Curing what ails the individual health insurance market: Considering the role of high-risk pools

Health Care Current | February 28, 2017

This weekly series explores breaking news and developments in the US health care industry, examines key issues facing life sciences and health care companies and provides updates and insights on policy, regulatory, and legislative changes.

My Take

Curing what ails the individual health insurance market: Considering the role of state high-risk pools

By Greg Scott, Vice Chairman, US Health Plans Leader, Deloitte LLP

Regardless of whether you are a staunch Affordable Care Act (ACA) supporter or an ardent proponent of repeal, we should all agree that the individual health insurance market in this country is in need of reform. Unfortunately, it’s often easier to delineate the problems of the individual market than to develop workable and politically palatable solutions.

Today, the pool of individual enrollees doesn’t pass actuarial muster in many regions and health insurers. Insurers are exiting and retrenching across many markets.1 Product offerings often don’t meet consumer needs and preferences, are priced out of consumers’ affordability range, or both.2 Premiums across many states have risen at jaw-dropping rates, as have out-of-pocket costs (particularly deductibles).3 The entire health insurance shopping, selection, and enrollment process is still fraught with complexity and confusion for far too many consumers.4

Clearly, the individual market could use a better combination of positive and negative incentives—carrots and sticks—to encourage more and more healthy Americans to jump into the insurance pool. While the individual mandate, whose days appear numbered, has not worked as well as hoped, finding better alternatives is proving challenging.

Health insurers likely need to see paths to reasonable margins if we expect them to play in and stay in the individual market. The individual market has traditionally posed financial challenges for insurers, both for-profit and non-profit. But the tide of red ink that health insurers have weathered in recent years is not sustainable and should be stemmed.

It’s important to keep the individual market in perspective. Individual enrollees represent about 6 percent of the population with health insurance coverage.5 Individual product sales represent about 10 percent of health insurance industry revenue.6 The size of the entire individual market—about $74 billion in 2015—is less than Warren Buffett’s net worth.7

Market statistics aside, each of the roughly 17.5 million individual health policies represents a lifeline for a fellow citizen, or family member, or friend, or ourselves. ACA-spurred growth in individual coverage is (along with Medicaid expansion) a primary driver of the rapid decline in the number of Americans without health insurance.8

Put simply, the nation needs a healthy and sustainable individual health insurance market. High-risk pools are one of the ideas percolating on Capitol Hill and appearing in various ACA replacement proposals to help address a number of individual market problems. They are often mentioned as a mechanism to improve market stability by providing coverage for the highest-cost/highest-risk individuals, mitigating insurer risk of catastrophic financial experience, and enhancing the affordability of premiums for enrollees outside the high-risk pool. They are often presented as part of the answer to one of the central questions of this moment: “What can we do if we repeal the individual mandate, but want to maintain consumer protections regarding pre-existing conditions while keeping insurance companies solvent?”

At this point in the ACA replacement debate, we have only seen initial proposals addressing high-risk pool concepts. Regardless, we do know that the high-risk pools prevalent in many states in pre-ACA days were not successful.9 So at a minimum, we’ll need program designs and financing models to be markedly improved over the prior generation of state high-risk pools.

I think we also realize that if high-risk pools are to meet elevated expectations as part of the post-ACA market model, it’s not going to be cheap. I’ve been spending time with our actuaries working on high-level estimates of potential funding requirements for high-risk pools. At this stage—without legislative proposal specificity—our estimates are admittedly rudimentary. That said, they can be directionally informative and provide some indication of the funding levels that might be required to translate the promise of high-risk pools into a marketplace reality.

We analyzed 2015 claims experience to discern the dimensions of the potential national cost of covering the expenses of individuals with claims costs above a set of high dollar thresholds. As depicted in the chart below, we estimate that the funding needed to cover the costs of individuals with total medical claims exceeding $100,000 in a given year may be $15.9 billion. A tighter threshold, such as a $200,000 minimum total claims level, would require less funding—in this example, $8.4 billion.

My take: Many elements of current ACA replacement proposals have the potential to improve the individual health insurance market. But there is much detailed design work to do. If the ACA experience has taught us anything, it is that health insurance markets are complicated organisms, with many moving parts and intricately interconnected tissue. If we are to cure—or at least ameliorate—what ails the individual health insurance market, the funding required will likely be significant, as demonstrated by our estimates of potential costs associated with high-risk pools, which are but one component of certain ACA replacement proposals.

