The Incidental Economist

Every year, the Kaiser Family Foundation publishes its annual survey of Employer Health Benefits.  Here’s the summary.  Here’s the chart pack.  Let’s wade right in.

The average premium for coverage by an employer provided health insurance plan for an individual in 2010 is $421 per month or $5,049 per year. The average premium for family coverage is $1,147 per month or $13,770 per year.  Think about that for a second.  That’s not the Cadillac plan.  That’s the average.  Twenty percent of plans for families cost $16,524 or more.  How has that changed over time?

Health care premiums have more than doubled in the last decade.  Has your salary more than doubled in the last decade?  I doubt it.  We are putting more and more or our income every year into health insurance premiums.  Do you feel healthier?  Do you feel safer?  Do you feel happier?

This doesn’t mean that employers are paying all of the premiums, though.  How much of those premiums are workers paying for themselves our of their own income?

This year was an all time high.  What you have to remember is that this means that not only are the premiums going up; so are the percentages of those premiums that individuals and families have to pay.  So their costs are going up even faster than premiums are.  In fact, this year was the first statistically significant increase in the percentage of premium paid by employees in a decade.

But remember, that’s just the premium.  It doesn’t include cost-sharing – things like co-pays, out of pocket costs, or deductibles.  So how much are deductibles?

What this means it that even after paying for an increasing percentage of an all time high premium, more than one in four workers in an individual plan still has an annual deductible of $1000 or more.  That’s a lot.

How did the recession affect employer health benefits?  Well, if companies need to trim their budgets they can either reduce the quality of coverage, or they can make employees pick up a bigger share of the cost.  How often did this occur?

So looking at the yellow bars, which represent all firms, 30% of them reduced the benefits of the insurance offered or increased the amount of cost sharing for their employees (either in co-pays or deductibles).  Another 23% reduced the share of the premiums that they paid, making their employees pay more.  Again, remember this is at the same time that premiums went up.

So, benefits reduced.  Cost-sharing increased.  Share of premiums paid increased.  Total premium cost at an all time high.  And this is for employer provided health benefits, which are usually much better and cheaper than what’s available in the individual market.  Depressed yet?

I know that PPACA has barely kicked in yet.  Just as you can’t blame PPACA for the current bad situation, you can’t fault PPACA for not fixing it yet.  But everyone who thought that health care reform would become more popular after it was passed better take a close look at this.  Things are getting worse, and not slowly; there’s no reason to think that it’s not going to continue.  And since the majority of reforms don’t kick in until 2014, we still have time to continue in free fall.  Moreover, the idea that we would leave the employer-based health care system – which is what this  survey measured – alone, may have sounded like a good talking point, but I’m not sure how popular it will be if these trends continue.

PPACA has it’s work cut out for itself.  I hope it’s up to the task.

I can be pretty hard on the press.  I figure I lash out at them every few posts.

Because of that I think it’s important to acknowledge actual reporting when it occurs.  So kudos to Igor Volsky.*  After reading my piece on Senator Wyden’s sudden distaste for the individual mandate, questioning what he was thinking, Igor apparently picked up the phone and asked:

Wyden believes that the more choices people have, the more vibrant and competitive the market and the lower the health care premiums. Wyden’s communications director Jennifer Hoelzer told me that it’s not that Wyden rejects the mandate; he just thinks states should have the option of opting out of it if they think they can do a better job of expanding access and lowering health care costs. She says that Wyden’s state innovation amendment is actually an “antidote” to those who want to repeal the individual requirement. “If you can do just as good or better than the federal law, you can apply for a waiver from that. And if you can cover your residents without a mandate, then you can go ahead and do that,” she said. “Maybe states do stick with the mandates, maybe they don’t, but what it says that all of these federal requirements, if you can prove that you can do just as good of a job without that, the federal government wouldn’t punish you for not complying.” “The federal mandate says you can do it in X,Y,Z and this just gives us the leverage to go a different way,” she said.

So apparently, Sen. Wyden wants options for states.  If they can accomplish the goals of PPACA without a mandate, then he wants to let them do it.

I don’t have a problem with that per se.  But I am not sure exactly how Sen. Wyden thinks states will get it done.  After all, even as Igor notes, states won’t be able to exempt themselves from the other requirements of the law.  There will still need to be community ratings, guaranteed issue, and so on and so forth.  You need the mandate (or a stiff penalty) in order to keep healthy people from gaming the system and opting out until they get sick.  This would lead to adverse selection, and make the insurance market unstable.  This doesn’t have to happen, and wouldn’t if people voluntarily all got insurance, but it’s the risk.

This isn’t a new theory, by the way.  Here’s the Urban Institute back in early 2008:

[W]e conclude that, absent a single payer system, it is not possible to achieve universal coverage without an individual mandate. The evidence is strong that voluntary measures alone would leave large numbers of people uninsured. Voluntary measures would tend to enroll disproportionate numbers of individuals with higher cost health problems, creating high premiums and instability in the insurance pools in which they are enrolled, unless further significant government subsidization is provided. The government would also have difficulty redirecting current spending on the uninsured to offset some of the cost associated with a new program without universal coverage.

I may give Sen. Wyden the benefit of the doubt that this isn’t all politics.  He did, after all, slip in the amendment that makes this position now possible.  So he might have felt this way for some time.

I’m confused, though.  The mandate was always part of his Wyden/Bennet plan.  I assume he had it in there because he understood the theoretical need for it.  While I appreciate his explanation, I still remain unconvinced his position would work for Oregon or other states.

*Seriously, Igor is my hero for the day.  I wish I could pick up the phone and get an answer from a Senator myself, but short of that, I’m thankful that he’s on the job.

