Perceptions of the Affordable Care Act

Today’s Managing Health Care Costs Indicator is 44%

Click on image to enlarge.   Source 

The Kaiser Family Foundation does periodic tracking surveys, asking Americans for their opinion of the Affordable Care Act.  The January survey showed that 44% of the public regard the bill unfavorably, while 37% regard the bill favorably. 

KFF explored the percent of nonelderly who would benefit from the ACA by PUMA (Public Use Microdata Areas – a bit larger than zip codes).    Interestingly, Republican congressional districts got substantially more benefit than Democratic congressional districts. 

The KFF summary:

On average, an estimated 17% of the non-elderly population nationwide would benefit from the Medicaid expansion and tax credits. In parts of Florida, New Mexico, Texas, Louisiana, and California, 36-40% of population could benefit.  In areas of Massachusetts, Hawaii, New York, and Connecticut – states that generally have high levels of employer-provided health insurance or have already implemented reforms to make insurance more accessible and affordable – 2-4% of the non-elderly could benefit from the coverage expansions in the ACA.

Click image to enlarge.  Source

Harold Pollack had a thoughtful essay in The Incidental Economist, debunking some of the right wing press which misstates conclusions from Jonathan Gruber who evaluated impact of the ACA in Wisconsin, Minnesota and Colorado.   He concluded with a question:

Millions of people will join health insurance exchanges. Most will be relatively healthy. They will see certain relatively small and immediate things, such as contraceptive coverage and clinical preventive services. They will not (yet) experience chronic illness and thus the resulting interactions with their insurer. Will they perceive and value the improved actuarial value of this insurance? Two years ahead of time, it is impossible to answer this basic question.

I don't feel sanguine about this.  The fact that Gruber and others show that on the average households will be better off doesn’t mean that the Affordable Care Act will be popular.  Distribution of benefits from the ACA and our understanding of behavioral economics gives us some reasons to worry

1.     The Affordable Care Act includes defines essential coverage, which will prevent insurers from selling policies that would not cover preventive care.   Many people won’t realize that the preventive care wasn’t covered before (especially if they had HMO policies which traditionally cover such services.) Most employer policies cover preventive care already.  

2.     Medicare cuts in future hospital reimbursement increases are necessary – and there is no credible health care reform plan that does not include such cuts.  However, these cuts will be blamed every time a hospital has a layoff  - and might be highlighted whenever a patient has access difficulty.  This is a framing problem – the ACA will be compared with what we had before 2010 – not what we would have had instead.

3.     The ACA’s prohibition against underwriting for kids and against excluding preexisting illnesses will provide much-needed new benefits to a very small number of people.   Most of those with employer-based insurance already have this.  Many who had previously purchased defective coverage – which would not have protected them if they had a major illness – value their current low premium, which will increase under the ACA.   They will in the future have an insurance plan that is a  “Chevy” rather than a Yugo with a defective engine block – but they didn't realize their old policy was defective if they were in good health.  They liked the low premium for the Yugo though!

4.     The ACA only allows a three-fold difference between the price of coverage for the oldest vs. the youngest health plan beneficiaries.  This means that there will be substantial subsidization of the old by the young.  That might seem politically good (middle age people vote in higher numbers than the young).  However, people hate losses much more than they like gains.  Therefore, the “losers” in the new system will be much more unhappy than the “winners” will be gleeful.

5.     We tend to like what we already have (“Endowment Effect,”) and many people will lose their current policies. They might get better policies – but still change is unpopular.

6.     We also tend to like choices.   While there will be more choices in health insurance exchanges (assuming that each state has a functional exchange) than the current choices available to individuals and small groups – there are mandates now which limit individual choice.

7.     2012 had relatively low rates of health care premium inflation. If that inflation rate is higher in 2013 or 2014, many will blame the ACA – even if actuaries know that the incremental requirements are responsible for only a tiny portion of overall health care premium inflation.

There are a few concepts from behavioral economics to suggest how the Obama administration should approach the political conundrum of gaining more public support for the ACA

1.     Discounting: Be sure to show the benefits as soon as possible.  We discount too much in our minds -  so a benefit in the distant future is like no benefit at all.  2014 seems like an eternity away right now, and the uncertainty around the Supreme Court challenge makes this problem worse.  (The KFF survey showed that the majority of Americans think the Supreme Court will find the individual mandate unconstitutional).  Coverage of young adults on their parents’ policies was an excellent idea.

2.     “Availability”.  We really like stories – much more than facts or statistics.  Therefore, we need more stories about families with hemophiliac kids no longer facing ruin because of lifetime limits, and families covered for dramatically less than they had to spend prior to health care reform.

3.     We overestimate the chances of small-likelihood events – which is why we gamble and play the lottery. It’s also why we worry about being killed in  a plane crash. (Cars kill over 40,000 per year; in the average year the deaths from civilian air crashes with scheduled carriers is less than a dozen).  The Affordable Care Act would protect Americans from terrible outcomes from rare events.   We need to hear more about this.

The Affordable Care Act will be good for the average family – and over time should be quite good for our economy.   But many will continue to doubt the overall benefits of the ACA – and we need an effective political campaign to show its benefits.

