Richard Fuller, 3M Health Informatics
The initial focus of media and industry scrutiny during the launch of health insurance exchanges was primarily the potential for adverse enrollee selection of insurance products. Healthier enrollees would opt for less comprehensive packages (or avoid enrollment), while the sicker would obtain more comprehensive coverage. The net result of this situation is the adverse selection-induced, so-called “death spiral.” In fact, the exchanges appear to have successfully captured significant numbers of younger enrollees, with the majority of enrollees opting for the benchmark silver levels. High-cost individuals within the community rated pool are accounted for by the 3Rs – reinsurance, risk-corridors and risk-adjustment, with reinsurance and risk-corridors being phased out as the initial shock of transitioning to the new insurance structure is absorbed.
The other side of the coin of risk selection is the potential for insurers to introduce strategies that avoid individuals incurring high medical cost relative to the premiums received. If an identifiable group of individuals are, on average, likely to have costs in excess of premiums, and there are sizeable numbers of these individuals, then a strategy to deter enrollment will increase profitability of the plan and decrease the profitability of the other plans in which they subsequently enroll – a double win. Insurer selection has so far received less attention in discussion of health insurance exchanges. Medicare Advantage plans have been shown to structure personal financial liabilities and add-on benefits in order to capture more profitable (healthier) enrollees. These concerns are similarly applicable to exchanges. Since decreased profitability will increase all of that plan’s premiums and deter enrollment, a successful strategy adopted by one plan will be followed by all plans, not just for added profit, but for survival. Which brings us to the allegations of discrimination against HIV patients on the exchanges that are beginning to rumble towards court.
The allegation is that insurers have placed drugs associated with a particular disease, HIV, onto the highest cost sharing tier of their formulary. Necessary drugs without cheaper substitutes are placed at the top end of the cost sharing tiers – a practice usually reserved to induce selection of cheaper alternatives. It can (and probably will) be argued that this is part of the wider movement towards narrow networks that attempt to restrict costs by placing pressure on pharmaceutical companies to deal more directly with the end users from which they extract their profits. If so, this is a particularly blunt instrument through which to achieve that goal. An alternative interpretation is that this is a strategy to select against those enrollees with HIV,1 a position taken by numerous advocacy groups, and a course of action that may fall afoul of the ACA’s discrimination provisions. Interestingly, the Pharmaceutical Researchers and Manufacturers of America (Phrma), the trade association of pharmaceutical companies, recently commissioned a report reviewing the placement of many other high-cost drugs on exchange plan formularies and found that other disease types in addition to HIV, mental health, oncology and multiple sclerosis, also had plans placing all related drugs within particular classes on the top tier of cost sharing.
If this is a strategy to discourage enrollment of certain high-cost individuals, then why would plans want to deter enrollment, risking both lawsuits and negative publicity? It could be that the transition from medical underwriting with known histories, stiff penalties and large margins has made insurers risk-averse, particularly at the outset of the exchange. This may explain a desire to avoid costly individuals, but does not explain avoiding a disease cohort with well projected treatment costs and enrollees that are easily identified for risk scoring. Having made the decision to launch an exchange product, the operation of risk-corridors and reinsurance make the early period of the exchange the ideal time to get to grips with this population. Three of the plans named in the lawsuit are national brands and are not new to disease management and complex populations. If lack of experience and fear of attracting unknown risk early on are not driving factors, then that leaves us with the simple explanation that it is the result of individuals being high-cost.
The fact that an enrollee has costly conditions should be accounted for within the risk-adjustment model used to redistribute premiums across the insurance pool. In fact, high-cost individuals afford the greatest opportunity for profit, as the pattern and cost of their care generally permits greatest savings through improved coordination and disease management, an issue frequently raised in these blogs. The question, therefore, becomes whether the plans believe that the risk-adjustment model is adequately accounting for the costliness of these complex disease cohorts – a quantifiable assessment that will become more pressing as exchanges (and exchange strategies) mature and risk-corridors and reinsurance are phased out. Recent literature indicates that the challenge might be in the risk adjustment model itself – the subject of another blog.
Richard Fuller, MS, is an economist with 3M Clinical and Economic Research.
The other side of the coin of risk selection is the potential for insurers to introduce strategies that avoid individuals incurring high medical cost relative to the premiums received. If an identifiable group of individuals are, on average, likely to have costs in excess of premiums, and there are sizeable numbers of these individuals, then a strategy to deter enrollment will increase profitability of the plan and decrease the profitability of the other plans in which they subsequently enroll – a double win. Insurer selection has so far received less attention in discussion of health insurance exchanges. Medicare Advantage plans have been shown to structure personal financial liabilities and add-on benefits in order to capture more profitable (healthier) enrollees. These concerns are similarly applicable to exchanges. Since decreased profitability will increase all of that plan’s premiums and deter enrollment, a successful strategy adopted by one plan will be followed by all plans, not just for added profit, but for survival. Which brings us to the allegations of discrimination against HIV patients on the exchanges that are beginning to rumble towards court.
The allegation is that insurers have placed drugs associated with a particular disease, HIV, onto the highest cost sharing tier of their formulary. Necessary drugs without cheaper substitutes are placed at the top end of the cost sharing tiers – a practice usually reserved to induce selection of cheaper alternatives. It can (and probably will) be argued that this is part of the wider movement towards narrow networks that attempt to restrict costs by placing pressure on pharmaceutical companies to deal more directly with the end users from which they extract their profits. If so, this is a particularly blunt instrument through which to achieve that goal. An alternative interpretation is that this is a strategy to select against those enrollees with HIV,1 a position taken by numerous advocacy groups, and a course of action that may fall afoul of the ACA’s discrimination provisions. Interestingly, the Pharmaceutical Researchers and Manufacturers of America (Phrma), the trade association of pharmaceutical companies, recently commissioned a report reviewing the placement of many other high-cost drugs on exchange plan formularies and found that other disease types in addition to HIV, mental health, oncology and multiple sclerosis, also had plans placing all related drugs within particular classes on the top tier of cost sharing.
If this is a strategy to discourage enrollment of certain high-cost individuals, then why would plans want to deter enrollment, risking both lawsuits and negative publicity? It could be that the transition from medical underwriting with known histories, stiff penalties and large margins has made insurers risk-averse, particularly at the outset of the exchange. This may explain a desire to avoid costly individuals, but does not explain avoiding a disease cohort with well projected treatment costs and enrollees that are easily identified for risk scoring. Having made the decision to launch an exchange product, the operation of risk-corridors and reinsurance make the early period of the exchange the ideal time to get to grips with this population. Three of the plans named in the lawsuit are national brands and are not new to disease management and complex populations. If lack of experience and fear of attracting unknown risk early on are not driving factors, then that leaves us with the simple explanation that it is the result of individuals being high-cost.
The fact that an enrollee has costly conditions should be accounted for within the risk-adjustment model used to redistribute premiums across the insurance pool. In fact, high-cost individuals afford the greatest opportunity for profit, as the pattern and cost of their care generally permits greatest savings through improved coordination and disease management, an issue frequently raised in these blogs. The question, therefore, becomes whether the plans believe that the risk-adjustment model is adequately accounting for the costliness of these complex disease cohorts – a quantifiable assessment that will become more pressing as exchanges (and exchange strategies) mature and risk-corridors and reinsurance are phased out. Recent literature indicates that the challenge might be in the risk adjustment model itself – the subject of another blog.
Richard Fuller, MS, is an economist with 3M Clinical and Economic Research.
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