Hypothetical Mean

Commentary from an Actuarial and Economic Perspective

Abortion and Obamacare

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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.

The first mention of abortion is in section 1303, in Title I, Subtitle D (references are to the Consolidated Law, reflecting all amendments).  This subtitle doesn’t have an effective date, so this presumably took effect on 3/23/10.

(a) States can opt-out or opt-in to abortion coverage.  This option appears to be absolute, allowing the state to define what abortion coverage they are opting into or out of.

(b)(1)(A) All health plans have full autonomy to decide whether to cover any abortion services.

(b)(1)(B) Abortion coverage is divided into (i) coverage that can’t be funded by the Federal Government versus (ii) coverage that can be.

(b)(2)(A-C) If a plan covers abortion services for which Federal funding is not allowed, they can’t use premium credits or other similar subsidies to pay for it.  Further, they have to use a separate account, and additionally charge an amount equal to the actuarial value of the coverage.  This seems confused.

(b)(2)(D) The plan must use an “average actuarial value basis” (whatever that means), which may take into consideration the additional cost of the coverage but not any cost offsets (e.g., reduced pre-natal care).  To this point, this is a bit weird but readable.  All of this becomes problematic with (b)(2)(D)(ii)(II)’s restriction that the costs will be estimated as if such coverage were included for the entire population.

The bill goes on to establish notice provisions, and includes a statement that all state-based abortion laws are still in effect and not pre-empted.

Why the Actuarial Value Discussion is Confusing

Base Case

Consider a “standard” population of Abby and Bobby, and for simplicity only let’s use an extreme case where Abby needs an abortion every year.  To make it simple, presume that both purchase Exchange plans from the same carrier (i.e., no non-Exchange plans, no competitor carriers, etc.).  Ignore risk-adjustment initially, and assume that both purchase a 100% actuarial value plan (richer than anything on the Exchange, but this assumption eliminates some technical complexity).

Bobby has no need for abortion coverage and does not purchase.  Abby does purchase full abortion coverage.  An abortion costs $500, and all of it is paid for under the Supplemental Abortion coverage provided in the plan.

The carrier that files the rates must use the entire population on a standard basis for determining the cost of coverage.  Here, that average cost is $250.  Ignoring administration costs, that means the plan will only collect $250 in premiums to provide $500 in coverage.  Such a plan would lose money, and few carriers will choose to offer.  This provision seems set-up to fail.

Extended Case

There is an additional provision in PPACA that requires carriers to use a single risk pool (Section 1312(c), among other places).  The abortion premium is required to be recognized in a separate account.  But what about the claim costs?  Are they part of the risk pool?  Conversely, is there any statutory provision that would allow the plan to exclude the abortion coverage claim costs from the risk pool?  There doesn’t appear to be any; worse, carriers are required to pool the expected claim cost across the entire population, consistent with a model that the abortion claims must be included in the broader risk pool.

Here’s what this may mean using Bobby and Abby’s combined $500 in abortion claims.  Only $250 of those claims were covered by the supplemental premiums.  The remaining $250 is a cost that must be covered by the base policies, meaning that both Bobby and Abby’s basic medical premiums must rise by $125 each.  To the extent that the standard population used in the actuarial value calculation has lower abortion utilization than the actual population who purchases the abortion coverage, the underlying risk pool must make up the difference.

Will the federal subsidies to the basic medical coverage rise to cover this additional claim cost?  Again, a literally reading suggests they will.  The prohibition on abortion funding in Section 1303, outlined above, was restricted to the impact on the separate premium account.  Any indirect impact on premiums through risk pools or other similar mechanisms (reinsurance, risk-adjusters, etc.) would appear to be in full force.  This suggests that federal funding of abortions will occur, albeit indirectly through the pooling mechanism.

Lost in all of this is the set of possible cost offsets that also flow through the pooling mechanism; perhaps their logic with this design is a presumption that abortion services lower underlying medical costs and therefore lower the overall portion impacting the risk pool.  Such a result strikes me as a potential accident, if true, rather than result of an intelligent design.

Concluding Comments

This is a bizarre reading of PPACA.  Pro-Choice advocates surely aren’t happy with the provision allowing state sovereignty regarding coverage of abortions.  Further, they can’t be happy that the underlying design is highly “anti-selective”, meaning that it is questionable whether anyone will enter the market at all.

On the flip side, Pro-Life advocates likely aren’t happy either, because the underlying pooling mechanism doesn’t provide for the supplemental benefits to be wholly responsible for the impact of the abortion claims.

My goodness, I hope I’m not a pricing actuary for any supplemental abortion riders or policies.

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Written by Victor

February 6, 2011 at 10:57 pm

Posted in Healthcare Reform

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