Insuring Health Insurance Companies - How to Fix Affordable Care Act in Michigan - Arjun Prakash & Ananya Shah

Context

Reference to a current Michigan bill or law that relates in some way to your proposal:

  • Michigan Public Act 107 of 2013: House Bill 4714

 

Why this proposal will make a difference in the lives of students of all ages across Michigan, or a significant subgroup (by age, background, economic status, and/or region, etc.) of students in Michigan:

Health insurance premiums, the yearly fee that individuals pay their health insurance companies, are looking to increase 17.3% from 2016 to 2017, a one year period. Put this in the context of the most recent 1% decrease in real household income.

As college students, many of us will enter the individual insurance market in a few years, since this is where many young people reside. On the pace that the state of Michigan is following, by this time, premiums for health insurance will likely be catastrophic and out of control. In fact, there is a very real chance that unless something is done now to address the current issues our health insurance industry faces, the very system may collapse completely.

Additionally, systemic socioeconomic inequality will almost certainly be exacerbated by the fact that it is the individual insurance market, which is composed primarily of those that do not have strong enough jobs to obtain insurance through their employer, that are facing these surging costs of coverage. Doing all we can to avoid a more class-divided society is a duty that every student of the University of Michigan has.

The solution we propose has precedent. It has been wildly successful in the state of Alaska, reducing premiums by 35%. It was also recently passed in the state of Minnesota, a state with a very similar individual insurance market as Michigan.

 

How and where did you learn about the issues underlying your proposal?

Given that the two of us have family in the healthcare industry, both on the side of the provider as well as the insurer, the topic has always reached our ears to a high degree. Furthermore, as students very interested in public policy and business economics, the issue of health care is just genuinely one that interests us greatly. The two of us frequently keep up with the New York Times, the Wall Street Journal, and other major news and opinion sources that often offer color and analysis on the United States’ unique and politically-driven healthcare system. This provided a good extent of background knowledge on the topic, but like most voters, we certainly did not understand the issue to the extent that someone hoping to make a real progressive change would.

The nature of the media coverage of health care also very much taught us about the issue and struck our interest. With reports revolved around the fact that premiums were skyrocketing in state markets all around the country dominating news coverage, we were both intrigued and concerned with this complex societal issue that has a very broad and systemic effect on the population. This prompted us to learn more about how rising premiums affect people in these individual insurance markets, and how the compounding effect of these price differences really will lead to long-term systemic socioeconomic disadvantage.

The recent Congressional and social battles over the Affordable Care Act is what really drove the issue of health care to the forefront of our minds in recent months. All of the different analysis and opinion pieces on the ACA’s shortcomings, the ways in which a repealment would affect the country from both a social and economic perspective, and the heavy criticism that the replacement received taught us even more about the inner workings of health care legislature. However, there certainly was much left to be desired in terms of understanding and application, even with the additional reading we would often engage to better assess the political discourse.

The way in which the issue of health care systems and rising premiums in various states has been covered in news cycles and utilized for political ammunition is what really incited our interest in the area. That, paired with our interest in a very complicated application of some simple economic dynamics that are at the crux of a very grave societal issue, led us to analyze and propose solutions in the healthcare space.

How has your service activity influenced your thinking about this proposal?

CAN Volunteering - Brick Elementary

The Community Action Network gave us the opportunity to work with 2nd and 5th graders at Brick Elementary in Ypsilanti. In terms of our proposal regarding healthcare, CAN gave us the chance to speak with teachers who had their healthcare provided to them by their employer, even though their salary may have been considered lower middle class. These discussions helped us think about how the burden of healthcare and particularly how health care premiums affect people at a personal level. Though the teachers were not impoverished, they implied that they would likely pay the Obamacare individual mandate penalty rather than buy health insurance due to the rising premiums in the healthcare industry. This helped us understand that the major burden of rising healthcare premiums fall on those in the lower middle class.

Detroit Partnership/ Business Gives Back Day

For DP Day and BGB Day we got the opportunity to work with local Detroit citizens in the heart of the city. These areas were considered some of the most impoverished zip codes in the country, where the citizens had been hit hard by tough times.  The average income of the zip code is $18,000 per household. They described Obamacare as a boon for themselves and their families. It was tough to get them to even acknowledge the burden of paying for health care themselves. It was also tough for them to think of premiums that they’d have to pay without Obamacare, it just seemed like all costs were a burden for them.

