Brynne McBride of ABC for Health, Inc. and HealthWatch Wisconsin, Inc. spoke with Tim Jost, Health Law & Policy Expert on topics of health insurance market stability and reinsurance.
HWW: Hello, Tim and thank you for joining us. For the benefit of our listeners, can you give us a brief introduction, what brought you to the Health Affairs Blog, and what you’re working on now?
Tim: I’m an Emeritus Professor at Washington and Lee University School of Law. I taught law school for 34 years ending about 2 or 3 years ago. I taught first, at Ohio State for about 20 years, then at Washington and Lee University, more recently. And throughout that time, my focus was on Health Law. I was one of the authors of what has been, for probably the last 3 decades or so, the leading teaching book in Health Law. It was pretty natural for me in 2009 and 2010 to start following the drafting and enactment and then implementation of the Affordable Care Act and fairly early in that process I linked up with Health Affairs. I wrote I think over 600 blog posts over the last few years for them. I was also a Consumer Representative for the National Association of Insurance Commissioners for about 7 years, so I attended all their meetings and calls, and had opportunities to represent consumers in insurance issues in that context as well.
HWW: The world of health care and coverage has changed a lot in the last 30 years…
Tim: It certainly has…
HWW: …especially in recent history…
Tim: Although we still have a lot of people who are uninsured and health care costs keep going up, and health care cost-sharing for people keeps going up. So a lot has changed, but a lot has stayed the same.
HWW: One of the things we wanted to talk to you about specifically, is in a lot of your blog posts at Health Affairs, but also more recently in a blog you did for the Commonwealth Fund, you spoke the instability in the Marketplace for a number of reasons and reinsurance as something you pointed to as a potential solution. I’m wondering if you could give us a brief overview of the concept of reinsurance to start before we talk about other market forces.
Tim: Sure. Reinsurance is a term that is sometime used, sometimes the term “invisible high risk pools is used” instead, and to some extent they are interchangeable, although arguably they are a little different. But the basic idea of reinsurance is that you have a program, often funded by the government, that assumes the risk of vary high cost cases, and that can be done in a couple of ways. Either you can explicitly assume risk above a certain level, so the reinsurance program covers, for example, 75% of all costs for claims above $60,000 up usually to some cap like maybe $150,000 or $250,000. The other approach is to assume the risk for people with certain high cost diagnosis, like HIV/AIDs or end-stage cancer. The idea is, number one, reinsurance reduces the cost to insurers and thus allows them to reduce their premiums because they don’t have to cover the extraordinarily high-cost cases that account for a very big part of the cost of health care. But secondly, reinsurance also reduces the risk that insurers have to assume. And insurers will charge a premium simply for assuming risk, because of the additional uncertainty that they face when they have to cover a high cost cases. And, a third potential effect, is reinsuance can keep insurers in the market. If an insurer is unsure whether it wants to stay in a particular market or not, the fact that it’s risk for high cost cases is reduced might well be the deciding factor for the insurer to stay in the market rather than leave the market. When you get down to only one insurer in a market, that insurer is likely to raise premiums as much as possible. Reinsurance helps with reducing premiums in that way as well.
HWW: Reinsurance, we sometimes remind folks, was part of the original Affordable Care Act with some of those risk stabilization factors, along with risk corridors, and other market stability forces. It was underfunded in some regards, was politicized in others. So some states started taking reinsurance on themselves. This last round of the Federal Spending Bill didn’t include reinsurance like some had maybe hoped. That then spurred a couple more states, potentially, then to look at state reinsurance themselves, like the state of Wisconsin. Can you speak briefly to the Sec. 1332 waiver process that some states have used to ask for reinsurance, like the states of Minnesota and Alaska?
Tim: Yes, but let me first comment on a couple of the other things you said. Reinsurance and another program called the Risk Corridor Program were very important elements of the Affordable Care Act’s original vision. And, in fact in the first couple of years—the reinsurance program only lasted 3 years--it did decrease premiums quite significantly. The risk corridor program was a separate program which was supposed to help out insurers that were selling a completely new product and didn’t know how it was going to work out. And so the idea behind the risk corridor program was that, “if you get into trouble with your estimates, we’ll help you out.” And conversely, “if you make a lot more profit, then it’s probably fair we’ll take some of that as well.”
