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SARAH DASH: So let me just kick off with an easy question. Is the individual market in crisis? Why or why not? And how did we get here?
PETER LEE: Across the nation, there’s 400 health plans making decisions on, do they participate or not next year? And if they do, do they participate by raising rates 10 percent or 50 percent? And that’s all in play on three big decisions that are really before the Trump Administration and Congress right now. And I think the prior panel is great, insurers are about spreading individual risk, but they aren’t about insuring political uncertainty in risk. And if they’ve got big uncertainty, they’re going to step back and not play. They aren’t going to be rolling the dice. So, they’re looking for the signals that they have enough certainty to play next year.
KAREN BENDER: And also, the insurers need to be able to make money. They can’t consistently lose money. And for the statistics, they are pretty well in for the first three years of Obamacare and in the individual market, a lot of insurance companies have lost a lot of money in the individual market. Not all, not all.
PETER LEE: But the place where I’d agree strongly with this is the plans that four years ago were ready to lose some money, on a long term bet, are not willing to lose anything next year. Because the year after next year, or after that, are even more uncertain. So I think that every plan for 2018 is saying, “If I don’t see a way to make money this year, I’m leaving the market.” And one other thing I’d just note is that plans are doing just fine on Medicare and fine on their employer, just fine on Medicaid, which is 90 percent of their business. So a plan can walk away from the individual market, and do just fine. And if they’re going to lose money in the individual market, they’ll walk. And if we policymakers give them that uncertainty, they’re going to walk and it could be a really bad year.
TOM MILLER: Well, that might be part of the triage for the emergency room. Look, if you want a crisis, you’re going to have to do better than this. What we have is a chronic condition. We may have braindead health policy, but it doesn’t mean that it’s physically dead. We move the rubble around and we move onto something else. It’s been going on for a long period of time. What the language of crisis usually is used to do, is to encourage worse policy. Saying, “Well, we couldn’t do any worse than this next policy.”
SARAH DASH: So, let me just – so a point of clarification. So I mean, the ACA required that the inside and outside of the exchange plans be counted as a single risk pool. But the rules of the road for the plans inside and outside of the exchanges, did the states make those decisions, the exchanges? In California, you had a very specific rule about plans being sold inside and outside the exchange being similar. So, talk about that.
PETER LEE: Identical.
SARAH DASH: Identical. And how did that affect the adverse selection or not?
PETER LEE: Well, I’d ask some of the others to speak to other states. But there’s federal rules that plans on exchanges are generally offering their same products, same prices off-exchange. But they can offer a whole range of other products off-exchange. But they’re still with the standard actuarial value rules. They’re still with the standard essential health benefit rules, etc. And so the markets, the common risk pool markets that are pulled on and off-exchange are offering broadly with the same package. Now in California, it’s the exact same product, exact same price, exact same networks and that’s what’s covering 95 percent of Californians, whether they get subsidies or not. And so, I mean, that’s the broad mix.
ED HAISLMAIER: And I specifically note that D.C. and Vermont eliminated off-exchange sales. So you can’t buy off the exchange.
TOM MILLER: The ACA theory is premised on the old advice of President Eisenhower which is, “If you can’t solve a problem, enlarge it.” The problem is they just created a bigger problem.
PETER LEE: And importantly, there’s a lot of discussion and argument about which of The Three R’s: risk corridors, reinsurance, and risk adjustment made sense. Risk adjustment is across the entire market, on and off-exchange, subsidized, unsubsidized. And if people off-exchange are getting healthy people, they’re contributing whether it’s on or off-exchange, to plans that are getting unhealthy people. I think that’s a healthy thing.
TOM MILLER: Except when risk adjustment doesn’t work as designed, as we’ve seen happen.
PETER LEE: Yeah but Tom, I mean, the notes of, here’s the reality we are today. Is there’s a lot of really healthy discussions about how to change things for two years out, whatever. We’re in the reality, where there’s 20 million Americans in the individual market, of which 30 percent may have no insurance. And this isn’t a created crisis. This is health plans making individual decisions in a bunch of the country on whether or not to play or not. And I didn’t create this crisis.
TOM MILLER: There’s only one thing we do well, which is kick the can down the road and move the cost to someone else. We’re not solving anything.
PETER LEE: I think we’ve got real solutions. And I mean, and it’s sort of good sound bites of kicking the can down the road. But the people we’re kicking down the road are four million Americans that you’re taking their insurance away from. That’s not a can I want to kick.
