Tag Archives: Maine

What You Need to Know about Invisible High Risk Pools

Last Thursday afternoon, the House Rules Committee approved an amendment providing an additional $15 billion for “invisible high risk pools.” That surprising development, after several days of frenetic closed-door negotiations and a study on the pools released Friday, may have some in Washington trying to make sense of it all.

If you want the short and dirty, here it is: Thursday’s amendment doesn’t resemble the model cited by pool proponents, undermines principles of federalism, relies on government price controls to achieve much of its premium savings, and requires far more taxpayer funding than the amendment actually provided. But other than that, it’s great!

Want more info? Read on.

The Amendment Text Does Not Match Its Maine Model

The legislative text the Rules Committee adopted last week bears little resemblance to the invisible risk pool model the amendment’s proponents have described.

In response to my article last week asking whether the invisible risk pool funding differs from Obamacare’s reinsurance program, supporters cited a blog post highlighting the way such a pool works in Maine. Under Maine’s program, insurers cede their highest risks to the pool prospectively—i.e., when individuals apply for insurance. Insurers also cede to the pool most of those high-risk patients’ premium payments, to help pay for the patients’ health claims.

Conversely, insurers participating in Obamacare’s reinsurance program receive retrospective payments (i.e., after the patients incur high health costs), and keep all of the premium payments those patients make. In theory, then, those two differences do distinguish the Obamacare reinsurance program from the Maine pool.

But there’s one other key distinction: The amendment the Rules Committee adopted last week doesn’t include the parameters of the Maine model. The original version proposed by Rep. Gary Palmer—the amendment language upon which the Milliman study was based—more closely tracked the Maine model. But the Rules Committee instead passed an amendment with generic language leaving much more discretion to the Trump administration. On Friday, Politico explained why:

The [Milliman] study…assumes that insurers would agree up front to surrender most of the premiums paid by high-risk enrollees, in exchange for protection against potentially costly claims down the line… Palmer included those specifics the first time he proposed adding a risk-sharing program to the [American Health Care Act], roughly two weeks ago. But they were stripped out of the final version presented Tuesday, and likely for good reason…Insurers likely wouldn’t be too enthusiastic about having that much skin in the game. Instead, the amendment essentially tells state and federal officials to sort out the details later—and most importantly, after the program is passed into law.

The federal pools may end up looking nothing like the Maine program advocates are citing as the model—because the administration will determine all those critically important details after the fact. Or, to coin a phrase, we have to pass the bill so that you can find out what’s in it.

The Amendment Undermines State Sovereignty

As currently constructed, the pool concept undermines state sovereignty over insurance markets. Paradoxical as it may sound, the amendment adopted last Thursday is both too broad and too narrow. With respect to the invisible high risk pool concept, the legislation doesn’t include enough details to allow policy-makers and insurers to determine how they will function. As noted above, all of those details were essentially punted to the administration to determine.

But the amendment is also too narrow, in that it conditions the $15 billion on participation in the invisible risk pool model. If a state wants to create an actual high risk pool, or use some other concept to stabilize their insurance markets, they’re out of luck—they can’t touch the $15 billion pot of money.

Admittedly, the amendment the Rules Committee adopted last Thursday isn’t nearly as bad as the original Palmer amendment on invisible pools. That original amendment required all insurers to participate in the invisible pools “as a condition of doing business in a state”—potentially violating both the Fifth Amendment for an unconstitutional taking against insurers, and the Tenth Amendment by undermining states’ sovereignty over their insurance markets and business licensing.

In a post last week, I cited House Speaker Paul Ryan’s February criticism of Obamacare: “They’re subsidies that say, ‘We will pay some people some money if you do what the government makes you do.’” That’s exactly what this amendment does: It conditions some level of funding on states taking some specific action—not the only action, perhaps not even the best action, to stabilize their insurance markets, just the one Washington politically favors, therefore the one Washington will attempt to make all states take.

Ryan was right to criticize the Obamacare insurance subsidy system as “not freedom.” The same criticism applies to the invisible pool funding—it isn’t freedom. It also isn’t federalism—it’s big-government, nanny-state “conservatism.”

