation that involves three studies." The paper is from 2011, but the analysis is still good:
The ACA identifies a range of services that must be included in the benefits package that all individual and small business plans must use – and requires preventive services to be covered with no patient cost-sharing – with further details to be developed by the Secretary of Health and Human Services (HHS). These requirements apply to all tiers of health insurance coverage, meaning that differences in the levels of coverage will reflect variation in cost-sharing, not differences in the underlying benefits.
The ACA specifies that beginning in 2014 insurance newly sold to individuals and small businesses in an Exchange or otherwise must be at one of four actuarial value levels: 60% (a bronze plan), 70% (a silver plan), 80% (a gold plan), and 90% (a platinum plan).
These tiers do not apply to coverage already in existence meeting certain conditions (so-called "grandfathered" plans). The ACA also requires that plans cap the maximum out-of-pocket costs for enrollees, based on the out-of-pocket limits in high-deductible plans that are eligible to be paired with a Health Savings Account.
The current limits are $5,950 for an individual and $11,900 for a family, and will be adjusted over time after 2014 based on increases in premiums.
Now, I know you're dying to know what "actuarial value" is, because last I checked, I don't have any of that in the coffee can on the kitchen table with the money, if any, in it, so I'm curious to know if ObamaCare is going to tell me what I'm going to have to actually pay, as opposed to making me set up a some kinda spreadsheet to figure out what I might pay, some day, if I can wrestle it out of the kindly call center folks if and when they ever pick up the phone:
However, the levels of coverage in the ACA are not defined using specific deductibles, copays, and coinsurance. Rather, they are specified using the concept of an "actuarial value" (AV). For example, a plan with an actuarial value of 70% (referred to as a "silver" plan in the ACA) means that for a standard population, the plan will pay 70% of their health care expenses, while the enrollees themselves will pay 30% through some combination of deductibles, copays, and coinsurance. The higher the actuarial value, the less patient cost-sharing the plan will have on average. The percentage a plan pays for any given enrollee will generally be different from the actuarial value, depending upon the health care services used and the total cost of those services. And, the details of the patient cost-sharing will likely vary from plan to plan.
Stop right there. Remember the five criteria for a successful health exchange? ObamaCare fails four of five (and the one they pass is -- and I know this will surprise you -- a "level playing field" for the insurance companies). But the criterion that matters here is this one: "[A]pplying for subsidies must be simple."
ObamaCare is supposed to empower
citizens consumers by enabling them to comparison shop, right? Just like you're buying an airline ticket online. But how are you supposed to comparison shop when you can't compare the competing products*** on price, but have to use "actuarial value" instead? It's as if supermarkets started posting unit prices not by weight or volume, but by "magic points" or "arcane power."
[A]ctuarial values are not an inherently intuitive idea for most people [no shit, Sherlock], so the Kaiser Family Foundation initiated a study to estimate the deductibles and coinsurance that would meet the thresholds defined in the ACA. Because there is inherent uncertainty in actuarial analysis – driven by different assumptions and data – the study commissioned estimates from three well-established actuarial and benefits consulting firms
[At this point, we encounter Table I, which shows that there are nine levels, "A" through "I", in the four plans, with "A" at the loser and sucky (Bronze) end and "I" at the deserving and most excellent (Platinum) end. But let's move on!] So, Kaiser had the three studies done, and here's how the estimates turned out:
Apart from the specific details of any of the plan designs, one notable conclusion from the analysis is the substantial variation in the estimates. For example, the estimated deductible for a silver plan (plan B in Table 2) ranges from $1,850 to $4,200 for single coverage, with 20% coinsurance required above the deductible in all cases. The variation – which exists in spite of agreement upfront among the firms on a common set of major assumptions – is primarily due to differences in the assumed distribution of health expenses across the population, as well as how patients are believed to respond to varying levels of cost-sharing in their use of services. The actual variation in the market starting in 2014 will be affected by rules issued by HHS governing how actuarial value is to be assessed, and by how those rules are implemented in practice by state-established Exchanges.