TOM MILLER: Well, that was set in motion several years ago by other people.
SARAH DASH: So, let me jump in here. I should have sat between those two.
TOM MILLER: If you tie people to the railroad tracks and call them hostages, I suppose you can get your money.
SARAH DASH: So let’s just backtrack for a second. So again, we heard Senator Daschle talk about this collage, right, of healthcare that we have in this country. And again, the individual market, it’s always been the trickiest market to fix. We have the employer market, you know, pretty stable. We talked about Medicare and Medicaid pretty stable, in terms of the actual provision of coverage. So I mean, what were the problems that the ACA was trying to fix, in terms of access, in terms of cost, affordability? So that’s the first question is, what are the problems we’re trying to solve? And then, did they solve them? How well did they solve them? And then, what do we need to do from here?
ED HAISLMAIER: And that’s the problem with linking the two markets together. How do you get out of the benefit mandates and all the other stuff that made it a social welfare program for lower income people, and give those middle class self-employed people back what they wanted, which is basically a financial service product that doesn’t cost them an arm and a leg?
SARAH DASH: So, let me push on that a little bit. So when you say a financial product, you know, what do you mean by that?
ED HAISLMAIER: They want protection – you don’t have to cover everything through insurance. You don’t have to have low copays and deductibles. I just want something – you know, I’m self-employed. I’m middle income. I want something that in case I get hit by a bus, it covers me. That kind of thing.
TOM MILLER: Well, actually people would like more if someone else would pay for it.
PETER LEE: ….– let’s go back to what were the problems being addressed? I mean, to my mind, there’s three problems that we’re trying to be addressed. Is number one, affordability. For the people in the individual market, they get no financial help, so all they could afford was really cheap products. Everyone else in America – and you may disagree with it – get federal tax support to buy healthcare. You have employer-based coverage, 30 percent is covered by federal tax dollars. So this one slice got no help. So it’s affordability.
Number two, the issues around excluding people that have had prior health problems. How you address it and whether you can fix it, but people with prior conditions were getting excluded from coverage. The third problem, and it comes back to we as [wonks], and I mean this as a compliment, talk about 50 percent AV. But that 50 percent AV meant people were buying products that weren’t covering a whole bunch of stuff, and many times, they were surprised. They had products that didn’t cover cancer, that had exclusions for hospitals, that had a lifetime cap at 100,000.
I mean, these are the extremes. But the ACA tried to address that by saying, “Let’s have people understand what they’re buying.” You know, we can say that, let the market determine that. But those were three problems that the ACA tried to address. Then we can argue how they addressed them. But those were – people were getting bankrupt who had coverage, because the coverage didn’t cover a lot of the stuff they got sick for. And so, that was part of what the ACA tried to address.
TOM MILLER: There are two other problems you left out. The very high loading costs, the nature of the market. Most of that was marketing expense as opposed to profits. And then, just the nature of the individual market.
PETER LEE: And underwriting.
TOM MILLER: No, not even underwriting. It was really marketing if you want to parse through the figures.
ED HAISLMAIER: Right.
TOM MILLER: And the other problem was a majority, at that time, wanted to take more political control over the healthcare system. And this was the route to leverage these other problems into accomplishing that.
SARAH DASH: So, let’s talk about this issue of risk. Because we’ve talked about access for healthy people. We’ve heard kind of the arguments that we should take away regulations to make it easier for younger, healthier people to buy into the pool. But then the questions is, what does that do? Are we just shifting more cost to sicker people, and people with chronic conditions, etc.? And so, how do we create a stable marketplace that creates affordability for people who are healthy, and maybe they do just want a product that helps them in case they break their leg skiing? And then, but the people who have serious chronic illnesses, of which there are many – we’ve seen public health statistics that, I mean life expectancies even decreasing across the country. So, what is the balance and how do you do that?
TOM MILLER: The economics are you can transfer and pool similar risks. The politics are, we don’t want to do that and we like to hide the other costs under a different bushel. The main way to bring that down is some type of external funding. If you simply transfer those costs across the individual insurance market, you’ve still got the same problem. The people who can’t afford policies just have their premiums go up as well. Now, the halfway step, which is the reinsurance under ACA is to put a tax on everybody who is covered. And states have done this mostly as their main funding source for high-risk pools. But the better approach is to dive into broader, general revenue, in a way in which you’re using the larger tax base, which is both more progressive and widely distributed, than trying to load that onto the premium cost. We’re reluctant to do that politically, because it’s too transparent.
