Affordable Care Act and Strains on the System

This has been an interesting week for issues surrounding health insurance for me.  I was surprised by the amount of the increase in my out-of-pocket premium each pay period for health insurance for 2015.  The explanation was not that all of my employer's health insurance premiums were going up so substantially.  Rather, the main issue was that with my raise, I passed a threshold that led to a higher out-of-pocket premium expectation.  Not completely unreasonable.  Just there.

Then, today, I saw an article in the Wall Street Journal.  The article talks about the link between the Affordable Care Act, expansion of Medicaid, and strains on the health care system.

This is not a completely unexpected result.  There may be other data that I have not seen that counter what I read in the article.  If so, I'd like to see them.

However, the key here is that the Affordable Care Act was designed primarily to do one thing--get more people insured.  At least that was my read of the act.  But I did not read every word, and apparently, at least some involved in designing it thought that the lack of transparency was a distinct political advantage.  (You can see a quote from a fellow health economist here.  The fact that anyone in my profession would make such a statement makes me sad.)

When more people get insured, it takes care of only one part of access--the affordability of care.  And the article in the WSJ even points out that in one state to make sure that new enrollees could be covered by Medicaid, it was necessary to tighten up the management of care for existing enrollees.  That leads to an interesting question about sustainability and the "social utility function."  Is it better to give excellent coverage to a smaller number or moderate coverage with lots of controls to a smaller number.

Additionally, the fact that only affordability changed is showing up in how long it takes people to get care sometimes.  And the waiting list is growing for others to get care as more people who were previously not using anything other than the ER engage in the system.  Predictable--totally.

What does this mean?  Was the Affordable Care Act bad?  That, I believe, still remains to be seen.  Was the law put in place without a holistic view of how to solve the problem of access to health care under budget constraints?  Yes.  Could the United States ever implement a holistic reform?  Not likely given the political environment.

So, while the Affordable Care Act may have solved some problems it has created others.  Does that mean it was worse than no legislation at all?  Hard to say.  Does it suggest there is room for improvement?  Yes.  Where will that improvement come from?  Likely from private sector innovation that finds a way to provide affordable access to care to keep a population healthier while making a profit.  The best way to have a healthy bottom line is to run a business in a healthy community.  This wraps all the incentives together nicely if someone or some organization can figure it out.    

A University Giving a Strong Incentive for Better Health Maintenance

Penn State University (by disclosure my undergraduate Alma Mater from which I received an award as alumnus of the year from the Honors College and for which I have mentored numerous undergraduates during my professional career--so I may not be completely unbiased in my assessment in this post) has recently announced that it is making a major change to its health insurance plan.  There is a good article in the Pittsburgh Post-Gazzette that can be accessed here (http://www.post-gazette.com/stories/business/news/penn-state-gets-tough-on-staying-healthy-698933/).

The gist of the plan is this--the University has set up a program called "Take Care of Your Health."  Employees are being asked to fill out some health information (they call it a wellness profile), schedule a physical, and schedule a series of lab tests to obtain "biometric" information (using the University's language) including lipid levels, blood pressure, body mass index, and other information.

What is the incentive?  Often times organizations will give their employees a discount for compliance.  And that discount is often rather small but enough to get people to do something as long as their preferences do not lead them to feel like they should not do it (perhaps employees would feel like this is too much information to share with their employer despite communication that the purpose is not to share it with the employer). However, this is not a positive incentive.  This is a very negative incentive.  Employees who do participate will go on paying the same premium they would have paid already.  Employees who do NOT participate will have to pay extra.  And not just a little extra.  They will have to pay $100 extra.  And not just once.  But every month.  That is $1200/year for each adult member--employees and spouses.

That is a big deal.  That would be more than a 1% decrease in income for a large number of university employees.

That raises a series of questions.  First, why are people not getting physicals and lab tests now?  Probably a two part answer there.  I don't have direct access to information on what Penn State's health insurance benefits pay for, but the physical may not be free and the labs are likely not free.  There is a money cost.  Also, there is a time cost.  Making the appointment. Getting to the doctor.  Waiting.  The time for the exam.  Getting home.  There may be child care costs.  There may be costs to coordinating with a spouse or partner.  The list goes on.  Both time and money are limited resources.  And if a person feels he or she is generally healthy and at little risk of an adverse outcome, then he or she is unlikely to feel the need for a physical.

The same thing goes for lab exams except even more in some ways.  While many health plans will cover one wellness driven physical per year, there is almost always a charge for lab tests.  These take time.  And they can sometimes be inconvenient--in terms of being required to fast beforehand, for example.

Second, is the $100/month enough to get people to change their behavior.  I can't predict for certain, but that would seem like a sufficient change in price (not just at an absolute level but probably in relative terms) to get many people to change behavior.  I would bet that a lot who end up paying the $1200/year will probably do so because they forget to take care of things in time.

Third, i have to ask myself what will be done with the $1200?  Or, conversely, what does having the self-reported and testing information give the University that they would not have otherwise. One statement is that they are not trying to be invasive into everyone's life but to save money overall by finding individuals who are likely to experience inordinately expensive medical care events based on a predicted probability.  The premise of requiring any program like this (where even if the individuals did not think that the $100/month charge was unreasonable or everyone filled out the form) is that the cost of requiring the form to be filled out, the data storage, the data analysis, and the data safety would be offset by avoided events.  I am not convinced that this has been shown to be the case in all examples that have been studied, but it is something to think about.  The $100/month is not necessarily an indication that the University predicts that the individuals who do not participate are more expensive.  In fact, they may be some of the healthiest, lowest cost individuals to the system.  However, the university is implicitly suggesting that for individuals who are not willing to share information, the university is going to shift some of the cost of transferring the risk back to the individuals.  Why do I phrase it that way?  The university is self-insured.  In other words, it pays money from its account and from employee paychecks into a fund it holds to later pay health care bills.  If they make good predictions the are just about right every year in predicting expenditures.  The university pays some and the employee pays some of what goes into the fund.  The university will still pay some for the employees who do not participate in the health maintenance program--just less.  The employee is not bearing any more risk--they know exactly how much more they will spend on health insurance.  They are just paying more from their own pocket to transfer the risk.

This is a complex and somewhat indirect way to get people to change their health maintenance investments and behavior.  It will be interesting to see whether this "big stick" approach works when the stick encourages behavior that helps predict big expenditures but affects behavior at a point several steps removed from the behaviors that actually produce large expenditures.