Safeguarding American Patients A NATIONAL REGRESSION ANALYSIS AND STATEFOCUSED CASE STUDY OF HEALTH INSURANCE COVERAGE AND MEDICAL BANKRUPTCY
Kishan Bhatt April 4, 2017
A Senior Thesis presented to the Faculty of the Woodrow Wilson School of Public and International Affairs in partial fulfillment of the requirements for the degree of Bachelor of Arts
Acknowledgements Princeton has been one of the best experiences of my life, and completing this thesis will be something I forever remember with great pride and joy. There are so many people whose influence has been formative throughout my education, from my childhood through my University years, and I am so appreciative of you all. To my thesis advisor, Heather Howard: Taking your class on American health reform sparked my passion in the subject, and I would not be the person nor the scholar I am today without your guidance and good humor throughout this project. I am deeply grateful for your service to this great nation and to the great state of New Jersey – you are an inspiration to me. To Oscar Torres-Reyna, Ofira Schwartz, and Tsering Wangyal Shawa: I hope to reach your level of programming brilliance someday, but in the meantime, my sincere thanks for guiding me through methodological challenges in my first project of this scale. To my fellow Nassoons: From serenading royalty in Europe to crooning backpackers while hiking in New Hampshire, my fondest memories of college are the times we spent traveling the world to share songs, fun, and camaraderie. To my colleagues on the Undergraduate Student Government and Senior Class Commencement Committee: Thank you for your tireless work on behalf of the campus community. It was a great privilege of my Princeton career to serve alongside you for four years. To my friends in the many other student organizations that have nurtured my intellectual growth – PTC, HVF, OK, PCA, SINSI and CHW, among others: You have challenged me to seek the best of myself, while sharing many a good laugh along the way. Thank you for an amazing journey. To Shivam: You are my brother and best friend. While I draw inspiration from your resilience and verve, I perhaps most appreciate your “dank memes” that offered me great comic relief throughout this project. Thank you for keeping me grounded, always. Finally, to Mom and Dad: it is a blessing to be your son. Your character, love, and grace set the standard for all that I aspire to be. Thank you for always believing in me and for never flagging in your ability to give me strength when I most need it. This thesis is a product of that support, and I hope it does you proud.
Abstract Over time, have medical bankruptcies been more common in states where the uninsured rate is higher? While seemingly an intuitive “yes”, the answer to this question is decidedly more complicated. Regulatory and market pressures to constrain growing premium costs are transforming health insurance plans, yielding a system that increasingly places cost-sharing responsibilities on patients when they access needed medical care. Out-of-pocket expenses for insured patients are on the rise as a result. Moreover, prior studies have estimated that up to three-quarters of medical bankruptcy filers had health insurance. Policymakers at both the state and federal levels who support coverage expansion, however, base their belief on the notion that not having insurance leaves American households one illness away from bankruptcy. This thesis evaluates how health insurance affects personal financial outcomes, as measured by medical bankruptcy. To do so, it employs a mixed-methods approach. First, it examines the history of health reform and personal bankruptcy in the United States, with attention to the successes and shortcomings of the Patient Protection and Affordable Care Act of 2010 (ACA). Next, this thesis uses a fixed-effects regression model to quantify the relationship between state-level uninsured rates and population-adjusted medical bankruptcy filings, with data from 2006 through 2015 to cover the years before and after the ACA’s enactment. Then, it analyzes the Chapter 58 reform bill in Massachusetts as a case study of coverage expansion decoupled from medical bankruptcy decline. The statistical model shows that, after accounting for potentially confounding economic characteristics including unemployment, consumer spending, and median household income, a 1% increase in the uninsured rate corresponds with a 0.17% increase in population-adjusted medical bankruptcy (p = 1.79 x 10-4). The qualitative case study on Chapter 58, however, reveals that strong consumer protections are necessary on top of coverage expansion to insulate household budgets from financial catastrophe. Despite halving the uninsured rate after 2006, pre-ACA Massachusetts lacked a ban on lifetime limits to reduce out-ofpocket expenses for patients with expensive diseases, contributing to the state’s persistent medical bankruptcy until the national reform included such a prohibition. The thesis concludes with policy reflections, offering and analyzing proposals such as advanceable tax credits and disclosure requirements to address highdeductible health plans and “surprise” out-of-network medical bills. Finally, using the insights gleaned from the preceding analysis, it remarks on recent legislative proposals to remake American healthcare.
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Table of Contents Abstract..................................................................................................................... 1 List of Figures .......................................................................................................... 3 List of Tables ............................................................................................................ 3 INTRODUCTION ..................................................................................................4 CHAPTER ONE: Policy Background and Literature Analysis ............................8 1.1 The Road to Reform: How Personal Finance Was Central to the Healthcare Debate .. 8 1.2 How the Affordable Care Act Addresses Personal Financial Wellness ...................... 12 1.3 American Families Still Struggle with Healthcare Expenses ..................................... 17 1.4 Scholarly Debate on the Frequency of Medical Bankruptcy ....................................... 18 1.5 Medicaid Coverage and Personal Financial Wellbeing .............................................. 21 1.6 History and Background on Bankruptcy Law and Medical Debt ..............................24 1.7 Changes in the Health Insurance Market Affect Personal Financial Security ...........28
CHAPTER TWO: Data and Methodology .......................................................... 35 2.1 Dataset Introduction.................................................................................................. 35 2.2 Outcome and Explanatory Variables ......................................................................... 35 2.3 Covariates ................................................................................................................. 38 2.4 Quantitative Methods ................................................................................................44
CHAPTER THREE: Quantitative Findings and Analysis .................................. 47 3.1 Graphical Relationship Between Explanation and Outcome ..................................... 47 3.2 Regression Table .......................................................................................................49 3.3 Regression Interpretation ..........................................................................................49 3.4 Addressing Limitations in the Model ........................................................................ 53 3.5 Conclusions ............................................................................................................... 58
CHAPTER FOUR: Medical Bankruptcies in Massachusetts ............................. 60 4.1 Case Selection ........................................................................................................... 60 4.2 Background on Massachusetts Health Reform Legislation .......................................62 4.3 How Chapter 58 Addressed Healthcare Affordability ................................................ 65 4.4 Comparing Chapter 58 and the ACA ........................................................................ 67 4.5 How the Results of Chapter 58 Predict the ACA’s Impact ......................................... 77
CHAPTER FIVE: Policy Relevance and Concluding Reflections .......................83 5.1 Getting Ahead of Deleterious Insurance Market Evolutions ...................................... 83 5.2 Analyzing Republican “Repeal-and-Replace” ...........................................................92 5.3 Remarks on Data Inference in Public Policy Debate .................................................98 5.4 Conclusion .................................................................................................................99
Bibliography ......................................................................................................... 102 Honor Code Pledge .............................................................................................. 115
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List of Figures Figure 1: Map of Medical Bankruptcies, 2010........................................................9 Figure 2: Map of Medical Bankruptcies, 2015 .................................................... 11 Figure 3: Distribution of Outcome Variable. ........................................................36 Figure 4: Distribution of Explanatory Variable. ................................................... 37 Figure 5: Heat-Map of Data across States, 2010 ................................................. 42 Figure 6: Heat-Map of Data across States, 2015 ..................................................43 Figure 7: Basic Association of Health Insurance and Medical Bankruptcy ........ 48 Figure 8: Trend in Massachusetts Medical Bankruptcies .................................... 61 Figure 9: Health Insurance Trends Among Nonelderly Massachusetts Adults .. 65
List of Tables Table 1: Descriptive Statistics. ............................................................................. 44 Table 2: Regression Model Findings ................................................................... 49
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INTRODUCTION
Seven years ago, President Barack Obama signed into law the Patient Protection and Affordable Care Act of 2010, which aimed to expand coverage, reduce soaring healthcare spending, encourage disease prevention and early detection, and prioritize the value over the volume of healthcare delivery through Medicare and Medicaid payment reforms. On many fronts, the law (henceforth referred to as the ACA) achieved its initial objectives, with an uninsured rate half of its pre-ACA levels,1 consistently smaller increases in healthcare spending over the past seven years,2 premium price increases that have been slower than they would have been in absence of the law,3 and sustained private sector job growth.4 Health reform has also brought about undesirable changes, most notably the increase in out-of-pocket expenses for American patients over the same period.5 On November 8th, 2016, the future of the health law lurched into doubt following the election of ACA opponent Donald J. Trump as President of the United States and the retention of Republican majorities in both chambers of Congress. 6 The ACA remains “the law of the land” for the foreseeable future even despite this uncertainty, as House Speaker Paul Ryan (R-WI) conceded after the recent failure of a repeal-and-replace effort.7
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Kaiser Family Foundation, “Key Facts about the Uninsured Population.” McMorrow and Holahan, “Implications of Health Spending Growth Slowdown on the Affordable Care Act.” 3 Schoen, Radley, and Collins, “State Trends in the Cost of Employer Health Insurance Coverage, 2003-2013.” 4 Obama White House Archives, “Creating American Jobs.” 5 Kaiser Family Foundation, “2016 Employer Health Benefits Survey.” 6 Jost, “ACA Repeal Process Begins In Congress.” 7 Conway, “Ryan: ‘Obamacare Is the Law of the Land’ for Foreseeable Future.” 2
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Introduction In anticipation of potential policy change, this thesis tackles a relevant empirical question: how does health insurance coverage relate to medicallyinduced catastrophic personal financial outcomes? To evaluate this hypothesized relationship, this thesis will assess rates of personal bankruptcy filings by state as compared to the overall uninsured rate from the period 2006 to 2015. The forthcoming analysis includes a case study of the 2006 insurance reforms in Massachusetts with commentary from several health policy experts, as well as a quantitative examination of coverage gains and bankruptcy in a moment when insured consumers are being asked to shoulder an increasingly large financial burden for their medical care. The ACA, motivated by the belief that uninsured Americans are one expensive illness away from bankruptcy, increases the coverage rate through a mix of public and private sector mechanisms. On the public side, the federal government offers states full funding for the expansion of the Medicaid program to those whose incomes are below 138% of the federal poverty level (FPL). 8 Encouraging a robust private market for individual buyers (those who do not have employer-sponsored insurance or qualify for a public program) was another important pathway to increase coverage; the law also established state-level exchanges where private insurers offer plans at a transparent price (subsidized with federal dollars for over half of marketplace consumers). This thesis tests the central hypothesis of the ACA, examining if financial distress (as measured by the bankruptcy rate) wanes as individuals are protected against catastrophic medical expenses through health insurance. As the final 8
In its 2012 ruling National Federation of Independent Businesses v. Sebelius, the Supreme Court struck down a provision allowing the federal government to withhold its entire share of a state’s Medicaid funding if that state chose not to expand program eligibility per the ACA. This decision effectively rendered Medicaid expansion optional for the states.
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Introduction policy note discusses, the rising frequency of high-deductible plans and out-ofnetwork billing represent changes in the insurance market separate but parallel to the ACA that require higher out-of-pocket contributions even from insured individual patients and their families, creating questions over the extent to which health plans, as presently constructed, are protective against bankruptcy. Prior studies have produced findings relevant to the larger issue of insurance access and household financial security. One recent paper identified a significant difference in financial wellbeing among expansion and non-expansion states, as evidenced by less per capita medical debt in the expansion states. 9 Moreover, the landmark Oregon Health Experiment discovered that despite statistical uncertainty regarding the clinical improvements of newly insured, those individuals benefited from tangible financial relief. 10 Such findings lend credence to the belief that coverage expansion has succeeded in improving personal financial security. However, recent analysis shows that despite an uninsured rate today that is nearly half of pre-ACA levels, one-third of Americans still report trouble paying their medical bills, forcing them to decide whether to postpone needed care or to borrow funds to meet their out-of-pocket obligations.11 Policymakers and the academic community therefore ought to study insurance market shifts and consider these consumer reports when debating the merits of the ACA’s coverage expansion. This thesis contributes to the political and academic debate over coverage benefits in three ways. First, its fixed-effects regression model illustrates state 9
Hu et al., “The Effect of the Patient Protection and Affordable Care Act Medicaid Expansions on Financial Well-Being.” 10 Baicker et al., “The Oregon Experiment — Effects of Medicaid on Clinical Outcomes.” 11 McCarthy, “Many Americans Have Problems with Cost and Access to Healthcare, Poll Finds.”