Canton Hindu Temple

This opportunity had Ananya serving food for local temple attendees on a traditional prayer Sunday. Due to the demographic and the location it seemed that most of the people Ananya interacted with had their health care provided by their employer. Their mindset was generally that healthcare was an afterthought and that Obamacare was a tax burden (though one that they were willing to pay). This reaffirmed our ideas that the real burden of rising premiums were on those who did not have employer paid health care, generally lower middle class citizens.

Link to your media artifact(s) giving background on the issue:

https://drive.google.com/open?id=1suwX2f7GF1GyvqZCeXBOwDeJ8YFc8J8OOFgpSfr0nFM

Consultations

CONSULTATION 1: Analyst at Huron Consulting Group

“The Affordable Care Act has affected business interests because it includes an employer contribution mandate, which penalizes companies with over 50 full-time workers who do not provide small businesses insurance and gives tax credits for companies with less than 50 workers. This mandate causes health care insurance coverage to be greater for businesses and has also caused companies to reconsider the amount of full-time workers they have (either reduce hours to less than 30 or reduce workforce to less than 50).”

CONSULTATION 2: Practicing Doctor/Administrator at Detroit Medical Center

"Repealing Obamacare would mean that not everyone would have insurance, which means that people would receive reactionary emergency care (meaning the hospital would take on the burden, or the person who just had a heart attack goes bankrupt) but not actual medical attention. This means people's actual health conditions are not treated. For example, you may get a heart bypass surgery after your heart attack but you won't get to renew the prescription on the drugs you need to survive post surgery. This applies to the wide range of health problems that could occur in the tens of millions of people who will not have insurance/ can not afford insurance after Obamacare is repealed. That means real people die."

CONSULTATION 3: Payment Engine Architect at Aetna Inc.

“There are two broad revenue models for Health Insurance companies.

Fully Insured model: Here the Health Insurance Company bears the entire risk of the insured membership.  The insured companies (also called Plan Sponsors) pay the premium towards each insured employee’s health coverage.  So the premiums are the revenue and the member’s claims for doctor/hospital services are the expenses. The doctors and hospitals are paid by the Health Insurance Company for the claims. In this model, the Health Insurance Company not only acts as a Service Provider to adjudicate and pay claims but also takes on the liability of the member’s healthcare needs. On the company sponsored front, only around 20% of the revenue is generated from this model. However, all Affordable Care Act claims are fully insured because these are claims for consumers that are individually filed via the Health Exchanges.

Self-Insured Model: With this model, the Health Insurance Company bears absolutely no risk towards the insured membership population.  The insured companies (also called Plan Sponsors) undertake all the risk towards its employee’s health care needs. The Plan Sponsor pays the  Health Insurance company a fee for processing its employees claims.  The fee structure can vary – it can be a fixed amount or based on a per-claim basis. The memberships premiums are used by the Plan Sponsor to cover the member’s claims. The doctors and hospitals are still paid by the Health Insurance Company for the claims, and the expense is reimbursed by the Plan Sponsor.  Thus in this model, the Health Insurance company only acts as a Service Provider to adjudicate and pay claims.

There is also another revenue stream wherein a Health Insurance company can adjudicate and pay claims on behalf of CMS (Centers for Medicare/Medicaid Services).  The membership in this case will be for the Medicare eligible population (age 65 and over).  These plans are called Medicare Advantage plans and can offer better benefits than the Original Medicare offered by CMS.  CMS pays a fixed amount for each member’s care each month to the Health Insurance companies offering Medicare Advantage Plans. So in a way the Medicare Advantage model is a variant of the Self-Insured model.”

