April showers bring May flowers, and high hospital prices coupled with coverage losses leave patients with blooming debt. In this month’s research round up, I look into analyses of the success of recent stabilization efforts, the consequences of current federal uncertainty on health insurance coverage, best practices from the federally facilitated marketplace (FFM), third-party payment programs, and why in the world hospital visits cost so much money for the privately insured.

Cox, C. et al Individual Insurance Market Performance in 2017. Kaiser Family Foundation; May 17, 2018. Before current efforts to scale back the Affordable Care Act (ACA), the individual market saw high-profile insurer exits in 2017. Additionally, last year the Trump administration cut off cost-sharing reduction (CSR) payments, potentially hurting insurer profits. Experts at the Kaiser Family Foundation looked into how individual market insurers faired under such turbulence.

What it Finds

• Insurers saw improvements to their medical loss ratios (MLR), the share of premium dollars spent on medical claims and a measure of financial performance. The average individual market MLR decreased from 103 percent in 2015 to 82 percent in 2017.
• Gross margins improved dramatically to $79 per enrollee per month in 2017 from just over $9 per enrollee per month in 2015.
• Profit increases are the result of large premium hikes, averaging 22 percent per person from 2016-2017, coupled with much slower growth in claims for medical expenses, averaging 5 percent per person in that same time frame.

Why it Matters

After a few tough years for the individual market in the wake of the ACA’s sweeping insurance reforms, insurers began to see better profits and a stabilizing market in 2017. Absent further uncertainty, one would expect premiums to balance out as insurance companies are better able to predict medical claims and risk. Unfortunately, the 2018 individual market saw even more turbulence with federal efforts to repeal and scale back efforts the ACA. As noted in a recent Commonwealth Fund survey (below), 2018 saw significant decreases in insurance coverage coupled with significant increases in premium rates. The Kaiser Family Foundation’s research illustrates how the individual market was stabilizing in 2017, but notes how the market will continue to be sensitive to policy uncertainty.

Collins, S. et al. First Look at Health Insurance Coverage in 2018 Finds ACA Gains Beginning to Reverse. Commonwealth Fund; May 1, 2018. The ACA resulted in significant coverage gains, dropping the U.S. uninsured rate to a historic low. However, federal efforts to roll back the ACA since 2016 have reversed that progress. The Commonwealth Fund completes a national survey each year to track coverage gains and losses across the country.

What it Finds

• 4 million working-age people (ages 19-64) lost coverage between 2016 and 2018, bringing the uninsured rate from 12.7 percent to 15.5 percent.
• Coverage losses are greatest among those below 250 percent of the federal poverty level (FPL), rising from 20.9 percent in 2016 to 25.7 percent in 2018.
• Those aged 35-49 had more coverage losses than all other age groups, going from a 11.3 percent uninsured rate in 2016 to a 17.7 percent uninsured rate in 2018.
• 20 percent of adults in the South are uninsured in 2018, compared to 16 percent in 2016.
• Across all types of coverage – employer, individual, and Medicaid – 5 percent of adults plan to drop coverage following the federal repeal of the individual mandate penalty.

Why it Matters

Also in May, the Center for Disease Control and Prevention (CDC) published a national survey estimating insurance coverage rates, called the National Health Interview Survey (NHIS). Many media outlets noted that the NHIS found that post-Trump administration coverage losses were insignificant. Journalists and readers should note, however, that the CDC’s survey was conducted in 2017, not 2018. The Commonwealth Fund also found that coverage rates of working-age adults did not significantly decline between 2016-2017. However, Commonwealth Fund’s survey, conducted in 2018, is more current evidence of the effects of recent federal actions and policy uncertainty, which led to consumer confusion over the future of the ACA and cause many insurers to dramatically increase premiums in 2018.

Hempstead, K. Marketplace Pulse: Bright Spots. Robert Wood Johnson Foundation; May 1, 2018. The stories surrounding the 2018 open enrollment period typically focus on coverage losses, premium spikes, and insurer exits. However, some federally facilitated marketplace (FFM) states bucked the trend, at least compared to other FFM states in their geographic region.

