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Health Reform Basics

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Outline • Setting the Stage• Rational for Reform• Access and Reform• The Economics of Exchanges/Marketplaces

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Setting the Stage for Reform • The Goals:

• Access

• Cost Value

• Quality

• Economists have assumed that you can’t improve one area without harming at least one of the others

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Access• Nonelderly American’s Source of Health Insurance

Coverage, 2011

People (millions)

Percentage of Population

Total Population 266.4 100%

Private 163.8 62%

Employment-Based 148.7 56%

Individual Market 15.1 6%

Public 54.7 21%

Uninsured 47.9 18%

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Cost/Quality• The average value of medical advance is very high

• The average 45-year-old will spend $30,000 more on cardiovascular disease care than the equivalent person did in 1950

• He/she will live another 3 years because of this care• We have spent a lot, but have gotten a lot more

• Most estimates suggest that 20 to 30 percent of medical spending could be eliminated with no adverse effects on patient outcomes

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Cost/Quality

• Beyond A is unambiguous waste• Between C and A could be waste if benefits<costs

• Especially if it is somebody else’s care

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Cost/Quality

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Sources of Excess Cost (2009)Category Sources Estimate

Unnecessary Services Overuse/use of high cost services $210 Billion

Inefficiently Delivered Services

Mistakes, fragmentation, operational inefficiencies

$130 Billion

Excess Administrative Costs

Excess paperwork costs, administrative inefficiencies

$190 Billion

Prices that are Too High $105 Billion

Missed Prevention Opportunities

$55 Billion

Fraud $75 Billion

Total $765 Billion

Source: IOM, 2010

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Reform• Most of the ACA deals with the access issue and much

less directly with the value equation• Easier problem to tackle• We don’t really understand how to create value• Less resistance from interest groups

• That $765 billion in waste is someone’s paycheck

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Reform

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Access• Why Are They Uninsured?

• Too expensive• Administrative costs• Irregularities in insurance markets (small families subsidize large ones)• Adverse selection in individual market

• Implicit Insurance through uncompensated care• Over-insurance

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Reform

- Explanations- Tax Subsidy- Regulation- Psychological motivation

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Access• Why Do We Care About the Uninsured?

• Market failure of individual market• Externalities

• Physical• Financial ~$43 Billion or 2% of HC spending

• Labor market inefficiencies – “job lock”• Paternalism• Redistribution

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Access• Two Types of Solutions

• Sweeping Universalism• 163 million privately insured plus 46 million Medicare who are mostly

happy with current state• 50 million uninsured not happy

• Incremental Universalism• Tweak the current system to accommodate the 50 million

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3 Issues with Incremental Universalism

• Pooling• If pools are too small or attract high risk, insurers will be reluctant

to offer coverage for fear of high cost exposure• Large pools exist for Medicare/Medicaid/large employers• Solving the problem of the uninsured/underinsured requires

developing effective pooling mechanisms

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3 Issues with Incremental Universalism

• Affordability• Insurance is expensive

• Average cost of employer provided family coverage in 2012 was over $15,000 per year

• A family of four at 200% of the poverty level earns about $47,000 per year.

• This is about a third of their income• Even if those with low incomes had access to large pooling

arrangements, they would still need subsidies.

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3 Issues with Incremental Universalism

• Mandates• Full insurance requires a mandate• Even large subsidies will not be sufficient

• Many of the currently uninsured qualify for public insures and still do not take it up

• Mandates provide more effective risk pooling• Transfer from those who are currently healthy to those who are

currently sick• Without a way to compel individuals to participate the market will fail

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Three-Legged Stool• Community Rating

• Giving individuals with pre-existing conditions access to health care

• Requires the Mandate• Otherwise adverse selection occurs• Employer provided insurance has a hidden mandate

• Need a subsidy to make insurance affordable

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Bang for the Buck• Targeting

• The extent to which new spending is directed to those who would otherwise be uninsured

• As opposed to buying out the base or crowding out

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50 Million Tuna Swimming with 200 Million Dolphins

