Penalized for Offering High-Quality Coverage   4 comments

“Would you want to be a patron of a restaurant that didn’t want you as a customer?”  John C. Goodman, Health Economist

Obamcare set up incentives for health insurers to avoid the sickest people because they would not be able to charge for pre-existing conditions.

What? You didn’t know that?

Under the individual insurance that existed prior to Obamacare, beneficiaries could buy guaranteed-renewable health insurance. If they developed a condition while insured, they could still buy health insurance at a premium that applied to the whole pool they were a member of when they originally bought insurance. Insurers were required by contract to take them even if they developed a serious condition and they also had an incentive to treat everyone on the pool well because it was bad publicity that might cost them customers if they were seen to be discriminating against people in the pool.

The political rhetoric around the (un)Affordable Care Act made it seem like insurers could toss people off policies for developing serious diseases or charge them ridiculous prices, but this was not actually true. What Obamacare did do was say that insurers could no longer charge for pre-existing conditions. Only, they figured out a way to game the system, according to a study by Michael Geruso of the University of Texas, Timothy J. Layton of Harvard Medical School, and Daniel Prinz of Harvard University. Goodman describes this as “being the restaurant that turns away customers they don’t want.” ,

Here’s a portion of their abstract:

We first show that despite large regulatory transfers that neutralize selection incentives for most consumer types, some consumers are unprofitable in a way that is predictable by their prescription drug demand. Then, using a difference-in-differences strategy that compares Exchange formularies where these selection incentives exist to employer plan formularies where they do not, we show that Exchange insurers design formularies as screening devices that are differentially unattractive to unprofitable consumer types. This results in inefficiently low levels of coverage for the corresponding drugs in equilibrium.“Screening in Contract Design: Evidence from the ACA Health Insurance Exchanges,” NBER Working Paper #22832, November 2016.

Cato Institute health economist Michael Cannon lays out some of the implications in a recent op/ed titled “How ObamaCare Punishes the Sick,” Wall Street Journal, February 28, 2017 (March 1 for print edition.)

A long excerpt:

Predictably, that triggers a race to the bottom. Each year, whichever insurer offers the best MS coverage attracts the most MS patients and racks up the most losses. Insurers that offer high-quality coverage either leave the market, as many have, or slash their coverage. Let’s call those losses what they are: penalties for offering high-quality coverage.

The result is lower-quality coverage–for MS, rheumatoid arthritis, infertility and other expensive conditions. The researchers find these patients face higher cost-sharing (even for inexpensive drugs), more prior-authorization requirements, more mandatory substitutions, and often no coverage for the drugs they need, so that consumers “cannot be adequately insured.”

The study also corroborates reports that these rules are subjecting patients to higher deductibles and cost-sharing across the board, narrow networks that exclude leading cancer centers, inaccurate provider directories, and opaque cost-sharing. A coalition of 150 patient groups complains this government-fostered race to the bottom “completely undermines the goal of the ACA.”

It doesn’t have to be like this. Employer plans offer drug coverage more comprehensive and sustainable than ObamaCare. The pre-2014 individual market made comprehensive coverage even more secure: High-cost patients were less likely to lose coverage than similar enrollees in employer plans. The individual market created innovative products like “pre-existing conditions insurance” that–for one-fifth the cost of health insurance–gave the uninsured the right to enroll in coverage at healthy-person premiums if they developed expensive conditions.

I would follow the link, because Cannon backs up his analysis with a lot of links. He also warns policy makers who are hesitant about repealing the pre-existing condition rules:

If anything, Republicans should fear not repealing ObamaCare’s pre-existing-conditions rules. The Congressional Budget Office predicts a partial repeal would wipe out the individual market and cause nine million to lose coverage unnecessarily. And contrary to conventional wisdom, the consequences of those rules are wildly unpopular. In a new Cato Institute/YouGov poll, 63% of respondents initially supported ObamaCare’s pre-existing-condition rules. That dropped to 31%–with 60% opposition–when they were told of the impact on quality.

Really, follow the links. Learn what’s really happening. Don’t accept the Wikipedia version of this debate.

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4 responses to “Penalized for Offering High-Quality Coverage

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  1. A very thought provoking and well researched post. I am from Canada which has it’s style of health care system, but it also is rife with it’s own problems in which the sick also tend to be punished. Unless you have a private plan, drug coverage is out of pocket, and wait times for surgeries can take up to a year.

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    • I live in Fairbanks Alaska. Particularly in the warm weather, you can drive by any clinic in town and see lots of Canadian license plates. They come here and pay out of pocket for care they can’t get in Canada. I also used to work with a psychiatric nurse who immigrated from Canada because the Canadian health service wouldn’t pay for a shoulder surgery. They said she didn’t need it because her job didn’t require lifting patients … forget about the quality of life issue. By the time she’d qualified for employer insurance (this was pre-Obamacare) and recovered from the surgery, she and her husband (who was an American ex-pat for 25 years) chose to remain here.

      It sounds good that the gov’t gives you health care “for free”, but there’s a downside that I wish Americans had the sense to avoid, but our Congress appears to really not be.

      Liked by 1 person

      • A very interesting reply. I know a quite a few similar situations in Canada where procedures were denied. Fairbanks is a long way to go, even if it were from the Yukon or northern BC. It does speak a lot of how desperate some Canadians are to receive health care.

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      • White Horse is a long day’s drive to Fairbanks, about 11 hours, which is long even by Alaska standards, but doable. We go there for the fishing. It makes a nice week’s vacation. Canadians apparently come here for the docs, maybe because it’s closer than the Lower 48 states.

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