What it Finds

• New Jersey, Kansas, Alabama, and Montana came into 2018 with below average premium increases compared to other states in their respective regions.
• New Jersey and Alabama also showed net increases in plan participation, which is especially notable for Alabama, which has historically had a highly concentrated insurer market.
• Montana, located in the most expensive region in the country, maintained premium increases well below the regional average.
• These four successful FFMs have distinct regulatory environments, but also share some similarities. All four have little to no enrollment in grandfathered or transitional plans; all four have a dominant state-wide Blues plan, and all had insurers deploy “silver loading” in reaction to the federal government cutting off CSR payments.

Why it Matters

It is often not clear why one state’s insurance market is more stable and lower cost than another state’s. Evidence suggests that many state-based marketplaces have been more successful than FFMs on key metrics such as enrollment, coverage levels, insurer participation, and premiums. Among FFMs, the picture has been murkier, but this and other research help support the thesis that state-level policy decisions make a difference, as does the behavior of local insurers.

Dorn, S. Assessing the Promise and Risks of Income-Based Third-Party Payment Programs. Commonwealth Fund; May 21, 2018. Consumers with high-cost health needs are more likely to struggle to find affordable health care. National organizations, local nonprofits and hospital systems have developed funding mechanisms to offset costs for low-income consumers to access marketplace coverage in the form of third-party payment (TPP) programs. Under such programs, an organization such as a religious charity, health care provider, or other organization contributes towards the premium payments of eligible individuals. This study asserts that certain TPP programs have shown promise in reducing costs for low-income individuals without causing adverse selection. However, many insurers are concerned that TPP programs have adverse selection effects because they steer some of the sickest patients into the marketplace risk pool. There is evidence that, in some cases, these patients have been eligible for public programs such as Medicare or Medicaid, but that providers use TPP programs to sign them up for commercial insurance in order to gain the higher reimbursement rates offered by commercial insurers.

What it Finds

• Hospitals funding TPP programs saw net profitability increases as a result of decreased uncompensated care expenses and consumers’ ability to seek preventive and continued care. All funding hospital systems renewed their TPP programs, and in some cases, increased their financial commitment.
• Nonprofits TPP programs found administrative costs manageable, and believe their programs benefit their organization by contributing to their overall missions.
• Insurers did not see adverse selection as a result of the selected nonprofit TPP programs, but Dorn suggests future programs require all marketplace carriers participate in TPP programs to ensure the spreading of risk.

Why it Matters

Health care costs and premiums continue to rise. Without comprehensive efforts to bring costs down, community organizations have stepped up to offset costs incurred by sick patients by paying for their insurance. But these programs are not without controversy; states like Washington and California are looking to limit such programs due to organizations such as the American Kidney Fund using corporate funding from dialysis companies to steer patients towards private insurance, which pay those same companies higher reimbursement rates than Medicare and Medicaid. Consequently, as states look towards programs to alleviate the financial burden on low-income consumers, they need to carefully structure their programs to avoid potential kickback issues as well as adverse selection.

Cooper, Z. et al. The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured. Health Care Pricing Project; May 7, 2018. Health care costs continue to rise year after year, with much of the increase attributed to cost of medical services and prescription drugs. Hospitals in particular have become increasingly consolidated, and are using their increased market leverage to demand higher prices. Experts with the Health Care Pricing Project looked into what causes high hospital prices in the private market.

What it Finds

• Monopoly hospitals have prices 12 percent higher than prices at hospitals with four or more competitors.
• Monopoly hospitals make insurance companies bear more financial risk, and vice versa for markets with monopoly insurance companies.
• When nearby hospitals merge, the prices increase by an average of 6 percent, whereas they tend to stay stable when merging hospitals are further apart.
• When hospital reimbursement rates are set at a share of charges rather than prospective payments (like Medicare and Medicaid), hospitals are less incentivized to find cost savings, and financial risk is transferred to the insurer.

Why it Matters

Health care now accounts for almost 18 percent of our gross domestic product, and is projected to rise to 20 percent by 2025. Studies like these help inform policymakers about what is driving cost increases in health care and can enable evidence-based policy interventions. Without policy action, hospitals and insurers ultimately decide the prices we pay through contract negotiations, creating huge variations across the country and in too many cases, steep bills for patients.