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Insurance Exchanges• Provides a large risk pool for the individual and small

employer to participate in• Apples-to-apples: should lower price of coverage

• Designed to create competition in insurance markets• Lower barriers to entry

• Transparency to the consumer• Can see tradeoffs in price and generosity and network size

• Incentives for innovations

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Insurance Exchanges• States have the ability to control the number and types of

plans, set quality or price standards• States can also bar the sale of insurance to individuals

and small businesses outside of the exchanges – or require they also be sold in the exchanges• To prevent “cherry-picking”• Vermont and DC are the only states to do this so far

• The ACA has many “experiments” for alternative methods for paying for care and organizing providers.• The exchanges will be in position to encourage or require the

adoption of those innovations that work.

Marketplace Basics

• Terminology: Health Insurance Marketplace (formerly known as the Exchange) and SHOP for small employers

• Compare private insurance plans based on price, benefits, quality, and other features

• Most people will get a break on costs• “No wrong door” with Medicaid and CHIP• Open enrollment starts October 1 and coverage is

effective beginning on January 1

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Source: Enroll America

The Enrollment Opportunity

If All States Expand Medicaid

41% 37% 9% 13%

Eligible for Medicaid ExpansionEligible for Exchange with SubsidiesEligible for Exchange without SubsidiesNot Eligible Due to Immigration Status

49 Million Total Nonelderly Uninsured

ACA Support Fitted to Your Income>$94,200 for a family of four;>400% of FPL

Job-based coverage, or Full-cost coverage in the exchange

$70,650-$94,200; 300-400% of FPL

Job-based coverage, or Subsidized exchange coverage: premiums capped

at 9.5% of income

$47,100-$70,650;200-300% of FPL

Job-based coverage, or Subsidized exchange coverage: premiums capped

at 6.3 – 9.5% of income

$31,322-$47,100;133-200% of FPL CHIP

• Job-based coverage, or• Subsidized exchange

coverage: premiums capped at 3% - 6.3% of income

<$31,322 for a family of four; < 133% FPL

Medicaid Medicaid

Children Adults (not eligible for Medicare or Medicaid today)

Fa

mily

Inc

om

e

Family income based on 2013 federal poverty income levels for a family of four

ACA Coverage and Coverage Gap>$94,200 for a family of four;>400% of FPL

Job-based coverage, or Full-cost coverage in the exchange

$70,650-$94,200; 300-400% of FPL

Job-based coverage, or Subsidized exchange coverage: premiums capped

at 9.5% of income

$47,100-$70,650;200-300% of FPL

Job-based coverage, or Subsidized exchange coverage: premiums capped

at 6.3 – 9.5% of income

$31,322-$47,100;133-200% of FPL CHIP

• Job-based coverage, or• Subsidized exchange

coverage: premiums capped at 2% - 6.3% of income

<$31,322 for a family of four; < 133% FPL

MedicaidCoverage Gap below

poverty line ($23,550 for family of four)

Children Adults (not eligible for Medicare or Medicaid today)

Fa

mily

Inc

om

e

Family income based on 2013 federal poverty income levels for a family of four

Marketplace Administration

Source: The Commonwealth Fund, www.commonwealthfund.org/Maps-and-Data/State-Exchange-Map.aspx

State-based Partnership Federally facilitated

Coverage Level Options in the Marketplace

40%

30%

20%

90%

80%

70%

60%

10%

0% 20% 40% 60% 80% 100%

% covered by plan% paid by enrollee

Platinum

Gold

Silver

Bronze

Catastrophic plan for people under 30 or if no other coverage is affordable

Essential Health Benefits1. ambulatory services;

2. emergency services;

3. hospitalization;

4. maternity and newborn care;

5. mental health and substance use disorder services;

6. prescription drugs;

7. rehabilitative and habilitative services and devices;

8. laboratory services;

9. preventive and wellness services and chronic disease management

10.pediatric services dental and vision care

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How much is it?• http://kff.org/interactive/subsidy-calculator/

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It definitely wasn’t pretty!

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