Can the actuaries design a more effective and equitable financing system?
Actuarial Challenge: Announcement of Round One Results
Robert Wood Johnson Foundation
The Actuarial Challenge, sponsored by the Robert Wood Johnson Foundation (RWJF), brings actuaries together to explore approaches to stabilize the individual health insurance market. The Challenge is administered by Milliman, Inc. and actively promoted by the American Academy of Actuaries and the Society of Actuaries. Support for the Actuarial Challenge is being provided by the Robert Wood Johnson Foundation.
The Challenge kicked off in late September. Almost 70 participants registered, comprising 20 teams. Initial papers were submitted by December 9th. The papers each presented a proposal of various ways in which the individual health insurance market could be reformed. The proposals were not intended to be comprehensive, but to offer ideas on different ways to improve certain aspects of the current system. A panel of five judges (all actuaries) reviewed each paper and ultimately selected five papers to move on to the next round. Round Two involves the selected teams working with Milliman to model their proposals to illustrate the potential financial impact on the individual health insurance market.
Round Two Proposals
Individual Market Redux
Revises rating to allow a wider premium range by age (5-to-1) and limited consideration of an enrollee’s health status in setting premium rates via an automated process (up to an additional 50% of premium). Uses contributions to individual health savings accounts for mid/low income consumers to replace premium and cost sharing subsidies. Revises risk adjustment methodology and restores a reinsurance mitigation program. Uses Medicaid reimbursement levels and increases health cost transparency. Increases penalties for not obtaining health insurance, but allows more benefit plan design flexibility. Reduces mandated benefits based on scientific evidence and use of an independent board. Incentivizes payment reform, integration of healthcare information, implementation of clinical best practices, and value-based care.
Why Not BE HIP?
Establishes a nationwide Basic Essential Health Insurance Plan (BE HIP) covering a core set of services/benefits set by federal regulation. Allows purchase of state regulated standardized supplemental plans (benefit riders) to offset cost sharing (i.e., upgrade to richer benefits). Automatic enrollment and/or penalty of full cost of basic plan if not enrolled. Uses a risk adjustment program and reinsurance to protect insurers. Premium equalization process to account for socioeconomic variations between insurers in a given market. Premium subsidies use similar methodology as the Patient Protection and Affordable Care Act (ACA), although percentages may differ.
All residents receive a fully publicly-funded preventive plan and must purchase an insurance plan for non-preventive services. Insurers must offer a standard plan but may offer additional plans subject to state regulations such as actuarial soundness, minimum coverage levels and loss ratios. Premiums will be limited to significantly lower and more affordable levels. A simplified, permanent publicly funded risk mitigation program based on reinsurance formulas will result in reduced premium. Hospital costs will be reduced by payment at Medicare reimbursement levels. Drug costs will be lowered by allowing purchase from qualified international locations. Simplified low-income premium discounts will be available. Penalties equal to the lowest cost insurance plan will apply for non-coverage. Lifetime universal Medical ID cards will be used to monitor enrollment, provide electronic medical records, and act as low-interest credit cards to pay for premiums and out-of-pocket medical expenses. Exchanges will act simply as informational websites.
Uses auto enrollment into newly defined catastrophic plans to enforce participation, and combines the individual and small group markets (with no self-funding allowed in the small group market). Consumer can add benefits through purchase of supplemental benefit riders. Block funds for subsidies provided from federal to state for the state to administer. Elimination of dual regulation to reduce expenses. Allows wider rating for age (5-to-1) and lowers or eliminates minimum medical loss ratios. Continues risk adjustment and restores reinsurance for up to five years. The equivalent of cost-sharing reduction (CSR) funds would be deposited into a consumer’s health savings account (HSA), if eligible. Use reference-based benefit pricing for provider fees. Encourages risk contracting with both upside and downside risk to the provider. Eliminates direct-to-consumer advertising. Eliminates grandfathered and transitional business. Focuses on consumer accountability by providing consumers with improved cost transparency and other resources to help them make educated decisions regarding their healthcare.
King of Carrot Flowers
Creates three pools in the individual market: (1) Over 250% FPL (federal poverty level) with state regulated underwritten market, (2) Under 250% FPL with federally funded underwritten and subsidized market, and (3) Special Needs (High Risk) Pool with a federally-funded, highly-subsidized market for individuals with persistent high costs or uninsurable conditions. Guarantee issue, but requires continuous enrollment. Incentivizes providers to manage care. Encourages tax parity between individual and group market by capping group tax deductions. Allows more tax-favored health savings account contributions.