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1 Kaiser Family Foundation, “2017 Premium Changes and Insurer Participation in the Affordable Care Act’s Health Insurance Marketplaces,” November 1, 2016 
2 Deloitte Center for Health Solutions, 2016 Survey of US Health Care Consumers
3 Deloitte Analysis of Kaiser/HRET Survey of Employer Sponsored Health Benefits and Peterson-Kaiser Health System Tracker, and Truven Health Analytics Market Scan
4 Georgetown Public Policy Institute, “Understanding the Consumer Enrollment Experience in Federally Facilitated Marketplaces,” May 2016
5 Deloitte analysis of SNL data
6 Deloitte analysis of SNL data
7 Deloitte analysis of SNL data
8 The Commonwealth Fund, “How Much of a Factor Is the Affordable Care Act in the Declining Uninsured Rate?” December 19, 2016
9 Courtney Burke and Lynn Blewett, Health Affairs, “All High-Risk Pools Are Not Equal: Examining The Minnesota Model,” March 19, 2010

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Implementation & Adoption

CMS awards $100 million to organizations to aid small practices with MACRA implementation

On February 17, the US Centers for Medicare and Medicaid Services (CMS) said it will give approximately $100 million to community-based organizations like the Georgia Medical Care Foundation and the West Virginia Medical Institute’s Quality Insights Center to provide technical assistance for small practices under the Medicare Access and CHIP Reauthorization Act’s (MACRA) Quality Payment Program (QPP). CMS will give $20 million to 11 organizations for the first year of the five-year program and an additional $80 million over the four years after that.

The organizations will provide hands-on training and customized technical support primarily to small practices (15 or fewer clinicians) in historically under-resourced areas (rural, health professional shortage, and/or medically underserved). They also will help clinicians and practices choose which quality reporting measures best apply to their practice and provide guidance on strategic planning, optimizing health information technology (IT), and all other aspects of the program.

Background: The QPP is the incentive program established under MACRA. Under the Merit-Based Insurance Program (MIPS) track of the QPP, practices select and report on quality measures that best apply to their practice/patient mix. One of the major concerns stakeholders raised was that the QPP may be too administratively burdensome for small practices who lack the infrastructure or capacity to train staff in new reporting methods. In addition to the $100 million in awards announced earlier this month, CMS launched a multi-level outreach effort to connect with clinicians and facilitate their transition into the QPP. As part of the effort, CMS hosted webinars and in person-presentations, established a telephone helpline, and created an online learning system platform.

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Survey: Optimizing EHRs saves health care organizations money and clinicians time

More than three-fourths (77 percent) of individuals leading health IT functions in hospitals and health systems have put more money into training and support since implementing electronic health record (EHR) systems, according to a survey conducted by HIMSS Analytics. Most health care leaders (83 percent) also said that they are confident their organization will fully reap the benefits of EHRs.

Optimizing EHRs can save health care organizations money and improve time management and patient visits. Health IT leaders said that the largest financial impact of fully documenting patient encounters comes from:

  • Capturing appropriate reimbursements (67 percent)
  • Fewer denied claims (54 percent)
  • Better performance under bundled payments (52 percent)

IT and health care leaders said that the top three areas they plan on making investments in health IT are in:

  • Mobility tools (44 percent)
  • Computer-assisted physician documentation (38 percent)
  • Speech recognition (25 percent)

For the study, HIMSS Analytics surveyed a total of 167 c-suite, health IT leaders, and clinicians at health care provider organizations.

(Source: HIMSS Analytics, “EHR and clinical documentation effectiveness,” Nuance, 2017)

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CHIME asks for delay in required use of EHR systems next year

In a letter to the Secretary of HHS Tom Price last week, the College of Healthcare Information Management Executives (CHIME) asked HHS to delay certain health IT programs, including stage 3 of Meaningful Use (MU) and related measures in MIPS under MACRA. The group says they have significant concerns about interoperability and electronic reporting requirements.

The group says the following recommendations could help propel innovation in the health care industry forward:

CHIME represents more than 2,300 health IT executives that aim to advance interoperability, reduce regulatory burden, and improve cybersecurity.

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More employers are offering high-deductible health plans to their employees

Although most employers offer preferred provider plans (PPO), many employers have begun switching to high deductible health plans (HDHPs), according to the Healthcare Trends Institute’s 2017 employer benefits survey. In addition, more employers offered employees health savings accounts (HSAs), health reimbursement arrangement (HRAs), and flexible spending account (FSAs) in 2016 than in 2015.

Moreover, 84 percent of employers say that the quality of their benefits package can impact their company’s reputation. The majority (75 percent) of employers use their health benefits package to attract and retain high-quality employees. The majority of employers also say that improving employee morale and satisfaction (68 percent) and improving employee health (67) are key considerations in structuring their health benefits package.

The findings are based on responses from more than 250 employers, ranging in employee size from fewer than 50 to more than 2,500.

