2015-May-05 - Rex Durington

This story, which I will briefly recall, happened fifty plus years ago on my grandparents' farm. My grandparents were poor to the extent they had to not only work the farm but my grandfather also had to work in town at a factory. My grandmother tended to the garden among a host of other chores. The garden was about fifty feet square and after all the tilling, planting, weeding and watering the produce was processed, canned and stored in a fruit cellar out back. The fruit cellar was really a hollowed out mound of earth with a door on one end but it held most of what they consumed for most of the year.

It was early Spring when it happened. While exploring my grandparents' kitchen I discovered a bundle of little packets with a different picture on the front of each one. The importance of the contents was obviously lost on me and, a few minutes of unsupervised play later, all of the packets were open and the seeds were shuffled all over the floor. Enter my grandfather who proceeded to impress upon me the gravity of my actions. While I only have vague memories of the incident and my backside is fully recovered, I will be perpetually reminded of it each Spring as I prepare to plant my own garden.

Jump forward fifty plus years. I am now a healthcare actuary immersed in an endless stream of media over "Obamacare" and the dissatisfaction of various political factions over its implementation. There are so many viewpoints and so much posturing that it is difficult to sift through the noise to hear the essential positions of each side. Perhaps where there are two sides or more, there should be one.

The shared goals, as originally agreed to by Congress in the Patient Protection and Affordable Care Act (PPACA or ACA, but often referred to as Obamacare), were focused on:

• reducing the uninsured population
• decreasing health care costs for all payers
• increase quality of care
• increased access to care
• consumer protections

Again, these were agreed to goals of the Congress at that point in time. It seems reasonable to assume that any proposal for an alternative plan should maintain these goals as a touchstone.

Some of the key provisions of the ACA that have been implemented, in whole or in part, include:

• No annual or lifetime limits (Section 2711)
• Coverage of preventive health services (Section 2713)
• Extension of dependent coverage (Section 2714)
• Restrictions on rate increases (Section 1003)
• Minimum loss ratios (Section 2718)
• Essential health benefits (Section 1302)
• Actuarial value cost sharing options (Section 2707)
• Underwriting limitations (Section 2701-2706)

Here are what many would say are provisions of the ACA that are not yet fully realized:

• Ensuring the quality of care (Section 2717)
• Accountable Care Organizations (section 2706)
• Curbing Medicare/Medicaid fraud (Section 6402)
• Medicaid expansion (Title II Section 2001)
• Bringing down the cost of health care coverage (Section 2718)
• Coverage transparency - exchanges/marketplaces (Section 1103)

And finally the most contentious issues of Obamacare that remain:

• Refundable tax credits/subsidies (Sections 1401-1402, 1413, 1415)
• Employer penalty (Section 1513)
• Reinsurance and risk adjustment (Section 1341-1343)
• Mandatory insurance (Section 1501)

As a welcome reprieve to digesting the above, I return to the garden. The reason for my "lesson" that day was that I had scrambled what should have been an orderly and organized arrangement. For optimum results, each fruit and vegetable has its own particular requirements for soil, sowing, sun etc. I had supplanted logic with chaos.

While Obamacare has made some great strides, it also is guilty of jumbling the seeds. One of the underpinnings of Obamacare is that health insurance should be equally available to everyone regardless of gender or health status. In particular, insurers must ignore the pre-existing conditions of plan enrollees. "Pre-existing condition exclusions", in gardening terms, was a way of separating the less hearty variety of seeds from the preferred variety. The Obamacare solution was to mix the varieties together and add some extra "good seeds" to help offset a less than optimum yield. My grandfather would have disagreed with this plan.

It would be much more efficient to recognize a patient's healthcare needs in light of the needs of similar patients. Plant like-plants together. If you have cancer, you are treated in a cancer ward or hospital. The caregivers and facilities are organized around a patient's diagnosis, so should the analysis of the efficiency, quality and outcomes of care. Planting each type of seed in its preferred setting with a specific plan of care provides the best chance of success.