I would note that the Part D Medicare program--the prescription drug program, which has been in effect now for over a decade, and which is widely regarded as a great success, and regarded by many people as a great success of a free-market based program—Medicare Part D has a permanent reinsurance program that is very generous and also has a permanent risk corridor program. I would say one of the primary reasons why Medicare Part D has succeeded is because it does have those programs. It is very unfortunate that the Affordable Care Act didn’t include a permanent reinsurance program and that Congress in 2014-2015 basically defunded the risk corridor program and left insurers high and dry without the money they had expected, properly, that they would be getting from that program.
Section 1332 Waivers
Now, to 1332: The Affordable Care Act contained within it a Sec. 1332 state innovation waiver provision which says to states that wanted to try to innovate, to try to come up with a better solution to access to health care, could submit a request to the federal government and ask for waivers of certain provisions, not all, but certain provisions of the Affordable Care Act, so that they could do what they wanted to do on their own. Section 1332 also authorizes a pass-through so that if the federal government saves money, for example, because premiums are lower and therefore the amount that the government has to pay out in premium tax credits is lower, then the state can take advantage of those savings. So far, there have only been four 1332 waivers approved, and three of those for Alaska, Minnesota, and Oregon, have involved reinsurance programs. The basic idea is the state puts up some money, sets up a reinsurance program, and reinsurance reduces premiums and the money that the federal government saves goes to the state which the state can then use to fund the reinsurance program. So Alaska, this year, got $58 million dollars and was able to reduce its premiums by 20%; Minnesota got about $131 million and was able to reduce premiums by about 15%, and Oregon got about $55 million, and I’m not sure exactly the effect that has had there. It is a program that has been quite successful in allowing states to reduce premiums for everyone who buys coverage in the individual market, not just for people on the Marketplaces, and not just for people who get premium tax credits.
HWW: Can you speak to some of the market instability that has caused some of the states to request the waivers in the first place? This is something you covered very efficiently and very effectively in that Commonwealth blog we mentioned. Some of the forces that have been considered the destabilizing forces in the Marketplace?
Tim: Yes. I’ve already mentioned one of them, which was Congress defunding the risk corridor payments in 2015. Another factor was the Obama Administration, frankly, allowing people to keep ACA non-compliant plans…
HWW: …which has now just been extended through 2019 or proposed to be extended through December 31, 2019…
Tim: …It has been extended through 2019…
HWW: …And our State Insurance Commissioner is doing a public hearing on that in two weeks to see if Wisconsin should adopt that same deadline, which it’s looking like they want to do again.
Tim: That just means generally healthy people are kept out of the risk pool which raises premiums for everybody else. Other destabilizing forces: The Trump Administration’s decision last fall to defund the Cost Sharing Reduction payment program, which reimbursed insurers for reducing cost sharing for low-income people, dramatically increased premiums across the market. For lower-income people, that increase was covered by increased premium tax credits. But, for higher-income people, it often simply increased their premiums across the board.
Another factor that is expected to have a huge impact on the market is the Trump Administration’s proposal to allow insurers to sell what are called short term plans. Short term plans have been around for a long time. They are meant to fill gaps so, if you’re between jobs for a couple of months, or between graduation and graduate school and you need something just to cover you for a couple of months, short term plans work in that context. But the Trump Administration is proposing to allow them to be sold for anything less than a full year. Your short term plan could expire at 11:59pm on New Year’s Eve, which probably wouldn’t be a good idea.
In any event, these plans are truly junk coverage. They have high deductibles, they don’t cover a lot of basic things. I’ve heard about a plan, well a number of them, for example, don’t cover injuries in school sports. Even if you are a perfectly healthy family and you just want minimal coverage, certainly one possibility you have to think about is your child getting injured playing soccer. They have lots and pages of exclusion and exclude preexisting conditions and often charge more, or won’t sell, to people who have health problems. Short-term plans are a real problem.
The thought is a lot of healthy people are going to sign up for those instead of comprehensive coverage and that will drive up premiums.