(Source: Healthcare Trends Institute, “2017 Healthcare Benefits Trends,” February 2017)

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On the Hill & In the Courts

House and Justice Department request delay on subsidy case ruling

Last week, the House of Representatives and the US Department of Justice (DOJ) submitted a joint motion requesting the US District Court of Appeals delay judgement on House of Representatives v. Price. Formerly House of Representatives v. Burwell, the case has been on hold since December 5, 2016.

The House of Representatives brought the case before the court, alleging that the Obama Administration unconstitutionally spent money that Congress did not appropriate when it subsidized out-of-pocket costs for people enrolled in the public health insurance exchanges. Approximately 5.6 million individuals (56 percent of exchange enrollees) received these cost-sharing reductions in 2016. The case was originally decided in favor of the House in May 2016, but was appealed by the Obama Administration.

Background: Under the ACA, HHS pays health plans to reduce out-of-pocket costs (e.g., deductibles, copayments, and coinsurance) for exchange enrollees. In May 2016, Judge Collyer stayed her decision pending an appeal, so the ruling will not go into effect until after an appeals court reviews the case. The ACA requires health plans to reduce out-of-pocket costs for consumers at certain income levels. Stakeholders say that if the ruling were to go into effect, many health plans may leave the individual market all together.

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CMS announces changes for CPC+ Round 2

Last week, CMS released information about Round 2 of the Comprehensive Primary Care plus (CPC+) initiative. Round 1 began in January 2017. Round 2 will begin in January 2018 and run through 2022.

Unlike Round 1, in Round 2 CMS will randomly sort providers into an intervention group or a comparison group. Practices in the intervention group may participate in CPC+ learning communities and will receive the CPC+ incentive payments, which include care management fees, performance-based incentive payments, and comprehensive primary care payments. Providers in the comparison group will not receive the incentive payments. According to CMS, this will help strengthen CMS’ evaluation of the model. To participate, CPC+ practices must have certified EHR technology, multi-payer support, and a minimum number of Medicare beneficiaries, and primary care services must account for at least 40 percent of the services provided at the practice.

The CPC+ program includes Medicare, commercial payer, and state partners. Payers interested in participating in Round 2 can apply through April 3. CMMI will announce the regions participating in the pilot based on the payers accepted into the model. While 14 regions were selected for Round 1, CMS said that up to 10 will be selected for Round 2.

Background: The CPC+ program aims to improve primary care management. CMS pays practices incentive payments at the start of designated performance periods. Then, the practices either keep or must repay payments based on their performance, measured by quality and utilization metrics. Participating practices must give patients 24-hour access to care and their medical data, deliver preventive care, engage with patients and caregivers, and coordinate care with hospitals and other clinicians. The program has two tracks: Track 1 provides fee-for-service payments (FFS) according to the Physician Fee Schedule; Track 2 includes monthly care management fees and reduced FFS payments for evaluation and management services supplemented by up-front primary care payments for those services. Track 1 is intended to be budget neutral, but Track 2 is estimated to save $2 billion over the five-year program.

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Cancer Moonshot initiative proceeds with cancer tests under new project

The Blood Profiling Atlas in Cancer (BloodPAC), a project created under former Vice President Joe Biden’s Cancer Moonshot initiative, will continue testing devices to improve cancer diagnosis under the new administration. BloodPAC, a group of academic, government, biotechnology, diagnostic, and pharmaceutical companies focused on blood profiling in cancer diagnosis, plans to meet regularly with the newly established Oncology Center of Excellence at the US Food and Drug Administration (FDA). Dr. Richard Pazdur, who served as director of the FDA’s Office of Hematology and Oncology Products since 2005, is director of the center, which was created so experts could better collaborate on oncology products.

Through liquid biopsy (blood-based tests), BloodPAC is working to accelerate research on cancer diagnosis – particularly when tissue samples are difficult to obtain. To date, the FDA has approved a few liquid biopsy tests. Roche Molecular Systems, Inc. was the first to get approval last June. BloodPAC will be operating as an independent division of the Center for Computational Science Research, Inc.

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Around the Country

Report: Outreach can encourage consumers to shop for but not necessarily switch exchange plans

Researchers in Colorado used letters and emails to encourage public health insurance exchange consumers to shop around during open enrollment. They found that while these communications did increase shopping by 23 percent, they had no significant effect on consumers switching plans.

Subsidies in the exchange market are based on the second lowest-cost silver-tiered plan and can vary from year to year. Consumers who do not shop and compare prices during open enrollment can be left paying more than they planned. Researchers conducted a randomized controlled trial to see if letters and emails with personalized information or generic communications emphasizing the possibility of savings would encourage consumers to switch plans. Colorado used a “nudging” strategy that has been successful in other markets, such as Medicare Advantage and Part D.

In 2015, researchers tested two types of messaging and targeted 15,534 households who were going to be auto-re-enrolled in 2016. They found that people receiving communications were 5 percentage points more likely to visit the website to shop, but it made no difference whether the communications were generic or targeted.

