Hypothetical Mean

Commentary from an Actuarial and Economic Perspective

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Abortion, Obamacare, and Arkansas

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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?

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Written by Victor

February 6, 2011 at 11:11 pm

Is the CBO being Overworked?

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Another embarrassing gaffe has surfaced in this memo from the over-worked health staff at the CBO.  The problem is the parenthetical after the opening sentence:

(A medical loss ratio, or MLR, is the proportion of premium dollars that an insurer spends on health care; it is commonly calculated as the amount of claims incurred plus changes in reserves as a fraction of premiums earned.)

Ahem.  The medical loss ratio is simply the amount of estimated claims incurred as a fraction of premiums earned.  They are getting way too clever by half.  What they suggest is a meaningless calculation.

One typical way you calculate incurred claims is to take paid claims and then add the change in reserves.  That would result in an estimate of claims incurred which could be used in the loss ratio calculation.  But if you already have claims incurred, there’s no point to adding the change in reserves.

Regardless, putting the CBO nonsense on an actuarial exam would warrant a failed paper and a well-deserved one year delay on the road to Fellowship.

My lesson is not that they are ignorant, but that they need more sleep.  After missing the CLASS Act premiums by 20-ish percent, and other recent problems, I think we have sufficient reason to be worried that they are being over-worked.

(note: they might be referring to active-life reserves.  This would not be something I would get into in a parethetical to talk about what is “typical” in healthcare, however, also suggesting overwork)

Written by Victor

December 19, 2009 at 2:40 am

Once Covered, Always Covered

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Tom Maguire at “JustOneMinute” came up with that catchy phrase — Once Covered, Always Covered — to discuss the main component of my desired healthcare reform approach that I began to outline last year. With a catchy phrase in hand and with no hope of having any impact on the current healthcare deform bills being discussed today, here’s a talking-point listing of some of the components of my reform ideas.

PORTABILITY:

Portability of one’s insurance is the most easily addressed component of reform.  That’s where the Once Covered, Always Covered approach kicks in.  By law, everyone who is currently covered could switch coverage if they move, if they leave their job, or whatever.

All plans would be assigned an “actuarial value” and you could seamlessly turn in a group coverage plan for an individual-market plan as long as the newer plan was at the same actuarial value or lower.  Currently, the transition from group coverage to individual coverage is non-standard across states.  The transition to group coverage is covered by HIPAA, but has some holes.  Lastly, a Once Covered, Always Covered approach would eliminate administratively costly COBRA provisions.

All reform proposals carry with them tradeoffs; any pretention otherwise is dishonest.  The downside of this approach is higher “new business” individual rates.  State insurance departments would have to be vigilant to prevent carriers from capriciously entering a market, buying business, exiting the market, and then raising rates rapidly.  I have solutions in mind to minimize these problems, but they would get technical and wouldn’t entirely solve the problem.  But this is a tradeoff that I think many would willingly make.

UNINSURED:

If people are denied coverage today, they have guaranteed-access to state-run high risk pool insurance.  I would build on this in one of two ways.  First, we could federally subsidize the pools and streamline access.  Alternatively, we could work through the private insurance system entirely and have the federal government reinsure/subsidize high risk individuals.  Expected costs for initially sick individuals lower over time just as expected costs for initially healthy individuals rise over time.  I would taper the subsidies to mirror this reverse “underwriting curve”.  In either case, the federal subsidy should not fully pay for the increased cost of these individuals; there has to be some penalty for remaining outside the system until you become sick.  The penalty in today’s world is the administrative hassle to get into a high risk pool as well as the relatively high premiums in them.

COST:

No one has a good idea how to rein in cost in the current system.  Therefore, the only way we can be certain to lower costs is to reduce what is covered.  I would divide claims into four categories.  1) Claims that would be continued to be paid under private insurance, 2) claims that are not socializable and therefore will not be allowed to be paid under private insurance, 3) claims that fulfill a well-defined public objective, 4) non-essential medical services.  Examples of the latter two cases are as follows.  Examples of “non-socializable” claims are those that aren’t clinically more effective than cheaper and available alternatives, drugs advertised direct to consumer, claims that carry a disproportionate personal benefit and therefore don’t need to be socialized, like Chantix for smokers (Chantix is cheaper than cigarettes).  Examples of claims that fulfill a public objective include vaccinations, preventive health measures, etc.  I would also argue that maternity claims (which aren’t “insurable”) should fit into the category, including the extremely high cost and ethically electric issues of premature baby costs.  Tax revenue would have to raised to pay for this last category of benefits.  Non-essential medical services would include chiropractic services, mental health benefits, etc.  These services could be included in healthcare plans, but plans without these services must be sold to make sure coverage for essential services is affordable.

By focusing private insurance on just those sorts of claims that are medically necessary and that can be insured and socialized across individuals, we can significantly reduce the cost of coverage.  We need to begin a wave of “reverse insurance mandates” because we need to make truly necessary care affordable.  And if you want to tack federal subsidies onto these leaner.

I could go on, but what are the odds that anyone is actually reading this, let alone someone who could make this healthcare deform movement make some sense?

Written by Victor

October 26, 2009 at 11:45 pm