Planting each variety together also promotes understanding of what helps and what hinders a plant's success. Studies can be performed on effective outcomes, and best practices can be formulated. In healthcare, a natural analog may be bundled care and specialists - a dedicated team who best understand how to produce the best outcomes for a particular diagnosis group. This segregation by diagnosis fits well into the Accountable Care Organizations of Obamacare and the promising movement toward value-based reimbursement. Value-based reimbursement refers to the desire to increase quality and decrease costs by providing financial incentives for treatment where the clinical benefits exceed the cost.

The question arises as to who pays for this high quality care from specialists who concentrate on your particular diagnosis?

One solution would be to re-visit High Risk Pools (HRP). HRPs have existed since before Obamacare and were created to accept the "uninsurable" risks turned down by the insurance companies. HRPs were typically funded by assessments against all of the insurers or providers of the State based on a measure of their pro-rata share of the healthcare dollar. Essentially, all of the insurers split the claim costs of unacceptable risks. Many of the HRPs still exist in runoff and could be revived to take on an expanded role. They understand the care and costs of the medically needy better than an insurance industry geared toward avoiding these risks and they have the infrastructure (billing, managed care arrangements, etc.) to do so.

Under an HRP, risk-pools could be developed by diagnosis group and allocated proportionately. The hearty varieties are owned and paid for individually by the insurance companies while the less hearty varieties are shared across all insurance companies in that market. The insurance companies compete for the hearty risks which should promote more predictable experience, downward pressure on premiums and affordability of richer coverage with less cost sharing.

The use of HRPs removes the medically needy from the competitive arena and the political battlefield. I don't believe there is mileage to be made with any reform proposal that bargains with the treatment of the medically needy. Consider the touchstone goals of reform under the ACA with an HRP:

• reducing the uninsured population - this group is primarily made up of working families who can't afford the premiums or cost sharing. Most are insurable. Lowering premium and cost sharing in the "hearty pool" will help reduce the primary barrier to care - price. The healthy pool will encounter lower claims. Since 80% of premium must be paid out in claims, lower claims translates to lower premiums.
• decreasing health care costs for all payers - beyond reductions in costs to enrollees, improvements in the efficiency of care for the medically needy will lower the overhead for the insurance industry.
• increase quality of care - putting similarly situated enrollees together permits the study of the effectiveness of different approaches to care. Increased competition for the hearty enrollee will promote scoring on the quality of care as a means to differentiate insurers and caregivers.
• increased access to care - lower cost to the enrollee makes access to care more attainable.
• consumer protections - the medically needy will benefit from proven treatments. The healthy will benefit from improved transparency of the quality of care.

Now consider the impact of managing care by diagnosis (or lack thereof) on the most debated issues under Obamacare.

• Refundable tax credits/subsidies - The tax credit/subsidy machinations under Obamacare evaporate - perhaps not overnight, as some provision will be necessary to maintain affordability for the working poor, but over time. The competitive pressure on prices will make the philosophical basis of the subsidies - to encourage more good seeds to join the pool and to reduce the cost of care - unnecessary.
• Employer penalty - this provision was included in Obamacare to deter employers from dropping employee coverage and increasing the uninsured population. Under the HRP methodology, improved economics reduce the incentive to eliminate coverage. In addition, more affordable market rates would give employees an optional avenue for providing their healthcare needs. For employers, the uncertainty over coverage decisions diminish as the markets stabilize.
• Reinsurance and risk adjustment - I have to admit I suspect the Obamacare reinsurance provisions were devised by actuaries. As mentioned, the HRP process pools all risks deemed unacceptable to individual insurance companies and divides the cost proportionately to the premiums for "acceptable" risks. No reinsurance transitions, no adverse selection, no risk corridors or attachment points.
• Mandatory insurance - mandatory insurance was considered necessary under Obamacare to make sure there were enough good seeds in the garden to offset the cost of caring for the less hearty. Of course the healthy would have to pay more than their share of healthcare costs. So as inducement to participate, a penalty was imposed for those who opted out of coverage. The HRP option does not require mandatory participation. However, the pricing should be more attractive.

So, effectively, revitalizing the high risk pools would promote the goals of reform while removing a number of the side effects and problems of implementation under Obamacare. It combines what worked best before with what works best now - a healthcare reform plan that gets everybody back on the same page. That would make my grandfather happy.