I’ve been doing some research into the effects of market concentration on health insurance premium pricing on the health insurance Exchanges run by the federal government. During the course of that research, I discovered what I first thought had to be a programming error on my part or a database error on the part of healthcare.gov: Silver and Gold plans that were costing individuals age 50 upwards of $2,000 per month. Yes, per month!
It turns out, however, that these exorbitant prices are not errors. They represent a clever attempt by several insurers in Virginia — Optima Health, Coventry Health Care of Virginia, Inc., Innovation Health Insurance Company, and Aetna — to get the federal government to pick up a substantial part of the tab for bariatric surgery. Here’s how it works. The insurer offers the consumer a premium that is often $2,000 per month ($24,000 per year) more than it charges for other essentially identical plans. The bonus is that the insurer offers the consumer, in addition to the usual benefits, bariatric surgery, which is otherwise subject to coverage restrictions in Virginia. Now, the only person who would rationally purchase such a policy is one who is pretty certain to undergo such surgery. And, as it happens, bariatric surgery (such as a gastric bypass) appears to cost between $20,000-$25,000. In effect, then, the insured prepays for the surgery via augmented premiums and perhaps piggybacks on the insurer’s bargaining power with surgeons to get a cheaper price.
So far, however, this does not seem like a compelling business model for insurance; at best it converts insurance into an elaborate financing scheme. But wait: if the insured has a relatively low income (and obesity correlates with poverty in modern America), under the cost sharing reductions provisions of the ACA (42 U.S.C. § 18071) the federal government now picks up much of the deductible and coinsurance that would otherwise be owed. Instead of there being, say, an $3,500 deductible and a $6,350 coinsurance limit, as there is under the Aetna Classic 3500 PD:MO policy offered in Virginia, if the person is poor enough (100-150% of federal poverty level), the deductible under the Aetna Classic 3500 PD: CSR 94% MO is now $300 and the out-of-pocket limit is now $1,250. The federal government is thus likely to pay for $3,200 to $5,100 of the bariatric surgery that would otherwise come out of the patient’s pocket.
Is this legal under the ACA? I believe it may well be. I don’t see a violation of the “metal tiering” provisions of the ACA. Under section 1302 of the ACA (42 U.S.C. § 18022), whether something qualifies as a Silver or Gold plan depends on the cost to the insurer of providing essential health benefits to a standard population, not on the cost to the insurer of providing its actual health benefits to the population it anticipates attracting. That may not be a very good system, but is the one in the law; it is probably simpler than some alternatives. Moreover, section 1302(b)(5) of the ACA makes clear that a health plan may provide “benefits in excess of the essential health benefits described in [the ACA].” And, since some states apparent include bariatric surgery in their list of essential health benefits, it’s hard to say that Congress implicitly rejected paying for this procedure.
Footnote: I suppose there could be an issue as to whether this plan conforms to Virginia insurance regulations. I’m not an expert on that, but my working assumption is that the Virginia regulatory apparatus has approved these plans.
Is what these insurers are doing appropriate? That’s a tricky question. Basically what they are doing is the result of a decision by the Department of Health and Human Services relating to implementation of sections 1201 and 1302 of the ACA. HHS, instead of creating some uniform concept of Essential Health Benefits for those states that elected not to make their own decision, instead decided to try and mimic features of the “largest plan by enrollment in the largest product by enrollment in the State’s small group market.” 45 C.F.R. 156.100) That essentially made it a bit a matter of luck as to the circumstances under which bariatric surgery or other weight loss programs would be covered by plans permitted to be sold after 2013 on the individual market. It meant that in some states the risk of needing (or badly wanting) bariatric surgery would be spread among all those purchasing non-grandfathered plans after 2014 whereas in other states either the risk would not be transferred at all or would be transferred, as in Virginia, only at a high price. The map below created by the “Obesity Care Continuum” shows how the states differ.
And should bariatric surgery itself be covered? It’s not an easy decision. On the one hand, bariatric surgery frequently results in part from poor health choices made by the individual. Yes, there may be contributing factors such as access to healthy foods, genetics, access to safe methods of exercise, but, still, most people have a choice not to become obese. And, if the condition is viewed as substantially the result of individual choice, the case for socializing and spreading the risk is weaker. On the other hand, there are plenty of risks that health insurance policies do pay for — both before and after the ACA — that likewise result substantially from personal choice. They cover orthopedic surgery for (mostly wealthy) people who choose to ski. They cover smoking related conditions — albeit for an additional premiums which, if actually collected, would still probably be less than the actuarial risk of tobacco use. They cover treatment in at least some forms for the variety of conditions created by substance abuse (drugs, alcohol). They sometimes cover non-surgical costs to which obesity contributes even when those problems are partly the result of individual choices. And they covers the costs of treating sexually transmitted diseases even when those diseases might, in some instances, have been prevented by safer sexual practices. Untangling fault out of medical need is often a tricky proposition indeed.
So, perhaps these Virginia insurers are doing the public a service by evading/working around restrictions in the Obamacare package of essential benefits provided in some states that were unduly narrow. Indeed, on this view, the problem is not that the federal government is subsidizing bariatric surgery, it is that individuals have to pay these enormous extra premiums for a risk that should be shared and that are shared in some states. It will be interesting to see what happens with these Virginia plans and whether what has started there extends to other states in which bariatric surgery is not presently considered an essential health benefit.