Health Care Reform Bills - Does Actuarial Value Trump Medical Loss Ratio?

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http://healthcare-legislation.blogspot.com/2009/11/does-actuarial-value-trump-medical-loss.html

"The Affordable Health Care for America Act introduced in the House on October 29 would require any health insurer in the small or large group market to issue rebates to enrollees if its medical loss ratio (the proportion of the insurer’s income from premiums that it uses to pay medical claims) fell below 85%. A quick review of major health insurers’ current medical loss ratios, as reported by the insurers themselves, indicates that most would have to beef up benefits paid, reduce their administrative costs, or provide rebates to their members...


The American Medical News on August 24 reported that, for the second quarter of this year, the average medical loss ratio of the largest publicly traded health plans was 85.2%, but ranged from 82.9% to 86.8%.

But limiting insurers’ administrative expenses is not necessarily the most beneficial strategy for insureds. Ensuring a high actuarial value of benefits provided would be best. The Congressional Research Service earlier this year reviewed “actuarial value” issues. The actuarial value provides an estimate of the proportion of health care expenses a plan likely will pay. As the economy has deteriorated, so has the actuarial value of employer-sponsored health insurance. Individuals covered by employer-sponsored health insurance these days get lower actuarial values and less protection..."


The actuarial squeeze on low and middle income families

http://pnhp.org/blog/2009/10/27/the-actuarial-squeeze-on-low-and-middle-income-families/

"...The best private insurance available today – employer-sponsored health plans – have an actuarial value of 80%. That means that the insurance pays 80% of the covered costs of health care and patients are responsible for the other 20%. Patients also are usually responsible for out-of-network services and for services and products that are not benefits of the plans.

The Health Affairs article by Jon Gabel and his colleagues shows that plans with an 80% actuarial value are not providing adequate financial protection to individuals with modest incomes who need health care. Having a plan with an 80% actuarial value can place you in the ranks of the underinsured.

Basic coverage under the proposals before Congress would provide an actuarial value of 65% or 70%. That means that the patients would be responsible for the remaining 30% or 35% of health care costs, although the proposals would limit the total amount for which the patients are responsible under the plans. Patients also would be responsible for out-of-network services and for services and products not covered by their plans.

If there is a cap on out-of-pocket spending, then why should the precise actuarial value make difference? Simply, the lower the actuarial value, the greater the likelihood that the patient will have to spend the full amount up to the cap. Thus more individuals will be negatively impacted. Also, the amount of the cap makes a very big difference. The proposed caps on out-of-pocket spending, when added to the patient’s share of the premium, create a financial hardship for most low and middle income individuals and families..."


Links from the above article

Provision Under Consideration for Merged Senate Health Bill Would Harm Needy Families

http://www.cbpp.org/cms/index.cfm?fa=view&id=2962


Trends In Underinsurance And The Affordability Of Employer Coverage, 2004-2007

subscription required

http://content.healthaffairs.org/cgi/content/full/28/4/w595

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1. Keep Your Eye on the Actuarial Value in Health Reform

http://theccfblog.org/2009/08/keep-your-eye-on-the-actuarial-value-in-health-reform.html

"...So, let's start with the basics. The actuarial value of a health plan is the share of health care costs that a plan would cover if an average population were enrolled in it. For example, a plan with an actuarial value of 70%, would cover 70% of the health care expenses of an average population, and 30% would be picked up by individuals. If you are enrolled in a health plan with an actuarial value of 70%, it does not mean that you, personally, only will have to pay for 30% of your health care costs. If you happen to use lots of medical care, you could end up having to pick up a much higher share of your costs, and if you are lucky, you could end up paying for a much smaller share.

...In the health reform debate, actuarial value is being used as an objective way to put a value on how good the coverage is that will be offered through "Exchange" plans. For those of use who follow health coverage for children and families, it will be critical to keep our eye on the minimum actuarial value established by various proposals because it will help determine whether the coverage offered as a result of reform is affordable and works for families.

The current House bill states that health plans must have an actuarial value of at least 70%, which means the insurance covers an estimated 70% of health-care expenses for an average population. The higher the actuarial value, the more generous the benefit package and less onerous the cost-sharing while a lower actuarial value, would indicate a less generous benefit package and higher cost-sharing. It isn't clear yet where the Senate will set the minimum, but estimates range from 65% to 76%. These are both less generous than the typical employer-sponsored preferred-provider plan that the Congressional Research Service estimates to be about 80% to 84%. It is also less robust than the standard PPO plan offered to federal employees according to CRS. (It is important to note that traditional Medicaid for children has an actuarial value of 100% and close to half of states use the Medicaid benefit package in their CHIP programs as well.)

