The Problem is Still Choice

Please, as I was saying she stumbled upon a solution whereby nearly 99 percent of all test subjects accepted the program as long as they were given a choice, even if they were only aware of the choice at an unconscious level. . . As you adequately put, the problem is choice. -- The Architect, The Matrix Reloaded

The human mind demands choice--even the illusion of choice will do. That means if you're going to limit choice in some way, people will demand a choice for a choice.

Let's continue the Speakeasy's trend of channeling fascination with choice, human behavior, and health care. And build on that last post! We're going to talk about what market dynamics mean here. And if they can really be sustained in a multi-payer insurance market.

Choosing (How) Not to Choose

After a miraculous turnabout following the IT disaster that made exchanges a national punchline a year ago, the first open enrollment period under the Affordable Care Act turned out all right. Seems like just yesterday we were talking about how the then-forthcoming exchanges would work.

A good chunk of enrollments in December were from re-enrollments by people who first signed up last year. Recognizing how powerful inertia is--people tend not to take action--the administration made the decision to automatically re-enroll people into the plan they chose last year. That means people who don't bother to come back to the exchange website and do it themselves wind up in the same health plan this year.

That's good for keeping the number enrolled up and avoiding subjecting people to lapses in coverage due to their own laziness, but there are dangers there. Exchanges work to keep premiums in check because they're competitive marketplaces. We've seen new insurers flooding into the exchanges this year, in many cases offering 2015 premiums that undercut insurers who led the market last year. Great news!

That's all well and good right now because in these early years for the exchanges there's a continued influx of new customers picking a plan for the first time each year.

But, as things settle down, there's a danger that inertia will undermine the competitive pressures the exchanges are meant to generate. If there's a certain "stickiness" to plan selection, with people either sticking with the plan they know or being automatically re-enrolled in it by default, then an insurer that captures significant market share doesn't have to work as hard to retain that market share. Indeed, going into 2015 we're seeing that insurers who scooped up significant enrollment last year have raised premiums more than some of the newbies. Part of the reason average premium growth has been remarkably low in the exchanges is that new entrants to the market in 2015 are undercutting insurers who sold plans in the exchanges last year--competition at work!

Let's make this clear: competitive pressure is contingent upon consumers threatening to defect to competitors if they're not satisfied with the prices (premiums) or service offered by a market participant. This, however, requires action on the part of consumers. And insurance is hard. It takes work for people to evaluate competing options, provider networks, and whatever factors play in.

In a recent proposed federal rule, HHS suggested a solution to consumer inertia: people need to be given a new choice (during their initial enrollment) if they're going to cede choice later (during the re-enrollment process).

The current re-enrollment provisions ... prioritize re-enrollment with the same issuer in the same or a similar plan with the goal of maximizing continuity of coverage and care. However, because premiums may change significantly from one year to the next, the plans that are most competitively priced in one year may not continue to be the most competitively priced in subsequent years. For this reason, default enrollment in the same or similar plan may sometimes encourage consumers to remain in plans that are significantly more expensive than the lowest cost plans in the market. Because we believe that many consumers place a high value on low premiums when selecting a plan, we believe that consumers could benefit from alternative re-enrollment hierarchies. 

In particular, we are exploring implementing in the FFE an approach under which an enrollee, at the time of initial enrollment, would be offered a choice of re-enrollment hierarchies and could opt into being re-enrolled by default for the subsequent year into a low-cost plan (such as the QHP of the same metal level with the lowest premium in the enrollee’s service area, or one of the three such QHPs with the lowest premiums by random allocation), rather than his or her current plan or the plan specified in the current re-enrollment hierarchy. 

This alternative enrollment hierarchy could be triggered if the enrollee’s current plan’s premium increased from the prior year, or increased relative to the premium of other similar plans (such as plans of the same metal tier), by more than a threshold amount, such as 5 percent or 10 percent. As is the case under the existing approach, a consumer would retain the option to take action to enroll in a different plan during open enrollment if he or she wished to do so. We are considering applying an alternative hierarchy for the first time when re-enrolling consumers for the 2017 coverage year. On this timeline, consumers could opt in to the alternative hierarchy during open enrollment in 2015 (or during special enrollment periods occurring during 2016).