PETER LEE: Well, I just want to take an opportunity to join arms with Tom. I just totally agree. Because you said you’d sit between us, because you don’t always agree. But I mean, it’s absolutely right is that in the individual market, it is a somewhat sicker pool than the employer market. People retire early, etc., and what do you do about that? There are two major vehicles talked about. One is set up high-risk pools, segregate them and fund them separately. The other is reinsurance is spread, lowering the costs for everybody, and it’s a partial measure. But it actually worked really well in the first few years of the Affordable Care Act.
And I would note that the American Healthcare Act proposed a $15 billion a year fund for ’18 and ’19 to do just that, to stabilize the market. But it is taking money from someone else, to lower the costs for everybody. And who do you take it from? That’s the political issue. But to stabilize the market, that’s exactly what you need to do.
TOM MILLER: The problem with most of these reinsurance proposals is, the reason they want them to be invisible is they don’t want to actually see what the costs are. And the other problem is, they tend to do it ex post rather than ex ante. So, you’re not getting real reinsurance, which is when you go to a private reinsurer, it gets priced and you actually pay your premium for it, in order to handle that extra risk and volatility. Instead, it’s just another way to try to spread this across other people, who don’t know what’s going on.
PETER LEE: The place where I may disagree, and I’d ask the actuary to come in, when it being priced for. I mean in California, we sit down with our health plans every year, as they’re developing rates. And we knew exactly what reinsurance was worth in 2014, ’15, and ’16. And if there was a $15 billion pool, that would be worth, next year, 15 percent coming off premiums because plans priced for it. Because it’s covering certain people with certain risk and what it costs. And so, you can price for it, and is it visible where it’s coming from?
ED HAISLMAIER: I think Tom’s point was pricing, in the sense of a classic private reinsurance contract, as opposed to pricing in the value of a subsidy.
TOM MILLER: One prices the risk. The other prices the result.
PETER LEE: And so, you’ve got a whole set of issues with public dollars. Look, the answer broadly is yes, you broaden this. So there’s two ways to broaden this.
One is if you had given, instead of a very narrow and very substantial tax benefit, which is what the ACA did. It gave it to a very narrow slice of the population and it was quite substantial. In fact, for most single people, the value of the ACA tax credits went to zero at about 250 percent of poverty. So it was really between 100 and 250 percent of poverty, a very narrow slice of the population, and very substantial amounts. Instead of doing that, do less and spread it over a larger population. If you had just given everybody sort of like through the Republican proposal, a basic tax credit, that would have addressed some of the issue.
The other thing is, and this was the work I was doing pre-ACA, is to say, “Look, if you adopt these kinds of HIPAA rules in the individual market, you will have some costly effects.” So for example, the big one, and you’ve seen this in the ACA is now, individual market coverage becomes preferable to Cobra coverage. And so, you will have a selection effect. The answer to that is your risk pooling needs to encompass not just the individual, but the commercial – at least the commercial employer group market. And I would do it on the backend with a retrospective adjustment to really focus on, did anybody get an outside of the norm distribution of risk?
TOM MILLER: The wider the rug, the more we can put under it.
KAREN BENDER: You’re absolutely right that that funding has to come from external of individual market.
TOM MILLER: That’s Alaska. They use the external state money in the reinsurance pool.
KAREN BENDER: Yeah. Because otherwise, if you’re just pooling among the – even if you do it nationally, you’re just trading dollars. The cost for the whole pool will not be lower, if you’re just –
CHRIS HOLT: It’s just not a big enough pool of people.
SARAH DASH: So it’s not a big enough – so and the other thing –
TOM MILLER: You don’t need a pool. We need an ocean.
ED HAISLMAIER: Great line.
KAREN BENDER: But the other thing that we have discovered, and I think none of us expected. We’re seeing a lot of really high claims, much higher than we anticipated in this individual pool. Much higher than I’ve seen in group policies. Now obviously –
TOM MILLER: What reform might have caused that to happen?
KAREN BENDER: Well, one of it was the elimination of the lifetime maximum, because we’ve been seeing that before, you know. And there’s probably other factors, but I’m not going to try and guess. But I mean, this pool is sicker than we thought it was going to be.
ED HAISLMAIER: Is now, yeah. The other thing –
TOM MILLER: Or billable.