Prospectus:

Health insurance has been a complicated issue for some time now, both in the state of Michigan as well as the greater United States. With the impending presidential administration vowing to “repeal and replace” the Affordable Care Act, this issue is at the forefront of many voters’ minds. Since 2010, the number of uninsured in Michigan has dropped from 1.2 million to 600,000, an improvement many believe is attributable to Barack Obama’s landmark legislation in health care. One of the major aspects of Michigan’s health system since 2010 is the Healthy Michigan Plan, a provision for Michigan residents that provides essential health benefit coverage for residents earning up to 133% of the federal poverty level. To further qualify for this plan, participants must be aged 19-64 and not eligible for Medicaid or Medicare. Thus, the Healthy Michigan Plan extended coverage for many individuals and families that are not in a position to qualify for the lowest-income or oldest-age services. The plan also guarantees the popular provision of the Affordable Care Act about individuals not being denied for a pre-existing condition, having their benefits capped, and being able to stay on their parents’ plans until the age of 26.

However, there are parts of the Affordable Care Act and its adoption in the state of Michigan that have led to negative effects for some consumers of health insurance. Specifically, the issue arises in the individual insurance market. This market is primarily meant to serve individuals that do not have a job that include employer-provided benefits but are not low-income enough to qualify for even the expanded coverage of Medicaid. In this market, individuals can purchase insurance from a state-bound marketplace exchange, and this is true regardless of pre-existing condition or sickness level. The rising problem is that far more sick, older individuals are purchasing plans from insurers on these exchanges than are young, healthy individuals. Insurers are only able to stay financially solvent when the concentration of their customers fall in the latter category; this way, insurers can spread the risk of the fewer, sick and old patients over the wide base of healthy patients that will rarely require a payout. The Affordable Care Act tried to ensure this ratio of enrollees by creating an individual mandate that imposed a penalty on people unless they bought a plan through the individual market. However, many young individuals choose to pay the penalty rather than be forced to purchase health insurance for their healthy selves. Thus, with this ratio of enrollees not being the case in Michigan’s individual marketplaces, insurers are forced to raise their premiums to cover their cost of covering a higher concentration of sick patients, or leave the marketplace altogether. When more and more insurers leave the market, it leaves fewer players in the market that are subsequently able to exert higher pricing power, further exacerbating the premium rise and leading to a death spiral. We have seen this very much being the case in Michigan, where huge insurers like Aetna and UnitedHealth have left the marketplaces while existing insurers like BlueCross have increased premiums tremendously. Therefore, there is a fundamental issue in the way that insurance companies are able to spread their risk, and thus their associated high costs are being passed on to consumers that simply cannot financially keep up. Something needs to be done.

Potential Solutions:

SOLUTION 1:

One way to solve the burden of rising premiums and the death spiral that exists due to the misaligned economics of Obama care is to move towards a single payer healthcare system. This is the system that Canada uses, and the thought has been entertained during the Clinton administration setting the precedent for this sort of system. Essentially, a single payer health insurance in the United States would be described as “Medicare for all.”  It is “a system in which a single public or quasi-public agency organizes health care financing, but the delivery of care remains largely in private hands. Under a single-payer system, all residents of the U.S. would be covered for all medically necessary services, including doctor, hospital, preventive, long-term care, mental health, reproductive health care, dental, vision, prescription drug and medical supply costs.” This is effectively a public form of health insurance where costs are covered through taxes spreading the burden and thus eliminating the underlying structure that facilitates rising premiums. However, this systems implementation would require a huge overhaul of the current healthcare system in the US, something that becomes increasingly hard in a polarized political climate.

SOLUTION 2:

Another potential solution to the problem of rising healthcare premiums is the exact opposite of Solution 1, moving to a complete privatization of the United States healthcare system. This privatization of the health care system would mean the elimination of Obamacare, and the stipulations that come with it. Health care would effectively run as a free market good, using competition, supply, and demand to set consumer prices. Due to the elimination of the individual mandate, people could choose not to buy health insurance removing the monetary burden on them. Similarly, because of free competition across private health insurance providers premiums would not rise and would stay at a market mandated level. However, while freeing a market may be feasible for non-essential goods for health insurance it becomes quite dicey in that people who can not afford insurance or health care will be left for dead or will place a heavy burden on hospitals. As such, in a polarized political landscape this solution to rising premiums may be too large of a change to be feasible, regardless of if it solves the rising premium problem.

