Actuarial Value: What Does It Mean?

Actuarial value is a term that has been frequently used in connection with health plans on the the federal and state exchanges. Let's take a minute to understand the term as a way to better understand the health reform law.

Actuarial value refers to the share of health care expenses the plan covers for a typical group of enrollees. The four tiers of health plans established by the ACA - bronze, silver, gold, and platinum - are based on the concept of actuarial value.  Each represents a different level of health insurance coverage. Thus, a platinum plan covers the greatest share of enrollees' medical expenses overall, while a bronze plan covers the least.

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For example, in a bronze plan, 60% of an individual's health care expenses are paid for by the plan.  The individual will then be responsible for 40% of expenses through some combination of deductibles, co-pays, and coinsurance, collectively called "cost-sharing."  The higher the actuarial value, the less patient-cost-sharing the plan will have on average.

The levels of coverage provided by the ACA are key to each individual's coverage and how each will perceive the effects of health care reform. 

For an estimate of deductibles and coinsurance that would meet the tier thresholds defined in the ACA, please visit this study by the Kaiser Family Foundation.  It explains the the coverage tiers established in the ACA, presents the actuarial estimates from thee well-established actuarial and benefits consulting firms, and discusses the potential policy implications.

Health Care Reform Propels Shift in Mental Health Business Model

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By now, many patients may have noticed a change in their doctors' offices. Perhaps you've been asked to sign new confidentiality agreements, or maybe your doctor moved into a larger office with more providers. The phenomenon of large provider groups gobbling up small health care provider practices has arrived, and it's having an especially significant effect on mental health providers. 

Psychiatrists and psychologists are feeling a loss of autonomy, as their patients and schedules are now being chosen and managed by larger institutions.  In some cases, these providers are also taking significant cuts to their paychecks.  Blue Shield of California, for instance, recently asked psychologists on their plans to accept anywhere from a 10- to 30- perfect discount for patients who will buy health plans through Covered California. (Kaiser Health News, 10/24/13.)

As more and more patients expect their mental health care to be covered by insurance, there may soon be a trend away from smaller practices who may not accept as many insurance plans. As patients

But the shift from solo/small practices toward large medical groups isn't all bad, especially not for patients. 

For patients, it may mean lower prices, especially when for mental health services. Where as patients might have paid $150 out of pocket for a therapy session, those same sessions may now be covered by insurance via the 2008 mental health parity law.  Mental health parity requires private and public insurers to cover mental health needs, if at all, just as they do physical health conditions, such as similar co-pays for for physical and mental health services.

In addition, quality of care has great potential to increase as a result of this shift. For example, mental health providers are becoming increasingly integrated into multidisciplinary practice and health clinics.  When a psychologist or psychiatric nurse practitioner sits alongside internists and pediatricians, a more holistic approach to patient care develops that can cut back on unnecessary tests and treatments, potentially saving money for institutions, as well as patients.

Lower-Cost May Mean Better Health Outcomes

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Proponents of health care price and quality transparency believe that by providing cost and quality information about physicians and hospitals, individuals will choose those providers with high quality scores and lowest costs. The argument is that providing this information to patients, the demand for high-quality health care at the lowest cost will reinvigorate competition in the health care market, thereby driving down the overall cost of care.

Because higher costs are not always indicative of the best quality, the goal is to showcase the connection between quality scores and price so that patients can more easily make informed decisions about their health care.

This disconnect between lower costs and better care is not unusual. An analysis by Modern Healthcare reported this weekend indicated that in seven of 12 cities examined, the hospital with the lower average cost for inpatient and outpatient percutaneous coronary intervention ("PCI") also had the lower readmission rate for PCI patients.

This analysis emphasizes the importance of providing side-by-side cost and quality data. In order for the U.S. healthcare market to start behaving like other markets, consumers (or patients) must have access to the same kinds of information for their health care insurers and providers as they do for cell phones and cars. Then, hospitals will no longer be able to add a large markup over their actual costs of delivering the services because the value-add simply won't be justifiable.

State-Action Doctrine Narrowed as FTC Challenges Increase

In recent years, FTC and private challenges have become an increasingly important part of federal antitrust enforcement. From 2009-2012 alone, the FTC challenged nine consummated mergers, making up one-fifth of the FTC's total merger challenges.

One such challenge received the highest level of review earlier this year.  On February 19, 2013, the U.S. Supreme Court limited the availability of state action immunity that allows local government to avoid federal antitrust liability.  The case, FTC v. Phoebe Putney Health System Inc., arose as the result of a 1941 Georgia law allowing the creation of hospital authorities as public bodies to oversee public health needs of Georgia communities.  One such hospital authority, the Hospital Authority of Albany-Dougherty County was subsequently created. The Authority acquired hospitals throughout the area and leased them to two non-profit corporations.  When the Authority later gave one of the corporations approval to buy the only remaining non-Authority owned hospital in the area, the FTC cried monopoly.