SARAH DASH: Let me jump in a minute. Because I mean, are we essentially just playing a big game of hot potato with people, who are really sick and have high need, high cost? And how do we address that? Because as Senator Daschle I believe earlier said, most people can’t even afford a $400 unexpected medical expense. I mean certainly, they couldn’t afford a $2 million claim. So, how do we get to the –
PETER LEE: But I think the important thing is, it’s a small number of people. It’s absolutely the case that because of the removable of lifetime caps, there are some multimillion dollar claims bigger than in the past. But the vast majority of people that get coverage across every marketplace are not using healthcare that much. They’re not that different from the bell curve distribution you get in employer-based markets. And one of the things we need to make sure is that we get and keep healthy people in.
TOM MILLER: Because we want to get money out of them, even though they’re not getting anything for it.
PETER LEE: No. What do you mean they’d get nothing for it? Insurance is about covering uncertain things that may happen in the future. And if people don’t have it, we’re going to back to having the number one thing for personal bankruptcies being healthcare. That’s not a great thing.
TOM MILLER: Are those uncertainties for lower cost conditions that you’re talking about?
SARAH DASH: So, let’s talk about the uncertainties for lower cost conditions. I mean, so we’ve heard arguments that if deductibles are too high, people can’t go and access primary care. They can’t access the things that should be at the bottom of that pyramid. And there have been analogies made to, you know, you don’t buy insurance for your car’s oil change. You buy insurance for the car crash. But is health insurance different? And Peter, in California, you created standardized benefit plans that did not create an access barrier to some of those preventive services. So is that what we need to do?
PETER LEE: There’s a reasonable policy argument that insurance shouldn’t be about insuring things like preventive care, and I’ll get into that argument. That’s a reasonable one. But the argument around deductibles, to me, is a hooey argument. So, you don’t need to have a deductible between you and your doctor. Even at a Silver plan, which yes, it’s got a $2,300 deductible. But in California, we’ve priced it, so no outpatient services are subject to the deductible. So, whenever you hear someone say, high deductible, the first question you’ve got to ask is, what is subject to the deductible?
And I mean, I really want to challenge everyone. Whenever you say deductible, ask what is subject to the deductible? No insurance plan at sixty percent and above, needs to have everything subject to the deductible. Seventy percent, no outpatient care needs to be subject to the deductible. Now, I’ll note and the right question, there are winners and losers. There are a small number of people that get hospital care that will pay marginally more. But the reality is, you show up in a hospital, you’re going to hit your maximum out-of-pocket for that year no matter what. So on the margins, I don’t care that much.
TOM MILLER: But you’re talking about where you move the donut hole around. And then by the time you’re finished, the donut hole is closed and you’re just having illusory cost sharing.
CHRIS HOLT: Can I ask Peter a question really quick?
CHRIS HOLT: So, when you talked about how your deductible works, where does the deductible hit, to Tom’s point?
TOM MILLER: Nowhere. We just want to keep moving it until we don’t find it.
SARAH DASH: So, I want to get to the question of cost-sharing subsidies, because we’ve talked a lot about affordability. We’ve talked about affordability. We’ve talked about deductibles. But you know, for all those people under 250 percent of the federal poverty level, the CSR’s have been an important affordability tool, to the point where there’s a lot of concern of what happens if those go away? So I want to talk about those and then, maybe ask another couple questions before we give our audience an opportunity to ask some questions. So Karen, do you want to start us off? What is the effect, if the CSR’s go away, what’s going to happen and what do you think needs to happen soon?
KAREN BENDER: We need to know. Again, I’m an actuary, so we’re pricing right now, as we speak, for these policies. And if the cost-sharing reduction subsidies or those payments are not going to be made to the insurers, we have to build that into our premiums right now as we speak. Because the insurance companies do not have the margins to absorb this loss of revenue. And when the ACA first came about, it was our understanding that these were going to be paid by the federal government, an external source, and another external source, and we priced our products accordingly.
But now, if we have to continue to pay these benefits without any external funding source, we have to increase our premiums….
For those that are on subsidies, premium subsidies, it probably won’t have too much of an impact. But for the 40 percent that are not receiving premium subsidies, how you price this makes a big difference. Because all of a sudden, if you spread it across the whole thing, all the plans are going to go up.
So even those that are not getting any benefit from it will have to pay it. So whenever you raise rates – if you were going to say, how do we get a better pool? Low rates get better pools, simple as that. The lower the rate that you can have, while still be meeting your cost, that’s the key. You need to have lower rates. This is going to push the rates up. I would expect to have some adverse selection as a result.
