Hypothetical Mean

Commentary from an Actuarial and Economic Perspective

A Public Challenge

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I hereby publicly challenge defenders of the CBO healthcare model to address the following:

a) Produce 2010 and 2016 state-specific non-group rates, before and after reform, so that an apples-to-apples comparison on premiums after reform can be demonstrated against premiums for sale in the marketplace today.

States like Arkansas today have rates 50% of the national averages being modeled by the CBO.  After reform, the regulatory changes will push all states closer to the subsequent national averages.  The maximum geographic variation in the CBO models appears to be 0.8 to 1.2, meaning that after reform, Arkansas will probably have rates equal to 80% of the national average.  That represents a 60% increase in premiums in the state of Arkansas.  This is BEFORE any effect modeled by the CBO with respect to reform’s impact on the national average itself.

b) Provide 2016 non-group premiums divided between the grandfathered and Exchange blocks.  Currently, the CBO is advertising that the national average COMBINATION of policies issued under current rating rules (grandfathering) and future rating rules (Exchange) will only increase by 10-13%.  Obviously, it is likely that the grandfathered plans will only see part of this increase (parts due to taxes and similar provisions), while the Exchange will be subject to higher rates and adverse selection.

c) Provide 2016 subsidies by state, by FPL category.  States like Arkansas, even after reform, may have premiums 33% lower than other states, simply because of cost of care differences.  That means that low-cost states like Arkansas will get fewer subsidy dollars per enrollee than states that have out-of-control costs.

d) Provide justification for the assumption that non-Exchange individual policies will remain steady or grow between 2014 and 2019 under reform.  It will be illegal to sell grandfathered policies.  Why are their models producing sales outside of the Exchange into 2019?  Most policies issued today terminate when you move across state lines; termination of grandfathered products will result from migration, if nothing else.  The concern here is that their Technical Documentation does not seem to allow for the actual features of individual products, namely their lifetime duration and exit provisions.  One concern is that their model may not be incorporating lapse rates within that block, meaning they are understating enrollment in the Exchange, thereby understating the cost of the bill.

None of these challenges should be interpreted as a professional statement that I am ceding that the CBO projections are otherwise reasonable.  Rather, I offer these challenges so that if they are ever taken up, all of us will either see the limitations of their work more clearly, or so that these fairly obvious concerns can be abated.  It is stunning to me that they did not provide greater specificity in response to Evan Bayh’s requests for greater information.


Written by Victor

December 3, 2009 at 12:17 pm

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