Note that even when HHS issues the rules, they're still implementation-dependent, and so will vary randomly depending on where you have the good or bad luck to live. Here's the bottom line:
The analysis also points to the potential for substantial variation in plan designs meeting the actuarial value thresholds in the law, suggesting that the terms of coverage could vary significantly across insurers. The extent to which this is the case will depend on the degree of competition [if any] in a market, but also importantly on how much standardization is required by HHS and states in evaluating the actuarial value of insurance products. Significant variation in plan designs could make it more difficult for consumers to compare plans and dampen how much competition over price emerges in the insurance market. Exchanges could play an important role in helping consumers understand their choices by, for example, providing online tools to estimate their out-of-pocket costs.
So it's come to this. We don't know what the policies, no matter what "metal,"**** will really buy. Although they will be identical from the standpoint of AV, they will vary by health care actually delivered. (Health insurance does not mean health care. Who knew?)
Nor can we know what the out-of-pocket costs will be. First, these "online" tools are going to work only for those who have computers (and if you're really poor, you might not), and whose computers are powerful enough to handle complex sites (more might not). And that's leaving aside issues of complexity and usability in the user experience. Second, these tools are unlikely to be built at the state level (Colorado hasn't even coded up their eligibility requirement) and from the way the Feds are talking, not there either. I mean, if the goal is to "avoid a third-world experience" an online out-of-pocket calculator isn't anywhere near the table, let alone on it.***** Third, where do these out-of-pocket online calculator tools get their price data from? The marketplace in health care is notorious for its lack of transparency and arbitrary pricing. So doesn't ObamaCare really, in the words of the old joke about economists, assume a tool for price comparison?
In other words,
citizens consumers are being asked to do what government, through single payer, can and should be doing: Force prices down through bargaining power. But ObamaCare sets citizens consumers up for failure: The exchanges cannot and and will not be able to translate AV into actual health care services delivered, nor will online calculators, even if they are implemented, be able to determine out-of-pocket costs. Ergo, citizens will not be able to bargain successfully.
The whole justification for ObamaCare has been that informed consumers, shopping online, will drive prices down through the magic of the marketplace. That premise lies in ruins.
NOTE * It sure is odd that all the product variation is at the top end: Platinum, Gold, Silver. Then we've got
Loser** Bronze, but we don't have Tin, or Lead. Or Cardboard. Odd, that, unless all the insurance companies care about is whether you've got the lettuce, the ready, the long green, the baksheesh, the bread, the bucks, the dough, the Almighty Dollar. NOTE ** Actually, that's unfair. The real losers are forced into Medicaid.
NOTE **** Yes, "metal" is the jargon.
NOTE ***** HHS provides an AV calculator:
To streamline and standardize the calculation of AV for health insurance issuers, HHS is providing a publicly available AV Calculator, which issuers will use to determine health plan AVs based on a standard population, as required by law. In 2014, the AV Calculator will use a national standard population. As described in the final rule, beginning in 2015, HHS will accept state-specific data sets for the standard population if states choose to submit alternate data for the calculator. The final rule includes standards and considerations for plans with benefit designs that the AV Calculator cannot easily accommodate. Consumer-driven health plans, such as high-deductible health plans integrated with health savings accounts, are compatible with the AV Calculator. The AV Calculator is posted on the CCIIO website.
HHS recognizes that health plans need some flexibility in meeting the metal levels. Therefore, we finalized that a plan can meet a particular metal level if its AV is within +/- 2 percentage points of the standard. For example, a silver plan may have an AV between 68 percent and 72 percent. In addition, the final rule provides flexibility for issuers in the small group market regarding annual deductible limits if necessary to achieve a particular metal level.
Here are links to the calculator, which is an Excel spreadsheet. I'm sure there's nothing wrong with it. Needless to say, an AV calculator is not the same as a price calculator.