Could it be that the highly compensated insurance-company actuaries are lousy at math?
For months, we’ve been reading stories about how big medical bills incurred by Obamacare enrollees are driving publicly traded insurance companies from the exchanges. Some affiliates of the venerable Blue Cross Blue Shield Association (BCBS), reeling from the costs of paying medical claims for a population that is unhealthier than expected, have joined the stampede to the Obamacare exits, while others seek premium increases of as much as 60 percent or sue the government for corporate handouts to offset their losses.
The apparent desperation of insurance-company CEOs might lead you to believe that Obamacare was failing.
Not a chance, according to the Centers for Medicare and Medicaid Services.
CMS last week issued a report proclaiming Obamacare to be the brightest star in the private-health-insurance galaxy. Per capita medical claims incurred in 2015 by people enrolled in individual Obamacare policies were 0.1 percent lower than in 2014. By way of comparison, per-member claims among the tens of millions of people enrolled in other private health coverage increased by 3 to 6 percent between 2014 and 2015.
If CMS is right, the insurance industry’s black belts in actuarial science have had it backward all along: Medical costs are falling among Obamacare enrollees but, among those in employer-sponsored plans, rising faster than the overall rate of inflation.
The CMS report, alas, has a glaring credibility problem: Nobody can verify either the methodology or the data the agency used. Even President Obama’s former CMS administrator isn’t buying it. Marilyn Tavenner, now the health-insurance industry’s chief lobbyist, flatly rejected the report’s key claim of an “improving risk pool” in the Obamacare exchanges.
So who’s right?
To arrive at its conclusion that the Obamacare pool is getting healthier, CMS simply writes off 4 percent of medical claims incurred by enrollees in 2015. It then compares the resulting figure to that for medical claims for 2014, finding a 0.1 percent reduction in per capita medical claims in 2015 in the Obamacare “market.”
The agency justifies this methodological sleight of hand by citing “cross-year claims.” It reasons that some of the medical bills enrollees ran up in 2015 were for treatments that began in 2014. Although only a small percentage of claims would fall into this category, CMS, using data from the California Office of Statewide Health Planning and Development, posited that these were very expensive claims indeed. It concluded that, to account for these cross-year claims, it should reduce its calculation of 2015 medical claims by 4 percent.
Of course, cross-year claims would also have occurred at the end of 2015. Some of them would have been paid in 2016. It would seem that, for the sake of consistency, these 2016 claims also should be reduced and counted against 2015. The agency does not say whether it made that additional adjustment.
The Centers for Medicare and Medicaid Services have conjured a ‘reality’ that runs directly contrary to the reality that plagues insurance-company balance sheets.
But, then again, opacity is the report’s leading characteristic. It cites claims data submitted through the so-called EDGE system but then says that “it is not possibly [sic] to directly identify cross-year claims in the EDGE data.” Similarly, data for cross-year claims will not be available in the 2015 dataset that the agency is expected to release next month. These data, we are told, “measure a different but related set of claims.” The report doesn’t even tell us what CMS believes average medical claims were in 2014 or 2015 either before or after their data “adjustment.” CMS simply asks us to believe that the Obamacare risk pool is “improving.”
Tavenner doesn’t believe it. “The reality is that the risk pool has not significantly improved,” she said in a statement last week.
CMS has conjured a “reality” that runs directly contrary to the reality that plagues insurance-company balance sheets.
BCBS, for example, earlier this year released its analysis of actual medical claims incurred by people who newly enrolled in their Obamacare plans in 2014 and 2015. It found that new enrollees in both years “received significantly more medical services in their first year of coverage” than did people who bought individual coverage before 2014 and renewed their policies.
The report pours cold water on CMS’s theory of an “improving risk pool,” the idea that people who signed up for the first time in 2015 were, on average, healthier than 2014 enrollees. On the contrary, BCBS found that, per member per month, claims among new enrollees increased by 11.6 percent from 2014 to 2015. New enrollees spent more in 2015 than in 2014 on prescription medicine, doctor visits, and both inpatient and outpatient medical care.
Unlike the CMS report, the Blue Cross study is encumbered by its attachment to reality, evidenced by its reliance on a transparent methodology and actual data from 4.7 million purchasers of individual coverage. Maybe if Blue Cross had applied the mysterious CMS “adjustment” to its numbers, it too would have found that their Obamacare enrollees were getting younger and healthier all the time.
Insurers, unlike government spin doctors, understand that, while you can adjust the numbers, you can’t adjust reality. For insurers that participate in Obamacare — as well as for consumers and taxpayers, who bear the brunt of the law’s traumatic costs and dislocations — the reality isn’t good. Accepting that reality is the first step to changing it.