Stated a little more directly: when signing up for coverage, consumers would be given a choice. They would be asked how they want they want their automatic re-enrollment to be structured. They could choose, if they took no action next year, to be re-enrolled in the very same plan they're selecting this year. Just as things work now. But relative premiums change from year to year. They could also choose, if their current plan's premiums increase too much, to be automatically enrolled in the cheapest plan in their metal tier. In other words, they're given a choice as to just how they want to cede choice next year.

It's difficult to overstate how important that choice is.

If people are complacent and don't bother to return to the marketplace website to choose a plan for next year they (at present) can be re-enrolled in the same plan. Inertia keeps them where they are. Which empowers those insurers who scooped up the majority of the business in a single year: it gives them the security to jack up rates higher than competitors because they know most (?) of their enrollees won't bother to shop around and move their business elsewhere. Thus their incentive to retain competitive premiums is reduced.

On the other hand, if every enrollee is asked when they enroll how they want that re-enrollment process to work a year down the road if they forget or neglect to come back, that gives people the option to let inertia take them into cheaper plans if the default option raises premiums too much. That means people are automatically shifted to the most competitive (on a price basis) insurance offering. Which gives some incentive to dominant insurers to temper their proposed premium increases. Because they will automatically lose business if bested by their competitors. Which returns a semblance of market dynamics to a marketplace whose works may well be gummed up by the relative disinterest and inaction of its participants.

Exchanges are grappling with two mutually contradictory impulses: (1) Insurance is hard--once people choose, they're apt to not come back and choose anew, instead relying on automatic re-enrollment, and (2) price competition requires insurers to believe that their enrollees will defect to competitors if rates rise higher than justified. Auto-enrollment in the same plan dulls impulse (2). But impulse (2) is key to making well-functioning insurance markets preferable to a single-payer system (see post below!).

Yet re-enrollment in a cheaper plan, even if the consumer opted for that scenario when they first signed up a year ago, can be dangerous. They won't know what plan they're getting into (until notified) and they may not be able to keep their providers of choice, since provider directories vary by plan. And certainly in the comments submitted by the public on this proposal many advocates had feedback. The Sargent Shriver National Center on Poverty Law suggested in its public comment making the process slightly more complex, giving people a menu of factors they wanted factored into the re-enrollment determination (if they didn't bother to log back in to make a selection themselves):

We commend CMS’s willingness to consider alternatives to the current default re-enrollment position (re-enrollment with the same issuer or with the same plan). We think that over time consumers will become much more sophisticated about plan choice, and we think that discussing re-enrollment default positions with consumers is part of that educational process. We also think that, while cost is of great concern to most consumers, continuity of care, quality, and access are very important, too, and sometimes paying a little more will result in coverage that is significantly better for a particular patient. With all that said, we suggest that CMS adopt a de-fault enrollment process that includes the following:

• asking consumers to identify the factor they consider most important for them in the event of a default re-enrollment from a list of factors including cost, provider network, and benefit design; 
• asking consumers to identify their factor after they have chosen their plan (so they will be familiar with the factors they recently took into account); 
• reminding consumers of their chosen factor in their renewal materials and informing/reminding them that they have the option to change plans during open enrollment; and 
• giving consumers a window for switching plans if they are auto enrolled at renewal in a plan they do not prefer. 

Fine suggestions, though there are questions about the feasibility of folding consumer preference into an automatic renewal process to that extent. If one's preferences are that strong, perhaps one ought to take the time to log back in and comparison shop. And indeed, as the New York Times reported not too long ago in "People are Shopping for Health Insurance, Surprisingly", more people have actively re-enrolled that would be expected from previous experience in similar programs. That's a good sign but with ~70% still choosing passivity, the structure of the re-enrollment process is going to be important for ensuring the continuing existence of the market dynamics that incentivize insurers to compete hard to keep prices low and quality high.

Choosing How to Limit Choice

We'll be briefer on this one (more on this in forthcoming posts) but a significant issue that has arisen in the ACA exchanges is network adequacy--does your insurance plan have all the kinds of doctors you need to get the care your benefit package promises you? And if the answer is yes, is that enough for you?