SOLUTION 3:

The primary issue in the individual insurance market that is leading to soaring consumer premiums is that insurance companies simply cannot afford to cover a high proportion of unhealthy and old patients without having a much larger base of health and young patients to spread risk over. The first part of our solution is to attack the supply side of health insurance. We propose a two-year reinsurance program in which the state of Michigan “insures” insurance companies in the marketplace against the cost of the high number of sick patients for which they pay out in large amounts. This is actually a program the federal government was funding for several years, and it worked quite well in controlling premiums. However, the program was retired in 2016, which is why reports of 2017’s soaring premiums has been so pervasive. The states of Alaska and Minnesota have already implemented the program at the state level, and Michigan has the means to be the next. The way reinsurance would be structured for an individual claimant:

  • For all money owed to the provider (doctor/hospital) up to a certain dollar value (take $30,000 in this case), the individual and insurance company would be responsible for paying it. An example would be if a perfectly healthy person simply needs to get his appendix removed, and the procedure costs $30,000. The insurance company and individual’s copayment would be responsible in covering the full $30,000. This pool represents lower-cost patients that are likely receiving minor, non-recurring treatments. Thus, insurance companies receive no help with these kinds of patients.

  • For patients that owe more than the upper limit in the previous case, the state government would pay the provider some percentage (take 70% in this case) of the money owed above the upper limit. Take the example of a cancer patient whose treatment costs $200,000. Keeping with our previous example, the insurer and patient would be responsible for paying the first $30,000 of the treatment. The next $170,000 owed to the provider would then be paid 70% by the state and 30% between the insurer and patient. Thus, insurance companies are being subsidized in their cost of treating sicker patients, theoretically enabling them to continue operating without raising premiums to cover rising costs.

  • There is an upper bound to this system (take $250,000 in this case) in which the insurer and patient return to bearing full responsibility. This group represents patients that are somewhat unique in the cost of their treatment, and furthermore, just too costly for the state to continue helping cover.

This should theoretically prevent insurers in the individual marketplace from exiting the market or vastly increasing their premiums, since their problematic costs are being subsidized to a high degree. Using this program for two years would put downward pressure on premiums, but keeping these rates sustainable requires attacking the demand side of the market as well.

Once premiums reach a more acceptable level, we believe the next step to stabilizing the market is to ensure that the younger members of society enter the market to the risk economics of the health insurance system can function as planned. Currently, many young people simply flout the individual mandate to buy into the individual market because they see paying the penalty as a worthy cost to absorb so that they do not have to buy insurance. In essence, the ACA miscalculated the elasticity of insurance for young people when they imposed this penalty. Thus, after premiums have stabilized due to the reinsurance program, we propose imposing a much harsher penalty on individuals for not buying into the health insurance system. This will align incentives better for them to enter the individual market. In turn, this will ensure that enough healthy consumers are in the market, particularly younger members, so that insurance providers can spread their risk from unhealthy patients over a higher base of less-risky healthy patients. This is the way premiums can stay lower in a stabilized marketplace and ensure sustainably more affordable health care for all.

Reaction or advice from a Topic Coordinator: Meeting with and hearing from Jake Metzger in office hours was hugely beneficial to our development of a proposal. Clearly a very intelligent person, Jake as a topic coordinator helped us flesh out the areas of the proposal that sounded ambiguous or less realistic as they currently were. He was also extremely helpful in aiding our creation of a strategy for the work. Specifically, giving us feedback on how this proposal should not exist in isolation, but should rather complement, amend, or add something new to an existing piece of legislature was extremely impact in how we ultimately shaped our solution and its framing. This is manifested in our proposal points being in specific reference or comparison to  the state of Michigan’s current ACA-related health law, Michigan Public Act 107 of 2013. He also gave us specific feedback on the individual mandate aspect of our proposal, and how to navigate the lines of federal legislature versus state legislature, and the possibilities to reconciling the accessibility of these two. Otherwise, just being able to use Jake as someone to push back on our ideas, challenge them to improve their quality, and think critically about consultations and costs was very beneficial to the authorship of our proposal.