I imagine most readers of this blog are aware of Health Wonk Review, a biweekly roundup of the best health policy posts from the blogosphere. Each edition is hosted by a different blog. Aaron and I are regular contributors. Frustratingly, you can’t just subscribe to the HWR, you’ve got to find out where it is every two weeks. Today it is at InsureBlog. Check it out!

Sam Stein reports that Senator Ron Wyden is now against the mandate (emphasis mine):

One of the most innovative voices in the health care debate, Senator Ron Wyden (D-Ore.), is accelerating the process of exempting his state from some of the national reforms passed under President Barack Obama.

The Oregon Democrat is seeking to take advantage of a provision he helped write into the legislation that allows states to set up their own health care systems as long as they meet minimal requirements established by the Department of Health and Human Services. In a letter to the state’s Health Authority office, Wyden announced that he will introduce legislation to accelerate the start date for state waivers from 2017 to 2014, if not earlier for Oregon specifically.

In addition, he strongly suggested that the state should use the provision to exempt Oregon from the individual mandate, which would penalize those individuals who refuse to purchase insurance coverage.

I would ignore this usually, but Sen. Wyden is among the most knowledgeable lawmakers we have with respect to health policy.  His Wyden/Bennet plan, most recently known as The Healthy Americans Act, is one of the most bi-partisan health care reform efforts in maybe, well, ever.  It even showed up during health care reform as “The Free Choice Proposal“.  It was radical, in that it could eliminate the employer based system we have now.  But it included many regulations and ratings that liberals liked, while also placing cost control more at the level of the consumer, which conservatives liked.  His plans have had the support of a number of knowledgeable people all over the ideological spectrum.

It also always included an individual mandate.

I don’t know why Sen. Wyden now wants to get rid of it.  If I had to guess, it’s probably because the individual mandate has become unpopular.  But if there’s another explanation, I’d love to hear it.

For now, this feels like politics.  As I’ve said before, the PPACA wasn’t my reform of choice.  But I don’t see how it works without an individual mandate.  Sen. Wyden knows this too, I’d imagine.

If this is just politics, then “boo”.

I just can’t keep everything on paper forever so I purge every so often. Today, I’m tossing my stack of printed two-sided market literature. That only reflects a lower interest in that area in the following narrow sense. I used to think that the lens of two-sided market theory was the right way to view the health care market. And in some instances it is or perhaps could be (e.g. employers or consumers on one side, providers on the other, insurance firms as the platform). But for my interests it isn’t.

I think the guts of the U.S. health care market dynamics pertain to the interaction of market power between insurers (or self-insured firms) and providers. The interesting policy questions are in the areas of antitrust enforcement and implications for health care costs and premiums. These aren’t two-sided market questions. Or if they are, as far as I know nobody has convincingly formulated them as such.

A better term for what I’m interested in would be a “two-level market.” Consumers pay premiums in exchange for health care from providers. But there’s a middleman, insurers. In some ways this is not that different from how consumers buy other goods. They pay prices for products produced by manufacturers with retailers in the middle. There are features of the health insurance market that distinguish it from most goods markets, however: information asymmetry (your doctor knows way more than you do about health care), two levels of imperfect competition (provers and insurers), geographic constraints (medical care is mostly local; you can’t buy hospital care on the internet from China (yet)).

So, even though it is interesting, I’m not as excited by two-sided market theory as I used to be. But I don’t want to lose track of the papers I’ve collected and read. So, here’s a list with links. It substitutes for my paper stack and takes zero space.

• Competition among health plans: A two-sided market approach, by David Bardey and Jean-Charles Rochet.
• Two-sided markets: A tentative survey, by Roberto Roson.
• Two-sided markets and electronic intermediaries, by Bruno Juillien.
• Some empirical aspects of multi-sided platform industries, by David Evans.
• Two-sided markets: An overview, by Jean-Charles Rochet and Jean Tirole.
• Two-sided markets: A progress report, by Jean-Charles Rochet and Jean Tirole.
• Competition in two-sided markets, by Mark Armstrong.
• One-sided logic in two-sided markets, by Julian Wright.
• Unveiling “invisible hands”: Two-sided platforms in health care markets, by Bronwyn Howell.
• A two-sided market analysis of digital health records under switching costs, byZafer Ozdemir et al.

Medicare Advantage plans consume more taxpayer money per beneficiary than FFS. This is a fact.

That’s not to say MA plans can’t achieve lower costs, only that taxpayers aren’t getting the benefit if and when they do. Beneficiaries do derive some benefit from the over-payments, but only at the rate of 14 cents on the dollar (that does not mean the other 86 cents is plan profit, more here). It is also true that there are some spillover effects. FFS costs may be lower when MA enrollment is higher, but to my knowledge, this has not been quantified with data more recent than 2001. A lot has changed in the MA program since then. The size of the spillover today is uncertain, as far as I know (happy to be corrected on this).

But back to taxpayer costs. Below is a figure I’ve posted before that illustrates the relationship between MA payments and FFS costs. (Actually, it shows “benchmarks,” not payments, because plan-level payments aren’t available to me as a researcher. But we know from MedPAC that payments are only a few percentage points below benchmarks on average, and still well above FFS costs.)

In this figure, each circle is a county and its size is proportional to the county’s MA enrollment. Circles centered above the 45-degree line correspond to payments (benchmarks) above FFS costs. All the circle centers are above the line. Additional details are in a prior post.

Given the fact that MA plans are paid above FFS costs, you’d think folks in favor of harnessing the efficiency of the market to achieve taxpayer savings would be appalled. I am. This has got to stop. And that does not mean “eliminate private plans.” It means “stop overpaying them.” There are a lot of ways that could be achieved. I prefer a competitive bidding approach that includes FFS among the bidders. Details next week.