To keep down costs (part of that surprising cost containment push by private insurers I mentioned in the previous post), insurers are cultivating smaller networks than many people, particularly those with employer-based coverage, are used to. Unlike people in employer plans, people buying plans on their own--even with the help of a federal tax credit--are, unsurprisingly, extremely cost conscious. And by cutting out some of the highest priced health care providers from their network, health insurers can keep the costs of insurance plans down. And those relatively cheaper plans are turning out to be very popular.

But a narrow network means you can't go to just any doctor or hospital, you've got to find one that's in your network. And, unlike with wide network plans, that may be a minority of doctors and hospitals. So when you seek care, you've got fewer choices. But you've in effect chosen that slate of choices in advance when you selected the insurance plan with that narrow network. You've traded a choice for a choice.

Take this bit from "Narrow Networks Enjoying a Resurgence":

Steve Wojcik, vice president of public policy at the Washington, DC-based National Business Group on Health, says several key healthcare industry stakeholders are embracing narrow networks. 

"Employers and health plans in particular have increasingly realized there is a wide variation in healthcare price and quality," and narrow networks have emerged as a market-based approach to maximizing value in care delivery, he said this week. 

"We are able to select winners and losers. It's easier for us to do it [than the government programs]. We're looking for the best we can get in terms of price and quality." 

Providers and patients also are embracing narrow networks, he says. "The last time with managed care, narrow networks were formed without the support of physicians and consumers," and the recent widespread growth of narrow networks has many healthcare providers clamoring to be included for competitive reasons. 

"Price-sensitive consumers are choosing narrow networks on the new exchanges. It's not like someone is forcing them into it… As long as the public sees value in the narrow networks, there won't be a repeat of the managed care backlash."

When placed into narrow networks without a choice (the 1990s) the experiment briefly worked. But consumers ultimately revolted, networks widened, and costs returned to large increased by the early 2000s. Today narrow networks are back but with a twist: at least in the exchanges, you're only in one if you actively chose it. Wider networks are competing alongside narrow network options, they just command a higher premium.

If it sticks this time, perhaps it's because people are being allowed to swap the choice of any provider when it comes time to seek care for the choice of a narrow network when it's time to purchase an insurance plan. The problem is always choice!

Single-Pay it Forward

As the previous post should make clear, I'm not (presently) a single-payer advocate. But I'm persuadable. So perhaps it would be helpful--at least for me--to lay out (1) why I'm not, and (2) under what circumstances I will be.

My views here are, I think, relatively non-ideological and lean toward empiricism. Bu I have some built-in biases, though I would argue that there are logical/empirical roots to these preferences.

My major guiding axioms here are the following:

1. If well-functioning markets are possible, they are preferable to the alternative.
2. If people are capable and equipped to make them responsibly, choices/options are good.
• Corollary: This is true even if choice is largely an illusion.
3. A policy that can be passed and implemented is superior to one that cannot.
• Corollary: Smaller changes are generally preferable to larger ones, and larger changes arrived at through evolution are generally preferable to those arrived at through discontinuous, disruptive change.
4. Spock's Dictum: The needs of the many outweigh the needs of the few. Or the one.

(What a fucking gut-wrenching death. Part of why TWOK comes in #1 in my ranking of Trek movies).

So this is my starting point. A healthy respect for the benefits of market dynamics, coupled with a systems-oriented perspective that doesn't unduly privilege the individual to the detriment of the overall system. Perhaps that means we're starting with an intrinsic paradox or contraction but here we are.

So here's what would make me embrace single-payer over the (ACA-compliant) status quo.

Occam's razor

I consider the new exchanges (marketplaces) under the ACA a grand experiment. Not just in policy but, deeper than that, in human behavior. They're the first large-scale, widespread chance for individuals to shop for commercial health insurance in a coherent marketplace. Previously nearly everyone had their insurance choices dictated either by their employer's HR department or the vicissitudes of the chaotic, disorganized individual market that used to exist for everyone else. How people respond to this experiment is the single most important factor in my thoughts on single-payer.