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Introduction level trends in personal bankruptcy filings, a specific and understudied marker of financial wellbeing; across the ten-year period studied, a 1% increase in the uninsured rate corresponded with a 0.17% increase in population-adjusted medical bankruptcy (p = 1.79 x 10-4). Second, the Massachusetts case study examines why coverage gains have not always reduced medical bankruptcy, highlighting the importance of consumer protections, such as banning annual and lifetime limits. Third, the concluding reflections offer relevant future-oriented insight on how emerging changes in the insurance market will affect individual financial security. Chapter 1 provides a policy background on healthcare expenses – specifically the landscape pre-ACA and how the law attempted to address out of pocket costs – while also reviewing the literature on health insurance and medical debt. Chapter 2 explains the data and methodology used in this analysis. Chapter 3 presents the regression model results and analysis, while Chapter 4 offers a discussion of those results in context of the previous and current policy landscape, using Massachusetts as a state-level case study. Chapter 5 concludes with remarks on the policy relevance of these findings, reflecting on strategies to address out-of-network billing and high-deductible plans, two of the threats to personal financial solvency.
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CHAPTER ONE Policy Background and Literature Analysis
1.1 The Road to Reform: How Personal Finance Was Central to the Healthcare Debate In a historical moment during which a dire and unexpected economic crisis threatened households across the country, pursuing health reform would seem to be a quixotic political gambit by President Obama. A parade of his predecessors in the Oval Office, President Truman onwards, had attempted significant structural overhaul to health insurance and delivery, only to fail spectacularly
in
the
face
of
steadfast
physician
opposition,
skeptical
pharmaceutical and insurance heads, and a divided public.12 For as much as the ACA was about medicine, insurance, and public health, the “affordable” tag in its name proved to be one of the most significant drivers of its treacherous journey through Congress, local town halls, industry lobbying meetings, and extensive media coverage. Insurance access had dwindled in the years leading to the law, exacerbated by recession job losses that cost Americans their health coverage; by the time Obama won the presidency in 2008, the uninsured rate had ballooned to one in eight households in the middle fifth of the wage distribution, while nearly two in five households in the bottom fifth of earnings lacked coverage.13 Interestingly, three-quarters of uninsured households had at least one full-time worker, with an additional eleven percent of uninsured
12 13
Oberlander, “Long Time Coming.” Rho and Schmitt, “Health-Insurance Coverage Rates for US Workers, 1979-2008.”
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Chapter One families having at least one part-time worker. 14 And while the same medical procedures cost more in the United States than elsewhere, driving healthcare spending to 17% of our gross domestic product, America’s clinical and wellness outcomes are mediocre compared to those of the other high-income Organization for Economic Cooperation and Development (OECD) member nations.15 Medical bankruptcies stand as perhaps the most catastrophic consequence of high healthcare costs in the United States. By 2010, when the ACA made its way into law, pockets of the country saw relatively high rates of filings from medical costs, fueling the campaign for health reform that would resolve these challenges. As the figure below highlights, the Deep South and Southwest (where coverage rates tended to be low) were among the hardest hit regions. 2010
Fraction of Medical Bankruptcies < 0.081446 0.081447 - 0.186300 0.186301 - 0.376246 0.376247 - 0.700000 > 0.700001 No Data
© Kishan Bhatt, 2017
Figure 1. Map of Medical Bankruptcies, 2010
14
Kaiser Family Foundation, “Key Facts about the Uninsured Population.” Blumenthal, “US Spends More on Health Care Than Other High-Income Nations But Has Lower Life Expectancy, Worse Health.” 15
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Chapter One In many ways, Obama was an unlikely champion of comprehensive health reform to combat these challenges. The progressive Illinois senator with a penchant for oratory focused on other policy areas throughout the 2008 Democratic presidential primary, touting to voters his original opposition to the Iraq War, his belief in a post-partisan America, and his economic agenda, among other areas. His main rival for the party’s nomination, then-Senator Hillary Rodham Clinton (D-NY), was by contrast a health policy expert, having chaired the 1990s White House reform efforts, forcing Obama to emphasize his plan for universal coverage and affordability to bring Clinton primary voters into his general election constituency. Following his election victory and inauguration, Obama moved from signing the American Recovery and Reinvestment Act of 2009 (commonly known as the stimulus package) and other economic initiatives to the ambitious health reform effort, making access to medical services and financial security a central element of his pitch to Congress and to the American people. Political scientists Lawrence Jacobs and Theda Skocpol have remarked on the difficulty of healthcare legislation that improved affordability for families without triggering backlash from politically powerful insurers and providers. “The reform challenge would be to squeeze enough savings out of an expensive system, and raise enough additional revenues through taxes and fees, to provide some sort of affordable health insurance to many millions of American citizens currently left without health insurance (undocumented immigrants and mere residents would still be left out). At the same time, reformers wanted to change the regulations for private health insurance and shift incentives and subsidies in the private and public health programs to protect the majority of Americans who were already insured as well as to encourage more efficient delivery of care. This was vital to reducing the rate of increase in costs, mitigating the burdens on families, businesses, and governments at all 16 levels.”
16
Jacobs and Skocpol, Health Care Reform and American Politics: What Everyone Needs to Know.
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Chapter One Obama’s call for affordability proved to be a galvanizing one, eventually building enough pressure on enough of the Democratic congressional caucus to pass the ACA.17 Early indications appear to support their decision. Whether by policy or unrelated economic coincidence, medical bankruptcy data from 2015 (the most recent available information) indicates that filings have decreased in much of the country since the 2010 reforms, especially in states that expanded Medicaid or otherwise saw large reductions to their uninsured rate. 2015
Fraction of Medical Bankruptcies < 0.081446 0.081447 - 0.186300 0.186301 - 0.376246 0.376247 - 0.700000 No Data
Figure 2: Map of Medical Bankruptcies, 2015
© Kishan Bhatt, 2017 18
However, those improvements, while encouraging, do not certifiably prove the former president’s claim that coverage is the factor that prevents medical bankruptcy is important today. That relationship is in fact hardly intuitive given 17
Ibid. It should be noted that both Figure 1 and Figure 2 use the same scales to determine color shading so that the maps are easily comparable. 18
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Chapter One the substantial changes in the health insurance market since the ACA’s approval. Health plans require more and more consumer cost-sharing for medical services, driving up out-of-pocket expenses for patients in acute moments of need. 19 Fundamentally, however, the investigation of this thesis in health insurance coverage and medical bankruptcies benefits from understanding the pathway of reform. Coverage gains in the ACA were politically palatable policy largely because of the argument that they would improve the financial security for all. Lawmakers debating legislative changes that would reduce the number of Americans with insurance have much to learn from how the 2010 health reform made it through the brutal political process in the first place.
1.2 How the Affordable Care Act Addresses Personal Financial Wellness In Remedy and Reaction, his award-winning chronicle of American healthcare, Princeton sociologist Paul Starr argues that the ACA presents a vexing paradox; for as ambitious as health reform is, what it leaves unchanged is perhaps most noteworthy. “The central thrust of the law,” he writes, “is to change how health insurance works and to make it affordable, though it also includes measures to improve the quality of medical care and control its cost. But the law does not substantially alter how medical care is organized, and it may not change the long-term trajectory of health spending.” 20 This paradox is what makes health reform so interesting to study. On the one hand, the ACA’s innovations and interventions to broaden insurance accessibility would seem to make care affordable as the law’s name implies. Yet without significant delivery system overhaul, structural improvement to American healthcare may well be 19 20
Rae et al., “Patient Cost-Sharing in Marketplace Plans, 2016.” Starr, Remedy and Reaction: The Peculiar American Struggle Over Health Care Reform.
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Chapter One incomplete, as the underlying drivers of costs to the system and to individuals remain in place. This is especially concerning as insurers (who under the ACA must now cover all Americans regardless of disease status while only being allowed to underwrite for age and tobacco use) find new channels to impose the consumer costs needed to remain profitable enterprises, jeopardizing personal financial wellness along the way. To reduce inequality in care access, the ACA’s “three-legged stool” expands coverage by prohibiting insurance discrimination on preexisting conditions, imposing an individual mandate to purchase coverage (along with an employer mandate for businesses to sponsor insurance21), and providing subsidies to lower-income individuals purchasing plans. Healthcare and actuarial experts consider these three provisions to be inseparable;22 for there to be “guaranteed issue” of health insurance coverage regardless of prior, current, or future health status, the insurance market must sufficiently spread risk across a larger group, requiring population-wide participation in the market. The mandate to purchase coverage ensures that younger, healthier people enter the pool, avoiding a potential upward “death spiral” of costs that would occur if only the most ill (and thus most expensive) patients sought insurance. Finally, the financial assistance is imperative both from a practical and an equity perspective, as individuals cannot be induced to purchase coverage with disposable income they simply do not have. Scholars and political commentators alike proffer several theories on the efficacy and impact of these provisions. Predictions that employer mandates will result in job losses and hiring freezes appear to have been overblown. Surveys of employers reveal varying responses to the insurance requirements (with some 21 22
This requirement applies to employers with 50 or more employees. Gruber, “Health Care Reform Is a ‘Three-Legged Stool’ – Center for American Progress.”
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Chapter One small businesses reporting regulatory burden23 and others seemingly unaffected by compliance24), while the broader picture shows an American economy that has seen a dramatic decrease in unemployment since the ACA’s enactment.25 Moreover, as Starr notes, the law takes notable action to make care affordable for patients. The ACA sought to improve individual financial solvency specifically by closing the prescription drug “doughnut hole” in Medicare Part D, outlining essential health benefits (EHBs) to enhance the quality of available health insurance plans, ending annual and lifetime limits on these EHBs, and, perhaps most famously, by expanding access to insurance coverage (via Medicaid expansion, creation of state exchanges, guaranteed issue, employer mandates to sponsor health plans, federal subsidies, allowing young adults to remain on their parents’ insurance plan until age 26, etc.). Supporting each of these provisions was the political argument that in concert, they would make healthcare more accessible and affordable to all, especially for Americans who struggled to access care prior to the passage of the law. These interventions, while superficially abstruse, have proven to offer significant practical impact for many patients and their loved ones. Healthcare journalist Sarah Kliff of Vox interviewed the family of Timmy Morrison, now six years old, who at the time of his very premature birth weighed 3 pounds, 9 ounces and needed surgery one month postpartum to separate parts of his stomach that had traveled to his lungs. 26 The emergency birth, surgery, postoperative stabilization, and recuperation in the neonatal intensive care unit (NICU), while lifesaving for the child, came at a hefty price tag. Fewer than two 23
Casselman, “Yes, Some Companies Are Cutting Hours In Response To ‘Obamacare.’” Pradhan, “Survey: Little impact of employer mandate on companies' enrollment.” 25 Burtless, “Employment Impacts of the Affordable Care Act | Brookings Institution.” 26 Kliff, “The Obamacare Provision That Saved Thousands from Bankruptcy.” 24
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Chapter One months after his birth, the medical expenses for Timmy’s care crossed $1 million, at which point his health was precarious; by the time he was released from the NICU four months later, the bills had accrued to $2,070,146.94.27 Timmy’s parents had health insurance coverage through their employer prior to the health law’s passage, meaning that the extensive political debates about personal mandates, Medicaid expansion, and individual insurance marketplaces had little impact on their household’s situation. Yet a regulatory requirement of far less fame made a massive difference in their ability to afford quality care for newborn Timmy as all these expenses piled up. The Morrisons’s pre-ACA insurance plan included a $1 million lifetime limit, meaning that they would be responsible for every penny beyond a million dollars-worth of treatment incurred throughout Timmy’s lifetime as a dependent on this plan. The elimination of lifetime limits under the Affordable Care Act, a provision that took force just six days before Timmy’s birth, allowed him to stay alive without threatening to bankrupt his family with the cost of his care. The Morrison family is not alone in their experience with the ACA – cancer patients and survivors are a specific demographic whose financial health was impacted by the provisions in the health law. The then-Institute of Medicine (now known as the National Academy of Medicine) reported in 2014 that cancer care costs rose at nearly three times the rate of other healthcare costs, thrusting patients’ bodies and budgets into jeopardy.28 One study of 4,719 cancer survivors aged 18 through 64 showed that one-third of the respondents accumulated debt to finance their care, while 3 percent filed for bankruptcy; younger, poorer, and 27
Ibid. National Cancer Policy Forum, Board on Health Care Services, and Institute of Medicine, Ensuring Patient Access to Affordable Cancer Drugs. 28
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Chapter One publicly insured survivors were the most likely to experience financial difficulties as a result of their treatment.29 A separate analysis showed that after controlling for socioeconomic differences, cancer survivors with financial problems caused by the expense of their care were more likely to delay or forgo further treatment, prescription medications, dental care, eyeglasses, and mental healthcare than patients without financial challenges.30 The exposition of essential health benefits under the Affordable Care Act constitutes one major protection for these cancer survivors who struggled acutely prior to the law’s passage. Among these mandated benefits are chronic disease treatment, inpatient care, and prescription drugs, meaning that insurers (which now must issue coverage to all paying consumers regardless of health status, a requirement that enables those with preexisting conditions like cancer to get insured) are obligated under the law to cover many of the services most needed by those with cancer. A separate Vox interview details how the EHBs, among other elements of the ACA, affect financial outcomes for cancer patients. Julienne Edwards, a 26 year-old law school graduate, began to feel abdominal pain fourteen months before her wedding, and a visit to the hospital revealed that she had stage 4 colon cancer, which had spread to her ovaries as well.31 Because of an ACA provision allowing young people to remain on their parents’ insurance through age 26, Edwards’ surgery and initial treatments were covered; after aging off her parents’ plan, she was able to purchase coverage on the ACA marketplace that covered her 29
Banegas et al., “For Working-Age Cancer Survivors, Medical Debt and Bankruptcy Create Financial Hardships.” 30 Kent et al., “Are Survivors Who Report Cancer-Related Financial Problems More Likely to Forgo or Delay Medical Care?” 31 Belluz, “Cancer Can Bankrupt Its Victims. Obamacare Was Designed to Stop That.”
