Social Justice and Economics Haunt the Exchanges

The exchanges give older people a bad deal in terms of social justice and economics.

As the data on the pricing of plans offered by the new health insurance exchanges become available to consumers and as the exchanges become more transparent about their metrics of success and how their operations are performing, opportunities for improvement are becoming clear.  This blog focuses on how one health insurance exchange, Healthsoure RI, gives older people a bad deal in terms of social justice and economics…and what to do about it.  

Age Discrimination

Reed Abelson’s New York Times article, “In New Health Law, A Bridge to Medicare”, proclaims that early retirees are the “big winners” with the new health insurance exchanges because they are better off than they were before.  True, they are better off now that Obamacare makes it illegal for health insurers to deny coverage on the basis of pre-existing conditions.  Also, their premium rates may be better because the age bands for rating insurance are limited to “only” three, meaning that early retirees are subject to three times the premium cost compared to twenty-somethings for the same insurance product. 

I noted in an op-ed in the Providence Journal, “Don’t Balance Healthcare on the Backs of the Elderly”, that the premium and out-of-pocket costs for medical care for a mid-level plan from Healthsource RI, could amount to almost a third of the income for sick, older people who do not qualify for subsidies.  I interpreted this as a social justice concern.  Abelson’s “better off” argument just does not cut it when it comes to discrimination.   Age rating should go the way of other forms of discrimination that were made illegal under Obamacare including for gender, health status, and pre-existing conditions. 

Economics

If the rates are so bad for older people on the exchanges, how do they compare to the rates currently available on the open market?  The press is touting big drops in the rates for insurance at the exchanges.  Another piece by Abelson (and Rabin), “Health Plan Cost for New Yorkers Set to Fall 50%”, asserts that “individuals buying health insurance on their own will see their premiums tumble next year in New York State” and one interviewee for the piece said that “health insurance has suddenly become affordable in New York.”

What's true for the average New Yorker, if there is one, is not true for all.  There is certainly variation around any average and older people will be at the tail of the distribution.  HealthPocket, which provides consumers complete information about the insurance options available to them, addressed the issue of affordability of insurance plans on the exchanges for older people in four states, including California, Connecticut, Ohio, and Rhode Island.   Their analysis concluded that “anyone expecting major price declines for older consumers will be disappointed”.  

I went to the HealthPocket website to find the prices for plans on the market today for older people in my state, Rhode Island.  Compared to the plans and prices on the exchange, the value of the insurance is better off than on the exchange.  (Note that I was unsuccessful in finding the age band rates for New York on the NY State of Health website or on the Internet.)  Here’s the data:  The mid-level silver plan referenced above (the plan where the costs could amount to a third of income) from Healthsoure RI is called VantageBlue Direct and offered by Blue Cross and Blue Shield of Rhode Island.  It has a $3000 deductible and a $6000 out-of-pocket limit with a cost for a 64 year old of $8366 per year.  A VantageBlue Direct plan, available directly from the same insurance carrier, has a $1000 deductible and a $3000 out-of-pocket maximum per year and costs $7608 for the same age (without a pre-existing condition).   That’s quite a savings, over $700 per year for insurance and a big reduction in the out-of-pocket max of $2000.  In addition to the name of the plan being exactly the same, the benefits and copays are very similar.  For example, the co-pays for seeing a primary care physician or a specialist are the same.  The co-pay for hospitalization and emergency room visits are exactly the same.  But the big issue for a sick older person when it comes to insurance is the annual out-of-pocket maximum and the off-exchange deal is much better.

An important goal of the state exchanges is to negotiate rates locally so that citizens get the best deals, as is done by large employers, the Federal Employees Health Benefit Plan, and state governments.   Although this may be true on the exchanges for the average citizen, it is not true for older people.  They will face affordability sticker shock whether on the exchange or not.  If they were in these other group plans as above, they would not pay more because age rating is just not the norm.

Very High Administrative Costs

The federal government has pumped a lot of money into the exchanges.  It will have provided the State of Rhode Island with over $100 million by 2015 when it will cut the umbilical cord and expect the exchanges to be self-sustaining.  Even the Commonwealth of Massachusetts, which has been running an exchange for five years and is the model for the country, received over $136 million from the federal government between February 2012 and January 2013.  

The Rhode Island exchange is an expensive program for a small state.  It is budgeted at $28 million per year for 2013 and 2014.  State legislators are concerned about the budget for 2015 when they will be on the hook for paying for it.  In a letter to the editor to the Providence Journal, “Whopping Costs for RI Exchange”,  I noted that if the program achieves its stated primary goal of a 10 percent reduction in the number of people uninsured by 2015, the cost of operating the exchange amounts to almost 30 percent of its overall expenditures (using its own projections of "target populations" and "potential premium range" and adding in premiums for Medicaid to determine expenditures). Even if it achieved 25 percent in years to come, the administrative cost would still be more than ten times that of Medicare at 1.4 percent of its total $549 billion in expenditures and twice what private health insurers are allowed spend on administration and profit (the medical loss ratio). 

I also noted that the administrative costs to get people insured amounts to more than the costs to actually insure them. Even if the exchange were to achieve an unrealistically high 50 percent reduction in the number of people uninsured, or about 50,000 people, by 2020, at a total cost of more than $200 million between the federal government at $100 million and the exchange costs between 2015 and 2020 of over $100 million, the cost per new enrollee would be $4,000 which happens to be higher than the average cost of the health insurance for a year.