Another proposal is to expand Association Health Plans which have a long history of scams, fraud, abuse, and insolvency. The idea is you have an Association that sells insurance to small employer groups and to people who claim to be self-employed. Association health plans are often going to draw people out of the major medical market into inferior coverage and that’s going to drive up premiums.
Another factor is the repeal of the individual mandate. One can debate as to how effective the mandate was, but at least some people who would otherwise have bought coverage are not going to buy it because now they are not going to have to pay a tax penalty if they don’t buy it as of 2019.
Another just sort of “overarching factor” that has caused instability and driven up premiums is just the uncertainty and confusion that exists when every month there is another proposal to undermine the Affordable Care Act. Members of Congress are still talking about repealing it. And insurers, frankly, are businesses. When you’re working in an environment where there is just continual uncertainty, continual confusion, and the government is continually causing confusion, it’s really hard to run a business. I think that has perhaps, as much as anything, had a big impact on the market.
Stablizing Premiums in Wisconsin a la Medicaid Expansion
Tim: One factor, also, that I would like to point out, which I think has had a major impact on increasing insurance premiums, is the failure of states to expand Medicaid to 138% of poverty…
HWW: …So, that includes Wisconsin–we did not take that federal money.
Tim: Yes. The effect, right off the bat, is to increase premiums in the individual market. One study showed that premiums in states that did not expand Medicaid were 7% higher than states that did. This is simply failure to expand means people with incomes between 100% and 138% of poverty are now going to be covered by insurance in the Marketplace rather than by Medicaid and they tend to be a fairly high cost population. That effect was compounded by the Trump Administration’s decision last fall to stop paying the cost sharing reduction payments. Because, the insurers have to dramatically reduce cost sharing, which is to say deductibles, co-insurance, copayments, out of pocket limits, for people in that 100-138% range. And they’re going to have to cover, through their premiums, the cost of doing that.
One study showed that premiums in states that did not expand Medicaid were 7% higher than states that did.
So that has dramatically increased premiums for insurers in states that have not expanded Medicaid.So, if Wisconsin is really serious about trying to reduce the cost of health insurance for its residents, then the first step it should take would be to fully expand Medicaid to 138% of poverty. The federal government still pays, I believe, 94% of the cost, and that’s just a no-brainer.
HWW: One of the things you’ve spoken to as a consequence of people leaving the individual market, say they go into a short term plan, it ends up not covering their needs because it has exclusions, or people being priced out of the Marketplace, just seems to be a return to the old days of high levels of uncompensated care, high medical debt for families. Something the Affordable Care Act very early chipped away at and now we seem to be creeping back up with uncompensated care levels increasing and that seems to be the trend of where we’re returning to.
Tim: Absolutely. Although the good news is, despite everything the Trump Administration did to undermine the Affordable Care Act, we still had enrollment figures in the Marketplace for this year that were almost as high as last year, there was just a slight slippage there. I think the bottom line, and there’s a recent Kaiser Foundation poll that shows this, people want health insurance! People want the financial security that health insurance gives. People want to know that their families are going to be taken care of. And people don’t want junk coverage. People don’t want coverage that, as soon as you make a claim the insurer is going to deny it as preexisting condition, or maybe rescind your coverage altogether, which has happened a lot with short term plans. There is still some hope here that the ACA is still in effect and again, hopefully, reinsurance programs are going to help.
Health Care as a Voting Issue
HWW: And we’ll end on a positive note. I like that we’re being hopeful with our thought “people like insurance.” Do you think insurance is going to be a voting issue?
Tim: Absolutely. I think we’ve already seen that. Here in Virginia, last fall we went from a situation where we had a House of Delegates with almost a veto-proof majority for Republicans, and 15 of the 100 seats flipped from red to blue and, in fact, the House of Delegates would have been 50-50, except for one Delegate who lost by a coin flip when they counted the votes and there were exactly the same numbers for Republicans and Democrats in the District.
But polls showed that health coverage was the issue most on the mind of many of the voters.
HWW: Tim, thank you so much. Thank you for your time, and your perspective, and your expertise on these issues, and I hope our paths cross again soon.
Tim: OK! Thanks a lot!