Hypothetical Mean

Commentary from an Actuarial and Economic Perspective

Paying for Contraceptive Coverage: The Case of Self-Funded Employers

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Most Catholic institutions affected by the recent contraceptive ruling fund their own health benefit plans. This means that there is no “insurer” available to pass the cost of that coverage on to, even in a shell-game sort of way (see prior posts on large and small employers that purchase insurance).  When the Administration announced its compromise for the relatively insignificant fully-insured market, it didn’t offer any compromise for the much larger set of religious self-funded plans.  Instead, they announced an intention to figure out how to compromise:

The Departments intend to develop policies to achieve the same goals for self-insured group health plans sponsored by non-exempted, non-profit religious organizations with religious objections to contraceptive coverage.

In this past week’s Advanced Notice of Proposed Rule-Making (ANPRM), Health and Human Services (HHS) began the brainstorming process:

For such religious organizations that sponsor self-insured plans, the Departments intend to propose that a third-party administrator of the group health plan or some other independent entity assume this responsibility. The Departments  suggest multiple options for how contraceptive coverage in this circumstance could be arranged and financed in recognition of the variation in how such self-insured plans are structured and different religious organizations’ perspectives on what constitutes objectionable cooperation with the provision of contraceptive coverage.

These options (beginning on page 16,507) can be summarized as follows:

1) Use drug rebates;
2) Use fees paid by the religious organization nominally designated for another purpose, such as disease management fees;
3) Use funds from a private, non-profit entity to be specified later;
4) Receive a “reinsurance contribution” fund rebate or tax credit (this only “works” for 2014-2016);
5) Use the federal Office of Personnel Management designate a national, private insurer that would offer this stand-alone coverage;
6) Give the national plan a “credit” so they wouldn’t have to pay their entire Exchange fee bill;

This is an incredibly weak set of ideas.  These boil down into the following “pass the hot potato” funding sources:

a) The religious institution itself (ideas 1 and 2)
b) The third-party administrator itself out of profits (ideas 1 and 2)
c) The individual market via reduced reinsurance payments and/or the general US Treasury (idea 4)
d) An unspecified, wealthy benefactor (idea 3)
e) A benevolent, national, private insurer (idea 5)
f) Each of the individual Exchanges through reduced user fees (idea 6)

The administration is between a rock and a hard place here.  It is worth working through the mechanics of each of the above ideas, however, to illustrate the full breadth of the problem.

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Written by Victor

March 24, 2012 at 3:47 pm

Preventive Care and Actuarial Value

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Under healthcare reform, women’s preventive services will be covered at no direct cost to women.  The Heritage foundation writes:

In addition, mandated coverage of preventive services with no cost-sharing will increase health care costs, since cost of services will simply be passed from the insurer to the patient through higher premiums.

This is only entirely true in the large group market.  In the individual and small group markets, other health benefits may end up being cut to compensate.

The key is in the restriction that *every* plan (on the Exchange or otherwise) must meet a particular actuarial value, say 60%.  What that means is that health plans must pay, on average, 60% of the cost of covered services.

Let’s assume that the Obama administration rules boost preventive service utilization up to 10% of total services (a nice round number).  Let’s further assume that these services must be paid for at 100%.  In order to comply with an overall actuarial value of, say, 60%, health plans will need to cover all non-preventive services at a rate of 50/90=55.6%.

In this manner, premiums for the 60% actuarial value plan don’t go up.  What you have done is to take from the sick and give to the healthy.  Specifically, the health plan can’t even pay 60% of the cost of other diagnostic imaging, cancer treatments, etc.  They have to reduce their effective cancer coverage in order to boost the detection of that coverage via preventive services.

[Note: through indirect and highly speculative conversations, I understand that HHS may be considering an actuarial value model that is so crude as to not be able to capture the above effects.  To the extent our federal government is not going to calculate actuarial values correctly with respect to this issue, then the Heritage analysis may end up being more correct in all markets.]

Written by Victor

March 24, 2012 at 2:23 pm

Funding The Affordable Care Act’s Reinsurance Program

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Earlier this month, HHS issued the final rule for the reinsurance program under the Affordable Care Act (ACA).   I believe it will be highly controversial once it becomes understood.  I’ll start with a backgrounder and then move to a short discussion of how this is a tax on states, how it may adversely impact employees of state governments, and how the government is proposing to selectively administer these taxes depending on the religious beliefs of those involved.  This post is necessary background to fully understand the Administration’s proposed “compromise” on contraceptive coverage, which I am covering in a series of posts beginning here.

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Written by Victor

March 23, 2012 at 4:14 pm

Paying for Contraceptive Coverage: The Case of the Small, Fully-Insured Employers

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[See the introduction and the post on large employers for the two prior posts in this series.]

The Adminitration’s Advanced Notice of Proposed Rulemaking (ANPRM) discusses in some detail how contraceptive coverage for women employed by religious organization should be paid for when the religious organization is participating in the small employer market (defined as 50 employees or fewer):

Issuers would pay for contraceptive coverage from the estimated savings from the elimination of the need to pay for services that would otherwise be used if contraceptives were not covered.  Typically, issuers build into their premiums projected costs and savings from a set of services. Premiums from multiple organizations are pooled in a ‘‘book of business’’ from which the issuer pays for services. To the extent that contraceptive coverage lowers the draw-down for other health care services from the pool, funds would be available to pay for contraceptive services without an additional premium charged to the religious organization or plan participants or beneficiaries.