Making Exchanges Better

It is important to step back and acknowledge that the overarching goal of the exchanges is to get many more people insured.  And, it is important for the exchanges to determine the subsidies for those in need and to enroll people in a fair and efficient way.  Obamacare has done almost everything politically feasible in terms of legislation to make this happen.  But, what is decreed in Washington is implemented locally. 

There are models for exchanges that do not jeopardize social justice, have a proven record of economic results and customer satisfaction, and do so at low administrative costs.  The best example is Medicare.  It has low administrative costs and has kept healthcare cost increases lower than the private sector over the long term.   It does not discriminate on age in its pricing.  It serves a social good that is paid for by the ability to pay, not by charging more to the sick or the old.  Most retirees love the program, even those who dislike government “intruding” in their lives.  Their common refrain is, “Do not take my Medicare away.” 

As the exchanges come on line in just a few weeks they will provide transparency about prices for insurance, their administrative costs, and who the winners and losers will be.  It is important to recognize that the exchanges are an additional overlay to a relatively high-cost private health insurance system.  In hindsight, it might have been better to allow older people to enroll early in Medicare as they can do with Social Security.  It might have been better to have a single payer system.  But, “it is what it is” after 50 years of debate.  What is critical for the exchanges to accomplish in order to be self-sustaining beyond 2015 is to stop age discrimination and adopt community rating, reduce administrative costs by achieving economies of scale across states, and make a difference in peoples’ lives by assuring sufficient and affordable health insurance benefits.

Exchange This!

As the prices for insurance products on the health insurance exchanges become public, there is a growing awareness of affordability sticker shock that threatens its economic and moral sustainability.   We all know that health care costs are way out of line and are the primary reasons for high insurance costs. The private insurance model we continue to depend upon cannot elude this problem.  Somebody must pay.

Subsidies will help ease the affordability problem for most people (now) seeking insurance on the exchanges. But, for those who do not qualify for subsidies (those with an income of more than $45,000 per year) the premium prices and ratcheted-down benefit plans will be too much to bear and these people may continue to go without insurance.  One group in particular is being discriminated against.  My op-ed , "Don't Balance Health Care on Elderly Backs", published in the Providence Journal, is reprinted below.

Dwight McNeill: Don’t balance health care on elderly backs

September 09, 2013 01:00 AM

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BY DWIGHT MCNEILL

Felice Freyer’s Sept. 1 article (“Tall ambitions for Obamacare in R.I. — more than insurance”) was meant “to describe . . . not critique” the vision of HealthSource RI, the health insurance exchange for Rhode Island. But we need to be critical thinkers and reporters about features of the exchanges that may lead to their demise.

One longstanding concern about private insurance is charging people more for their personal characteristics. Buying insurance from the exchanges should be just like buying products over the Internet through Amazon.com. But there is one big difference. When you go to Amazon.com to buy a television set you do not have to pay three times what somebody else pays just because you are older.

The newly published rates from HealthSource RI charge older people three times those of younger people, as the law intended. For example, if one picked the mid-level “silver” plan, the yearly cost would be $8,388 for the 64-plus individual and $2,784 for the 24-year-old.

For the older person making $45,000 and not eligible for subsidies, this amounts to 19 percent of income. For the young person, this amounts to 6 percent of income. Additionally, most of the mid-level “silver” plans offered have a deductible of $3,000 and an annual limit of $6,000. Older people are much more likely to have health conditions such as a chronic illness and a hospitalization that could quickly add up to the limit of $6,000. So, for a sick older person, the total impact of age-related pricing and a not-so-generous benefit plan could amount to over $14,000 out-of-pocket, or almost one-third of income.

An Obamacare hallmark was to eliminate most forms of insurance discrimination, including by gender, health status and pre-existing conditions. But age discrimination lives on. Why? It is not the norm around the world, under employers’ plans, in Medicare or the insurance program for Congress, and many states do not vary employee cost for insurance by age.

Peer countries that have a government-run insurance plan or offer supplemental private insurance also consider it illegal to price insurance according to age. In an ironic twist, Obamacare allows for increased insurance rates of up to 150 percent for people who smoke, but the smokers can evade this if they enroll in a wellness program. Older people cannot do anything to erase the toll of aging.

Age rating of insurance represents an American tension that plays out in many forms of public policy. Is health care and its insurance a right or a privilege? Are we a nation of individuals who “bowl alone” and take responsibility for our own risks and rewards, or are we a community of people that has shared goals and responsibilities?

Many believe that health care is a social good, like education and good infrastructure, and should be financed on the basis of the ability to pay, not on one’s use of services. If we extended the logic of use rating, shouldn’t there be extra fees for public education for families with children?

Age discrimination is the last vestige of an archaic private health-insurance system. This Achilles heel of the exchanges should go the way of the reversal of the “doughnut hole” for Medicare Part D before it. The sick or other population groups should not be singled out to balance the books for public policy.

Dwight McNeill, of Little Compton, is a visiting professor of population health and health policy at Suffolk University and author of the book “A Framework for Applying Analytics in Healthcare: What Can Be Learned from Best Practices in Retail, Banking, Politics and Sports.”