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Chapter One chemotherapy (an essential health benefit) because of the law’s ban on insurance discrimination based on preexisting conditions. 32 While she faces significant copays for each CT scan and has to cover the cost of some medications out-ofpocket, these provisions in the 2010 health reform effort have insulated Edwards from financially calamitous medical expenses, offering yet another example of how the ACA reforms, despite their imperfections, alleviate financial burdens for American patients.
1.3 American Families Still Struggle with Healthcare Expenses Cost is a widespread driver of individual healthcare decisions. According to the Commonwealth Fund, a health-focused national philanthropic group, 40% of working-age American adults reported “having problems paying medical bills, being contacted by collection agencies, or paying medical debt over time” prior to the passage of the ACA in 2010.33 In the years following the implementation of health care reform, many publications report progress on this front. Data from the nonpartisan Urban Institute’s Health Reform Monitoring Survey (HRMS), for example, indicates that in 2015, 9.4 million fewer adults struggled to pay their medical bills than in 2013.34 Despite these positive signs, other findings highlight the need to continue to research how insurance coverage affects the financial security and access to care of patients nationwide; a Kaiser Family Foundation poll found that 1 in 10 American adults in 2015 needed to postpone or forgo medical care because of its
32
Ibid. See http://www.commonwealthfund.org/~/media/files/publications/fundreport/2011/oct/1500_wntb_natl_scorecard_2011_web_v2.pdf 34 Karpman and Long, “Health Reform Monitoring Survey.” 33
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Chapter One prohibitive expense.35 Another estimate published in the British Medical Journal indicated that one third of survey respondents across the United States found their individual out-of-pocket healthcare costs (including deductibles and copays) to be unreasonably difficult to manage.36 The Urban Institute’s survey indicated that these struggles were most attributable to low household income, sizeable out-of-pocket expenses due to either lack of insurance coverage or highdeductible health plan, or poor health status. 37 This is despite the national uninsured rate nationwide falling from 16.0% in 2010 to 8.9% in the first six months of 2016.
38
These findings indicate that the relationship between
insurance coverage and financial security may not be as simple as previously assumed, meriting more rigorous investigation.
1.4 Scholarly Debate on the Frequency of Medical Bankruptcy Personal bankruptcies reflect a difficult, albeit important, measure of financial distress in the presence of medical expenses. Chapter 7 and Chapter 13 bankruptcy filers must provide the information required in Form 101 – Voluntary Petition for Individuals Filing for Bankruptcy39, and there is no place on the form where filers would specifically attribute their debt to medical expenses. As a result, studies of healthcare-related bankruptcies typically rely on survey-based methods, where estimates of the percentage of bankruptcies triggered by medical expenses range from under 20% to over 60% due to varied methodology, though curiously, up to three quarters of the filers surveyed in some studies had health 35 Peterson-Kaiser Health System Tracker, “How Does Cost Affect Access to Care?” McCarthy, “Many Americans Have Problems with Cost and Access to Healthcare, Poll Finds.” 37 Karpman and Long, “Health Reform Monitoring Survey.” 38 “Health Insurance Coverage: Early Release of Estimates From the National Health Interview Survey, January–June 2016.” 39 See http://www.uscourts.gov/forms/individual-debtors/voluntary-petition-individuals-filingbankruptcy 36
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Chapter One coverage. 40 4142 Despite the scholarly debate regarding the exact fraction, most experts agree that medical expenses constitute one of, if not the, most common sources of financial distress that would force an individual to seek bankruptcy protection. Studying the association with trends in health insurance coverage therefore remains a relevant endeavor, even with this persistent data challenge. The leading study measuring the frequency of medical bankruptcy comes from health policy scholars at Harvard University (including Elizabeth Warren, now the senior U.S. Senator from Massachusetts), who found that illness or medical bills contributed to 62.1% of all bankruptcies in 2007. Himmelstein et al. analyzed questionnaires sent to a random, nationally representative sample of 2,314 debtors immediately following bankruptcy filing, in addition to data from court records and from telephone interviews with a sub-sample of debtors. The authors defined medical bankruptcies as instances in which debtors were “citing illness or medical bills as the reason for bankruptcy; OR reporting uncovered medical bills >$1,000 in the past 2 years; OR who lost at least 2 weeks of workrelated income due to illness/injury; OR who mortgaged a home to pay medical bills.”43 Individual insurance status appeared to have a sizeable impact. Among those patients in the sample whose illness resulted in bankruptcy, a large majority (77.9%) were insured at the onset of their illness, with 60.3% on private plans, 10.2% using Medicare, 5.4% enrolled in Medicaid, and 2% on Veterans Affairs/military coverage. 44 Nearly all of the uninsured patients in this sample 40
Dobbie, Goldsmith-Pinkham, and Yang, “Consumer Bankruptcy and Financial Health.” Warren, Sullivan, and Jacoby, “Medical Problems and Bankruptcy Filings.” 42 Himmelstein et al., “Medical Bankruptcy in the United States, 2007.” 43 Himmelstein et al., “Medical Bankruptcy in the United States, 2007.” 44 Ibid. 41
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Chapter One cited economic reasons; lack of coverage was rarely because of a preexisting condition (2.8%) or belief that coverage was unnecessary (0.3%).45 However, at the time of bankruptcy, only 54.1% of patients remained on private coverage as those with employers contributing to coverage dropped from 43.2% to 36.6%. Moreover, having a recent gap in health insurance coverage for any family member was among the strongest multivariate predictors of medical bankruptcy, with strong statistical significance (P=0.0001) and a large odds ratio (1.64) relative to the other predictors. Other researchers have levied legitimate criticisms at this study. Aparna Mathur at the American Enterprise Institute argues that it uses an overly broad definition of medical bankruptcy to yield the 62% figure;46 Himmelstein et al. themselves display data showing that 29% of their respondents believed healthcare costs directly led to their bankruptcy, while the remaining 33% in the total 62% figure filed because they lost weeks of work due to illness or had more than $5,000 in medical bills. Given that lost time at work during periods of medical expenses is a linked cause of personal bankruptcy that Himmelstein does not distinguish from the medical bills themselves, Mathur and other critics believe health insurance coverage might not play as large a role in protecting against financial catastrophe as might be expected. Yet despite various criticisms of
the
methodological
process
behind
estimates
of
medically
induced
bankruptcies, most scholars in this area believe that healthcare bills constitute either the primary or ancillary cause to many bankruptcies. To their credit, Himmelstein et al. avoid systematic underestimation of medical bankruptcy frequency that is prevalent elsewhere in the literature, which 45 46
Ibid. Mathur, “Testimony on ‘The Medical Bankruptcy Fairness Act.’”
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Chapter One exclusively use data from court records where medical debt is hidden as credit card or mortgage debt (see citation for an example). 47 Moreover, given the persistent polling results indicating that medical bills pose a significant financial burden48 and that cost-sharing payment requirements for patients are spiking,49 medical bills are undoubtedly one of the most worrisome strains on American household budgets. Himmelstein’s estimator of the national proportion of bankruptcies that are healthcare-related is therefore a reasonable (or at least plausible) data point on which to begin academic inquiry, justifying its use in this work. As a result, this thesis uses the authors’ findings as the best available national estimate of the proportion of personal bankruptcies triggered by healthcare expenses.
1.5 Medicaid Coverage and Personal Financial Wellbeing Medicaid’s efficacy is the subject of intense political debate and frequent academic investigation.
The New England Journal of Medicine reports that
adults receiving Medicaid have very low risk of catastrophic medical expenses, are 20% less likely to hold medical debt, and borrow money or skip payments on other bills to pay for healthcare expenses at half the frequency compared to uninsured adults with similar household income. 50 More broadly, one can imagine plausible avenues beyond a reduction in acute medical expenses through which health care coverage improves individual financial wellness; these other channels include improved access to credit markets, increased savings, and
47
Dranove and Millenson, “Medical Bankruptcy: Myth Versus Fact.” DiJulio et al., “Data Note: Americans’ Challenges with Health Care Costs.” 49 Clayton, Levitt, and Long, “Payments for Cost Sharing Increasing Rapidly over Time.” 50 Kronick and Bindman, “Protecting Finances and Improving Access to Care with Medicaid.” 48
21
Chapter One facilitated consumption of other goods and services.51 Medicaid, similar to other forms of insurance coverage, thus has the capacity to produce such financial relief for its beneficiaries. Yet the program is not without its shortcomings; many medical providers refuse to accept Medicaid as a reimbursement method, citing low reimbursement rates.52 Therefore, issues with underinsurance might persist even for low-income Americans enrolled in Medicaid, manifesting in either deferments in receiving necessary care or rapid accumulation of medical expenses, which do not necessarily need to be large in an absolute sense in order to push beneficiaries into financial distress, given the narrow margin for increased healthcare bills in a Medicaid
enrollee’s
household
budget.
Given
this
plausible
theoretical
mechanism, initial empirical findings deserve ongoing scrutiny and analysis to remain current. These concerns notwithstanding, leading scholars have shown that at minimum, public insurance coverage protects beneficiaries from catastrophic medical expenses. One highly-cited study analyzed Medicaid eligibility expansions from 1992 to 2004, mostly for children, finding that increasing Medicaid eligibility (measured by percentage of the federal poverty line) by 10% correlates with an 8% reduction in personal bankruptcies, while triggering no change in business bankruptcy filings. 53 The authors suggest the mechanism behind their finding is that Medicaid coverage reduces household financial risk by containing exposure to out-of-pocket medical costs. This thesis looks to 51
Hu et al., “The Effect of the Patient Protection and Affordable Care Act Medicaid Expansions on Financial Well-Being.” 52 Krause, Ukhanova, and Revere, “Private Carriers’ Physician Payment Rates Compared With Medicare and Medicaid.” 53 Gross and Notowidigdo, “Health Insurance and the Consumer Bankruptcy Decision.”
22
Chapter One evaluate whether such a mechanism remained true for the insurance coverage expansion (largely driven through Medicaid enrollment) of 2010-2016 under the ACA, using the uninsured rate as the treatment variable while considering the effect that high deductible plans and patient-centric cost sharing arrangements have on the financial capacity of insured individuals to manage their medical expenses. Moreover, this thesis benefits from variation in the dependent variable: state-level health insurance coverage rates. One of the most important drivers of this variation is the Supreme Court’s ruling in 2012 effectively enabling states to decide whether to carry out the ACA’s expansion of the Medicaid insurance program for low-income Americans, which was perhaps the single-most significant measure the law took to reduce the number of uninsured Americans. At the end of 2016, 31 states plus the District of Columbia have chosen to expand Medicaid, while nineteen states have not.54 Such variation provides the groundwork for health policy research. As one article the New England Journal explains, “although a delay in expansion is clearly bad news for low-income people, the good news for health service researchers is that variation in the timing of the Medicaid expansion [across states] will provide an opportunity to more fully assess the effects of insurance expansion on health.” 55 The first national study evaluating personal financial repercussions of public health insurance coverage for non-elderly adults was published in the spring of 2016, finding significant reductions in unpaid nonmedical bills and nonmedical debt in expansion states versus non-expansion
54 55
Kaiser Family Foundation, “Status of State Action on the Medicaid Expansion Decision.” Kronick and Bindman, “Protecting Finances and Improving Access to Care with Medicaid.”