Why should we care about what appears to be such an obscure number? The actuarial value provides a quantitative way to make sure plans meet a minimum value. It takes into account elements of a health plan such as deductibles, coinsurance, copayments, out-of-pocket limits, and benefit limits. If policymakers lower the minimum actuarial value, we know families will either receive reduced benefits or face higher costs.

As policymakers face pressure to reduce cost estimates for health reform, they very well may look to lowering that number, making plans skimpier and requiring more cost sharing from families. CCF will be keeping a close eye on minimum actuarial values and their impact on access and affordability to health coverage for children and families."

[andym]

2. This is an important issue

Perhaps the bill can be amended in the house. Or added to something coming out of the senate.

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3. Thanks :) n/t

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4. Drew Altman on Americans affording health care

http://pnhp.org/blog/2009/11/03/drew-altman-on-americans-affording-health-care/

"...MR. ALTMAN: I think the public option issue has diverted attention from lots of other issues, and I think this issue of affordability will emerge as a big issue. And there’s a tradeoff as they design this legislation between keeping the overall sticker shock, the price tag of the legislation down and the generosity of the subsidies they can give to people and the comprehensiveness of the coverage that people get, how high–how big those deductibles will be that average middle-class families are going to be asked to pay.

And that’s a very big issue. It’s going to be a big issue not just for the people who are in these exchanges, who get these policies, but for the American people generally who look at this and say is this a fair deal, is this a good deal for people who now have to have health insurance coverage.

I think this is the sleeper issue still. This affordability issue.

And it’s hard to understand. They’re focused on the public option. They haven’t gotten to it yet. So this issue of affordability, I think, is a sleeper issue because it’s complicated, hard to understand how coverage works, what an actuarial value is, how the subsidies work at different income levels, and because they’re focused on the public option. Everyone is so focused on the public option right now, but I think as they get to one bill that everyone can put under a microscope, then this issue of the subsidies and the coverage will really rise to the surface, and we’ll have a much bigger debate about that.

And that’s the consumer issue. It’s the real meat-and-potatoes consumer issue in this legislation..."

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5. New - CBO on premiums and cost sharing of the House bill

http://pnhp.org/blog/2009/11/04/cbo-on-premiums-and-cost-sharing-of-the-house-bill/

http://www.cbo.gov/ftpdocs/106xx/doc10691/hr3962SubsidiesRangelLtr.pdf


"Letter from CBO Director Douglas Elmendorf
Congressional Budget Office
November 2, 2009

This letter responds to questions about the subsidies that enrollees would receive for premiums and cost sharing and the amounts that they would have to pay, on average, if they purchased a relatively low cost plan in the new insurance exchanges to be established under H.R. 3962, the Affordable Health Care for America Act, as introduced in the House of Representatives on October 29, 2009.

The enclosed table focuses on enrollees who purchase a “reference” plan (the premiums for which equal the average of the three lowest-cost “basic” plans, as defined in the bill), because federal subsidies would be tied to that average. Such a plan would have an actuarial value of 70 percent, which represents the average share of costs for covered benefits that would be paid by the plan.

Although premiums under H.R. 3962 would vary by geographic area to reflect differences in average spending for health care and would also vary by age, the table shows the approximate national average for that lower-cost reference plan — about $5,300 for single policies and about $15,000 for family policies in 2016. Enrollees could purchase a more expensive plan or more extensive coverage for an additional, unsubsidized premium — and CBO anticipates that many enrollees would do that, so the average premiums actually paid in the exchanges would be higher (although average cost-sharing amounts could be lower than those shown in the table).

Estimate for “Reference Plan” in 2016 — Average of 3 Lowest-Cost Basic Plans:
Family Policy:
70% – Actuarial value
$15,000 – Average premium
$5,500 – Average cost sharing

One example – a family of four at a higher income level:

400-450% – Income relative to the federal poverty level
no cap – Premium cap as a share of income
$102,100 – Middle of income range
$15,000 – Enrollee premium in reference plan
0% – Premium subsidy (share of premium)
none – Average cost sharing subsidy
$5,500 – Average net cost sharing
$20,500 – Enrollee premium + average cost sharing
20% – Premium + cost sharing as a percent of income

......"

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6. If you use the health care calculator on the Kaiser site remember the premium...

is for a policy with a 70% actuarial value.