  • 24.9 percent of the group that received no targeted communications visited the website to shop
  • 30.6 percent of the group that received generic communications visited the website to shop
  • 30.7 of the group that received targeted communications visited the website to shop (no statistical difference to the other group)

Some analysts say that consumer shopping will keep competitive pressure on plans to negotiate with provider networks and reduce costs. Other states have also experimented with ways to encourage consumers to shop. For example, Rhode Island requires returning enrollees to shop for coverage and select the same or a new plan each year or else may lose their coverage.

(Source: Keith Marzilli Ericson, Jon Kingsdale, Tim Layton and Adam Sacarny, “Nudging Leads Consumers in Colorado to Shop but Not Switch ACA Marketplace Plans,” Health Affairs, February 2017)

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Maine to vote on Medicaid expansion

Voters in Maine collected more than 66,000 signatures to place a referendum on the November ballot in favor of expanding Medicaid under the ACA. The signature campaign came after the Governor vetoed similar proposals during regular legislative sessions.

If approved, MaineCare, the state’s Medicaid program, would provide Medicaid services to eligible individuals who make less than or equal to 133 percent of the federal poverty level ($32,252 for a family of four).

The ballot initiative proposal will go before the Maine legislature, which can decide whether to pass it into law without any amendments. If not, the referendum will be placed on the ballot for voters in November. The state legislature also continues to work toward expanding Medicaid; it introduced at least two bills to do so.

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Breaking Boundaries

Health systems are evolving and advancing their strategies to address social determinants of health

More than a decade ago, family physician Jeffrey Brenner, inspired by police department strategies to map crime data to identify “hot spots,” began to use ambulance records and emergency department (ED) data to predict and aim to address health care hot spots. Health care hot spots are areas where many people with complex problems frequently come to the ED. They often have conditions that could be better managed by primary care clinicians, social workers, and behavioral health professionals. This population makes up only about 5 percent of patients, but accounts for 50 percent of health care spending. As the FFS system continues to shift toward one based on value, many health systems are aligning financial incentives to keeping patients healthier. This means a growing number of hospitals are focusing on factors outside of the health care system or clinical models of care that influence health, such our environment, access to nutritious food, stable housing, and other related factors.

Brenner’s work began in Camden, New Jersey and lives on today through the Camden Coalition. Now, he and his team are trying to disseminate their learnings and leading practices around the country. The Patient Care Intervention Center in Texas is trying out these strategies on its sickest and most isolated patients. Its program is built around collaboration between city and county agencies, hospitals, and nonprofits. Many of the hospitals in Houston and the fire department and paramedics combine their data in one database so that health IT professionals can find the super users of health care. Staff from the program help the super users make and get to doctor appointments, get visits by home health aides, and get their homes cleaned and utility bills paid. The program has been in place for two years; costs for the target population have decreased 83 percent, and hospital visits have declined by 70 percent.

A key question is what role each stakeholder should play in addressing the social determinants of health. Many experiments and efforts to advance care delivery and payment reforms that reduce costs and improve health outcomes are still focused on quality and cost measures that reflect traditional health care services. This uncertainty is not stopping many innovative health systems, health plans, and nonprofits from piloting programs and sharing what they learn. For example, Trinity Health has introduced an annual pay incentive for executives based on improving certain population health metrics, such as reduced rates of obesity, tobacco use, and hospital readmissions. These interventions often require addressing social determinants of health, such as helping patients access healthy foods and getting counseling through community health workers. Financial targets have less weight in the incentive programs than the total health metrics. Mercy Health and Henry Ford Health System have similar incentive programs that align with population health metrics.

Some health care facilities in Southeast Michigan are working with local farmer’s markets and government agencies to encourage low-income patients and families to use the federal Supplemental Nutrition Assistance Program (SNAP). The program provides a $20 incentive match when people use SNAP benefits to purchase fruits and vegetables. Since many SNAP participants are not aware of this program, having clinicians in health care facilities screen patients and provide information about the program led to an increase in use and consumption of fruits and vegetables. The program is one example of the change that can happen when sometimes siloed parts of the health care and public assistance programs collaborate.

Analysis: According to the Gallup Well-Being Index, 80 percent of health outcomes are determined by environmental and social factors. Socioeconomic status, family support, location, and even availability of transportation are factoring into health plan and health systems’ policies and programs for vulnerable populations. A recent paper from Deloitte, Social determinants and collaborative health care: Improved outcomes, reduced costs, reviews some of the individual and collective impacts that physical health, behavioral health, and social determinants have on individuals and the US health system. The paper examines how collaborative care models can help improve outcomes and lower costs and discusses challenges to implementing integrated care.

(Source: The Kaiser Family Foundation, Health Care Costs: A Primer, March 02, 2012)

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