Though not a topic coordinator, Jeff Stanzler as a professor was also hugely beneficial in helping us shape our final proposal. After we had roughly determined what our solution to the problem outlined in our prospectus would be, we solicited Jeff for advice on how to make the proposal as clear, compelling, and accessible as possible. Given the esoteric nature of the healthcare system and the amount of research that we as authors had to do to come up with our solution, we were concerned with how to convey our ideas in a manner that our fellow students would easily be able to wrap their heads around. Jeff gave us advice on structure, language, and content that would allow us to achieve this. Additionally, Jeff was very helpful in pushing back on our ideas on how our solution would be funded. Discussing the politics of surplus spending, federal subsidies, and how these are tied to one another by convincing Lansing that healthcare is a crucial issue has been invaluable as we used both science and art to derive our exact numbers.

Research process:

High Level Description of Process

Given our previously described long-standing interest in the healthcare industry and the way public policy interacts with and shapes the system, it was always a topic area that we considered addressing in this opportunity to author a proposal. With the GOP vow to repeal and replace the Affordable Care Act taking central stage in political, economic, and social discussions, our awareness and interest in the area only strengthened. Being cognizant of the potentially disastrous consequences for the state of Michigan’s residents if the ACA were to be repealed, we decided to make our solution proposal about how to mitigate damage to Michigan and implement a state-level solution to continue providing health insurance to its residents.

This entailed learning specifically what the healthcare system functioned as pre-2010, what changed with the passage of the law, and what result would likely occur with the GOP’s proposed plan. It is at this point that we used our consultations with a healthcare consultant to understand the implications of employer-sponsored insurance in regard to the ACA. We also used our consultation with a Detroit Medical Center department head to understand at the patient and provider levels how Medicaid and Medicare fit into the overall schematic. Focusing specifically on funding, allocation, and demographics of Michigan’s population, we sketched out our best solution to mitigating repealment. We thought through the implications of retaining the Medicaid expansion that covered so many low-income individuals, an initiative that was incidentally being pushed by Governor Snyder in response to Paul Ryan and the GOP. Funding considerations to this increased public presence in the healthcare markets was another political and economic consideration we brought heavily into our decision making. However, when the ACA ultimately was not repealed and the GOP plan was not sent to the floor, we re-assessed how we wanted to best use our opportunity to author a solution-oriented health care proposal.

On one hand, we thought that authoring  a solution to a potential future issue would be providing value. However, after discussing our intentions, scope, and ability, this lacked the feasibility and urgency of solving a problem that is actually occurring in current time. We then considered a slight variant of this previous proposal, in which we propose a change to the way healthcare is funded and allocated in the state of Michigan. However, the major issues with this idea were ambiguity and scope. Altering the allocation scheme lacked clarity since it fell on a blurred line of whether the ACA was in place or not, and in general, we thought it to be out of our scope to replan the entire state health care funding system. Finally, we settled on a Michigan healthcare-related issue that we thought would be added value, within our scope, and specific enough to efficiently attack: fixing the main problem of the Affordable Care Act, skyrocketing premiums in the individual insurance market.

In researching how to solve the issue of rising health insurance premiums, it required more in-depth research on exactly how insurers come up with their premiums, how the risk economics of the industry function, and what about the ACA has changed the cost structure of many components of the system. This is where our consultation with a payment engine architect at Aetna Health Insurance helped us understand the revenue models of the insurance industry, both in relation to public and private markets. Subsequently, we needed to identify which parts of the Affordable Care Act could be amended or appended within the state of Michigan’s power to do so. Finally, using a combination of economic analysis, precedent research, and political considerations, we formulated what we thought to be the simplest and most efficient way of sustainably stabilizing Michigan’s health insurance market to ensure affordability.

Specific Means of Research

The issue of how health care functions in our country as a whole was the main issue that we had to learn in detail before delving into solutions in the system. We did this research in a number of ways. To build a solid contextual understanding of the American healthcare system, we started off by watching the entire Khan Academy series on the issue. This allowed us to become familiar with general mechanics, terminology, and players in the insurance market. We then shifted our focus to specifically learning about intricacies of the Affordable Care Act, since much of the conversation and issues in recent years has been married to the transformative law. Research analysis from think tanks, news articles describing current issues, and primary sources including marketplace data and exchange information greatly enhanced our understanding of how the post-ACA system is economically and socially structured.

