During the summer of 2017, there were 82 counties at risk of not being covered for the 2018 policy year. State regulators managed to attract at least one insurer in those counties, but a recent market exit in Virginia leaves more counties at risk. The recent Health Affairs Blog post by Anderson, Hacker, and Starr, which advocates for a persistent Medicare-derived public option that is triggered by insufficient competition on the Affordable Care Act (ACA) exchanges, is an interesting example of harnessing the power of Medicare and repurposing it to compete in the private market. Bare counties and the lack of meaningful choice on the exchanges are significant policy concerns.
If we are to use a pre-existing structure to guarantee that every county will have at least one insurer, Medicare and Medicare Advantage is not the optimal choice. The benefit structure is too complex. The covered population is significantly different than the individual market populations: Medicare beneficiaries have more comorbidities and are older than the individual market beneficiaries. They also change plans far less often. Finally, the Centers for Medicare and Medicaid Services (CMS) is too removed from local conditions to design a plan that meets the local needs.
Instead, Medicaid is better suited as a reserve parachute for bare counties. Temporary Medicaid buy-in would be a useful tool for state regulators to improve the quality of plans offered in counties that otherwise would have been bare.
Medicaid Has More Flexibility than Medicare
Medicaid’s programmatic flexibility is much more suited to adaptation for emergency coverage than Medicare and Medicare Advantage. Its core benefit design structure is more similar to current Exchange requirements. Medicaid is required to offer all 10 Essential Health Benefits (EHBs) as well as other benefits such as non-emergency medical transportation. Medicaid has out-of-pocket limits on cost sharing. Medicare is not required to offer all EHBs nor is total out-of-pocket limited in traditional Medicare.
States have incredible flexibility to use the Section 1115 waiver authority to craft their Medicaid plans to suit local needs and emergencies. There is an existing history of enhanced federal flexibility for Medicaid demonstration waivers that can be activated on short notice for localized needs. Michigan has a current 1115 waiver that covers Flint residents from birth to 21 and all pregnant women who live in Flint due to the city’s water emergency. New York used 1115 waivers for the 9/11 responders. Louisiana used 1115 waivers after Hurricanes Katrina and Rita.
These waivers address an unanticipated public health crisis. Counties without a functional individual market can also be deemed to be limited, transitory potential public health crises. Medicaid can step in to bridge a region and its population to a more stable, long-term solution.
Taking Advantage of Medicaid’s Existing Infrastructure
Unlike Medicare and Medicare Advantage, Medicaid programs already cover a birth to 64 year old population. Medicaid provider networks already have an adequate number of pediatricians, gynecologists, and other specialists who are more frequently used by the population covered by the individual market than that of the Medicare and Medicare Advantage markets. Medicaid networks are also similar to the prevalent mid-size and narrow networks on the Exchanges. There may be inadequate networks in some rural counties but an inadequate network in Medicaid is superior to no available network.
The non-disabled, non-dual eligible Medicaid population is a population with relatively high churn. This subpopulation has its own unique care and utilization management needs. The exchange population is also a high-churn population where even high-cost utilizers have a short length of stay in a single carrier. Short lengths of stay by exchange and Medicaid beneficiaries means few long-term care investments with significant initial costs are wise business decisions for carriers as they cannot internalize the needed gains before people change insurers. The Medicare population is older and has increased comorbidities. This Medicare beneficiaries are less likely to change insurers every year as they value their current provider relationships. Longer enrollment spans changes the calculations insurers make when deciding to invest in preventative care as well as chronic disease management.
The Mechanics of a Medicaid Backup Option
States would need to make a series of decisions at least a year before Medicaid could cover bare counties. The three most critical are: exit conditions for emergency Medicaid coverage in a bare county, designing the benefit structure, and financing the program. Additional challenges such as drafting new contract language with managed care organizations and reworking elements of the eligibility verification and claims payment systems for all paying entities would also need to be resolved.
Anderson, Hacker, and Starr and Hacker argued that Medicare as a backstop to lightly competitive or bare regions should be a permanent, one-way ratchet. Once a county is deemed to need the backstop, the Medicare option would never leave. In the case of Medicaid, this would distort the market.
Medicaid Needs an Exit Strategy
Medicaid as a backstop for the Exchanges is not a permanent solution. If it was a permanent solution, these counties would have an incredibly difficult time attracting new, private insurers to the market. Medicaid has significant per unit cost pricing advantages over Medicare while Medicare tends to pay less per unit of service than most commercial plans.
The combination of narrow networks, low premiums, and the ACA’s current risk adjustment formula will lead to an unstable equilibrium. Medicaid would attract a relatively healthier population. Private insurers offering Medicaid-like Exchange products may be able to compete against Medicaid. However private insurers that offer broad and expensive networks at a higher premium would likely attract a disproportionally sicker population who use more services at a higher per unit cost. The risk adjustment formula is based on the average premium in the state. The low premiums of Medicaid would decrease the average state-wide premium. This would result in net flows to the insurers with relatively sicker populations to decrease and those insurers would incur losses. This would likely deter many private insurers from entering a region with a permanent Medicaid competitor.
Benefit Design
Designing the benefit structure for a Medicaid backstop plan is the second significant challenge. Currently, most Medicaid programs offer nearly 100 percent actuarial value policies to beneficiaries. The ACA exchanges offer plans between 57 percent actuarial value and 92 percent actuarial value with additional cost-sharing reduction (CSR) increments. Several Medicaid expansion waivers such as Indiana’s HIP 2.0 and Pennsylvania’s defunct Healthy PA created separate products and rate cells for non-traditional Medicaid populations. Those plans were then designed to encompass a distinct set of cost sharing and deductibles. Emergency Medicaid plans could be crafted to fit the ACA’s metal band plan designs. The alternative is to offer Emergency Medicaid at 98 to 100 percent actuarial value. This alternative would raise the political cost of transitioning a region back to normal operations on the exchange because people would be moving from plans with nominal deductibles to plans with large deductibles.
Financing
The financing of an emergency Medicaid waiver is the third challenge. Currently, states pay a proportion of the cost of coverage for Medicaid. Individuals who purchase coverage on the ACA exchanges receive subsidies paid for entirely by the federal government. Emergency Medicaid should continue this pattern. Premiums would be charged on an actuarially fair basis to beneficiaries. Premium and CSR subsidies would flow from the federal government to the state’s Medicaid account and then to either fee-for-service expenses or to managed care organizations. The state would be held harmless.
All of these are significant challenges but Medicaid has proven to be a flexible program that is adaptive to local circumstances and needs in the past. Medicaid can be a good tool to solve the problem of bare counties in the future.