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Did Iowa Mess Up Its Individual Health Insurance Market?

The individual health insurance market in most every state is, at best, precarious. Iowa is no exception – a conclusion reached recently by national consultant, Wakely Consulting Group, one of many organizations that I collaborated with in 2012 when analyzing the Iowa population for implementing a state-based health insurance marketplace. Their report, “Analysis of Alternative Policy Decisions in Iowa’s Individual Market,” sheds light on how a concoction of earlier decisions can undermine fragile markets. In short, the individual health market is a tangled mess.

The Affordable Care Act (ACA) established state-based marketplaces that allowed Americans without employer health coverage to purchase health insurance regardless of preexisting conditions. Such sanctioned ACA plans would also provide minimum essential standard-of-benefits.

The premium paid by those qualified to enroll in these plans varies, primarily based on factors of age, tobacco use, family size and geography. Other factors – such as pre-existing conditions, health status, claims history, duration of coverage, gender, occupation, and small employer size and industry – cannot be used to impact insurance premiums. Individuals earning a certain amount of income (100-400 percent of poverty), can receive subsidies to pay for their coverage, while others above this threshold must pay the full premium themselves.

The whole idea of insurance risk is to cover as many insureds as possible, safeguarding that there will be enough ‘good’ risks to help offset those considered to be ‘bad’ risks. When the Iowa marketplace was launched in 2014, Iowa had four insurers competing in the individual marketplace. Today, Medica is the only insurer that sells ACA-compliant health plans in Iowa. To sustain its business in Iowa, Medica had to increase the premiums in 2018 by 50 percent – which did not impact those receiving premium subsidies but slammed those who earn above the subsidy limit.

On top of this, the state’s largest insurance company – Wellmark Blue Cross and Blue Shield – maintained a large block of pre-ACA grandfathered plans (policies in effect before March 2010) and grandmothered health plans (policies written after 2010 enactment but before 2014) within its block of individual health business. The state of Iowa allowed Iowa carriers to maintain both blocks of business outside the sanctioned ACA marketplace.  According to the Wakely report, “Iowa’s ACA individual market in 2015 represented approximately 40 percent of the total non-group market…while the other 60 percent were covered under the two transitional plans.”

From its analysis, Wakely’s conclusion is that had Iowa NOT allowed for grandfathered and grandmothered plans (an option for each state to decide), the enrollment in the ACA-compliant plans would have increased by 55,000-85,000, while the change in premiums would have dropped by 8-18 percent. Had this happened, I’m sure there would have been new ‘winners’ and ‘losers’ on the amount of premiums individuals would be required to pay.

Lessons Learned?

The likely lessons learned from Iowa, according to Wakely and The Commonwealth Fund, is that further segmentation of the individual market between healthy and unhealthy enrollees wreaks havoc for those who do not receive subsidies that offset massive premium growth. Adopting policies to expand the risk pool and maintain a balance between healthy and unhealthy enrollees, using state-level reinsurance programs can be beneficial to state-based marketplaces.

As mentioned in the Commonwealth Fund analysis, “…premiums in the state’s (Iowa) individual market are already among the highest in the country, with an average annual marketplace plan premium in excess of $10,000 in 2018.” The middle-class consumers – entrepreneurs, independent consultants, farmers, and early retirees – who earn too much to quality for subsidies become ‘losers’ in the insurance risk game.

Granted, with the advent of new association health plans and short-term medical plans that can legally shed many ACA requirements and theoretically become more cost competitive, many of the healthier middle-class insureds may qualify for these plans – but what about those with pre-existing conditions?

The policies we generally make in healthcare are too often made from situational circumstances that cause knee-jerk reactions that may appear to be expedient, but ultimately exacerbate an already complex problem.

Scottish writer, Walter Scott, put it quite succinctly:

O, what a tangled web we weave…when first we practice to deceive.

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Employer-Sponsored Health Insurance – An Impending Decline?

Americans partake in a variety of traditions. We throw tailgate parties, both before and after football games. During Halloween, our tradition involves children going door-to-door begging for candy, using the words, “Trick or treat!” Before Thanksgiving, our president and many state governors will pardon hand-selected turkeys from becoming the next meal. After Thanksgiving, Americans find the energy to start their annual Christmas gift list and go shopping on Black Friday…and/or wait until Cyber Monday.

During this time of year, millions of Americans will also perform the ritual of selecting a health plan for the new year – based on how much the new insurance plan will now cost them. In addition to the increased insurance premiums, Americans are forced to wrestle with climbing deductibles, copayments and out-of-pocket maximums. In some cases, working families are spending more of their income on insurance coverage that may not protect them compared to insurance plans from yesteryear.

Employer-sponsored health insurance is the largest-single source of health coverage in the U.S. – covering more than 150 million American workers and their dependents. By comparison, Medicaid, the second-largest source of coverage, insures about 70 million Americans, or less than half of job-based coverage. Medicare, health coverage for our seniors, covers 50 million Americans. Finally, the other 17 million American who have health coverage are enrolled in the Affordable Care Act marketplaces and individual markets offered in each state.

Underinsured

As mentioned, adults with job-based health coverage are seeing higher deductible and out-of-pocket costs compared to prior years. In fact, relative to their income, a recent Commonwealth Fund report has found that working Americans are effectively “underinsured” – they spent more than 10 percent of their income, excluding premiums, on healthcare; spent more than five percent if they were low income; or they had a medical deductible that exceeded five percent of their income. According to the report, this is more than double what it was in 2003, and up sharply from just three years ago (2014).