Another activity my partner and I engaged to better understand the health care system was use our consultations to better understand the specific aspects of the system that might relate to a proposal we were formulating. This included a call to an analyst at Huron Consulting Group, a healthcare-focused consulting company, a department head at Detroit Medical Center, and a payment engine architect at Aetna Inc, one of the largest health insurers in the country. The last phase our research was using all of our healthcare system knowledge to focus on how the Affordable Care Act has specifically been functioning in the state of Michigan. From here, we analyzed the system’s advantages and disadvantages to state residents, and keeping the scope of our proposal in mind, began to identify areas that would prove remediable through legislation. Using a combination of precedent, creativity, and economy theory, we arrived at a solution schemes that we thought reasonable, effective, and sustainable.

Author contributions: In contributing to the authorship of our proposal and its constituent parts, the two of decided that dividing our research on the different aspects of the health care system would be the most effective way to proceed. Given the complex and expansive nature of the Affordable Care Act, we decided that becoming experts in different areas would be more efficient than each of us trying to understand the entire system in detail.

We divided this expertise obtainment based on our own personal interests as well as the consultations we would each be able to leverage in building our knowledge foundation. Ananya became extremely familiar with the public coverage aspects of Medicaid, its effect on patients and doctors, and the way that the federal and state governments exert control over this aspect of the system. Arjun focused research efforts on the structure of the individual insurance markets, the risk economics of making the current system viable, and the way these hybrid public-private markets are funded and subsidized.

In crafting the media artifact, the two of us were able to bring the respective research we had both done until that point in composing the content. Specifically, Ananya drafted the format, structure, and main ideas of the artifact. The two of us then wrote the content together, again utilizing the specific pieces of expertise to form the full picture. Arjun then used his strengths in mechanics and grammar to edit the artifact’s content, making it as clear, professional, and compelling as possible. Composing the prospectus very much followed the same pattern of division of labor.

Drafting the three solutions at the time when our proposal was still centered on mitigating the repeal of ACA was also very much a team effort. The brunt of the work was in the discussion of the solutions before we actually began typing it up. Drawing on our respective research and consultations, we were able to brainstorm the most efficient ways to address issues that we felt were most salient. We certainly had disagreements at this stage on what the optimal solution schemes, funding mechanisms, and stakeholder values to address when it came time to form three concrete solutions. This stage in the process and our manner of executing is what really confirmed that dividing our areas of expertise was the most efficient method in tackling such a broad-based societal issue. Specifically, Arjun and Ananya together composed the solution descriptions, and Ananya did the work to put our ideas into the language of legislature.

When it came time to pivot our proposal solution after it was announced that the Affordable Care Act would not be repealed, the two of us had to have a serious discussion on where we wanted to go. Debating values of specificity, contingency, urgency, and scope to our proposal became a very mutually engaging and benefiting process. Arriving at our final proposal solution was a successful joint effort.

In actually authoring our proposal, much of the work was also done with the two of next to each other and contributing ideas simultaneously. That being said, we took a similar approach in dividing labor so we each know different parts of the solution intimately. In our approach to reducing premiums, we attack both the supply side as well as the demand side in trying to restore stable equilibrium to the market. Arjun spearheaded the details of the supply side, as well as the funding schemes required to enable it, and Ananya looked into the details of the demand side of the solution. In actually writing the proposal, it was really more of the same as before - both of us sitting together and constantly bouncing ideas off of each other, pushing back when something was unclear or unrealistic, and fleshing out ideas when needed. Each handled the implementation details of the supply and demand side more specifically in the legislative section, and deliberate discussion helped us formulate the counter-arguments and cost aspect of the document as well.

Since our proposal changed a decent amount from our original intention, our prospectus and solution documents definitely needed some revamping. Arjun addressed the changes in the prospectus and one of the solutions, while Ananya came up with the other two solutions to our updated goal problem. For the non-solution components of the proposal document, we split up the work pretty evenly. Arjun handled the “why this matters” section, the TC feedback section, the “where/how we learned” section, and the research process section. Ananya handled the consultation section as well as the service activity shaping section.

