Over Four Million Dollars to Save a Life?

Enjoy the ride!

Lebron James fan Jason Shafrin of the Healthcare Economist blog hosts the latest edition of the Health Wonk Review.  It's not only fit for a king, it's also fit for any student of health policy that wants unique insights unavailable anywhere else. 

Lots of learning with links can be found here.

The Population Health Blog's recent post on the life-saving attributes of health insurance is included in Jason's Review.  In it, the PHB points out that mandating coverage for 830 persons to save one life is not welcome news.

Docs like the PHB conventionally (and arbitrarily) believe that a reasonable "number needed to treat" (the number of patients that have to be exposed to a treatment in order to achieve a successful outcome) is less than a hundred.  Start going higher than that, and we begin to worry that the treatment may be worse than the disease.

Attach dollars to it and the number becomes even more telling.  Assuming an average health insurance policy "costs" $5000 per year, that's a back-of-the envelope cost of $4.15 million per life saved.  While the PHB would be the first to point out that every life is precious, that falls outside usual assessments of cost-effectiveness.

Bottom line?  These data suggest that we can save lives by mandating insurance, but there is no free ride.

In fact, this one is gold plated.

Image from Wikipedia

The Behavioral Economics Behind the Individual Mandate

Thanks to analyses like these, the Disease Management Care Blog is coming down with a tiresome case of individual mandatosis complicated by penaltyalgia.

Former CBO Director Douglas Holtz-Eakin's American Action Forum just posted that erudite and well-referenced article. It contrasts the simple cost of a) paying for subsidized insurance with "silver "and "bronze" high out-of-pocket costs vs. b) foregoing insurance, paying the penalty and paying retail for health care.  News outlets are reporting that the average person with average utilization will come out ahead with option B.  By implication, therefore, the penalty attached to the individual mandate is too small to make a difference.

"That's not the point," says the conservative DMCB.

The mandate was originally developed as a smaller part in a grand national experiment in behavioral economics.   It was long since departed White House Advisor Peter Orszag who betted that Obamacare's new "social norm" would nudge citizens toward doing right by buying health insurance.  The mandate was never intended to tip the financial scales, but act as a gentle reminder that could symbolically promote greater civic duty like voting or using seat belts.

The fundamental problem with the mandate isn't that the penalty is too small to change buying behavior.  The problem is that this building block of health reform remains an experiment.  It will be years before we can assess Orszag's bet on the impact of these behavioral penalties attached to the mandate.

The DMCB also remains wary of "average" outcomes.  While a typical silver or bronze buyer would come out ahead by being wary of the famous nine words about government "help," there is a small segment of individuals who would be protected from bankruptcy.  The purpose of insurance is to monetize risk and transfer it. That's a real cost for everyone, except the unlucky few who need it.

Image from Wikipedia

How Badly Obamacare Beat Up On the Health Insurers, and What Does It Mean for the Individual Market

D.C. deals with health insurers

As Disease Management Care Blog readers are aware (for example, here and here), Obamacare forces health insurers to spend at least 80% (small group) to 85% (large group) of their premium income on health care, leaving only 15% for "other," including administrative overhead and profits. If that 80%-85% "medical loss ratio" (MLR) threshold is not met, insurers have to rebate the difference to their customers.

 While the White House has been happy to extoll the millions of dollars that were repaid to consumers (even though the individual checks were hardly eye-popping and then there is the risk that they're taxable), the DMCB is interested in what actually happened to the commercial insurers.  Did they game the system and garner even higher profits?  Or, have they gotten their comeuppance, are now losing money and have to pursue other lines of business, like covering zombie attacks?

This article in the latest Health Affairs looked at that impact of the law when it went into effect on January 1, 2011.  The authors used NAIC data to examine the impact on the individual (N=1,219), small group (N=804) and large group market (N=750) insurers.

Individual, small group and large group numbers are broken out below. If there is a *, the change is statistically significant.

In the individual market, from 2010 to 2011:

Median medical expenses, as a percent of premium, increased      by 5.5%*.
Administrative expenses, as a percent of premium, decreased            by 2.6%*.
Profit (otherwise known as "operating margin" or the bottom line) decreased by 1.3%*. "For profit" insurers fared even worse, with a decline in operating margin of 2.2%* vs. their nonprofit competition with a decline in 0.8%.

