CBO, JCT share methods for analyzing legislative proposals impacting health insurance coverage

The Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) revealed in a recent report how they jointly analyze proposed legislation that would impact health insurance coverage for individuals younger than age 65, detailing how they develop analytic strategies, model a proposal’s effect, and finalize their analysis (CBO Report, February 2018).

Analytic strategy development

First, the CBO and JCT put together an analytic strategy. The agencies formally develop their strategy once the proposed legislation’s specifications become available, an official request for analysis has been made, and the CBO and JCT arrange the time to commence the analysis. However, the agencies also often work informally with Congressional staff during development of the proposal. The agencies begin by reviewing the policy specifications. The CBO and JCT consider how the proposed legislation would impact existing law and how the proposed legislation is different from earlier proposal drafts. The agencies work to verify that the Congressional staff’s intent is reflected in the language and then estimate the legislative effect by, namely, identifying how the proposal could affect health insurance coverage and the federal budget.

The CBO and JCT focus on the policy changes most likely to impact health insurance coverage or cost, ranging from the straight-forward to the more complex. Another key aspect the agencies consider is timing and what additional “administrative infrastructure” is necessary to bring about the changes of the proposed legislation—and how long it would take to do so. The timing element includes estimates of how other stakeholders (state governments, insurers, employers, etc.) would respond and how long it would take for them to implement the proposed changes. To help with their estimates, the agencies rely on past cases of legislative reform programs. Further, the agencies seek input from outside experts and existing evidence while maintaining the required confidentiality of a proposal.

Proposal effect modeling

Second, the CBO and JCT undertake modelling the impact of the proposed legislation. Primarily, the agencies rely on CBO’s health insurance simulation model (HISIM), Medicaid enrollment and cost models, and JCT’s individual tax model. These models use data on health insurance coverage information for everyone younger than 65, Medicaid enrollment and expenditures, and detailed tax return information. The agencies also draw estimates based on information HISIM cannot project, namely, the behavior of states, employers, and insurers. These initial projections are incorporated as inputs into HISIM (state, employer, and individual enrollee behavior) or assessed outside HISIM (insurer behavior). CBO and JCT also use HISIM to estimate stakeholder responses to new coverage options. Medicaid enrollment and cost projections use HISIM estimates in addition to a more detailed Medicaid model and other methods. JCT usually provides estimates of proposed tax liability changes using its individual tax model.

Review

Finally, both the CBO and JCT engage in rigorous review of their respective analysis results in order to ensure objectivity and proper analysis. Specifically, they examine results of one or more years out of the 10-year projection period to ensure that the analysis is being computed as intended and compare results against previous analyses. The agencies also inspect for programming errors or unexplained results. The CBO and JCT consider changes to the results if there were different critical inputs. The agencies prepare a formal written estimate and explanation thereof and, before releasing it to Congress and the public, agency staff carefully review the report.

Highlight on Minnesota: Health plans’ red ink worst in a decade

Nonprofit insurers in Minnesota reported an operating loss of $687 million on nearly $25.9 billion in revenue for 2016, according to a trade group for insurers, the Minnesota Council of Health Plans. The financial results were the worst in a decade, with losses in both the state public health insurance programs and the marketplace where individuals purchase coverage for themselves.

Overall, revenue from premiums increased 4 percent over the prior year, while expenses increased 6 percent to $26.6 billion. State public programs accounted for more than half of the overall losses, followed by continued losses in the individual market. According to the report, on average, health insurers paid $763 per second for care. To pay those bills, insurers withdrew nearly $560 million from state-mandated medical reserves. The bulk of the financial losses reported did not result from the employer group and Medicare markets, which remained steady, and where most Minnesotans get health insurance.

In the individual market, Blue Cross and Blue Shield of Minnesota said it lost $142 million for 2016, compared to a $265 million deficit the previous year. The decline mirrored the drop in enrollment, the insurer noted, rather than an improvement in the business. Over the last 10 years, health insurers returned a profit in seven. The numbers reported by the trade group focused solely on revenue and income from the health insurance business, as investment returns made by insurers were not counted in the numbers. Some saw hope in the overall numbers, however, noting that the market was not in a “death spiral,” as some health law critics have argued, because many insurers in 2016 saw slight improvements from the previous year.

Highlight on Illinois: Exchange rates rise in the Land of Lincoln

Illinois residents purchasing individual health insurance plans through the Patient Protection and Affordable Care (ACA) (P.L. 111-148) could pay rate increases in 2017 as high as 55 percent, according to rate information released by the Illinois Department of Insurance (DOI). The agency submitted rate increases to the federal government ranging from 43 percent to 55 percent, depending on the type of plan—bronze, silver, gold.