The state action doctrine gives "state and municipal authorities immunity from federal antitrust lawsuits for actions taken pursuant to a clearly expressed state policy that, when legislated, had foreseeable anti-competitive effects." (Legal Information Institute, law.cornell.edu.)  The immunity further applies to non-state actors if (1) there is a clearly articulated policy to displace competition, and (2) the state actively supervises the policy or activity.

The Supreme Court, in a unanimous decision, held the state action doctrine does not apply in this situation. Not only did the Georgia legislature not show a clear intent to allow anti-competitive activity through the passage of the Hospital Authorities Law, but that anti-competitive activity was not a foreseeable result of the state's grant of authority to the local government. While the Authority has general powers to participate in the marketplace, Justice Sotomayor wrote, the state action doctrine does not allow them to use those powers anti-competitively.

This decision marks a narrowing of the of the state action doctrine that may extend beyond public hospital authorities to local governments and private actors engaged in a variety of activities.  One implication of this case seems to be that local governments must be able to point to some statement or other evidence that the state legislature granted it "authority to act or regulate anticompetitively" in order to prevail on a state-doctrine argument.

As these challenges have become more common in recent years, local governments and private actors may now find themselves tangled in litigation after mergers and other transactions have already been completed and believed to be immune from federal antitrust laws.

Post-Shutdown Bill Leaves ACA Intact

Two weeks ago, our federal government shutdown on the promise by House Republicans that they would continue to fund the government only if the ACA was repealed. However, the final, bipartisan agreement reached yesterday that brought the federal government shutdown to a close left the ACA fully intact.  Infact, the bill that the President signed into law included just one, relatively small, ACA provision: The legislation calls for new procedures by which HHS must strengthen income verification for individuals applying for federal tax subsidies to help pay for premiums of health plans purchased on the insurance exchanges. 

                                                       

Under the rule, HHS still would require applicants' income be verified against their IRS and Social Security records, and when that cannot be achieved, checked against employer records submitted to Equifax. The rule also allows state exchanges to check a statistically valid sample of applicants in cases where an applicant claims income more than 10% below what IRS and Social Security records show, and where there is no Equifax data ("The Economy Hub," Los Angeles Times, 10/16). 

Despite two weeks of intensive, 24/7 repairs, healthcare.gov remains badly broken.  This is especially problematic for states whose have chosen to let the federal government run their exchanges.  Many media outlets have also reported that the technical glitches associated with open enrollment for state health exchanges may have received more attention if not for the shutdown.  Perhaps now that the government has re-opened for business, the ACA will see the triumphant roll-out many supporters predicted.

Covered California Enrollment Stats: Week 2

In a press release late Tuesday afternoon, Covered California announced that consumer interest remains strong for health insurance offered through the Covered California Marketplace.  Its website, CoveredCA.com, had more than 1.5 million unique visits during the first two weeks of open enrollment.  Over 100,000 calls were made to the Service Center and about 94,500 applications were started.

Weekly Report	Oct. 1-5	Oct. 6-12	Cumulative
Unique visits to CoveredCA.com	986,705	602,539	1,589,244
Total call volume	59,003	45,785	104,788
Average wait time	15:08	1:55
Average handling time	16:48	14:36

In addition, over 17,700 insurance agents have registered for certification to sell Covered California health insurance plans. 

Individuals and small businesses can purchase competitively priced health plans through March 2014.

Insurers Lower Cost of Preventative Drugs

Major health insurers Aetna, WellPoint, and Humana have discovered that reducing patient cost-sharing for preventative drugs can increase patient compliance with drug therapies, improve outcomes and cut the total cost of care.  

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Improving medication compliance is increasingly important as the country's elderly population increases and more Americans are living with chronic conditions.  As baby-boomers become Medicare-eligible, 157 million Americans will have at least one chronic condition such as heart disease, cancer, hypertension, stroke and diabetes, according to the Centers of Disease Control and Prevention, by 2020. 

"Some payers have reduced cost-sharing—including waiving deductibles and reducing or eliminating copayments and coinsurance—for drugs used for primary prevention, such as statins prescribed for patients with high blood cholesterol and lipids who have never had a heart attack. Others such as Aetna have gone further and reduced or waived cost-sharing for drugs used for secondary prevention, such as statins, for patients who already have had a heart attack to reduce the chance of a recurrence.  Other medications for which some insurers have reduced or waived cost-sharing include drugs for preventing or treating high blood pressure, asthma, stroke, diabetes, osteoporosis, pediatric conditions, and maternal and fetal problems." (ModernHealthCare.com.) 

These cuts to patient costs for preventative care can be attributed, in part, to the Affordable Care Act's "first-dollar" coverage requirement for preventative services.  If the ACA requires that a preventative service be provided "first-dollar," this means that there cannot be any cost-sharing.  In other words, the preventative service or drug is free for the patient. This is true for services and drugs from both in-network and out-of-network providers and pharmacies.

This change is also related to the growth of consumer health plans with high deductibles.  Insurers have realized that providing preventative services and drugs below the deductible raises the quality of care a patient receives while lowering prices.