23
Chapter One states. 56 Its model hypothesized that because unexpected medical expenses represent a substantial fraction of the total income of poorer households, gaining Medicaid coverage should both reduce medical expenses and limit the need to borrow to pay medical bills when they arise. However, the authors’ selection of a synthetic control approach required matching expansion states and non-expansion states on shared pre-policy outcomes, which only allows comparison between those 14 states that expanded their Medicaid program in advance of the 2014 “deadline” with those 24 states that still had not expanded as of their initial analysis at year end 2015. This thesis builds on those findings with an analysis across all states reporting bankruptcy data and across all forms of expanded insurance access (i.e. through the individual market exchanges, employer sponsored plans, Medicaid, etc.).
1.6 History and Background on Bankruptcy Law and Medical Debt Personal bankruptcies represent one result of catastrophic expenses and financial distress, as those with substantial medical debt accumulated over time seek relief through the Bankruptcy Code. Creditors (i.e. banks and other lenders) are privy to three types of financial claims on such debt. Secured claims entitle creditors to seize collateral property if the debtor does not repay his or her underlying debt, while unsecured claims like medical bills offer creditors no special rights of property seizure for unpaid debts. Priority claims, the third type of debt that includes taxes and the costs of bankruptcy proceedings, have special status in bankruptcy law. 57 Given its focus on medical expenses and personal 56
Hu et al., “The Effect of the Patient Protection and Affordable Care Act Medicaid Expansions on Financial Well-Being.” 57 US Courts, “Chapter 13 - Bankruptcy Basics,” 13.
24
Chapter One financial wellbeing, this thesis measures Chapter 7 and 13 filings, both of which address individual debtors. Chapter 7 bankruptcies differ from Chapter 13 in that the former involves no requirement to submit a plan of repayment. Instead, the debtor must sell all nonexempt assets and forfeit the proceeds to the creditor to the extent stipulated by law.58 In order to qualify for a Chapter 7 filing for liquidation, an individual debtor must have complied with court order during the 180 days prior to the petition and have received credit counseling from an approved credit-counseling agency (submitting to the court any debt management plan developed from such a session).59 Additionally, a debtor must file with their local bankruptcy court a petition declaring assets and liabilities, current income and expenditures, financial affairs, and contracts and unexpired leases; other information required with the petition includes lists of all creditors and their claims as well as of all property owned by the debtor.60 Typically, taking these steps will result in the discharge of a debtor’s personal liability, but there are many exceptions to this rule, as some secured creditors can still seize property securing underlying debt. By contrast, a Chapter 13 bankruptcy, or wage earner’s plan, calls for either full or partial debt repayment over a mutually agreed time period (usually three to five years, depending on a debtor’s income relative to the applicable state median) and does not necessarily require asset liquidation.
61
The filing
requirements and requested financial information are very similar to those in a Chapter 7 case. Mandatory credit counseling sessions and administrative fees 58
State and federal rules do exempt few categories of property from liquidation, but debtors lose all remaining assets in a Chapter 7 filing. 59 US Courts, “Chapter 7 - Bankruptcy Basics,” 7. 60 Ibid. 61 US Courts, “Chapter 13 - Bankruptcy Basics,” 13.
25
Chapter One also apply in Chapter 13 filings. Most debts are eligible for discharge under Chapter 13 reconsolidation, except long term obligations such as home mortgage, child support, federal education loans, and debts related to injury from intoxication or drug use; however, if a debtor unexpectedly encounters circumstances that prevent the debtor from completing his or her repayment plan, there is the possibility for a limited “hardship discharge” for those debts that are not non-dischargeable in a Chapter 7 liquidation case.62 Reports show that both Chapter 7 and 13 personal bankruptcies have risen over time in the United States. 63 Several articles argue that the cause is not uncertainty or medical shocks but rather an increasing availability of consumer credit; one legal commentator at George Mason University went as far as to ascribe the trend to a purported decline in the social ramifications of entering bankruptcy proceedings. 64 While some scholars subscribe to this viewpoint, much of the empirical literature (including Gross and Notowidigbo as well as Himmelstein et al.) supports the notion that catastrophic financial events, such as the accumulation of medical debt through accessing healthcare services, increasingly have strained the budgets of Americans across all socioeconomic strata, leading to bankruptcy filings. Some federal lawmakers have taken note of this trend. Senators Sheldon Whitehouse (D-RI) and Elizabeth Warren (D-MA) have introduced legislation several times over the past five years aimed at process improvements for bankruptcy filers overwhelmed by medical bills.65 In their most recent appeal to their congressional peers, the two senators cite a 2015 finding from the Census 62
Ibid Zywicki, “An Economic Analysis of the Consumer Bankruptcy Crisis | Scalia Law School.” 64 Ibid. 65 Whitehouse, “Whitehouse, Warren, Durbin Introduce Medical Bankruptcy Fairness Act.” 63
26
Chapter One Bureau, which estimates that out-of-pocket healthcare costs brought over 11 million Americans below the poverty line. To combat the deleterious financial impacts of hospital stays and prescription drug needs, the Medical Bankruptcy Fairness Act seeks to offer relief to individuals with large healthcare bills through three main provisions. First, by waiving credit-counseling requirements, the bill hopes that a trimmed procedure is better tailored to the specific challenges of dealing with medical bankruptcy. Moreover, it calls for forgiveness of student loan debt to ease other sources of financial strain for medical debtors. Finally, the third pillar of this bill is its protection of up to $250,000 in property during the bankruptcy period.66 Of course, these three mechanisms address the symptoms of bankruptcy procedure rather than remedying a healthcare cost structure in which even those with coverage are potentially vulnerable to accumulating medical debt that eventually triggers bankruptcy. Moreover, while the overtures to procedure and loan forgiveness are likely to help some financial distressed patients, such provisions are unlikely to improve conditions for the many medical debtors who are otherwise economically secure. Both concerns highlight legislative difficulties in addressing the medical bankruptcy issue through superficial process improvements rather than structural cost structure and delivery system changes. Furthermore, the path to medical bankruptcy is lengthy and complex. “Bankruptcy is at the end of a long trail of other things,” says Robert Seifert, one of the health researchers interviewed in this thesis. 67 Debt accumulates over 66
States vary in their property protections for personal bankruptcy filers of any cause, but the Whitehouse-Warren bill represents an increase in those protections specifically for medical debtors. 67 Robert Seifert, University of Massachusetts Medical School: Conversation on ACA, Chapter 58, and Personal Finance.
27
Chapter One time, and more often than is intuitive, he remarks, a relatively moderate medical bill from simple provider visit or a “normal” prescription drug coinsurance increase becomes the proverbial “straw that broke the camel’s back.” Filing process improvements are therefore important legislative gestures, but the literature suggests they may be insufficient given the longitudinal nature of how medical bankruptcy comes to pass.
1.7 Changes in the Health Insurance Market Affect Personal Financial Security Concurrent to the passage of the Affordable Care Act, and perhaps accelerated in response to the law itself, health insurers have reshaped the financial design of the plans they provide to consumers. Healthcare costs “have slowed but are still increasing faster than general prices,” Seifert says, “and in an effort to keep premiums at a manageable level, employers are shifting a lot of the costs over in terms of additional cost sharing.”68 These changes are important because they affect the scope of what insurance covers, and therefore influence how effective health plans are as protections against medical bankruptcy. The first change is high deductible offerings, whose popularity has skyrocketed both among those with employer-sponsored insurance (ESI) and those receiving their health plan through the non-group market. Mercer, a benefits consultant, reports a doubling in the share of employees enrolled in high deductible plans since 2011, reaching 29% in 2016.69 Motivating this increasing prevalence of high deductible plans is fundamental economic model of health insurance. Insured individuals pay a standard monthly amount, a premium, to their insurance company regardless of 68 69
Ibid. Abelson, “Is High-Deductible Health Insurance Worth the Risk?”
28
Chapter One the frequency with which they access health services at the hospital, doctor’s office, etc. For insurers, the steady revenue from these individual premium payments in the aggregate constitutes the pool from which they reimburse providers for the service claims they file. There are also acute fees for each time an individual uses health services. Annual wellness visits (i.e. physical exam) with a primary care physician, for example, often come with a (typically nominal) copayment that the individual pays at the point of care. For more costly health services, such as a hospital stay or an expensive prescription drug, individuals pay up to a certain threshold amount before their insurance plan kicks in to cover the remainder of the bill. The portion owed by individual patients in this scenario is known as the deductible, so the higher the deductible amount, the more a patient must pay each time they access medical services. It should then come as no surprise that premium levels and deductible amounts typically move in opposite directions among different health plans; insurance coverage that imposes high monthly premiums usually has the actuarial flexibility to offer lower deductibles, whereas plans with low month-to-month costs require enrollees to pay more of the cost of their care in the discrete moments when they incur medical expenses. During an era when annual escalations in premium costs in excess of the inflation rate are the norm, individuals considering their options across different health insurance plans understandably might seek to reduce or stabilize the percentage of their monthly income allocated to insurance for medical care that they may or may not need to
29
Chapter One invoke in the short-term. High deductible plans offer consumers this opportunity because they typically come with lower premium costs.70 Moreover, a nascent strategy among health care policymakers concerned with the rising costs of healthcare system-wide has been to address the demand side of the healthcare market. This is after years of pursuing a supply-side heavy approach, aimed at reining in provider and hospital reimbursements.71 Beyond those payments for services that providers request, health system costs can be thought of as demand-driven; as the theory goes, traditional health insurance, with its higher monthly premiums and less appreciable copays and deductibles, encourages excessive and medically unnecessary usage of health services by insured individuals who are largely insulated from the marginal expenses each time they visit the doctor. High deductible plans provide a tool, some health experts contend, to shift the model of health insurance from its expansive and insulating reimbursement role to a catastrophic model (à la home or car insurance), kicking in only during acute events that precipitate a dire need for financial protection. This momentum from some in the health insurance and health policy communities also contributes to the growing prevalence of high deductible plans across the group and non-group insurance marketplaces.72 However, the consequences of high-deductible insurance are less ideal than many of the enrollees or experts have hoped. By bearing more of their healthcare costs in acute, out-of-pocket situations, consumers may be getting a worse deal than they thought when they signed up for these plans initially 70
This explains (in part) why high deductible insurance plans have become more popular, but such logic obscures the negative financial ramifications to patients, which will be discussed later in this section. 71 Levitt, “JAMA Forum.” 72 High deductible health insurance is proving to be a blunt tool for reducing demand, causing patients enrolled in these plans to forgo both unnecessary and necessary medical procedures. See more at: Dolan, “High-Deductible Health Plans.”