Filings

The submitted rates are not final. Although the DOI has submitted the 2017 rate filings to CMS, the rates will not be finalized by federal CMS until October, 2016. Additionally, network and premium information will not be available until that time. The DOI announced that the rate information was published as early as possible to allow Illinois families to make better-informed decisions regarding health care coverage. The DOI acknowledged the rate increases as “a very difficult outcome for consumers.”

Rates

The average rate increase across all ratings areas for the lowest bronze plan is 44 percent. The rate change is lowest in Kane, Du Page, Will, and Kankakee counties, where the rate change is a 10 to 25 percent increase. Counties like Lake and Cook have a 40 to 60 percent increase, whereas counties including La Salle and McLean have a 20 to 40 percent increase for their lowest bronze plans.

The average rate increase across all ratings areas for the lowest silver plan is 45 percent. Counties like Cook and Kendall saw a 40 to 60 percent increase, whereas counties like Du Page, Sangamon, and McLean saw increases of 25 to 40 percent. The average rate increase across all ratings areas for the second lowest silver plan is 43 percent.

The highest average rate increase across all ratings areas is for the lowest gold plan—an increase of 55 percent. Although several counties do not have gold plan offerings, rate increases in some counties, including Peoria County, are as high as 60 to 70 percent. Rate increases for the lowest gold plan in counties like Cook, McLean and Sangamon are 40 to 60 percent.

In practical application, the new rates mean that a 21-year-old nonsmoker who purchases the lowest-priced silver plan in Cook County in 2017 could pay a premium of $221.13 a month—an increase from $152.42 a month in 2016. In Lake and McHenry counties the increases are more dramatic for the same consumer, $268.03 a month in 2017, up from $212.23 a month. However, for some, the rate increase is not as massive as it seems because 75 percent of Illinois exchange enrollees receive tax credits to offset premium costs.

Cause

The DOI attributed the rate increases to several factors, including the federal government’s failure to make payments to insurers promised as part of the ACA and an overall increase in medical and pharmaceutical costs. Additionally, the DOI pointed to the fact that, until 2017, policyholders are permitted to keep non-ACA compliant plans, a factor that the DOI said has harmed insurers’ risk pools and placed upward pressure on plan costs.

Aetna slashes exchange presence; administration cries foul

Aetna, one of the nation’s largest health insurance companies, is slashing its marketplace participation by removing its current offerings from 536 counties. For plan year 2017, it will only offer marketplace plans in 242—as opposed to 778—counties in Delaware, Iowa, Nebraska, and Virginia. The company publicly stated that it based its decision on financial losses that it contends result from an unbalanced risk pool. The Obama Administration, however, argues that Aetna is following through on threats it made in a recent letter to the Department of Justice (DOJ) related to actions the DOJ has taken to block Aetna’s merger with Humana, indicating that Aetna would “immediately take action to reduce [its] 2017 exchange footprint” if the merger were “challenged and/or blocked.”

Reduction in presence

The insurer stated on its website that it suffered a “second-quarter pretax loss of $200 million and total pretax losses of more than $430 million since January 2014” in its individual products. Aetna maintains that marketplace insurers nationwide are struggling financially due to an unbalanced risk pool. It noted that its 2016 exchange membership increased by 55 percent in 2016 and that individuals requiring high-cost care now represent “an even larger share” of the exchange population. It also faulted “an inadequate risk adjustment mechanism” for the financial strain insurers face. The company promised to communicate options to those affected by its decision prior to the 2017 open enrollment period and reminded the public that it will continue to offer off-exchange plans in most affected counties.

Following through on a threat?

The announcement comes on the heels of a CMS analysis suggesting that higher enrollment has actually led to a more balanced risk pool and a decrease in costs (see Higher enrollment leads to lower costs, reflects healthier risk pool, Health Reform WK-EDGE, August 17, 2016). Obama administration officials, have suggested that Aetna’s move is retaliation for the government’s recent efforts to block the company’s desired merger with Humana (see DOJ lawsuit steps in between Aetna-Humana and Anthem-Cigna mergers, Health Reform WK-EDGE, July 27, 2016).

In a July 5, 2016, letter signed by Aetna Chairman & CEO Mark Bertollini and obtained by the Huffington Post, Aetna told the DOJ that the company’s ability to withstand losses incurred under the ACA “is dependent on . . . . achieving anticipated synergies in the Humana acquisition.” After explaining that challenges to the merger would force it to reduce or eliminate its exchange presence, it noted that if the merger were to proceed, “without the diverted time and energy associated with litigation, we would explore how to devote a portion of the additional synergies (which are larger than we had planned for when announcing the deal) to supporting even more public exchange coverage over the next few years.”

Senator Elizabeth Warren (D-Mass) noted in a Facebook post that Aetna recently referred to exchange participation as a “good investment.” She lambasted the insurer, stating, “The health of the American people should not be used as bargaining chips to force the government to bend to one giant company’s will.”