We know people aren't perfectly rational calculators, they're boundedly rational beings with limited time, resources, and cognitive bandwidth. And that's why the most important function of the exchanges (after disbursing federal tax credits, SCOTUS willing) is to organize the market. Grouping plans by relative generosity into actuarial tiers identified by metal designations, bronze to platinum, allows people to easily make apples-to-apples comparisons. 

Eliminating individual rating beyond the most basic of factors--family size, geography, age, and tobacco use--means that the sticker price of a health insurance plan is in fact its price. That means competing plans can legitimately and meaningfully be lined up next to each other for comparison on a website, something never true before. Premiums and deductibles are right there for inspection by the consumer, no strings attached.

This year the federal exchange, healthcare.gov, added a feature that allows shoppers to narrow or sort plans by "medical management program." Consumers now can quickly see which plans offer special programs to support enrollees with a variety of conditions, from asthma to heart disease to depression to high blood pressure. 

Plan quality and participating providers are additional dimensions of interest to shoppers that exchanges will get better at displaying for easy comparison as time goes on.

The point of all this being that exchanges narrow down the decision-making process for health insurance by boiling it down to a few key factors and allowing shoppers to easily compare plans along those dimensions. By providing that structure, they allow consumers to make meaningful decisions and to send clear signals to insurers selling in the marketplace. The design of exchanges not only acknowledges bounded rationality, it harnesses it to salvage market dynamics. 

But a critical assumption here is that this simplified choice architecture (an idea I've explored with delight before in "Order Out of Chaos") is enough to empower consumers to be savvy shoppers. If that's not true, the entire edifice begins to crumble. We heard it last year in scattered anecdotes that provide precious little context to determine if the problem is widespread or localized. Some people bought a plan not understanding their cost-sharing responsibilities, ending up with higher deductibles than they wanted to pay. Others bought plans without scrutinizing the provider director and found desired doctors weren't included (cases where insurer provider directories were simply wrong, primarily in California as far as I can tell, are different--that's simply fraud or negligence and ought to be pursued by local authorities). 

Those stories are all examples of people buying coverage they didn't understand and thus ending up with plans that didn't accurately reflect their preferences. If the average consumer cannot properly evaluate their risk, judge when to seek "necessary" care,  or make appropriate choices that correspond to their preferences then the marketplaces will fail. Like all ideas based on markets, exchanges are predicated on the assumption that people are equipped and able to make the best decisions for themselves. If most people end up with coverage they didn't want (e.g., because their preferred doctor or hospital isn't in-network for the plan they chose or because they didn't understand the financial commitment entailed by taking on a large deductible), then we have a problem. If people can't effectively translate what they want into what they buy, the markets won't work. The marketplaces are supposed to be the mechanism by which consumers translate their preferences into purchases and thus send clear signals to sellers. If the consumer turns out to be the weakest link here, then markets aren't the answer.

Now we need to be careful here. Anecdotes are not data and Gallup polling from last November suggests most people who bought exchange coverage are happy with it. And the new marketplaces established under the ACA remain a vanishingly small component of the total insurance market, primarily catering at present to people who are the most likely to be unfamiliar with health insurance concepts and design. There will be a learning curve. But it's entirely possible that most people in employer coverage, unaccustomed to comparison shopping for insurance in the open market, are not particularly well-equipped to buy their own insurance either. And those who hope that down the road the exchanges become a platform for the future of health insurance selection (well beyond the ~10-20 million people expected to gain coverage through a public exchange in the next few years) may yet have to grapple with that reality.

So that's the primary (empirical) thing that will turn me to single-payer. If people prove unable to competently shop for a health insurance plan that matches their preferences, then there's no reason to have competitive insurance markets. Indeed, a more paternalistic system would be demanded by such a situation. And maybe I need to surrender my moderate liberal/center left card to say so, but I really hope that's not the case.

But if we need a paternalistic system, an Occam's razor to further simplify the options available to people (to none, I suppose, since they'll get a standardized policy with likely no cost-sharing and all-providers in the U.S. in-network), then single-payer is the answer.

E Pluribus Pluribus

I argued in the previous post ("E pluribus unum") that single-payer isn't necessary if we can achieve its primary goals by aligning multiple payers toward similar ends. If we want providers to adopt a new health care delivery model that requires a different payment model to sustain it, then all payer-boats need to start rowing in the same direction to enable those providers to make that change. All health care is local and that sort of alignment needs to happen at the local/state level, though arguably such a major payer as Medicare needs to be onboard if those local changes are to succeed. And the federal government is furiously providing seed money to the states to make those local changes.