30
Chapter One attractive for their low premium requirements. When interviewed for this thesis, health policy expert Jessica Curtis of Community Catalyst, a national research and advocacy organization, highlighted reports that at some hospitals, the amount of bad debt (the cost of uncompensated care attributed to patients who providers deem “able to pay”) has increased despite a reduction in the number of uninsured patients and in charity care. 73 74 75 In these situations, patients are finding that they cannot pay the full amount of their high deductibles, leaving open the possibility of negative consequences such as medical debt owed to collectors or medically triggered bankruptcies. This also suggests that simply having health insurance may be insufficient to protect against financial insecurity, creating a scenario in which the patient, provider, and payer all suffer. Beyond high deductible plans, there are other structural shifts in the health insurance market that could affect individuals’ financial security, including the phenomenon known as “out-of-network” or “surprise” medical billing. These are typically large, unplanned expenses that individual patients must bear in full because at least one of the doctors in their treatment team (or at least one of the facilities they visited during their episode of care) was not a member of their insurance plan’s “preferred” or “designated” provider network. Specified physician networks included in a particular insurance coverage are not a new idea, but they do represent a fast growing phenomenon in American healthcare; while the estimates vary, one article in Health Affairs concludes that in 2015, 90% of all consumers had the option of purchasing a narrow network insurance plan, and 22% of plans purchased in the federal 73
Curtis, Community Catalyst: Conversation on ACA and Personal Finance. Khazan, “The Geography of Medical Debt.” 75 Murphy, “21 Statistics on High-Deductible Health Plans.” 74
31
Chapter One marketplace plan had narrow networks (which in this study were defined as plans designating 30-70% of area hospitals “in-network”). 76 Narrow network plans are ascendant in employer-sponsored offerings as well.77 Surging offerings of narrow network plans did not emerge in a vacuum, and in some ways, they represent a natural response to the constraints that the ACA placed on the insurance industry. As the aforementioned Health Affairs piece
notes,
“prohibitions
on
health
status
underwriting,
increased
standardization of benefits, a maximum limit on out-of-pocket spending, and the elimination of annual and lifetime limits on benefits…have foreclosed traditional strategies used by insurers to keep costs in check.” 78 In combination, the premium transparency and direct comparison of plans enabled by the federal and state insurance exchanges push insurers to compete on price in order to generate enrollment sufficient to justify their participation in the exchange from a business perspective. In this price-sensitive context, insurers have turned to plans with a limited selection of doctors and hospitals. The payer negotiates with different physicians, who must agree to accept lower reimbursement levels in order to be included in a plan’s limited network of approved healthcare providers. For these doctors, inclusion into the network despite per capita payment reductions offers the financial benefit of a likely increase in patient volume, given the predictions of rising enrollment in these narrow network plans because of lower month-tomonth cost to consumers. 79 Moreover, striking these deals with participating 76
Giovannelli, Lucia, and Corlette, “Regulation of Health Plan Provider Networks.” Hall and Fronstin, “Narrow Provider Networks for Employer Plans.” 78 Giovannelli, Lucia, and Corlette, “Regulation of Health Plan Provider Networks.” 79 Of course, with today’s physician shortage, most doctors already report being overworked, seeing too many patients, and lacking sufficient time to dedicate to each patient encounter. See 77
32
Chapter One physicians allows insurers to offer patients lower premiums in narrow network plans. Because Americans report that financial factors (and not other factors such as coverage breadth and benefits) are the most important in their selection of health plans, 80 it is not surprising that narrow network plans are increasingly common, both in insurer offerings and in consumer plan selection. Yet narrow network insurance is not a panacea to individual healthcare costs, despite potential premium reductions. Searching whether the nearest hospital is in network and asking each doctor that enters the room if he or she is covered under a patient’s narrow network plan are likely the last thing one would think of in situations of acute medical need. A recent study in the New England Journal of Medicine analyzed commercial claims data nationwide and found that 99.35% of emergency room visits occurred at in-network facilities, but 22% of those visits involved out-of-network physicians.81 Physician network designation had a dramatic impact on the expense of the visit; in-network doctors charged the payment plan on average three times the Medicare reimbursement rate for the same service, while out-of-network doctors charged the patient an average of eight times the Medicare rate.82 Because their insurance does not reimburse outof-network physicians, patients on narrow network plans risk having large, unexpected bills that they must shoulder alone precisely in a moment of medical need. In this scenario, which highlights how healthcare is not a perfect market where consumers can exercise purely rational choice over the providers of their http://www.beckershospitalreview.com/hospital-physician-relationships/65-of-physiciansoverworked-unbalanced-13-study-findings.html 80 Blumberg et al., “Factors Influencing Health Plan Choice among the Marketplace Target Population on the Eve of Health Reform | Health Reform Monitoring Survey.” 81 Cooper and Scott Morton, “Out-of-Network Emergency-Physician Bills — An Unwelcome Surprise.” 82 Ibid
33
Chapter One care because of acute emergencies and asymmetric information, surprise medical bills reveal themselves to be a looming threat to patients’ financial well-being. As of spring 2017, only twelve states have debated actions to address surprise medical bills, while the federal government has not made any progress on the issue. State laws focus on limiting out-of-network provider charges for emergency services to a patient’s in-network copayment, coinsurance, or deductible.83 Along with the rise of high deductible plans, increasingly frequent surprise medical billing presents another reason to examine the hypothesis that where there is a lower uninsured rate, there are fewer medically-driven bankruptcies.
83
New York State Department of Financial Services, “Protection from Surprise Bills and Emergency Services.”
34
CHAPTER TWO Data and Methodology
2.1 Dataset Introduction This thesis uses publicly available datasets for its statistical analysis. Government sources, including, but not limited to the Census Bureau, the Bureau of Economic Analysis, publish their data to data aggregators; much of the dataset constructed specifically for this thesis comes from Data Planet, a single importation source of federally reported indicators. The following paragraphs describe each variable, the source of the underlying data, explanations of any missing values, and any adjustments or corrections made for the purposes of this analysis.
2.2 Outcome and Explanatory Variables Personal bankruptcy data comes from the Administrative Office of U.S. Courts database and includes all Chapter 7 (asset liquidation) and Chapter 13 (rescheduling secured debts) bankruptcies for individuals. Personal bankruptcy is defined as the protective legal status that those with significant outstanding debts can enter as they consider how to repay financial obligations. In this thesis, the raw number of these filings was normalized to state size by dividing by the 2010 U.S. Census reports and projections for annual population by state to produce state-level bankruptcy proportions. These proportions, after being multiplied by a single estimator of the fraction of personal bankruptcies that are triggered by medical expenses (the Himmelstein estimator), create a variable continuous between 0.00 and 1.00, but largely clustered around a frequency of
35
Chapter Two two medical bankruptcies per one thousand people in the general population.84 The U.S. Courts dataset included bankruptcy numbers for all but two states (Michigan and New Mexico) and for all years in the desired 2006-2015 window excluding 2009; therefore, this thesis averages each state’s 2008 and 2010 filings to approximate the number of bankruptcies in 2009. State-level proportions of medically induced personal bankruptcy filings represent the outcome variable.
Figure 3: Distribution of Outcome Variable.85
84
Later sections discuss the limitations in this single fraction approach to estimation (based on the Himmelstein proportion), and how the gaps in the existing data and research create barriers to informed debate on this issue. 85 This graph displays medical bankruptcy data from 48 states plus the District of Columbia over the ten-year period from 2006 to 2015 (490 observations). According to this distribution, medical bankruptcies typically affected under five in one thousand residents per state per year (most of the upper-end outliers are from Mississippi during the Great Recession years).
36
Chapter Two The uninsured rate constitutes the explanatory variable in this thesis. Health insurance coverage data reported here comes from an amalgam of reports from the United States Census Bureau, Gallup, and the Kaiser Family Foundation, a national nonprofit organization focused on healthcare research; both datasets contribute to this variable, which is continuous between 0.00 and 1.00. The Census offered state-level coverage rates for the years 2006 through 2010, while Kaiser provides information from 2013 to 2015. Gallup polling data bridged the gap for 2011 and 2012 uninsured rates.86 Again, the hypothesis of this thesis is that the state uninsured rates over time will correspond in direct proportionality to the frequency of medical bankruptcy filings in that state.
Figure 4: Distribution of Explanatory Variable.87
86
This poll did not display data for the District of Columbia; therefore, 2011 and 2012 uninsured rates were estimated from the average of the 2010 and 2013 rates for D.C. 87 This figure illustrates the range and frequency of uninsured rates for all 50 states plus D.C. during the ten-year period from 2006 through 2015 (510 observations in total, roughly normally distributed).
37
Chapter Two 2.3 Covariates The U.S. Census also reports median household income by state for the years 2006 through 2014, which is one of several measures used in this study to account for economic differences among states (beyond health insurance coverage) that would contribute to variation in the frequency of personal bankruptcies triggered by medical expenses.
Median household income
increased roughly linearly for all states with the apparent exception of Nevada, where 2014 household income remained near 2006 levels. Given this distribution of the variable, which is continuous between 0.00 and 1.00, the average annual growth rate formula linearly approximated each state’s household income trend to estimate 2015 median household income, as the Census Bureau data was missing for year 2015. As a cross check, a backwards-calculation was performed through serial division of the estimated annual growth rate to verify that the tracing the projected 2015 value back to 2006 yielded the same value as reported in the public dataset for the year 2006. While median income is one economic indicator to help explain variation in individual financial distress across states, the proportion of people working is another important marker. In this study, seasonally adjusted state-level unemployment data comes from the Bureau of Labor Statistics; the variable is continuous between 0.00 and 1.00. As the financial distresses caused by unemployment are relevant to understanding personal bankruptcy triggers, this data is included to contextualize the impact from health insurance coverage. Data on Real State Gross Domestic Product (GDP) per capita, as provided by the Bureau of Economic Analysis, is useful to this analysis as well. This is an inflation-adjusted measure using national prices for all the goods and
38
Chapter Two services produced in each state to price the value of the total output.
A
continuous variable, state GDP offers a window into one of the basic economic characteristics in which variation might plausibly explain, in part, the conditions for bankruptcy filings. Certainly, households have major expenses and sources of debt beyond visits to the operating room, among these bills being home ownership. To account for differences in the expense of illiquid assets over time, the annual third quarter (Q3) Housing Price Index for new home purchases, a broad measure based on conforming, conventional mortgages purchased by Fannie Mae or Freddie Mac, is included as a covariate. This data comes from the Federal Housing Finance Authority, and the variable is continuous. Adding state-by-state differences in new home prices in the model affords deeper insight and isolation of the association that insurance coverage has with bankruptcy frequency. The Census also provides annual information on the share of a state’s population receiving federal food stamps through the Supplemental Nutrition Assistance Program (SNAP) for the years 2006 through 2013. Eligibility rules for SNAP stipulate that recipient households must have gross income under 130% of the poverty level or net income (with deductions subtracted from gross income) that is under 100% of the poverty level for their family size.88 Therefore, this indicator contextualizes conditions for low-income workers, and allows for better comparison of states by accounting for differences in economic opportunity. The 2013 value was imputed forward to estimate the proportion for years 2014 and 2015; because the percentage of SNAP recipients stabilized after 2012 in most states, this was an appropriate prediction for this analysis. This 88
Rawes, “States with the Most People on Food Stamps.”
39
Chapter Two variable is continuous between 0.00 and 1.00. SNAP data offers another important economic indicator on which to compare states and offer context on bankruptcy drivers beyond the differences in health insurance coverage. The Census Bureau provided data on the Poverty Rate, a continuous variable between 0.00 and 1.00 that indicates the percentage of the state’s population below the federal poverty level. As another measure of economic wellness in each state, the poverty rate provides context for the environment in which individuals might declare bankruptcy. Given a net neutral change in the poverty rate from 2006 to 2014, with few exceptions among states, the 2014 value was repeated as the 2015 value for this analysis. Per capita Personal Consumption Expenditures data, a measure of the average amount of money spent by or for households on goods and services, comes from the Bureau of Economic Analysis. This continuous variable offers to the study additional texture on economic differences in states to ensure that the relationship between state-level health insurance coverage rates and state-level frequencies of personal bankruptcy filings due to medical bills accounts for how much consumers spend on average in each state. Average annual growth rate with appropriate back-calculation verification was performed to project the 2015 value (the public dataset truncated at 2014). Medicaid Expansion is a binary variable, marked as zero for each year that a state had not expanded program eligibility and as one for each year that a state’s Medicaid program was available to individuals earning less than 138% of the federal poverty line. Data for this variable originates from the Kaiser Family Foundation and are useful for visually representing the schism in public program coverage gains between expansion and non-expansion states.
40
Chapter Two Heat-maps are included to demonstrate that the data are well-distributed across states and years. The figure on the following page describes variation in 2010 across the 48 states for which there is available data in every indicator included in the regression model of this thesis, plus the District of Columbia. The state values in each indicator are rescaled relative to the mean value in each variable, such that darker shades of blue indicate higher relative values and lighter shades of blue indicates lower relative values. For the 2010 figure, the stretch of dark grey in the Medicaid Expansion column reflects that no state had yet expanded the public insurance program’s eligibility in the manner called for in the ACA.
41
Chapter Two
Figure 5: Heat-Map of Data across States, 2010
The same exercise for data across each indicator in 2015 reveals that while data in each indicator remained relatively well-distributed as in the 2010 set, states largely held to consistent patterns of which ones were above, at, and below the mean values in each category (see Figure 6 below). Medicaid expansion status, which was relevant by 2015, is also reflected in this heat-map.
