February 23, 2017
Good morning Brian,
I hope that you and your family are doing well. I read the federal Republican 18-page overview of its health care plan and thought I would send you an email. It is clear that Congress is trying to move the responsibility for health care back onto the states. If an individual state such as New York does not react, many people will lose their health care coverage.
According to the overview, the federal government will send money to New York for Medicaid, small group, and individual health care markets as opposed to providing any type of coverage themselves, although I am not sure how much money. I am guessing that you and the Assembly will need to figure out how to use this, and other, money to provide health care coverage for these markets in this difficult environment.
Noticeably absent from the federal plan was any reference to Medicare. I am sure this is because of fear of a negative reaction to the flawed premium subsidy or voucher program. I believe the Republicans will try to sneak this into future legislation to try to avoid the uproar that they know will happen. Just a reminder, I am a health care actuary, so my job is to project future health care costs. Part of that responsibility is to develop objective models of the impact of different scenarios on our health care system. I have been very vocal with my models showing that the premium subsidy program for Medicare would result in the abolishment of Medicare over a period of time.
Let me explain the problem with the premium subsidy program. Let us say the average annual cost of health care for a Senior is $12,000 per year since they can be three times the cost of a person aged 40. Let us also say that the premium subsidy is originally set up as $10,500 per year for a resulting Senior contribution of ($12,000 – $10,000 =) $1,500. I believe the federal plan would give little relief for or restriction to premium rate increases for Senior benefit plans, meaning that premium increases can be expected to mirror the current commercial premium increases of 12%, on average. Let us be conservative, though, and say that Senior premiums will only increase by 6% per year, which is very unlikely. Let us assume that the government subsidy will increase by CPI or, say, 3% per year as this premium subsidy was introduced to lower the stress of increases in the cost of Medicare on the federal budget, so annual subsidy increases will necessarily be low to meet this objective. Under this conservative scenario, if the subsidy program started in 2018, the Senior would have to pay over $10,000 annually towards the premium in 2031 for coverage, over $20,000 in 2039, and over $50,000 per year in 2050. As you can see, Senior coverage would be unaffordable in the near future for most Seniors. In reality, the problem would be much worse as premium increases will be much higher due to the fact that the healthy Seniors would drop coverage leaving only sicker patients in the experience pool. This is what is known as a selection spiral and would increase premiums significantly.
This would mean that the Assembly would have to add Seniors to your future plans for a health care program for New York State. From my perspective, this is actually a good thing as any health care plan needs to affect our entire health care marketplace, not just one sector. For example, one of the reasons that employer health care costs have been increasing so substantially is that much of the cost savings that had been done for government programs have only resulted in these “savings” being pushed on to employers in the form of higher claim costs in the commercial marketplace, an approach that has been in place for decades.
Sixty years of excessive health care cost increases have often made it too expensive for employers to purchase health care for their employees. With no end in sight for these high cost increases, more and more employers will drop coverage, adding to the ranks of the uninsured. I am sure you are aware of the issues with a high number of uninsured persons, including a decrease in the health status of the population as people who need treatments, cannot get it, or do not seek it. This decreases productivity levels in the United States as disability increases and the length of disability for those who become disabled also increases, taking them out of the workforce. An increase in the uninsured rate also leads to an increase in the number of bankruptcies as uninsured individuals who have to have moderately major treatments for illnesses such as cancer, heart disease, and Type 1 Diabetes have to use up their own money and go into debt because of it.
The health care plan that you develop for New York State must include elements that legitimately control increases in health care costs while not decreasing quality of care. These elements that help keep down cost increases while maintaining quality of care are essential, are not “job killers” and are not “rationing.” Studies now say that over 30% of health care services are not necessary. Studies such as that done by the Dartmouth Atlas Project say that more is not necessarily better and may actually lead to a decrease in quality of care and a decrease in quality of life.
The current practice of giving insurers and other payors the responsibility of negotiating with providers and assuming that will keep prices down is a large part of our problem. Insurers often have little leverage in negotiating with providers, especially those with a monopoly on services in a given area or pharmaceuticals. I am very familiar with scenarios where a payor sits down with a provider and says, “We would like to pay you Amount A,” and the provider says, “No, you have to pay us Amount B, and unless you lower the copays on our services, then you will pay us B + 5%”. As politically unsavory as it may be, governments need to help with the negotiation process or actually set the payment rate. Comparative effectiveness analysis can be used to determine which treatments are most effective. A list of results of comparative effectiveness analysis and treatment prices would help patients choose the treatment that is best for them at the least expensive cost. Also, payment reductions that are a percent off charges are fictitious as providers can just raise their charges to offset any discount off of charges. Rate review for any rate increase of 10% or above is fine for now, but in a couple of years, that should be reduced to rate increases of 5% or above as rate increases over 5% will cause problems with our economy in general if health care as a percent of GDP increases to over 20%, according to economists.
As I often say, there is no “correct” answer to fixing this problem, a problem I believe is the biggest problem that America faces. This is not a Democratic problem. This is not a Republican problem. This is a fundamental American problem. Studies show we are not getting our money’s worth out of our health care system as we rank in the middle of the pack for quality of health care. We also rank in the middle of the pack with regards to length of life, and the reason given is that we do not have universal health care.
I am willing to help in any way possible to get health care passed in New York. Let me know what I can do.
Jeffrey L. Adams, ASA MAAA
Adams Actuarial LLC