Formal Proposal

This is your final proposal language, submitted for consideration by your peers and potential inclusion in the MSC Platform.

Preambulatory clauses

WHEREAS.... Health insurance premiums in the state of Michigan are set to increase by more than 17% in 2017 in the individual insurance market.

WHEREAS.... Public Law 111 - 148, known as the Patient Protection and Affordable Care Act (Obamacare), will remain intact for the foreseeable future, keeping the state-bound individual insurance markets intact.

WHEREAS.... Section 1341 of the Affordable Care Act, which established a transitional reinsurance program to stabilize premiums in the individual market inside and outside of the Marketplaces using the General Fund of the U.S. Treasury, has been retired as of 2016, explaining why so many states are seeing such sharp premium increases. Insurance companies are simply not able to cover their costs in the individual markets by themselves, and until the market stabilizes, they rely on these subsidies from reinsurance-type programs to stay solvent in the marketplaces.

WHEREAS.... Young, healthy patients are not participating in the individual insurance market because the penalty imposed on them for not obeying the individual mandate is low enough that many feel comfortable absorbing the cost of the penalty if it means not buying health insurance. This is especially true when they compare the cost of the penalty in comparison to the cost of rising individual market premiums.

WHEREAS.... Insurance companies continue to increase their premiums or completely exit the marketplace due to the cost of insuring an increasing concentration of sick enrollees without enough healthy enrollees to spread the risk efficiently. Sick enrollees who lost coverage due to their insurer exiting the market causes them to flock to the fewer, remaining insurers in the market, who are then faced with an even higher concentration of sick enrollees as a result. This, paired with their increased market power, causes them to raise premiums even higher, leaving the health insurance system in a death spiral unless something is changed.

 

Operative clauses

THEREFORE BE IT RESOLVED....

1. Implement reinsurance program in the state of Michigan for two years, alleviating cost pressure on squeezed insurers in the individual insurance market, enabling them to keep premiums constant or actually putting downward pressure on them.

2. For a given individual with insurance through the individual marketplace, if his or her medical costs are under $45,000, the insurer and the patient’s copayment together are responsible for covering the full cost.

3. For a given individual with insurance through the individual marketplace, if her or her medical costs are between $45,000 and $250,000, the state of Michigan will cover 50% of the cost, while the insurer and patient’s copayment together are responsible for covering the other 50% of the cost.

4. After two years of reinsurance program, introduce a higher individual mandate penalty for non-participants in the healthcare system. This penalty would be implemented through their state income tax. The penalty would be equivalent in price to the lowest level plan of the Affordable Care Act, nearly 4% of income. This provides a clear and direct incentive for all individuals to purchase health insurance, as the opportunity cost for not buying insurance is an equivalently costed penalty that provides individuals no value.

Counter-arguments:

1. Even if the state subsidizes the cost of insuring expensive, high-risk enrollees, there is technically no guarantee that health insurers will reduce or keep their premiums constant. Insurers in Alaska did end up greatly reducing expected health care premiums. Minnesota is waiting for some sort of promise from insurers that they will stay in the market and reduce premiums if provided this reinsurance. Michigan could definitely do the same.

2. Some may reinsurance programs as a form of corporate welfare, since the method is essentially allocating tax dollars of some capacity towards million dollar enterprises. These people may think that it is a nearsighted approach to fixing underlying issues instead of actually stabilizing the market. However, we believe that there is no good way to stabilize the market except to spread the risk, and in order to attract low-risk enrollees back into the market, premiums have to be low enough so that they are willing to bear the burden.

3. By increasing the penalty on the individual mandate, there is a significant burden placed on lower middle class people that come close, but do not qualify for Medicaid. These people are essentially being forced to buy health insurance, thus creating a potentially deleterious cost for people that can not afford it.