42
Chapter Two
Figure 6: Heat-Map of Data across States, 2015
To highlight the values behind the variation across the full dataset, a descriptive statistics table is displayed on the next page:
43
Chapter Two Descriptive statistics
Statistic Medical Bankruptcy Rate Uninsured Rate Household Income Unemployment Rate Real State GDP per capita Housing Price Index Food Stamps Rate Poverty Rate Personal Consumption Medicaid Expansion State (Y/N)
N
Mean
St. Dev.
Min
Max
490
0.002
0.002
0.000
0.01
510
0.1
0.05
0.03
0.3
510
$51,629.4
$8,689.8
$34,615
$75,033
510
0.1
0.02
0.02
0.1
510 $49,312,141,176.0 $18,586,560,914.0 $31,111,000,000 $173,000,000,000 510
217.4
46.0
116.0
505.2
510
0.1
0.04
0.04
0.2
510
0.1
0.03
0.1
0.2
510 $34,592,760,008.0 $5,505,392,459.0 $24,187,000,000 $56,597,085,761 510
0.1
0.3
0
1
Table 1: Descriptive Statistics.
2.4 Quantitative Methods As shown in the table above, the data in each indication have very different magnitudes; for example, the real state GDP per capita and personal consumption values are in the tens of billions, while the medical bankruptcy rate is in the thousandths. To collapse these varying scales in a common, comparable scale (while also facilitating the interpretation of coefficients by rendering them in terms of elasticity instead of units), this thesis uses the logarithmic transformation function for values that were: (a) exceptionally large, (b) dollar amounts, or (c) rates, fractions or decimals.
These criteria applied to the
following variables: medical bankruptcy rate, the uninsured rate, median household income, the unemployment rate, real state GDP per capita, the food stamps rate, the poverty rate, and personal consumption.
44
Chapter Two Moreover, both the explanatory and outcome variables (as well as the unemployment rate, food stamp rate, and poverty rate) multiplied by 100 to become percentages instead of decimals prior to their logarithmic transformation. While this multiplication factor had no bearing on the statistical significance of the relationship tested by this thesis, it facilitated interpretation of the primary coefficients in the later regression analysis. The dataset analyzed here, constructed from public government sources specifically for this analysis, constitutes panel data because the behavior of each state is reported over time. Advantages of using panel data in this analysis include the ability to control for measures that vary across the states and the proper accounting for individual heterogeneity. While non-response can be a drawback of panel data, this thesis avoided dropping single estimates from the regression by using the previously discussed estimation tools to mathematically predict any missing observations. The primary model in this thesis includes all variables except for Medicaid expansion (the lone dummy random variable). Because all indicators in this particularly analysis are continuous variables, between bounds, this regression uses a fixed effects approach. The central aim of this model is to explore the relationship between explanatory and outcome variables within states, whose varying individual characteristics may or may not influence the uninsured rate. Fixed effects are therefore appropriate for this analysis, because time invariant characteristics, such as political differences, are unique to each individual state and must be controlled for to accurately evaluate the impact of health insurance on medical bankruptcy.
45
Chapter Two The model abides by the following generalized formula: 𝑌(𝑋)%& = 𝛽) + 𝛽+ 𝑋%&, + 𝛽- 𝑋%&. + ⋯ + 𝛽1 𝑋%&2 + ∝% + 𝑢%& Where •
𝑌(𝑋) represents the outcome variable, where i = entity (in this case, state) and t = time (in this case, year)
•
𝛽) is the constant term
•
𝛽1 is
the
experimentally
determined
coefficient
for
the
corresponding 𝑋%& , or independent variable •
𝑋%& is the general term for the primary explanatory variable and the covariates
•
∝% (i=1…n) represents the fixed effects, or the unknown intercept for each entity
•
𝑢%& is the error term
46
CHAPTER THREE Quantitative Findings and Analysis 3.1 Graphical Relationship Between Explanation and Outcome The findings described through this quantitative analysis reveal that states with a higher uninsured rate tend to have more medical bankruptcies. As seen in the graph on the next page, both the explanatory and outcome variables are well distributed, providing an upward linear pattern between the two. While the outliers seen atop the graph (representing Mississippi during its peak year of medical bankruptcy) might bias the magnitude of the linear trend, which does not control for economic covariates like the complete regression does, the overall trend supports the primary hypothesis of this thesis. Despite changes in the costsharing structure of health insurance, having coverage appears to match empirically with a lower likelihood of financial ruin from catastrophic medical costs, given available data. Constructing the graphical representation was useful in finalizing the regression equation. For example, viewing the differences in scale among the primary variables, in addition to understanding the distribution of the covariates per the descriptive table in Chapter 2, revealed that several terms required logarithmic transformation to facilitate interpretation. The final regression model used in this thesis is as follows:
47
Chapter Three log (𝑀𝑒𝑑𝑖𝑐𝑎𝑙 𝐵𝑎𝑛𝑘𝑟𝑢𝑝𝑡𝑐𝑦) = 𝛽) + 𝛽+ log (𝑈𝑛𝑖𝑛𝑠𝑢𝑟𝑒𝑑 𝑅𝑎𝑡𝑒) + 𝛽- 𝑙𝑜𝑔(𝑈𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡) + 𝛽L 𝑙𝑜𝑔(𝑅𝑒𝑎𝑙 𝑆𝑡𝑎𝑡𝑒 𝐺𝐷𝑃 𝑝𝑒𝑟 𝑐𝑎𝑝𝑖𝑡𝑎) + 𝛽Q (𝐻𝑜𝑢𝑠𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥) + 𝛽U 𝑙𝑜𝑔(𝐹𝑜𝑜𝑑 𝑆𝑡𝑎𝑚𝑝𝑠) + 𝛽W 𝑙𝑜𝑔(𝑃𝑜𝑣𝑒𝑟𝑡𝑦) + 𝛽W 𝑙𝑜𝑔(𝑃𝑒𝑟𝑠𝑜𝑛𝑎𝑙 𝐶𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛) + ∝% + 𝑢%&
where each 𝛽 represents the coefficient being estimated for the corresponding independent variable.
Figure 7: Basic Association of Health Insurance and Medical Bankruptcy89
89
This graph, unlike the regression model, does not account for any covariates, presenting the basic relationship between the explanatory and outcome variables. The figure illustrates that a higher uninsured rate is associated with a higher rate of personal bankruptcy filings.
48
Chapter Three 3.2 Regression Table Dependent variable: Medical Bankruptcy Rate ***
Uninsured Rate
0.169 (0.045)
Median Household Income
2.061 (0.453)
State Unemployment Rate
0.542 (0.052)
Real State GDP per capita (USD)
0.387 (0.259)
Housing Price Index
-0.005 (0.001)
***
***
***
Proportion of Population using the Supplemental Nutrition Assistance Program
0.424
***
(0.104) **
Poverty Rate
-0.505 (0.226)
Personal Consumption per capita
-2.545 (0.396)
Constant
28.574 (6.568)
***
***
Observations 2 R 2 Adjusted R Residual Std. Error F Statistic State Fixed Effects
490 0.932 0.923 0.166 (df = 433) *** 106.349 (df = 56; 433) Yes *
Note:
**
p<0.1; p<0.05;
***
p<0.01
Table 2: Regression Model Findings
3.3 Regression Interpretation 1. The uninsured rate is a significant predictor of the medical bankruptcy rate.
According to the fixed effects linear regression model, a one percent increase in the uninsured rate leads to a 0.17% increase in medical bankruptcies, ceteris paribus. Furthermore, this finding is statistically significant (p = 0.000179), meaning that the model in this thesis rebuffs a null hypothesis
49
Chapter Three predicting no measurable effect of health insurance status on medical bankruptcy likelihood. While a modest effect, the positive coefficient on the health insurance term (directionally confirmed by a low p-value) indicates that the frequency of medical bankruptcy is sensitive to the uninsured rate. Coverage gains do yield financial protections in this ten-year national panel sample, in a manner that is seen consistently and independently of fluctuations in other macroeconomic indicators that might otherwise explain state differences in medical bankruptcy filings. An important caveat to this result, however, is that the period studied falls before some of the recent examples of accelerated consumer cost-sharing in health plans. In addition, standard intuition among policy scholars is that healthcarerelated bankruptcies typically occur after a relatively protracted period of accumulating medical debt with compounding interest; therefore, medical bankruptcies due to inadequate insurance may increase over time as patients’ debt progressively increases. While this finding of insurance protections may not keep perfect pace with contemporary political debates on coverage and cost, it contributes to the academic literature among policy scholars by providing empirical support to the intuition that health insurance insulates patients from financial shocks due to medical care. Chapter 5 discusses this primary result within the context of the insurance market changes identified in Section 1.7.
50
Chapter Three 2. The uninsured rate, in tandem with covariate economic characteristics, accounts for nearly all the state-time variation in medical bankruptcy rates.
The regression model reports an R2 value of 0.93, meaning that the cumulative variation in the explanatory variable and covariates explains 93% of the variation of the dependent variable. A high R-squared value lends further credibility to this statistical model and to the interpretation that spikes in the uninsured rate will threaten personal financial wellness by heightening the likelihood of medical bankruptcy. Bankruptcy is notoriously difficult financial marker to study, as evidenced by the previous bankruptcy studies highlighted in Chapter 1. Having a strong R2 value offers support for coefficient interpretation and hypothesis confirmation, despite persistent opacity (and subsequent assumptions needed) in the available data. By incorporating as many other economic traits upon which states vary to the regression model, this thesis provides a strong picture of bankruptcy drivers.
3. Other state-level economic indications significantly impact medical bankruptcy rates, but not in the manner one might intuitively predict.
Based on the results reported here, all covariates except for the real state GDP per capita are statistically significant predictors of medical bankruptcy. These variables are: median household income, state unemployment rate, housing price index, food stamps rate, poverty rate, and per capita personal consumption. Perhaps the most intuitive result, the model finds that a single percentage increase in the unemployment rate corresponds with a 0.54% increase in medical bankruptcy (p < 2 x 10-16). This suggests that as unemployment increases, so does medical bankruptcy, and there are several reasons to explain why this might
51
Chapter Three be so. First, unemployed workers no longer have access to the employersponsored coverage that they might have had while working. Therefore, the subsequent shift to a less generous public or non-group insurance plan might make them more vulnerable to catastrophic medical costs. Moreover, the sudden lack of income might also jeopardize a household’s financial flexibility to deal with a costly illness. Given both mechanisms, which separately and in tandem would undermine patient budgets, the empirically determined effect of the unemployment rate on medical bankruptcy matches the prediction. Yet other variables presented less predictable effects; for example, the negative coefficient on the poverty rate superficially appears out of order. According to the model, a one percent increase in the poverty rate is associated with a 0.51% decrease in the medical bankruptcy rate. This runs counter to what would be the obvious hypothesis that where poverty and financial barriers are more prevalent, so too are medical bankruptcies. The negative result, which was statistically significant (p = 0.026), may reflect the positive personal financial benefits from Medicaid, which covers care for low-income Americans. The positive coefficient on median household income supports this conclusion; a one percent increase in household income corresponded with a two percent increase in medical bankruptcy (p = 6.90 x 10-6), while state median income was, perhaps obviously, negatively correlated with poverty rates (-0.69). The finding might also suggest medical bankruptcy as much an issue for middle-income Americans, given insurance market changes, as it is for the poor. Understandably, because the food stamp and poverty rates are strongly and positively correlated (0.81), these possible conclusions to explain the negative coefficient of the poverty rate are difficult to reconcile with the positive coefficient
52
Chapter Three on the food stamp rate, where a one percent increase led to a 0.42% increase in medical bankruptcy (p = 5.15 x 10-5). The latter finding supports the intuition that medical bankruptcy plagues those at the lower end of the socioeconomic spectrum, to the contrary of the potential explanation for the negative poverty rate association offered in the preceding paragraph. Future studies, be they statistical or ethnographic, of the seemingly counterintuitive relationships that the poverty rate and food stamps rate have with medical bankruptcy, would be especially useful considering the results from this thesis. Another confounding question comes from the personal consumption coefficient, which predicts that each percent increase in consumption yields a 2.55% decrease in medical bankruptcy (p = 3.47 x 10-10). Since personal consumption and household income are highly positively correlated (0.81), their apparently divergent associations with medical bankruptcy are perplexing and merit further academic investigation as well.
