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Health Reform Basics. Outline . Setting the Stage Rational for Reform Access and Reform The Economics of Exchanges/Marketplaces. Setting the Stage for Reform . The Goals: Access Cost Value Quality
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Outline • Setting the Stage • Rational for Reform • Access and Reform • The Economics of Exchanges/Marketplaces
Setting the Stage for Reform • The Goals: • Access • Cost Value • Quality • Economists have assumed that you can’t improve one area without harming at least one of the others
Access • Nonelderly American’s Source of Health Insurance Coverage, 2011
Cost/Quality • The average value of medical advance is very high • The average 45-year-old will spend $30,000 more on cardiovascular disease care than the equivalent person did in 1950 • He/she will live another 3 years because of this care • We have spent a lot, but have gotten a lot more • Most estimates suggest that 20 to 30 percent of medical spending could be eliminated with no adverse effects on patient outcomes
Cost/Quality • Beyond A is unambiguous waste • Between C and A could be waste if benefits<costs • Especially if it is somebody else’s care
Sources of Excess Cost (2009) Source: IOM, 2010
Reform • Most of the ACA deals with the access issue and much less directly with the value equation • Easier problem to tackle • We don’t really understand how to create value • Less resistance from interest groups • That $765 billion in waste is someone’s paycheck
Access • Why Are They Uninsured? • Too expensive • Administrative costs • Irregularities in insurance markets (small families subsidize large ones) • Adverse selection in individual market • Implicit Insurance through uncompensated care • Over-insurance
Reform • Explanations • Tax Subsidy • Regulation • Psychological motivation
Access • Why Do We Care About the Uninsured? • Market failure of individual market • Externalities • Physical • Financial ~$43 Billion or 2% of HC spending • Labor market inefficiencies – “job lock” • Paternalism • Redistribution
Access • Two Types of Solutions • Sweeping Universalism • 163 million privately insured plus 46 million Medicare who are mostly happy with current state • 50 million uninsured not happy • Incremental Universalism • Tweak the current system to accommodate the 50 million
3 Issues with Incremental Universalism • Pooling • If pools are too small or attract high risk, insurers will be reluctant to offer coverage for fear of high cost exposure • Large pools exist for Medicare/Medicaid/large employers • Solving the problem of the uninsured/underinsured requires developing effective pooling mechanisms
3 Issues with Incremental Universalism • Affordability • Insurance is expensive • Average cost of employer provided family coverage in 2011 was just over $15,000 per year • A family of four at 200% of the poverty level earns about $47,000 per year. • This is about a third of their income • Even if those with low incomes had access to large pooling arrangements, they would still need subsidies.
3 Issues with Incremental Universalism • Mandates • Full insurance requires a mandate • Even large subsidies will not be sufficient • Many of the currently uninsured qualify for public insures and still do not take it up • Mandates provide more effective risk pooling • Transfer from those who are currently healthy to those who are currently sick • Without a way to compel individuals to participate the market will fail
Three-Legged Stool • Community Rating • Giving individuals with pre-existing conditions access to health care • Requires the Mandate • Otherwise adverse selection occurs • Employer provided insurance has a hidden mandate • Need a subsidy to make insurance affordable
Bang for the Buck • Targeting • The extent to which new spending is directed to those who would otherwise be uninsured • As opposed to buying out the base or crowding out
Insurance Exchanges • Provides a large risk pool for the individual and small employer to participate in • Apples-to-apples: should lower price of coverage • Designed to create competition in insurance markets • Lower barriers to entry • Transparency to the consumer • Can see tradeoffs in price and generosity and network size • Incentives for innovations
Insurance Exchanges • States have the ability to control the number and types of plans, set quality or prices standards • States can also bar the sale of insurance to individuals and small businesses outside of the exchanges – or require they also be sold in the exchanges • To prevent “cherry-picking” • Vermont and DC are the only states to do this so far • The ACA has many “experiments” for alternative methods for paying for care and organizing providers. • The exchanges will be in position to encourage or require the adoption of those innovations that work.
Marketplace Basics • Terminology: Health Insurance Marketplace (formerly known as the Exchange) and SHOP for small employers • Compare private insurance plans based on price, benefits, quality, and other features • Most people will get a break on costs • “No wrong door” with Medicaid and CHIP • Open enrollment starts October 1, 2013, and coverage is effective beginning on January 1, 2014
The Enrollment Opportunity Source: Enroll America 49 Million Total Nonelderly Uninsured If All States Expand Medicaid
ACA Support Fitted to Your Income Family Income Family income based on 2013 federal poverty income levels for a family of four
ACA Coverage and Coverage Gap Family Income Family income based on 2013 federal poverty income levels for a family of four
Marketplace Administration Source: The Commonwealth Fund, www.commonwealthfund.org/Maps-and-Data/State-Exchange-Map.aspx State-based Partnership Federally facilitated
Coverage Level Options in the Marketplace Essential Health Benefits • ambulatory services; • emergency services; • hospitalization; • maternity and newborn care; • mental health and substance use disorder services; • prescription drugs; • rehabilitative and habilitative services and devices; • laboratory services; • preventive and wellness services and chronic disease management • pediatric services dental and vision care % paid by enrollee % covered by plan Platinum Gold Silver Bronze Catastrophic plan for people under 30 or if no other coverage is affordable