This  is vague, so we’ll have to decompose the quote.  First, we’ll discuss how small employer (small group) “books of business” are pooled.  Second, we’ll work an example where we presume that one small group (out of ten total) is a religiously affiliated organization and exempt from the contraceptive mandate.  Third, we’ll then hypothesize how the Administration’s rule could make coherent sense as applied through small group rate review laws.  The conclusion will be that they are generally proposing that the non-religiously affiliated employers will pick up the direct cost of contraceptive coverage on behalf of the religiously affiliated ones, but it is possible that they are proposing that the religiously-affiliated employer will pick up the entire cost of contraceptive coverage.

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Written by Victor

March 22, 2012 at 6:49 pm

Paying for Contraceptive Coverage: The Case of the Large, Religious Employers

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This is the first detailed post in a series on contraceptive coverage.  The introduction was here.

For large, fully-insured, religious employers, the Administration is proposing that health insurance companies be able to contact individual women employed by the religious organization.  Specifically:

The issuer must … provide to the participants and beneficiaries covered under the plan separate health insurance coverage consisting solely of coverage for contraceptive services required to be covered under this section. The issuer must make such health insurance coverage for contraceptive services available without any charge to the organization, group health plan, or plan participants or beneficiaries. …  The issuer must not impose any cost sharing requirements (such as a copayment, coinsurance, or a deductible) on such coverage for contraceptive services and must comply with all other requirements of this section with respect to coverage for contraceptive services.

So far, so good.  Both the Catholic institutions and women’s groups are happy; health insurers are not.  But then, the Advanced Notice of Proposed Rule-Making clarifies how this is to work in practice:

Issuers would pay for contraceptive coverage from the estimated savings from the elimination of the need to pay for services that would otherwise be used if contraceptives were not covered.

Such a simple sentence, but with huge ramifications.

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Written by Victor

March 22, 2012 at 4:34 pm

Paying For Contraceptive Coverage under Healthcare Reform

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If you want to get into the weeds regarding the Administration’s Advanced Notice of Proposed Rulemaking on contraceptive coverage for religious institutions, this is the place for you.

In general, even women employed by religious institution will have access to “free” contraceptives under the Administration’s rule.  The administration’s proposed rule passes these costs to various parties, depending on what market the religious institution is purchasing health-insurance coverage in.  It has been widely reported in the press that the insurer will pay for this coverage, but this conclusion is not supported by the details of the proposed rule.

This series of posts will analyze each market segment separately, and then will discuss the administration’s surprising suggestion to make contraceptive coverage in such cases an “excepted” benefit.  Lastly, there will be a summary post [here] with the main conclusions.

* Large group, fully-insured.  The administration appears to suggest that the religious institution itself will bear the cost of the contraceptive coverage in this instance, despite declarations to the contrary.

* Small group, fully-insured.  The administration appears to suggest that other small, non-religious employers should bear the cost of contraceptive coverage in this case.  It is also possible that they are suggesting that the small, religiously affiliated employer should bear the entire cost of the coverage, albeit indirectly.

* Self-insured.  The administration appears to suggest that the cost of coverage can be split between the religious institution itself and the federal taxpayers, again, despite declarations to the contary.  This example is quite complex but worth working through.

* Should Contraceptive Coverage be a HIPAA-excepted Benefit? The administration almost cavalierly suggests this in their ANPRM, but this carries with it significant downstream implications for rate review and medical loss ratio testing.  Strangely, the administration’s proposed rule doesn’t acknowledge these rather straightforward implications.

* Conclusions and Summary.

[Note: this post is still in progress; links will be added as the work gets finished]

Written by Victor

March 22, 2012 at 3:26 pm

Healthcare Reform and Severability: The DOJ’s Brief

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The Department of Justice has weighed in with a novel and rather pathetic argument for PPACA’s severability: that the individual mandate is severable from everything else in the law aside from guaranteed-issue (GI), pre-ex exclusion prohibition, community rating, and, well, that’s basically it.  Although I’m generally amenable to the emphasis on those provisions, it is absolutely ludicrous to think that the federal risk stabilizers, health insurance taxes, and hospital cuts, among other provisions, should all remain if the mandate goes.

If there is no guaranteed-issue bad risk in the market, why does the individual market need reinsurance paid for by all small and large group carriers?  There goes S. 1341 reinsurance and its 1-2% premium load in 2014-2016.

If the mandate gets repealed and the market is again allowed to price to the risk of the individual, what anti-competitive pricing behavior is the risk-adjustment program supposed to prevent?  Poof, there goes S. 1343.  The fact that the DOJ is arguing that it shouldn’t is the level of understanding of risk pricing that got us into this mess of a law to begin with.

What about the tax on health insurers?  A minor eight billion dollars in 2014.  It was levied on insurers in order to sop up all those “excess profits” from the newly insured, remember?  That tax now would be left to be paid by those who remained insured.  This will nakedly raise premiums, undercutting the naive DOJ belief that leaving this provision wouldn’t impact cost.

Lastly, I’m sure all the hospitals will be cool with their Medicare reimbursement cuts despite not having uncompensated care reduced via the mandate.  This means greater cost shifting to the private sector, driving premiums up, again undercutting the naive DOJ.

Need I go on?  I don’t know what’s worse: this silliness or the realization that this is the sort of muddle-headed logic that our Supremes are going to have to wade through.

Written by Victor

January 31, 2012 at 4:17 am

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