Today’s Managing Health Care Costs Number is 26%
Call me confused.
Maryland approved a 26% rate hike for the most popular Obamacare exchange health plan offered by CareFirst Blue Cross, the dominant insurer in that state. That’s a big increase – the average increase in neighboring Washington DC (also served by CareFirst) is only 4%.
Maryland is home of two innovations in health care finance and delivery that should help control costs. Maryland’s all payer hospital rate setting has been heralded as saving $40 billion over three decades. CareFirst’s Patient Centered Medical Home Program is being credited with savings as large as 8.5% of medical pmpm cost (see slide 55 of this deck from CareFirst)
I understand that the cost savings from the all payer hospital rate settings have been under serious pressure in the last few years , and Maryland recently renegotiated terms with CMS in 2014 . The PCMH program doesn’t represent all primary care providers – although it does represent 80% of them. The actuaries could have just set rates too low in 2015 – even if the cost of care isn’t going up. CareFirst reported a $100 million loss on exchange plans, and it’s critical for health plans to have at least a small margin to support infrastructure investment and provide a cushion for years with unexpected bad experience.
Here are some possible reasons why costs of the exchange plans in Maryland are going up so much, and my perspective on them.
| Explanation | Comments |
| CareFirst had a severe adverse selection problem – where a disproportionate share of those with serious medical problems chose that health plan. | The CareFirst spokesman focused on this – saying that enrollees were older and sicker. But CareFirst represents over 75% of the Maryland exchange market – so it’s awfully hard to have adverse selection. |
| The exchange program in general had an adverse selection problem – where healthier residents of Maryland stayed away | The uninsured rate in Maryland is low, and decreased substantially. Source |
| Maryland population got sicker on average than the national population leading to more price increases | Maryland has 6 million residents, and there is no evidence of systemically more illness in the state. |
| Maryland’s providers started providing a series of new and expensive procedures at much higher rates | Maryland retains some elements of ‘certificate of need’ which can constrain new capital investment that could increase costs. There have been some especially expensive new proton beam centers which opened in the last few years – but this isn’t likely to be enough to cause this large an increase. |
| CareFirst wants to increase its profit margin so it jacked up the rates | CareFirst is pretty strictly regulated and is a non-profit. It must have a small operating margin, but there’s nothing to indicate that it’s looking to make an “unreasonable” profit. |
| The CareFirst actuaries priced the exchange products unrealistically low in the first place. | This could well be, although average cost of a silver plan in Maryland is not substantially lower than in other urban areas. Source |
| The PCMH program and the all payer hospital rate setting were built into the (low) baseline price. Their effectiveness at decreasing trend once they have impacted the baseline is limited | This might be true, but overall cost of care in Maryland is much more expensive than the US as a whole. Source |
| The PCMH program and the all payer hospital rate setting are not as effective as proponents have claimed. | I view this as a distinct possibility. Most rigorous academic studies of PCMH show savings only in the population of those with severe and chronic diseases, and the extra cost of this model is likely not offset by savings in a healthier population. I believe that the lower commercial health plan hospital rates under all payer rate setting were largely subsidized by higher Medicare reimbursement. |