Costs and funding:

Could levy a tax against insurers, but this new expense might just be passed onto consumers through increased premiums, offsetting the downward pressure hoped for by this proposal

The way we see reinsurance being funded in Michigan is through a reallocation of the subsidies that the federal government has been providing Michigan for lowering the cost of premiums since 2014. It is important to note that the federal government has been subsidizing many individual market participants for years in an effort to lower their effective cost of paying for their insurance. This subsidy is often only offered to families of lower income. Some rough math elucidates how much the federal government spends on lowering health care costs for Michigan residents per year:

 

345,813 people obtain health insurance through the individual market exchanges in Michigan

83% of these participants buy plans that comes with an Advanced Premium Tax Credit (APTC)

The average monthly APTC provided is $239

 

Total yearly amount available for subsidy = (345813 * 0.83) * 239 * 12

                              = $823,187,097

 

By this math, the federal government essentially forgoes somewhere in the neighborhood of $800 million in tax revenue to subsidize the cost of premiums to people buying insurance in the unstable individual market.

 

The state of Minnesota has accomplished its reinsurance program at a cost of less than $300 million per year for two years. Michigan as a state has, by a large margin, been receiving this level of funding through tax credits from the federal government for the past few years. The goal, then, is to continue to receive funds at a similar level from the federal government even while a state reinsurance program is being used to push premiums down.

 

This is why Section 1332 of the Affordable Care Act, passed in mid-2015, could be essential to achieving the funding required to secure a reinsurance program in Michigan. Section 1332 allows states to apply for “state innovation waivers”, which allows them to continue receiving subsidies from the federal government even if premiums start to decrease. These subsidies are granted provided that whatever the state is doing is promoting affordable healthcare with better coverage. Thus, Michigan should apply to receive these Section 1332 waivers so that it can continue to receive some level of federal subsidy even if premiums start to decrease so that it can fund its reinsurance program for a short period of time.

 

An alternate way to fund the reinsurance fund is to levy a tax on all insurance companies, not just health insurance companies. However, there is a very real chance that these insurers would simply pass on the cost of the insurance to their consumers. In this case, all insurance purchasers are paying a bit more so that health insurance premiums in one particular market, the individual health insurance market, can go down. However, this tax being passed onto consumers could realistically counteract the downward pressure on premiums that the reinsurance program is supposed to be bringing.

References:

These can include websites or other information you have found about the issue.

https://www.healthcare.gov/fees/fee-for-not-being-covered/

http://www.pnhp.org/facts/what-is-single-payer

http://www.twincities.com/2017/01/19/minnesota-lawmakers-hope-reinsurance-will-help-fix-health-insurance-market-heres-how-it-would-work/

http://www.huffingtonpost.com/entry/obamacare-state-innovation-waivers_us_58e24e27e4b0ba3595966b33

https://www2.deloitte.com/content/dam/Deloitte/us/Documents/life-sciences-health-care/us-dchs-state-health-innovation.pdf

http://minnlawyer.com/2017/03/22/how-reinsurance-may-help-health-insurers/

https://www.healthinsurance.org/michigan-state-health-insurance-exchange/

https://aspe.hhs.gov/system/files/pdf/187866/Finalenrollment2016.pdf

http://www.michigan.gov/documents/difs/Marketplace_Premiums_504491_7.pdf

http://www.twincities.com/2017/03/24/new-tax-or-dip-into-savings-dayton-and-gop-differ-on-how-to-stabilize-insurance-market/

http://www.twincities.com/2017/03/12/minnesota-leaders-want-to-stabilize-the-health-insurance-market-and-need-to-act-soon/

http://www.freep.com/story/money/business/michigan/2016/07/30/obamacare-rates-affordable-care-act/87623260/

https://seekingalpha.com/article/4042342-real-median-household-income-growth-2016

http://www.lobbyseven.com/single-post/2017/01/20/Volume-2-Health-Insurance-Part-I

http://www.investors.com/news/obamacare-individual-mandate-fine-hit-8-million-people-in-2016/

https://www.cms.gov/CCIIO/Programs-and-Initiatives/Premium-Stabilization-Programs/The-Transitional-Reinsurance-Program/Reinsurance-Contributions.html

http://kff.org/health-reform/state-indicator/average-monthly-advance-premium-tax-credit-aptc/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D

https://www.cms.gov/cciio/programs-and-initiatives/state-innovation-waivers/section_1332_state_innovation_waivers-.html






 

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Total votes: 12

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