The Pools’ Claimed Benefits Derive From Price Controls

Much of the supposed benefits of the pools come as a result of government-imposed price controls. The Milliman study released Friday—and again, conditioned upon parameters not present in the amendment the Rules Committee adopted Thursday—models two possible scenarios.

The first scenario would create a new insurance pool in “repeal-and-replace” legislation, with the invisible pools applying only to the new market (some individuals currently on Obamacare may switch to the new market, but would not have to). The second scenario envisions a single risk pool for insurers, combining existing enrollees and new enrollees under the “replace” plan.

In both cases, Milliman modeled assumptions from the original Palmer amendment (i.e., not the one the Rules Committee adopted last Thursday) that linked payments from the invisible risk pools to 100 percent of Medicare reimbursement rates. The study specifically noted the “favorable spread” created as a result of this requirement: the pool reduces premiums because it pays doctors and hospitals less than insurers would.

Under the first scenario, in which Obamacare enrollees remain in a separate market than the new participants in “replace” legislation, a risk pool reimbursing at Medicare rates would yield total average rate reductions of between 16 and 31 percent. But “if [risk pool] benefits are paid based on regular commercially negotiated fees, the rate reduction becomes 12% to 23%”—about one-third less than with the federally dictated reimbursement levels.

Under the second scenario, in which Obamacare and “replace” enrollees are combined into one marketplace, premiums barely drop when linked to commercial payment rates. Premiums would fall by a modest 4 to 14 percent using Medicare reimbursement levels, and a miniscule 1 to 4 percent using commercial reimbursement levels.

Admittedly, the structure of the risk pool creates an inherent risk of gaming—insurers could try to raise their reimbursement rates to gain more federal funds from the pool. But if federal price controls are the way to lower premiums (and for the record, they aren’t), why not just create a government-run “public option” linked to Medicare reimbursement levels and be done with it?

The Study Says This Doesn’t Provide Enough Money

According to the study, the amendment adopted doesn’t include enough federal funding for invisible risk pools. The Milliman study found that invisible risk pools will require more funding than last Thursday’s amendment provided—and potentially even more funding than the entire Stability Fund. Under both scenarios, the invisible risk pools would require anywhere from $3.3 billion to $17 billion per year in funding, or from $35 billion to nearly $200 billion over a decade.

By contrast, Thursday’s amendment included only $15 billion in funding to last from 2018 through 2026. And the Stability Fund itself includes a total of $130 billion in funding—$100 billion in general funds, $15 billion for maternity and mental health coverage, and the $15 billion specifically for invisible risk pools. If all 50 states participate, the entire Stability Fund may not hold enough money needed to fund invisible risk pools.

Remember too that the Milliman study assumes that 1) insurers will cede most premium payments from risk pool participants to help finance the pool’s operations and 2) the pool will pay claims using Medicare reimbursement rates. If either or both of those two assumptions do not materialize—and insurers and providers will vigorously oppose both—spending for the pools will increase still further, making the Milliman study a generous under-estimate of the program’s ultimate cost.

Let States Take the Reins

All of the above notwithstanding, the invisible high risk pool model could work for some states—emphasis on “could” and “some.” If states want to explore this option, they certainly have the right to do so.

But, as Obamacare itself has demonstrated, Washington does not represent the source and summit of all the accumulated wisdom in health care policy. States are desperate for the opportunity to innovate, and create new policies in the marketplace of ideas—not have more programs foisted upon them by Washington, as the Rules Committee amendment attempts to do. Moving in the direction of the former, and not the latter, would represent a true change of pace. Here’s hoping that Congress finally has the courage to do so.

This post was originally published at The Federalist.

Waiver Wire: Over Half of Obamacare Waiver Recipients Union Members

Late Friday afternoon the Administration engaged in another “document dump,” announcing the approval of another 221 waivers of annual and lifetime limit requirements included in the health care law, bringing the total to 1,372. (A full list is available here.) The plans newly approved for waivers cover more than 160,000 people, bringing to nearly 3.1 million the number of individuals in plans exempted from the health law’s requirements. Of the participants receiving waivers, more than half – over 1.55 million – are in union plans, raising questions of why such a disproportionate share of union members are receiving waivers from the law’s requirements. The percentage of participants receiving waivers that come from unions also continues to rise – the number was 48% in April, and 45% in March.