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Accountable Care Regulations: “Shared Savings” Means Return to Risk

Today’s Managing Health Care Costs Indicator is 429

The Affordable Care Act (ACA) specifies that Medicare will contract with accountable care organizations (ACOs) – groups of primary care and specialty physicians and hospitals that voluntarily coalesce and agree to take financial and clinical responsibility for all care of a population.  The ACA also states that these groups will be paid fee for service, but be able to “share savings” to the extent they are able to deliver care to Medicare beneficiaries for a lower price than expected. I’ll look at these proposed regulations through the lens of behavioral economics (see chart at the bottom of this post).

The regulations are 429 pages long.

“Shared savings” is a conundrum.  It’s hard to get providers to agree to “symmetrical risk,” where they would gain a profit if they deliver care below budget, but they would lose income if they spent more than the budget on a population of patients.  Frankly, we all really hate the potential for loss.  The “stick” of downside risk much more effectively motivates us to act differently because we so hate the possibility of losing. Therefore, downside risk is much more likely to fundamentally alter medical practice and lower resource cost.

In fact, if Medicare merely “shared savings,” this would likely increase costs because by randomness alone some groups would have apparent savings, but those groups with costs above budget due to randomness would be held harmless. Therefore, bonuses would be paid, and would not be offset by penalties.   As noted above, providers who are at risk for losing money are likely to be far more motivated to implement efficiencies in care delivery.

The regulations announced on Friday  use shared savings as a bridge to providers accepting some ‘downside’ risk as well as the potential for upside reward.  The draft regulations envision two shared savings model.

Model One:

Providers would obtain up to 60% of any savings beyond 2% of budget, and would face the potential downside risk if their actual costs exceed the projected expenses by 2%. Providers would have to provide proof they could repay up to 1% of total costs – which I think is the maximum potential provider exposure to loss, although I’m not certain.

Model Two:

Providers would obtain only 50% of savings beyond 2-3.9% of budget depending on size, and would transition to upside and downside risk as of year three. 

Contracts for ACOs require a minimum of 5000 Medicare beneficiaries, and the risk corridor gets smaller as membership increases.   CMS will require ACOs to report on 65 quality measures (domains are patient experience, care coordination, patient safety, preventive health, health of high risk populations).   Shared savings will be predicated on adequate quality performance, and might scale upward with better quality metrics.  Use of electronic records would be mandatory for at least half of the physicians. 

Some quality advocates will be disappointed that the proposed quality measures do not include outcome measures, such as mortality or complications.  However, outcome measures require sophisticated risk adjustment, and often require very large volumes to be statistically reliable. Many providers feel they have less control over outcomes than over processes.  Further, if providers effectively implement processes shown to improve outcomes, the better outcomes are likely to follow.  One problem with Pay for Perfomance was that with only a small number of goals providers were able to “teach to the test” and create workarounds rather than actually improving overall quality. The sheer number of measures makes this less likely in the CMS ACO proposed regulations.

I think that the ACO regulations have dodged a bullet in the initial legislation, which specified that savings would be shared. Instituting a corridor to account for randomness and requiring all groups to have downside risk by year three in exchange for participation will help be sure that groups are not getting a windfall just for being lucky, and will minimize taxpayer cost. Of course, elements that make this a better deal for taxpayers might decrease ACO uptake in the provider community.  I expect an avalanche of provider comment opposing downside risk.

One troublesome area where the ACO regulations stuck close to the legislative script is regarding patient attribution - which ACO will bear responsibility for each patient.  Patients will be retrospectively assigned to an ACO based on having the majority of their primary care at ACO-participating PCPs, who will not be able to join multiple ACOs.  This means that there is no limit to the free choice that traditional Medicare has offered, which is just what patient advocates want. 

However, provider groups won’t be certain for which patients they actually bear responsibility.  This will lower physician confidence that their own performance will have a large impact on the ultimate costs, which could also dampen provider enthusiasm.   Retrospective assignment is also bad news for ACOs that hoped to do aggressive management of the sickest of their ACO members.  They won’t be certain these members are their responsibility until after the end of the year!

My analysis of these critical ACO decisions through a behavioral economics lens:

	Impact on Provider Acceptability of Proposed Regs	Likelihood Providers will Improve Their Practices
Require providers to take downside risk by year three	--	+++	Supercharges provider motivation to change, but gives providers some time to develop infrastructure.  Providers really hate downside risk, though
Risk corridor so that neither first dollar losses or gains are transmitted to the provider	+/-	++	Shields providers from financial losses due to randomness alone, while preventing most unearned windfalls.
Maximum upside for providers is specified	-	+	Decreases the potential for a big win;  this is probably a good idea, but could dampen provider enthusiasm for ACO
Upside is dependent on meeting quality goals	--	+	Might be necessary to be sure providers don’t provide too little care, or their quality.  Providers will complain of the expense of reporting on so many measures. Decreases certainty of “winning,” so could dampen provider enthusiasm for ACO.
Process – not outcome quality goals	++	+	Providers are likely to feel more in control of whether they achieve incentive, and are thus more likely to improve their processes
Retrospective attribution	--	-	Providers will feel like result is less in their control

Three other references of note:

·        WSJ had a nice piece on Atrius Health, the nonprofit parent of Harvard Vanguard, and its ACO efforts 

·        Don Berwick’s introduction of the ACO rules is in the NEJM 

·        Ezra Klein published his rules on addressing health care costs yesterday   I highly recommend them.

 By the way, if you're interested in an ongoing set of links to articles that have interested me (not all of which I blog about), go to this Tumblr site.

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