3.4 Addressing Limitations in the Model 1. This analysis applies a national estimate to each state.
Largely because of the dearth and opacity of medical bankruptcy data, the most reliable estimates of how many personal bankruptcies follow medical debt are at the national, and not the state level. Moreover, those analyses largely rely on survey-based methods, sampling a random grouping of bankruptcy filers to ascertain the primary driver of their debt via self-reports. Without a requirement on the personal bankruptcy filing form to indicate the primary and secondary causes of debt and bankruptcy, surveys represent the best available method to ascertain the percentage of filers whose primary debt source is medical bills.
53
Chapter Three Using a national estimate for this thesis is suboptimal for several reasons. First, and perhaps most notably, this work explicitly compares data at the state level in order to determine a relationship between insurance status and bankruptcy propensity. Given that state-level variation among these indicators (as well as the covariates) is the foundation of the regression, it would be most useful to reflect state-level variation in medical bankruptcy filings, which is highly probable given different medical needs, insurance costs, and economic characteristics in each state. Another factor complicating the use of a national estimator is that it is a snapshot figure. Because national surveys require significant organization to be reflective of the country at large, these studies are difficult to repeat on an annual basis. Estimates therefore typically reflect a single time point for the whole country, instead of demonstrating year-to-year fluctuations in bankruptcy drivers. However, there is reason to believe the Himmelstein estimator is an appropriate approximation for this analysis, given the existing data limitations. As shown in Section 1.3 of this thesis, there is persistent polling showing that medical costs remain a financial obstacle for a large group of Americans, both before and after state and federal health reforms and subsequent coverage gains.90 While each state each year might deviate up or down from the overall Himmelstein figure, the single estimate is likely to be reasonably accurate on average across all 490 observations, given the large sample size. Moreover, the extensive control variable inclusion lends credibility to the use of a single national figure. By accounting for many of the most plausible economic traits whose variation among states could affect both health insurance 90 DiJulio et al., “Data Note.”
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Chapter Three coverage and medical bankruptcy, this thesis uses the best available statistical strategy to capture the state differences absent from its application of the single Himmelstein estimator.
2. Correlation does not equal causation.
Given the large R2 and the nearly universal statistical significance of the primary explanatory variable and the covariates on the outcome, the regression model here presents a strong association. But is it causal? In other words, can a reader be confident that this analysis demonstrates health insurance coverage gains reduce the population-adjusted filings of personal bankruptcies due to medical expenses? First, the data does establish a plausible temporal relationship between suspected cause and effect. That is, personal bankruptcies begin to fall in most states following the implementation of national health reform in 2010. Because of this pattern, this thesis demonstrates that across the United States for the period 2006 to 2015, coverage gains preceded drops in medical bankruptcy rates. Next, the data demonstrates that there is covariation of the primary explanatory and outcome variables. Covariation is a prerequisite to arguing cause and effect; without joint movement, there is no response of the dependent to the independent variable upon which to base an assertion of causality. By producing a linear model in which medical bankruptcies increase as the uninsured rate increases, this thesis fulfills this second step of causal inference. Finally, to be certain that this finding is causal, this thesis would need to disprove plausible alternative explanations. However, the regression analysis here falls short of that high bar to demonstrate causal association definitively. As the
55
Chapter Three third point under Section 3.3 illustrates, many of the covariate economic characteristics in the model yielded statistical significance in addition to the primary explanatory variable. It is difficult to entirely disentangle the effects that variation in these other state traits would have on the pace of medical bankruptcy filings considering their strong association with the outcome, albeit with directionally surprising coefficients. Under this third criterion for causal inference, this regression analysis does not quite meet the high standard of passage. The findings of this thesis, causality notwithstanding, remain relevant for public policy scholarship. With a miniscule p-value on the explanatory variable, the fixed effects model still demonstrates at minimum a very strong association between health insurance and medical bankruptcy, with increases in the uninsured rate corresponding to increases in financial calamity. This is an interesting result precisely given the political moment, as federal lawmakers debate coverage gains in ACA repeal-and-replace scenarios; the nonpartisan Congressional Budget Office estimates that by 2026, 24 million fewer Americans would have
had insurance under House Speaker Paul Ryan’s proposed
replacement than under current law. 91 By contributing to the health policy literature on how insurance impacts financial outcomes, this thesis meets the political moment with its regression modeling of the interrelatedness of those two factors, even after accounting for other economic drivers that vary across states.
91
Congressional Budget Office, “American Health Care Act Cost Estimate.”
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Chapter Three 3. Two Medicaid expansion states are not represented in the dataset.
At the time of this thesis, the Administrative Office of the U.S. Courts did not report bankruptcy data for Michigan and New Mexico, both of which are led by Republican governors who opted to accept federal funding for an expanded income eligibility criterion for their state Medicaid programs.
While their
absence does not beget serious sample size concerns or statistical power challenges (the regression maintains 490 of the 510 total panel data observations), both states are very interesting case studies of health reform, medical expenses, and personal financial wellness in atypical policy environments. Michigan, for example, has GOP majorities in both chambers of its legislature, and after voting for the Democratic presidential candidate in every election from 1992 to 2012, the traditionally blue state swung to Republican Donald Trump by a 0.2% margin in 2016. Its current governor, Rick Snyder, is a conservative politician as well, and to justify a “big government” move by expanding Medicaid to an estimated 605,000 additional adults, he negotiated a demonstration waiver with the federal government, allowing the state to embark on a series of entitlement reform pilots. This “Healthy Michigan Plan” received initial CMS approval in December 2013, with eligibility increases taking effect in April 2014 while new authorities were delayed until April 2018. The demonstration pilot required all Michigan Medicaid beneficiaries to contribute monthly to a health savings account (HSA) reflective of their average copayment, while also mandating that enrollees between 130% and 138% of the federal poverty level (FPL) set aside 2% of income to HSAs.92
92
Kaiser Family Foundation, “Medicaid Expansion in Michigan.”
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Chapter Three The imposition of cost-sharing requirements in Michigan under this new waiver represents an interesting academic question directly relevant to this paper; namely, do the coverage gains from expansion outweigh the insurance model changes that increase costs for low-income Americans?
In many ways, the
unique political environment and distinctive waiver negotiation in Michigan represent a fascinating test case to the health insurance-medical bankruptcy relationship examined in this thesis. The absence of Michigan’s medical bankruptcy data, however unfortunate, is not especially deleterious to the integrity and intrigue of the regression model presented in this chapter. Arkansas, Iowa, Indiana, New Hampshire, and Montana also pursued Medicaid expansion through demonstration waivers that implement a premium insurance model. Because each of their state medical bankruptcy data is represented in this thesis model, the regression does consider varying forms of coverage gains amidst varying political backdrops. While the Republican-led Michigan and New Mexico datasets would have been useful additions to make the dataset complete for all fifty states plus D.C., their omission because of a lack of representation in the U.S. Courts administrative database is not a disqualifying limitation to this analysis.
3.5 Conclusions The quantitative analysis supports the central hypothesis of this thesis; health insurance coverage gains confer personal financial wellness protections as well, given the increase in medical bankruptcies associated with higher uninsured rates. For each one percent increase in the uninsured rate, there is a commensurate 0.17% increase in medical bankruptcy, which is a moderately sized
58
Chapter Three impact given the small proportion of medical bankruptcies in the population. This effect is statistically significant after accounting for the impact of other economic characteristics that might create variations in personal financial conditions across states.
All together, these variables explain nearly all the
variation seen in medical bankruptcies over time in different states.
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CHAPTER FOUR Medical Bankruptcies in Massachusetts
4.1 Case Selection More than any other state, Massachusetts offers a uniquely interesting example in the fundamental relationship that this thesis examines: health insurance coverage and medical bankruptcy. In 2006, the state approved legislation that would later be a blueprint for national health reform four years later, making Massachusetts a potential predictor of trends in healthcare-related individual financial wellbeing that will be experienced nationwide because it has had more time to demonstrate the effects of public policies to expand access to health insurance. The major limitation to this extrapolation is that Massachusetts in 2006, at a 10% uninsured rate, already had one of the most widely covered state populations in the country. However, the prevalence of available data, longitudinal nature of the insurance/healthcare affordability relationship, and similarity to the ACA in its approach to increasing coverage make the state useful to examine nevertheless. As seen in Figure 8 on the following page, state data illustrates that coverage
expansion
was
independent
of
medical
bankruptcy
in
the
Commonwealth. Indeed, filings increased in the years 2006 through 2010 while Massachusetts was experiencing large reductions in its uninsured rate. This complicates the nationwide results from the regression model presented in Chapter 3, suggesting that while insurance may be an important protection against medical bankruptcy overall, there are policy differences between the
60
Chapter Four Commonwealth and the country that allowed the type of coverage, and not just coverage itself, to impact household financial outcomes.
MASSACHUSETTS MEDICAL BANKRUPTCIES, 2006-2015 25000 20000 15000 10000 y = -638.34x2 + 3E+06x - 3E+09 R² = 0.84711
5000 0 2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Figure 8: Trend in Massachusetts Medical Bankruptcies
2016
Yet a simple but crucial question remains – why were coverage gains decoupled from medical bankruptcy in Massachusetts? Moreover, if the ACA models health reform in Massachusetts, will these trends hold nationwide? Through process tracing and comparative qualitative techniques, the case study presented henceforth allows for deeper analysis into these key concerns in a way the quantitative strategy in the previous chapter, which showed that health insurance status is a significant predictor of medical bankruptcy, does not. This chapter seeks to add texture to the statistical findings by: (1) offering background on the Bay State’s legislation and how it came to be, (2) presenting evidence on trends in personal financial wellness with respect to healthcare in Massachusetts, (3) comparing the key provisions of both state and federal reform,
61
Chapter Four and (4) analyzing how the trends in Massachusetts may or may not be an accurate harbinger of coming national phenomena.
4.2 Background on Massachusetts Health Reform Legislation Chapter 58 of the Massachusetts General Court, titled “An Act Providing Access to Affordable, Quality, Accountable Health Care” (and henceforth known as Chapter 58), built on existing market mechanisms to extend health insurance coverage to nearly all residents of the Commonwealth. In a conversation with David Axelrod, the longtime Obama political adviser now at the University of Chicago, Mitt Romney, the former Republican governor of Massachusetts (20032007), cited the law as one of his signature legislative achievements. "I think people ought to have insurance. And just like your experience with President Obama, my colleagues said, 'For a Republican to be talking about getting everybody insured is not good politics.' And I said, 'Look, I think I can see a pathway to get everybody insured and I’m going to do it,'" Romney recalled. "I recognized just how critical this is in the lives of people who don’t have care. And we could do a better job. And we also thought we could do it without having to spend more money. We thought we could take money from the free care pool we were already using and devote that to helping people buy insurance if they couldn’t afford it themselves. And we’re pretty pleased with what we were able to 9394 accomplish."
The success of Chapter 58’s policy innovations paved the way for the Affordable Care Act’s passage four years later. As the birthplace of the American Revolution and the home to healthcare expert Senator Ted Kennedy, Massachusetts held symbolic importance to health policy, even as the road to universal coverage in a “blue state” was challenging and took several attempts. Princeton’s Starr speaks of the American health policy trap, “a costly and complicated system that has satisfied enough of the public and
93 94
Axelrod, Ep. 5 - Mitt Romney | The Axe Files with David Axelrod. Gass, “Romney: Without Romneycare, no Obamacare.”
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Chapter Four so enriched the health care industry as to make change extraordinarily difficult.”95 This policy trap was particularly acute in Massachusetts, where, as my interviews with health researchers there have revealed, one-fourth of households obtain some income from the healthcare sector.96 Cutting medical costs cuts into the bottom line for a large chunk of the state, making health reform especially contentious. Starr describes the political climate when then-Governor Michael Dukakis, a Democrat, signed into law the first state-level guarantee of universal health insurance in 1988. 97 At the heart of this legislation was a requirement, scheduled to come into force in 1992, that employers sponsor health insurance for their workers or face a $1,680 penalty tax per employee.
