The Actuarial Challenge: Alternative approaches to improving health care

March 27th, 2017 / By Paul LaBrec

The greatest change to the U.S. health insurance market in the past decade was undoubtedly the Affordable Care Act (ACA). The ACA brought changes including the establishment of health insurance exchanges, mandatory insurance coverage, mandated benefits packages and the expansion of Medicaid programs. Under the ACA, access to health insurance coverage and health services has increased. On the other hand, there is evidence that costs have risen and provider networks have narrowed. Some health plans have left the exchange market and others have sustained losses.1

House Republicans recently released their response to the Affordable Care Act in a bill called the American Health Care Act (AHCA), which sought to repeal ACA mandates, modify premium tax credits, encourage the use of Health Savings Accounts (HSA), and substantially curtail Medicaid funding, among other changes.2  The Congressional Budget Office (CBO) has estimated that enacting the legislation would reduce federal deficits over the 2017-2026 period, but would increase the number of people who are uninsured.3  As of this posting, however, the House has been unable to secure enough votes to pass the bill and send it to the Senate.

Given the current political climate, where should we look for breakthrough thinking on healthcare policy?

Last September, the Robert Wood Johnson Foundation (RWJ) working with Milliman opened the Actuarial Challenge1 to various organizations employing or training actuaries. Challenge participants work in teams to “consider different policy levers to test alternative approaches for promoting increased enrollment, stable costs, and wide health plan participation in the individual health market.” Fourteen papers were submitted and five were chosen to move to Round Two, wherein financial models for the proposals will be developed. The winning submissions advancing to Round Two include:

Individual Market Redux
Allows more flexible plan design, wider premium range by age, and limited consideration of enrollee health status when setting premiums. Replaces some premium and cost-sharing subsidies with contributions to individual health savings accounts (HSA). Revises the ACA risk-adjustment methodology. Employs Medicaid reimbursement levels and increases cost transparency. Reduces mandated benefits using evidence-based research. 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) including a core set of benefits defined by federal regulation. Upgraded benefits can be purchased. Automatic enrollment with penalties for non-enrollment. Uses a risk adjustment and reinsurance program. Premium equalization adjusts for sociodemographic variation between markets. Offers premium subsidies similar to the ACA.

The Simplifiers
A fully publicly-funded standard preventive plan is provided for all. Beneficiaries must purchase a separate insurance plan for non-preventive services. Insurers may offer additional plans, subject to state regulations. Premiums limited to more affordable levels. Establishes permanent publically funded risk mitigation program. Hospital costs paid at Medicare reimbursement levels. Lowers drug costs by allowing purchases from qualified international suppliers. Offers low income premium discounts, and includes penalties for non-enrollment. Lifetime universal medical cards track enrolment and act as low-interest credit cards for premiums and out-of-pocket expenses. Current health insurance exchanges will become informational websites only.

Uses auto-enrollment into catastrophic plans to enforce coverage. Combines individual and small group markets with no self-funding allowed. Consumers can add benefits by buying add-on services. Employs state and federal block funds for subsidies which states administer. Lowers or eliminates minimum medical loss ratios. Continues risk adjustment and restores reinsurance for up to 5 years. Equivalent of cost-sharing reductions would be deposited into consumer’s HSA. Use reference-based pricing for provider fees. Encourage up- and down-side risk contracting with providers. Eliminate direct-to-consumer advertising. Provide more cost transparency tools to consumers.

King of Carrot Flowers
Creates three pools in the individual market: (1) Over 250 percent FPL (federal poverty level) with state regulated underwritten market, (2) Under 250 percent 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. Guaranteed insurance with continuous enrollment requirement. Provider incentives for effective patient management included. Encourages tax parity between individual and group markets, and more tax-favored status for HSA contributions.

In Round 2—presently underway—the finalists will simulate the financial impact of their proposals and include these results in a final project paper. RWJ plans to submit the results to congressional representatives for consideration as they debate the future of the ACA and the U.S. health insurance marketplace.

Paul LaBrec is research director for Populations and Payment Solutions with 3M Health Information Systems.

1. Robert Wood Johnson Foundation. Actuarial Challenge.
2. Henry Kaiser Family Foundation. Compare Proposals to Replace the Affordable Care Act
3. Congressional Budget Office. American Health Care Act Cost Estimate. March13, 2017