Your Cliff Notes guide to Avikcare

Your Cliff Notes guide to Avikcare August 14, 2014

So Avik Roy, blogger at Forbes and, apparently, Senior Fellow at the Manhattan Institute for Policy Research (do you think they’re hiring?  And, if so, would they hire a greater-Chicago-area actuary on a telecommuting, part-time basis?), has created his own healthcare proposal.  Apparently, pundits (one or two of them, anyway) have taken to calling it AvikCare.  I read a few snippets of commentary but thought I’d do a classic, and nerdy, Jane the Actuary read-the-report-and-take notes type of blog post.

So here’s the link to the full report, and here’s my read-through.  (68 pages!  Eeesh — and it’s already 10 pm, so we’ll see how it goes.  Might be more of a skim-through in parts.)

Executive Summary

First thing:  he calls his plan the Universal Exchange Plan.  The basic idea is to use the structure of the exchanges more effectively and sensibly.  He also references up-front the plans in Switzerland and Singapore as having market-oriented cost-effective universal systems.

His bottom line on top:
Repeal ACA individual mandate, employer mandate, and all tax hikes except Cadillac Tax
Eliminate regulation – more flexibility for insurers
Combat hospital monopolies
Move Medicaid (except long-term-care, made state responsibility) and Medicare participants onto exchanges, while increasing Medicare eligibility

Forecasted outcomes:
Deficit reduction
Medicare Trust Fund solvency
Reduce private-sector costs
Improve access for Medicaid population
Increase coverage

Roy starts with a chart, “2012 Public Health Expenditure per Capita” which shows the U.S. as third-highest, due to Medicaid and Medicare spending (exchange subsidies aren’t on here, since this is from 2012).  Switzerland and Singapore 3rd lowest, and lowest, respectively.

(I wouldn’t get too excited about Singapore, which has a significant employer-sponsored healthcare system, because state benefits are considered insufficient — so I’m a bit suspicious from the start.  And, of course, Switzerland is a mandate + subsidies, and total spending is 2nd-highest, next to the U.S..)

Flaws in the ACA:
Lots of Americans remain uninsured.
A substantial portion of the healthcare coverage expansion is through Medicaid, which is a pretty sucky program, and there are no fixes in the ACA.
ACA will increase costs for the privately-insured and will substantially increase government spending on healthcare.

International comparisons:
Singapore uses consumer-driven healthcare, with payroll taxes directed to health savings accounts.  (*No, not really — its employer-provided insurance, mostly, that pays for expenses.  Singapore also has a Central Provident Fund system which, I’m told by my colleagues, does a sucky job of helping its citizens accrue funds for retirement, since so much is spent for other reasons prior to retirement.)

Switzerland: Roy likes the sliding scale format of the subsidies in Switzerland, and the fact that subsidies are quite limited (only 1/5 the population, compared to 4/5ths of Americans) but criticizes the fact that premiums are not (or not much) age-graded, so the young pay a lot relative to their actual risks.

(I’m not really impressed with his focus on public spending — total spending in Switzerland is high and the Swiss are worried about costs.)

1. Emancipating the ACA Exchanges

Fundamentally, the idea of the Exchange is not bad, and variants had been proposed by people across the political spectrum.  The Heritage Foundation imagined that the tax-free employer contribution could be imported into exchanges.  The problem with the ACA exchanges is that they’re far too prescriptive and highly regulated, requiring standardized benefits and limited the ability of plans to underwrite benefits.  

Proposed reform:  states either run exchange or create mechanisms for premium supports to flow through to individuals through private internet-based exchanges (e.g.,

Keep “metallic” levels of plans, guaranteed issue, prohibition on lifetime & annual maximums.  Keep age-neutral pricing, and prohibitions against underwriting for health conditions.  Allow greater differentiation by age:  6 to 1 vs. 3 to 1.

(Roy isn’t clear here:  he says health status differentiation prohibition will be maintained, but then says that his reform will make insurance more affordable for the healthy, while protecting the sick via the ACA’s picking up additional costs via a set percentage of income — which implies that the sick will pay more.)

Various “essential health benefits” requirements would be dumped, such as requirements that force insurers to cover brand-name drugs irrespective of their (cost-)effectiveness.

The “metal” definitions would be reduced; e.g., a Gold plan would have an actuarial value of 70% rather than 80%.

The loss ratio requirement would be dumped.

Consumer-driven (high deductible + health savings account) plans to be expanded.  Benchmark plan would be 7K indiv/14K family deductible plus $1,800/$3,600 contribution to an HSA.  Existing subsidies for those with income < 250% of poverty (that is, cost-sharing subsidies that defray the cost of copays and coinsurance) would be converted into increased contributions to the HSA.

(*I’m quite skeptical here:  for middle-income individuals with a financial cushion, a high-deductible plan can work well, especially if your income is high enough to benefit significantly from the before-tax contributions, and assuming that you are actually able to comparison-shop — which often isn’t possible.  But for low- and moderate-income families, the high deductibles are a serious issue; it seems to me there was an article a while back that hospitals are requiring that patients pay the cost of the deductible up-front, rather than allowing them to set up a payment plan.)

The subsidies would be reformed.  He doesn’t provide full details, but promises that the cliffs that mean that people are financially better off earning less and getting more subsidy, would be fixed.

The individual mandate would be gone, but open enrollment would be tightened — six weeks every two years — to deter people from waiting until they get sick to buy insurance.

2.  Reforming Employer-Sponsored Health Insurance

Brief history of employer-sponsored health care.  Support of the Cadillac Tax.  Repeal the mandate.  Either I skimmed too quickly or I didn’t really see much reform — certainly nothing to equalize the tax treatment between employer-purchased and individually-purchased insurance.

3.  Medicaid Reform:  Transforming Health Outcomes for the Poor
Medicaid is a sucky system; it doesn’t statistically improve health outcomes relative to just being uninsured.  Why?  The key reason is the that atrociously-low reimbursement rates and other hassles for the provider (e.g., late payments) limit patient access to providers.  Doctors either don’t accept Medicaid or limit access to appointments for patients nominally in the practice.  States are also limited in their ability to reform the system, so low reimbursements and delays in payment are about it, in terms of their toolkit.  States also play games with state vs. federal funding programs.

Roy’s plan is to fix this by moving the Medicaid population onto the exchanges.  (What do their deductibles look like, and can they afford them?)

As a “deal” with the states, since they’d no longer pay their share of Medicaid costs, they’d be on the hook for all Medicaid Long-Term Care costs.  (Is this really “fair” in the long-term, given projected cost increases?)

4.  Medicare Reform:  Ensuring the Permanence of Seniors’ Health Benefits

Medicare is unfair — seniors get out a lot more than they ever paid in taxes.  Plus cost controls are non-existent.

The mechanics of moving seniors to the exchanges are simple:  increase eligibility by 4 months each year, indefnitely.  This makes Ryan’s “VoucherCare” plan small potatoes, since the net impact would be that, soon enough, most people would spend most of their retirement years eligible only for the same income-based premium supports as younger workers.

There would be other reforms but this is the big one.

5.  Other Reforms:  Tackling the High Cost of U.S. Health Care
Hospital charges are way, way too high, in part due to hospital consolidation and monopolies, or near-monopolies.

Fix by eliminating restrictions on new hospital construction, facilitating medical tourism, and reforming the FDA to reduce the cost of Phase III trials of new medicines, among other changes.


So that’s it.  Some promising ideas; others not so much.  Tomorrow I’ll provide some more organized comments on his proposals.

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