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Saturday, August 23, 2014

The private option and 2015 Marketplace rates

Posted By on Sat, Aug 23, 2014 at 3:32 PM

See here for a quick look at the big picture for the Arkansas Health Insurance Marketplace and Obamacare if the 2015 premiums end up being in the neighborhood of the proposed rates accidentally leaked by the Arkansas Insurance Department

Lower rates would also represent very good news for the private option — both in terms of the long-term sustainability of the policy and in terms of what what it suggests about some of the advantages of the route that Arkansas took to expand Medicaid.

The private option uses Medicaid funds to purchase private health insurance plans for low-income Arkansans. Those plans are purchased on the Marketplace, so lower Marketplace rates mean a lower price tag for the private option. If rates fell 3.5 percent (the weighted average based on the rate requests in the leaked AID information), it would knock off about $12 a month off of the price of premiums. That might not sound like a lot, but if you consider that around 180,000 Arkansans might be covered by private plans on the private option in 2015, that could amount to around $26 million. 

Meanwhile, you might remember that critics of the private option have been making a lot of noise about budget neutrality caps — per-person monthly costs set by the feds that Arkansas is supposed to remain below as part of its Medicaid waiver agreement to pursue the private option. If, over the three-year life of the waiver, the state ends up spending more on net than allowed by the yearly caps, it would be on the hook for the difference. Thus far, the private option has spent about $492 per person (including both cost-sharing reduction payments and the cost of "wraparound" services not covered by the private insurance companies, such as non-emergency medical transportation), which is $15 above the 2014 cap (about $477).

What would happen if rates dropped 3.5 percent in 2015? That could bring the per person cost down to $480, which would be $20 below the 2015 cap (because the waiver assumed that costs would rise each year, the cap for 2015 goes up, to about $500). That's not including various other changes coming in 2015 that could reduce costs. 

Meanwhile, if the carriers are proposing lower-than-expected rates, it could be a signal that the pool of people covered by the private option (who make up more than three quarters of the total Marketplace) is healthier and less costly than expected. That could end up impacting 2014 costs. The medial loss ratio provision of Obamacare demands that 80 percent of premium dollars are spent on medical care; if premiums are too high, insurance companies have to rebate the difference to the customers. In this case the customer is the government — the private option. If the real medical costs of the 2014 beneficiaries was lower than insurance companies predicted, Medicaid will get a rebate and the 2014 cost of the private option will go down

Similarly, carriers were paid up front for cost-sharing expenses (private option beneficiaries are protected from most cost sharing). But these were just estimates. At the end of the year, Medicaid and the carriers will settle up, and if the actual cost was less than predicted, the carriers will refund Medicaid. 

I'll have more on the MLR and cost-sharing-reduction reconciliations in a subsequent post, but the point is that 2014 costs could potentially be revised downwardThe state Department of Human Services seemed to signal that this was a possibility earlier this month — the state can get the budget neutrality cap adjusted upwards for 2014 by the feds, but DHS suggested that the reconciliations favorable to the private option might make an adjustment unnecessary. It's too early to say (we won't know the results of the reconciliations until around March of next year), but low 2015 rates would be a very good sign.

If the private option benefits from lower Marketplace rates, it's also important to know that it's likely contributing to keeping Marketplace premiums lower than they would be without the PO. Again, private option beneficiaries make up more than three quarters of the Marketplace. They're leaning significantly younger than other Marketplace consumers, making Arkansas the second youngest exchange in the nation, behind only the District of Columbia.

There's also reason to believe that because of the way the private option is designed, PO beneficiaries lean healthier, too. Enrollees are screened for health risk and around 10 percent identified as the most medically needy (and costly) are routed to the traditional Medicaid program. On some level, this is an accounting trick — Medicaid is handling the expensive beneficiaries, making the private insurance cheaper — though lawmakers and state officials supportive of the policy argue that the medically needy are better served in Medicaid. (The people routed to traditional Medicaid are not included in the budget neutrality cap, which is only meant to test the cost of the private option as opposed to traditional Medicaid expansion.)

In any case, the result is that the Marketplace is shielded from the unhealthiest beneficiaries. The Marketplace is being fed lots of customers who — by design — are less likely to incur medical expenses. That means lower costs on the Marketplace, and that means lower premiums. And remember, the Marketplace isn't just for private option beneficiaries. It's also a place where any Arkansan who wants to shop for individual health insurance, with subsidies available for lower- to moderate-income people. If the rates are cheaper thanks to the private option, they benefit too. 

That last point is worth bearing in mind. Some Obamacare opponents may say that anything the private option does to help the Obamacare Marketplace is inherently bad. We must hasten the collapse of the regime! But putting aside the endless debate about the national health care law, lower rates on the Marketplace wouldn't just be good news for future of the private option — it would also be good news for Arkansas and for tens of thousands of Arkansans.
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