2011 operating margins were overall negative:

Individual overall -0.1%.
Nonprofits:  -3.5%.
For profits:  0.4%.

In the small group market:

Median medical expenses increased by 0.7%.
Median administrative expenses declined by 1%*.
The bottom line increased by .5%. Nonprofits saw an increase of 1.2%* vs. the for profits having a small decline of .3%.

2011 operating margins were positive, ranging from 2.8% to 3.8%  across the non and for profits, respectively.

In the large group market:
Median medical expenses declined by 0.7%.
Median administrative expenses declined by 0.9%%*.
Profit increased by .7%*. Nonprofits saw an increase of 0.1%* vs. the for profits having a increase of 1.2%.

2011 operating margins were positive, ranging from .7% to 2.6%  across the non and for profits, respectively.

The DMCB's take:

Obamacare had a single digit impact on health insurers.  More was spent on health care and less was spent on administrative costs.  While the shifts were relatively small, those changes represent swings of hundreds of millions of dollars to the bottom line in an already thin margin business. If the purpose of Affordable Care Act was to beat up on the health insurers, it was more of a push than a shove.

Small and large group profitability increased and operating margins were positive, while the individual market struggled. As readers may recall, the inability of individuals to obtain coverage at any price was a big factor in the eventual passage of the Affordable care Act. While the future individual market may eventually benefit from an influx of healthy young "invincibles" armed with an accompanying bolus of insurance subsidies, Obamacare ironically hurt the individual market in 2011. If health care utilization didn't go down in 2011 as a result of the economy, it could have been a lot worse.

That tells the DMCB that, contrary to the insurers' reports of doom and gloom, the 80%-85% MLR rule hasn't been a catastrophe.  On the other hand, it hasn't been good news for the individual market.  If the young invincibles don't 1) respond to the individual mandate, 2) use functioning insurance exchanges and 3) sign up, it could portend further stress on that sector of the health care economy.  No wonder the Obama Administration is pushing that so hard.

Insights on Delaying Obamacare's Employer Mandate: Four Potential Unintended Consequences?

Which is it?

Look at we did!

Delaying the employer mandate for one year is simply more evidence of Obamacare's unworkable complexity, says detractors.

The delay is flexibility and democracy in action, says supporters. 

The Disease Management Care Blog is troubled by how Congress and the Obama administration underestimated the complexity of the local implementation of a one-size-fits-all national health program.  It also knows that the White House needs some Affordable Care Act (ACA's) elbow room.

To gain a better understand what's going on, check out this article appearing in the New England Journal. 

Recall that the intent of the ACA was to preserve employer-based insurance while enabling individuals to access similar levels of coverage in on-line exchanges. Toss in some income-based subsidies on the upside along with IRS penalties on the downside, and the intended outcome is that millions of Americans will enter the national risk pools. That, in turn, should lead to premium drops and greater access to health care.

So what could be the impact of the delay?

First off, there's what won't happen. The authors estimate that 2014 will be business-as usual for the vast majority of persons with employer-based insurance.

But here's four things that could happen:

1. Approximately 5 million part-time workers may be closed out from access to their employer's insurance for another year. In addition, the $10 billion in government income from the $2000-per-worker) will be lost.  Both these numbers are small potatoes in a trillion-dollar enterprise involving tens of millions of workers, unless, of course, you happen to be one of those workers.

2. Millions of employed full time workers will continue to take a pass on taking the paycheck deduction for their employer-based insurance.  Whether they change their mind in 2014 will not depend on how hard their employers work to sign them up, but how aggressively the IRS pursues the individual mandate. 

3. Attached to the employer mandate were regulations that would have forced employers with a workforce of greater than 50 persons to offer competitive (read "low") insurance premiums.  Since that's also been delayed, employers and their employees who want insurance have an even greater incentive to access the on-line individual exchanges.  Employers get to reduce their insurance costs while individuals get to take advantage of those upside subsidies. The employer-employee win-win arrangement could not only undercut employer-based insurance, but "triple" the Fed's subsidy budget.

4. The DMCB's physician colleagues are not immune either.  There is emerging evidence that the individual exchanges are likely to offer "frugal" insurance plans.  Early indications are that these plans will turn to the old tricks of restricted networks and low provider reimbursement levels. This could result in millions of newly insured persons further stressing an overloaded primary care provider network.