TOM MILLER: There are a couple of other factors we’re sliding over, when we talk about this, which is give me the money right away and just close your eyes. It’s a crisis. First, the subsidies were illegal. Small detail, actually a court decision. I hate to mention that but they weren’t appropriated by Congress. Now, the Congress should put up or shut up. They can try to hold onto their constitutional point and say, now we’ve decided to appropriate it. That’s a political decision, which this Congress is probably not capable of doing. Or it could change those cost-sharing subsidies in a different manner.
Again, the problem is how do you legislate in the current environment? Maybe they shouldn’t be structured the way they are. The other issue that Karen was talking about, in terms of how is this spread in terms of the cost, if you start loading these costs onto other parts of the market, you’re going to lose people. And so, those calculations are more dynamic. It’s not just, we’ll just stick the costs over here, and everybody will just pay it. You’ll end up with fewer people going into those plans.
AUDIENCE: Hi. My name is Bobby Avary with Hurt, Norton and Associates, and we represent some design firms that focus primarily on small businesses, particularly on health reimbursement accounts. Where we have found that it’s helped a lot of small employers to be able to offer some type of health and plan. Fortunately, in the Cures legislation, we were able to get renewed standalone health reimbursement accounts. What is your opinion on expanding that as a bipartisan vehicle, to get more folks into the marketplace?
TOM MILLER: Well, we got that in the 21st century Cures Act, which I thought was going to be the 22nd century Cures Act, and then they got it through in December. And that’s basically for the below 50 market, which was to do deal with the IRS ruling which would put a hurdle in their way. The argument is if an employer wants to provide some type of benefit to you, as much as they can afford, why restrict it? We got into the desire to try to keep people only getting certain types of group coverage, and the various rules that attached to that, it was a rather contorted argument.
So, when the HRA’s first came about in 2002, 2003, by regulatory interpretation, it was seen as possibly a way to open up the market. Which is basically you could use that money to go for a lot of different type of things to be more creative. And then, they got hemmed in under that interpretation. So, I think it would be a good thing, but it runs afoul of the schemes of folks who want to make sure that you only have certain types of configurations of coverage, which creates, you know, that you’re following these rules and everybody kind of stays inside that box.
ED HAISLMAIER: Basically, it allows employers to define contribution, employees into the individual market on a tax favored basis, which is conceptually something that I’m in favor of. The problem is that it achieved that right at the point, at which the individual market became unattractive place to go. So, that’s where you are today is that as a practical matter, do you want to do that, given what’s going on in the individual market right now, with the costs and the coverage?
TOM MILLER: But the employers would say, small employers, they’re cost constrained.
ED HAISLMAIER: Yeah. No, I understand.
TOM MILLER: They can’t step up to the entire – the [employer mandate] doesn’t mean anything to them anyway.
ED HAISLMAIER: Right.
TOM MILLER: They’re exempt and it doesn’t mean a lot to a lot of other employers.
CHRIS HOLT: [Before we run out of time], can I just say one thing on this?
CHRIS HOLT: One thing that a lot of people expected, and certainly on the right, was that you would see employer drop, right?
CHRIS HOLT: And because the ACA came in. And it didn’t happen. And it didn’t happen, because the individual market was a mess. And I don’t think any of these other populations are going to go willingly into the individual market right now. So whether it would be helpful or not, it becomes a political problem, because –
TOM MILLER: But the bigger lesson of the ACA is, get a job. Keep a job. Keep health insurance. Or get poor. We’re working on both right now.
SARAH DASH: All right, let me ask you to do in 30 seconds or less, in one word, what is the thing that needs to happen right now, to stabilize this market?
PETER LEE: I noted my big three that are short term, which is the CSR funding long term now, the enforce the penalty, and risk stabilization funding. But I just want to note, this has been all short term. One thing we haven’t gotten to talk about, which Tom Daschle cued up at the beginning, is we aren’t talking about underlying costs yet. None of this discussion is about what’s driving healthcare costs. None of this discussion is about, why does America spend 20 percent more than any other country, 50 percent more than many, to get not as good quality? And I look forward to that next panel.
TOM MILLER: I agree with Peter on some of that. But I’ll just return to the words of former New York Knicks’ guard, Michael Ray Richardson in the 1980s, during a long New York Knicks’ losing streak. He said, “The ship be sinking.” The reporter asked, “How low can the ship sink?” He said, “The sky’s the limit.”
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