On a related note, the Administration also granted waivers to New Hampshire and Nevada regarding the medical loss ratio requirements in the health care law, on top of the waiver already granted to Maine. Another eight states still have their own waiver applications pending before HHS. (Just to clarify, the medical loss ratio waivers are separate and distinct from the annual and lifetime limit waivers – it is however confusing to keep all of Obamacare’s various waiver programs straight.)

Both these developments again raise the question: If the law is so popular, and the “consumer protections” so beneficial, then why do plans need to be exempted from them in the first place?

Summary of Medical Loss Ratio Regulations

A brief synopsis of some of the high points of the interim final regulation on medical loss ratios (MLRs) released this morning, much of which closely resembles recommendations made by the National Association of Insurance Commissioners (NAIC) late last month:

  • The regulation adopts the NAIC recommendations regarding aggregation, requiring carriers to meet the MLR standards on a state-by-state basis.
  • The regulation adopts the NAIC recommendations regarding which taxes should be excluded from the MLR calculation.
  • The regulation also adopts the NAIC recommendations regarding credibility, which relates to actuarial adjustments provided to smaller carriers (because of the greater uncertainty associated with covering a smaller risk pool).
  • The regulation follows the NAIC recommendation that expatriate plans for employees working outside the country should be considered separately, due to the higher administrative costs associated with plans with significant overseas operations.  As a result, the regulation separates MLR reporting for expatriate plans, and includes an adjustment factor for 2011 to account for expatriate plans’ higher administrative costs. (The adjustment factor will be revisited for 2012 and succeeding years.)
  • With regard to limited benefit (or “mini-med” plans), the regulation applies an adjustment factor for 2011, with the MLR calculations for limited benefit plans to be revisited in 2012 and succeeding years.  The adjustment comes in response to news reports that McDonald’s and other companies might drop their limited benefit plans – which carry higher-than-average administrative costs – as their existing plans likely would not be able to comply with the new MLR requirements absent an adjustment.
  • The regulation sets out a process – along with five criteria – for HHS to consider requests to adjust or otherwise waive the MLR standards in states where the individual insurance market would be “destabilized” as a result of the 80 percent statutory MLR requirement.  However, it does not indicate the status or disposition of adjustment requests already pending, including those made by insurance commissioners in Maine and Iowa.

The draft regulations also include estimates of the amount of rebates to be paid out under the regulations; from the rule:

“Over the 2011-2013 period, the Department’s mid-range estimate is that rebates will total $1.8 billion in the individual market, $770 million in the small group market, and $440 million in the large group market. Additionally, the Department estimates that 9.9 million enrollees in the individual market, 2.3 million enrollees in the small group market, and 2.7 million enrollees in the large group market will receive rebates over the 2011-2013 period under the mid-range estimate. Summing across all three markets, the mid-range estimate is a total of $3.0 billion in rebates over the 2011-2013 period. The low rebate estimate across all three markets for 2011-2013 is $2.0 billion, and the high rebate estimate is $4.9 billion.”

The Administration’s fact sheets regarding the new regulation have been advertising the amount and number of the proposed MLR rebates to consumers.  Some may question why the Administration is trumpeting the size of the potential rebates to consumers as a “benefit” provided by the law.  Is the intent of the MLR provisions to ensure that carriers spend their money on medical claims, or to hand out rebate checks to as many people as possible in order to increase political support for an unpopular health care law?

Medicare Advantage Plan Cancelled

Wanted to pass on this article from this morning’s Boston Globe reporting that Harvard Pilgrim Health Care “will drop its Medicare Advantage health insurance program at the end of the year, forcing 22,000 senior citizens in Massachusetts, New Hampshire, and Maine to seek alternative supplemental coverage.”  The article notes that the change “was prompted by a freeze in federal reimbursements” prompted by the health care law; as a senior executive observed, “We became concerned by the long-term viability of Medicare Advantage programs in general….We know that cuts in Medicare are being used to fund national health care reform.”

The announcement comes two days after the Administration ran a full-page national advertisement featuring Andy Griffith in Parade magazine, claiming that “Medicare just got stronger” due to the health care law.  The tens of thousands of seniors about to lose coverage as a result of that law may beg to differ.