Health Insurance, Risk, and Responsibility after the Patient Protection and Affordable Care Act

1. Health Insurance, Risk, and Responsibility after the Patient Protection and Affordable Care Act Tom Baker 2010 Hawley Lecture

2. The new health care social contract • Solidarity through private ownership, markets, and choice. • A fair share approach to health care financing • My goal: overview with some nuts and bolts: • Health care financing mechanisms • The distribution of health care financial risk and responsibility after PPACA • Challenges

3. Health care financing after PPACA • Medicaid • Medicare • The large group market • The individual and small group market • Plus VA, workers comp., gov’t research & construction, public health (8% in ‘07)

4. Medicaid/CHIP • No longer just for the deserving poor • A national floor of availability for those with incomes less than 130% of poverty index • Shift toward a larger federal share of funding • Incentives for a 200% state floor

5. Medicare • The A,B,C,D structure continues • More income-based taxes, premiums • Less cost-sharing in Part D • Incremental changes to Medicare Advantage • Both Medicare and Medicaid/CHIP rely on private ownership and markets for health services.

6. Individual & small group market • The new, state-based Exchanges will become the residual mechanism • The aspiration: • One health riskpool in each state • Many plans that compete on cost and quality • Guaranteed access and identical premiums for all, with few exceptions (not health status)

7. The mechanism • The individual mandate • Subsidies, phasing out at 400% poverty index • Health Exchanges: the plan gatekeeper and the consumer choice mechanism • Minimum coverage requirements • Open enrollment, guaranteed renewal, and strictlimits on risk-based pricing • Only age, geography, individual/family, tobacco • Risk adjustments to promote a single risk pool

8. Large group market • Mandates for firms > 100 employees • Limits on cost sharing • Some coverage requirements, but no big changes. • Employer plans already have open enrollment, guaranteed renewal, and no risk classification • Indirect regulation of content? • Possible penalties for dumping • Access to Exchanges

9. Health Risk Pools After PPACA • The lowest income: Medicaid/CHIP • Elderly & formerly working disabled: Medicare • Families with large employer benefits: firm-specific pools • Everyone else: state-wide pools through Exchanges Ignores illegals, VA/DOD, workers comp.

10. Health Responsibilities after PPACA • Pay your taxes • Choose good health benefits • Pay your fair share of the costs of your pool • Be as healthy as you can

11. The new fair share approach • ↑ ability to pay, ↓ consumption • ↑ current choices, ↓ health risk • Non-discrimination, notactuarial fairness • (Age-based distinctions are inconsistent) • Not actually so new: • Insurance pricing has always been about fairness • Large employer pools already use this approach • Only incremental changes to gov’t insurance • Extending large employer approach to state pools

12. Be as healthy as you can • Wellness programs • Up to 30% premium rebate; non-discrimination norm • No cost sharing for preventive care • This new responsibility reflects • Health economics: manage moral hazard • Health ethics: reject morally arbitrary distinctions in favor of control and burden • Embracing risk: the prudent individual managing life in the face of uncertainty • Important details to be worked out.

13. Challenges • Classification by design • Non-compliance with mandates • Technical challenges

14. Classification by design • Designing health plans so individuals self-select into different plans by risk • ACA tools: • Anti-discrimination provisions • Risk adjustment • Prognosis is mixed, but this may be ok. • See Medicare Part D

15. Non-compliance with mandates • Employers – concern about “dumping.” • See Monahan & Schwarcz (in progress) • Individuals – tax penalty is less than premiums • Reasons for optimism: • Not a threat to long term access (a mixed blessing) • “Only” a threat to fair risk sharing • History of voluntary income tax compliance • Good carrots to expand small employer benefits • Early results from Massachusetts look good

16. Technical challenges • Medicare: mostly incremental • Medicaid: massive new enrollment • Large employers: transition rules most salient • Exchange market: biggest technical challenge

17. Exchange market challenges • Essential health benefits • Medical vs. administrative expenses for ratios • Risk adjustments • New rate oversight, state with HHS appeal • Exchange participation rules for plans • Exchange choice engine design for consumers

18. Conclusions • The new health care social contract: • Solidarity through private ownership, markets, and choice • A fair share approach to financing • An emerging responsibility to be as healthy as you can • An example of the “moral opportunity of insurance” • Many technical challenges that present lots of opportunities for health lawyering • No obvious, serious traps internal to the legislation. Political risks abound. • Increases the pressure to control health care costs. The next challenge.

19. Health Reform – To be continued http://www.kaiserhealthnews.org/KHNCartoons.aspx