Abortion, Obamacare, and Arkansas

The Arkansas legislature is considering legislation to limit abortion coverages in the Arkansas Exchanges [1].  Although it appears to have hit a snag [2], it is worth pointing out that it attempts to separate out the impact of abortion claims from the underlying risk pool (see Section (d)(1)(A)):

Calculate the premium for optional supplemental abortion coverage so that the premium fully covers the estimated cost of an elective abortion for an individual who enrolls for elective abortion coverage.

The above provision seems in direct contravention of federal law 111-148 that instead requires the premium to cover only the actuarial value of the coverage, using the “costs as if such coverage were included for the entire population covered” (see Section 1303).

The costs of the coverage for the entire population (the federal approach) will almost always be less than the cost of coverage for the population who purchases (SB113’s approach).  Therefore, the approach in Arkansas SB 113 is likely to result in significantly higher supplemental abortion premiums, and slightly lower underlying medical premiums.  It also appears to be against federal law for the same reason.  What am I missing?

Abortion and Obamacare

I was unable to find a short and non-polemic summary of the healthcare bill’s provisions regarding abortion.  I need this for my work, so here’s my dry run-down of what’s in the bill, followed by an attempt to analyze its practical impact.

Actuarial Value: a Healthcare Reform Backgrounder

Actuarial value is frequently defined as the percentage of medical expenses paid by the insurer [1], [2].  Back in 2009, the Congressional Research Service estimated actuarial values for a variety of plans; notably Medicare (including a Part D plan) was around 76%, and the Federal Employee Plan (FEP) was around 87%.  Generally, actuarial values are determined for a standard population, meaning that is is generally difficult to directly compare a retiree population like Medicare to an employed population like FEP.  They may or may not be adjusted for utilization differences caused by the benefit itself.

On the Exchanges, there are going to be at least four tiers of benefits, the so-called “precious metal” plans, defined as plans with 60%-70%-80%-90% actuarial values for Bronze-Silver-Gold-Platinum plans.  Applying the definition of “actuarial value” literally, this means that one would expect Bronze plans to cover 60% of the medical expenses for those on that plan.  This is only true in the abstract, because the population that enrolls in the 60% plan is not expected to be standard.  Specifically, it is expected that sicker people will enroll in Gold and Platinum plans (unless they are very low income, in which case their Silver plan is enriched to have an actuarial value as high as 94%).  Healthier people will enroll in the bronze plan.  Therefore, when we see the plan-by-plan data for 2014, actuaries would not be surprised to see that the 60% Bronze plan resulted in only 50% of charges paid by the plan, on average, while the Gold plan may have 85% of charge paid, on average.  Further, the average medical expense paid by either the insured or insurer is likely to be much lower than on the Gold plan.  These effects are sometimes referred to generally as “adverse selection”.

This sort of counter-intuitive result is why it is important for as many people as possible to understand the underlying mechanics of actuarial value calculations, discussed below.  Further, it is likely that these calculations will be dictated by either federal or state government, meaning that a sophisticated understanding of actuarial values is important for the political classes.