Milliman will work with these five selected teams to model their proposals in February and March. The five Round Two teams will be able to incorporate the modeling results in their final papers.
Nine other teams have the opportunity to refine their papers for possible exposure on the Actuarial Challenge website (which is hosted by the American Academy of Actuaries) or as decided by the RWJF at the end of the Challenge.
The Mod Squad
Increases incentives to first-time enrollees, but with significant penalties for not obtaining coverage after first year…
JHU Actuarial Club
Provides enhanced benefits (e.g., gym membership, fitness classes, preventive services, etc.) in insurance coverage to encourage younger individuals to purchase…
Policy Proposal for Healthy Behavior Incentive (“HBI”) Plans
Healthy Behavior Incentive Plans encourage a partnership between the insured, insurer, and health care provider to maintain well-being rather than just reimbursement for expenditures…
Underwriting and Premium Rating using Risk Adjustment
Focuses on improving market stability through increased enrollment of lower cost individuals by revising the rating basis to better align with expected costs…
Increases individual market penalties to encourage more enrollment by young and healthy uninsured, and mitigate developing anti-selection spiral in the individual market…
Team ACA Version 2.0
Proposes changes to the subsidy and risk adjustment programs…
Consulting Actuaries for Sustainable Healthcare
Insurance reforms to improve actuarial soundness, and provider price & quality reforms, to address unsustainable underlying healthcare spending…
Develops actuarial incentive compensation for physicians who are effective at addressing the underlying cause of patient health conditions by using the “food as medicine” concept…
A Social Insurance Solution To Health Care Finance
Proposes to use a social insurance model to replace all current health insurance (across all markets). Covers all legal residents in the program through a payroll tax for funding. Insurance plan would cover preventive care and catastrophic care (exceeding 7.5% of income). Low income families would receive additional assistance similar to Supplemental Nutrition Assistance Program (SNAP) benefits. Routine care would be funded by individuals, but administered through a central fund, billing patients as with a credit card. Administrators must negotiate with providers, but must make all fees available to the public.
About the Actuarial Challenge:
By Don McCanne, M.D.
In designing a health care financing system that is efficient and effective in ensuring affordable access to health care, it seems that the nation’s actuaries should be up to the task. So it is informative to see what recommendations were elicited when the Robert Wood Johnson Foundation, assisted by Milliman, Inc., issued the Actuarial Challenge, calling for an exploration of approaches to stabilize the individual health insurance market.
Of the proposals submitted, five were selected to move into the second round to work with Milliman to model their proposals to illustrate the potential financial impact on the individual health insurance market. Although some proposals would introduce improvements into the individual insurance market, they all would increase administrative complexity and none would ensure affordable coverage for all participants in the individual market.
Nine other proposals were selected for possible posting on the Actuarial Challenge website, although they do no move into round two. They too are quite disappointing except for one proposal - A Social Insurance Solution To Health Care Finance - that seems to acknowledge the importance of a universal system. Though even that proposal requires cash payments for all routine care except preventive care and catastrophic care charges exceeding 7.5% of income. We have plenty of studies to show that the excessive out-of-pocket costs of this model would leave too many people broke and without the care they need.
Except for the social insurance model, the authors of the proposals limited themselves to solutions for the individual market - a relatively small sector of health care - which is understandable since that was the challenge they were given.
There are two predominant disappointments with the submissions for this challenge. The first is that it should be intuitive that the problems of the individual market cannot be resolved with patches limited to that market. The solutions require a fundamental change of the financing infrastructure of our entire health care system, and the actuaries should acknowledge that in their proposals.
The other disappointment is in the nature of the various recommendations. They seem to lack a sensitivity to the imperative to address issues of health care justice, ensuring an equitable system to bring affordable care to everyone, whether just in the individual market or throughout the entire system - the latter actually being the moral imperative.
The model that would work is already well understood - a single payer national health program, aka an improved Medicare for all. Maybe we can teach the actuaries something, though it would be difficult. I will say that I once was a speaker at a national meeting of actuaries, and I did find that there was some insight amongst the members, but that didn't translate into policy recommendations.