But if multi-payer alignment fails to achieve those goals then it's not going to be enough. And by failure I mean that either these coalitions fray and disintegrate, or they're simply too weak to enable or push the change they seek on the provider end. There are a lot of moving parts here and there's no guarantee that the current push to get competing payers on the same page will succeed. Payers need to maintain enough differentiation to try and best their competitors in the marketplace. Is this kind of homogenized differentiation sustainable?

I said in the previous post that a a primary argument for single-payer is that it provides unified policy direction across the health system. If that unified direction can't be achieved in a multi-payer environment then single-payer may well be the only hope we have to fix our broken payment and delivery system. This, again, is a prospect I don't relish.

Prices!

There's plenty of reason to believe that much of what's wrong with health care costs in America isn't just traced to our woefully inefficient delivery system but to our prices (see: "It’s The Prices, Stupid: Why The United States Is So Different From Other Countries" and "21 graphs that show America’s health-care prices are ludicrous").

If we don't find a way to tackle high prices on the health care provider side (a departure from this talk of health care insurance market dynamics) then we're sunk anyway. In fact, there's some reason to believe a competitive insurance market could be counterproductive:

(h/t to the Incidental Economist)

What the graph says is that if a single insurer dominates a market, they'll jack up premiums and consumers will be hurt (a great argument for competitive insurance marketplaces!). But if a consolidated health care provider organization dominates the market, a fragmented insurance marketplace may just make it easier for them to extort ever higher prices for health care services (see my now classic in the field "The Case Against Providers") by weakening the bargaining position of any individual health insurance company. In other words, insurer competition is good...to a point. And that point is where insurance market fragmentation benefits health care providers at the negotiation table. What a tenuous balance!

Ultimately if insurer competition means that hospital systems (which are quickly buying up physician practices, as well) can demand higher prices because insurers are poorly positioned to say no, then we all suffer. Which would suggest we need a single payer with the monopsony power to simply dictate reimbursement rates to provider systems.

Again, I don't believe that's ideal but if competitive insurance markets turn against the consumer in this fashion (after all, higher provider reimbursements directly translate into higher insurance premiums) then decisive action is needed. Time will tell!

Requiem for a Dream

I want markets to work. Long-time readers (j/k, I know there are none) will know that five years ago I was a huge, huge, advocate of having a robust public option in the new exchanges. On the assumption that an insurer paying (at least initially) Medicare +5% rates would put tremendous pressure on health care providers to capitulate to lower rate/price demands of newly-en-balled commercials demanding more reasonable rates to avoid consumer defections to a cheaper public option. The value of the public option to me was not that people would enroll in it, but rather that its mere existence would re-shape the provider-commercial insurer relationship to ensure that contracted rates came back to earth so that commercial insurers could reasonably compete with a public option empowered to dictate its own rates.

I have been pleasantly surprised to find that the public option seemingly wasn't necessary. Private insurers selling in the exchanges have been going crazy with cost containment. PwC found that exchange premiums were 4-20% (!) cheaper than employer-based plans of equivalent generosity. McKinsey found that narrow provider networks of the sort gaining popularity in the exchanges could lower insurance premiums by as much as 26% (!) with no appreciable difference in quality of care.

The reality is that in a world where health insurers can't find savings by shedding risk (read: dumping or avoiding sick people) they have to keep premiums down through a few strategies, including: 1) smarter benefit design, nudging shoppers toward higher-value services and providers, 2) active population health management to preserve and encourage health on the part of enrollees, coupled with support for key delivery system reforms to ensure efficiency in care delivery, and 3) more selective provider contracting or network design to attack price growth. And, amazingly, competition in the new marketplaces is pushing them to pursue these strategies--an outcome I thought only a public option competitor would finally commit them to pursuing. I was, happily, wrong. 

I hope that I'm right that multi-payer competition can work to give consumers what they want while simultaneously muting commercial health premium growth. Because if I'm wrong, Uncle Sam is our last chance.