The major factor for the rise in the underinsured is that employer plans (both small and large employers) are increasingly fighting rising healthcare costs by super-sizing their deductibles to keep the cost of premiums relatively reasonable. Commonwealth estimates that the number of ‘underinsured’ American adults (ages 19 to 64) is 41 million, or 28 percent of U.S. adults. This number is double the rate in 2003 and is up by 10 million since 2014.

In the U.S., health spending increased by 4.3 percent in 2016, outpacing overall spending for goods and services, which increased by 2.8 percent that same year. Additionally, healthcare costs continue to grow faster than American workers’ wages. Over time, this cost pressure recedes the workers’ paychecks, which negatively impacts other purchases workers need or desire to make. In Iowa, as an example, the average deductibles offered by employers has increased drastically, up 185 percent between 2004 and 2016. Using a linear regression equation, the average single and family deductibles could climb to $2,000 and $4,500 respectively, by the year 2020.

Despite being large purchasers of healthcare services for employees and their dependents, employer-sponsored plans run the long-term risk of being unable to control rising healthcare costs – which can exacerbate the rising discontent workers have of paying more but getting less in return. Unfortunately, employers seldom work together to increase their leverage with health providers – primarily due to employers lacking the staff and expertise to combat the complexities of healthcare markets. First and foremost, employers are in the business of focusing on their own core products and services and the associated challenges found within the markets they operate. By fiat, insurance companies continue to play the role of the purchaser on behalf of most employers and their employees.

Employee Discontent?

What will the future hold if more workers become dissatisfied about their receding take-home wages? Dr. David Blumenthal, President of the Commonwealth Fund, recently wrote: “With that discontent will likely come increased calls for dramatic reforms in our health insurance system, reforms that will better protect the millions of Americans who have long depended on protections they receive in the workplace. Some of these discontented Americans may become more receptive to government interventions in private health insurance markets.”

Assuming this discontentment is real, and it appears to be, employers will need to find new approaches to apply additional leverage when making future health coverage purchasing decisions. Being a reluctant purchaser may only prolong the inevitable. For employers, there’s no better time than the present to engage in activities that will provide value for their workforce. Otherwise, external cost pressures may eventually jeopardize health coverage at the workplace.

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Prescription Drug Pricing – The Reenactment of Harry Houdini

Noted for his sensational escape acts in the late 19th and early 20th centuries, Harry Houdini used chains, ropes, locks, straightjackets under water and a host of other props to escape from assured harm, if not death. Crowds were enthralled with his heroics, and they paid him for this gross but thrilling form of entertainment.

To protect his unique career, he was a master on safe-guarding his escape secrets, and was very quick to sue others who imitated his escape stunts.

Fast forward to today. We continue to be entertained by protégé’s of Houdini, now better known to be ‘magicians.’ Some are quite well-known: David Copperfield, David Blaine, Ricky Jay, Penn & Teller, among others. One common rule that all legitimate magicians adhere to is quite simple:

NEVER reveal the magic secret.

The biggest magician we have today, is not really a magician, but certainly ‘appears’ to act like one.

The pharmaceutical industry – and many key middlemen side players, such as pharmacy benefit managers (PBMs) – are in the business of obfuscating facts from reality. In June, I wrote a piece about this problem on my The Health Autonomist blog. Like magicians, who know how to manipulate their audience into a false sense of free will, pharmaceutical players want the public to believe that efforts are being made to keep the medication costs as affordable as possible and, in return, ‘reasonable’ profits are justly-earned to keep costs down.

The chart below shows just how unbridled the costs of prescription drugs have become (found in the yellow line since 2013). Rarely do I repeat the same visual, as this one appeared in last week’s blog, but this chart demonstrates just how rampant drug prices have become when compared to other types of health services.

Yet, a host of games are being played that cause the patient to receive minimal benefit from their actions – with much of the financial gain being retained by the ‘altruistic’ players who tout their allegiance to the patient. One example is found on the Kaiser Health News webpage:

A very insightful report, “Getting to the Root of High Prescription Drug Prices,” was recently released by The Commonwealth Fund, that provides an in-depth description of the many problems inherent in drug pricing. More importantly, the report describes many possible actions that policymakers and stakeholders can agree on to find bipartisan solutions to many identifiable problems. By the way, regulating drug prices or purchasing drugs through Canada are not long-term solutions, just band-aid approaches to a persistent open wound.

A newly-published ProPublica article, “Take the Generic Drug, Patients are Told – Unless Insurers Say No,” reveals that pharmaceutical companies are increasingly cutting deals with PBMs and insurance companies to push more expensive name-brand drugs over their generic-equivalents. Such actions suggest that higher profits are being sought, often at the patient’s expense. ProPublica’s other new article about generic drugs serves notice that pharma continues to find innovative ways to make money at the public’s expense.

I enjoy infographics, as they can help make something that is very opaque appear a bit more understandable. Even within the insurance industry, the shenanigans that happen in the PBM world are often difficult to understand – leaving many of us to sort truth from fiction. Through Pembroke Consulting, SSR Health, Kaiser Health News et al., an infographic was produced that does a reasonably good job of exposing the secrets behind the curtain of obfuscation on drug pricing.

Like tricks performed by accomplished magicians, the drug-pricing profession profits from sleight-of-hand tricks that must never be revealed to the public.

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