A new governor,
Republican William Weld, had taken office by the time the employer mandate was supposed to take effect, however, and in the middle of a national economic downturn and local fiscal instability, he (along with many Bay State residents) opposed the provision. This prompted the Democratic legislature to delay the mandate but retain coverage expansion policies. Democrats eventually abandoned the employer mandate in order to receive business support for a cigarette tax to finance expanded children’s health coverage; this idea, which became law in Massachusetts in 1996 over the veto of Governor Weld, became a model for Senator Kennedy’s push for what became the Children’s Health Insurance Program at the national level the next year.98 Yet again, Massachusetts proved to be a bellwether for future health policy efforts, serving as a predictor of the provisions that the federal government would later adjust and scale across the country. 95
Starr, Remedy and Reaction: The Peculiar American Struggle Over Health Care Reform. Long, Urban Institute: Conversation on ACA, Chapter 58, and Personal Finance. 97 Starr, Remedy and Reaction: The Peculiar American Struggle Over Health Care Reform. 98 Ibid. 96
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Chapter Four When Mitt Romney won the governor’s office in 2002, he took office having offered some suggestions to improve the state’s healthcare policies, though the subject was not a focal point of his economy-themed campaign platform.99 100 A conversation with friend and Staples founder Tom Stemberg inspired Governor Romney to pursue universal health access during his term.101 Yet access is the operative word – cost containment and affordability were not seen as separate challenges from the coverage expansion targets. When interviewed for this thesis, Kate Nordahl, a director at the Blue Cross Blue Shield of Massachusetts Foundation, indicated that after the coverage gains that followed Chapter 58’s passage, state lawmakers realized further policy protections needed to be implemented to ensure consumer affordability.102 Nevertheless, the health coverage reform effort that had begun with Michael Dukakis, an eighties era progressive, finally found its successful champion in Governor Romney, a pragmatic Republican, who was able to garner enough support for the bill. A key strategy behind Chapter 58’s eventual passage was the inclusion of major stakeholders in the drafting process, charging members of the business, policy, and patient communities to provide policy suggestions that made it into the final law. Romney’s inclusive leadership strategy foreshadowed the big tent approach President Barack Obama would attempt to take in the lead-up to his 2010 law, which won the endorsement of the American Medical Association, PhRMA (the pharmaceutical industry lobbying group), and America’s Health Insurance Plans (the private payer lobby). Despite 99
Belluck, “THE 2002 CAMPAIGN.” Schultz and Fleming, “Mitt Romney On Health Care.” 101 Gass, “Romney.” 102 Nordahl, Blue Cross Blue Shield Foundation: Conversation on ACA, Chapter 58, and Personal Finance. 100
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Chapter Four the similarities in top-level leadership approaches between the two men, however, Chapter 58 enjoyed bipartisan collaboration and support in a way that the ACA, which required parliamentary contortions to pass on a party-line vote, did not.
4.3 How Chapter 58 Addressed Healthcare Affordability What’s most notable about the Chapter 58 reform law is that it worked. As Figure 9 highlights below, the uninsured rate in Massachusetts, already one of the lowest in the country, plummeted into the mid to low single digits.103 Fears of firms dumping workers due to the mandate to sponsor insurance for full-time employees did not come to fruition, as percentage of people with ESI remained roughly constant. Moreover, the statewide Massachusetts Health Reform (MHR) survey shows that coverage gains were largely gained through the new state marketplace, as the number of residents on public plans was roughly stable until the implementation of the ACA.
Figure 9: Health Insurance Trends Among Nonelderly Massachusetts Adults Source: Health Affairs, January 2012 print issue
103
US Census Bureau, “Health Insurance Historical Tables - HIC Series.”
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Chapter Four More than simply offering insurance coverage access to those who previously lacked it, however, Chapter 58 delivered positive results on several personal finance indicators. The MHR survey revealed that nonelderly adults in the state were less likely to defer or decline needed treatments for financial reasons in 2010 than in 2006, while the share of nonelderly adults dedicating 10% or more of their income to out-of-pocket medical costs fell over the same period. 104 Taken in concert, these findings suggest that Chapter 58’s reforms improved overall financial wellness among Massachusetts’s residents. Certainly, however, Chapter 58 did not alleviate every personal finance concern that high healthcare expenses wrought on the state’s households. Fortythree percent of insured adults in the Commonwealth still report problems with the affordability of health services.105 As discussed previously in this chapter, the parabolic pattern of personal bankruptcies mirrors the national economic downturn and recovery instead of a steady decline following statewide health reform. Moreover, markers on access, while improving year on year following Chapter 58’s passage, proved to be a persistent challenge, as nearly 23% of respondents in 2010 still reported that they did not receive needed care because of cost. 106 Reports from the ACA, which are four years removed from the substantive implementation of its provisions just as the cited report was published four years after Chapter 58 went into effect, display a similar story on personal finance, with prices remaining a barrier to seeking care.107 Yet unlike Chapter 58, the ACA concerned itself with more than just coverage expansion. 104
Long, Stockley, and Dahlen, “Massachusetts Health Reforms.” Turner, “Mass. Health Reform Survey Finds ‘Sustained Gains’ in Insurance Coverage but ‘Persistent Gaps’ in Access and Affordability.” 106 Long, Stockley, and Dahlen, “Massachusetts Health Reforms.” 107 DiJulio et al., “Data Note.” 105
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Chapter Four Therefore, drawing inferences from the Bay State’s experience with health reform pre-ACA to the national pattern post-ACA requires an evaluation of how each law tackled access, affordability, and insurance market regulations, as offered by the following subsection.
4.4 Comparing Chapter 58 and the ACA 1. Both laws impose a requirement that individuals purchase health insurance, but they differ in the noncompliance penalties levied.108
Both the ACA and Chapter 58 use the “three-legged stool” policy approach to expand access to coverage: guaranteed issue (banning underwriting or denial of insurance plans to patients with preexisting conditions), individual mandate (requiring everyone purchase a health insurance plan or pay a penalty that is applied through the tax-filing process), and subsidies to make coverage affordable to low- and middle-income individuals. To enforce the individual mandate, each law levies a penalty on nonexempt citizens and legal residents who choose to forgo health insurance. The Massachusetts penalty for not purchasing coverage is scaled by income instead of a flat rate per person, and unlike the ACA, Chapter 58 does not penalize dependents. The exemptions list is shorter than in the federal law, waiving the penalty for those who have affordability concerns (defined here as needing to dedicate more than 10.5% of income towards health insurance), hardship, religious objections (not delineated in the law, but this exemption only holds if the individual never uses medical services), or brief (fewer than 90 days) gap in between coverage plans. The state did retain its individual mandate even 108
Nordahl, “Key Affordable Care Act & Chapter 58 Provisions.”
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Chapter Four after the passage of the ACA mandate, though it adopted policies to avoid doubly penalizing with state and federal fees those who forgo insurance. By contrast, the ACA’s penalty for not purchasing insurance is either a flat $695 per adult plus 50% of the adult penalty per child (<18 years of age), with a $2,085 household maximum OR 2.5% of income over the tax filing threshold, with a maximum of the national average premium for a bronze plan on the exchanges. The exemptions list is fairly expansive, waiving the requirement for those with income below the tax-filing threshold, affordability concerns (legally tenable if the lowest cost premium after subsidies and/or employer contributions represents more than 8% of income), “hardship” (ambiguity in the statute leaves this largely to HHS interpretation), religious objections (per Medicare’s existing definition), or coverage gaps fewer than 3 months. Exemptions to the “personal shared responsibility payment” (insurance penalty) also apply to undocumented immigrants and American Indians. How effective a law is in inducing widespread coverage is a critical upstream marker to the affordability of health insurance to consumers down the line. That is because the entrance of young, healthy adults into the insurance pool lowers the average cost of plans; this is the population that is most notorious for purposefully forgoing coverage. Without their participation in the market, insurance premiums risk an upward death spiral of costs, known as adverse selection, in which only the sick purchase coverage, pushing insurance prices higher and higher. Because the sick account for a large percentage of reimbursement claims filed by providers for delivering those patients care, the insurance market requires risk spreading with young, healthy adults paying into the pool. Critics object at this cross subsidizing, but it represents the basic
68
Chapter Four actuarial truth of a functioning health insurance market with affordable prices for all. Therefore, the strength of the individual mandate (and its associated penalty) will affect insurance costs across the entire individual market. It is possible that the differences in the ACA and Chapter 58’s approaches to the individual mandate, while seemingly small, have produced some appreciable impact on personal affordability. According to the Internal Revenue Service (IRS), 6.5 million Americans opted to pay the penalty instead of purchasing health coverage,109 which has led to the population remaining on the ACA exchanges to be a sicker and costlier cohort.110 Yet the health of exchange enrollees should not be surprising, because the law does away with insurance discrimination based on preexisting conditions, allowing an influx of patients who were previously barred. Moreover, the large cohort of young, healthy Americans who opt to not purchase insurance harkens to the concept of adverse selection described at the beginning of this thesis, in which the average cost of plans steadily increases as healthy people drop out of the market; the absence of healthy enrollees to offset costs from sicker enrollees could explain premium price growth. Whether the ACA exchanges have entered a “death spiral” is the subject of robust political debate. 111 112 True or not (empirical work has yet to firmly support either argument), the resulting premium price growth in the ACA is a real and troubling trend for personal financial wellness, highlighting how insured Americans are not immune to health affordability concerns. An effective 109
Mangan, “Fewer People Got Hit with Obamacare Tax Penalties in 2015, IRS Says.” Blue Cross Blue Shield Foundation, “The Evolving Affordable Care Act Marketplaces: The 2015 to 2016 Transition.” 111 Fox News, “ObamaCare in ‘Death Spiral,’ Aetna CEO Says.” 112 Associated Press, “Fact Check.” 110
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Chapter Four individual mandate with limited exemptions, as seen in Massachusetts, can change the dynamics of the individual insurance market to be more financially sustainable for everyday citizens.
2. The ACA included stronger incentives for employers to sponsor insurance, but Massachusetts actually allowed its employer mandate to take effect.113
Based on the Census Bureau’s March 2014, 2015, and 2016 Current Populations Surveys, the Kaiser Family Foundation estimates that 49% of Americans enroll in employer-sponsored insurance (ESI) health plans. 114 ESI allows workers to join insurance pools of fellow workers at their companies, thereby avoiding the individual market. The contributions that firms make towards their employees’ health plans are tax-exempt, constituting the largest tax exclusion in the U.S. tax code, one that totaled $216 billion in lost revenue for the federal government.115 Health economists across the ideological spectrum believe this provision encourages inefficiencies in the labor market, citing “job lock” (where employees hesitate to switch positions or firms because of the current comfort of their benefits).116 This policy history illustrates the path dependency in healthcare with which both Chapter 58 and the ACA needed to reconcile and ultimately build upon. Massachusetts imposed an employer mandate, but unlike the IRS did at the federal level, state authorities enforced the law in earnest, though penalties and requirements were laxer in Chapter 58 than in the ACA. The strictest rules 113
Nordahl, “Key Affordable Care Act & Chapter 58 Provisions.” Kaiser Family Foundation, “Health Insurance Coverage of the Total Population.” 115 Tax Policy Center, “What Are the Largest Tax Expenditures?” 116 Buchmueller and Monheit, “Employer-Sponsored Health Insurance and the Promise of Health Insurance Reform.” 114
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Chapter Four applied to businesses with greater than fifty full-time employees; these firms needed to demonstrate that 75% of their workers enrolled in a health plan or that they paid at least 33% of the premium for at least 25% of their employees. Firms with 11 to 50 full-time workers needed to sponsor 33% of premium costs or enroll 25% of employees. Failing to meet these requirements resulted in a $295 fee per employee. Massachusetts repealed its employer mandate in favor of the national requirement following the passage of the ACA. The IRS repeatedly delayed the employer mandate in the ACA, after significant outcry from many mid-size businesses that argued the requirements to sponsor insurance would hamper their ability to hire additional workers (in addition to posing significant costs that would threaten their profitability).117 As written in the law, the employer mandate, which applies to employers with more than fifty full-time employees, specifies no minimum contributions and levies a penalty of $2,000 per employee for businesses that do not offer ESI. Within the American healthcare context, where ESI constitutes how most households have coverage, the employer mandate represented an important policy tool to reduce the number of uninsured. Like the analysis above, the health of the insurance market relies on a large pool through which to spread risk. This indicates by extension that the employer mandate not only offers a theoretical safeguard against medical bankruptcies by expanding coverage rates, but also stabilizes premiums for consumers. With a wider group risk pool comes greater actuarial flexibility for insurers to compete over premium prices to offer employers and gain the market share of these companies. Therefore, despite risks
117
Pozen, “How Obamacare Inadvertently Threatens the Financial Health of Small Businesses, and What States Should Do about It.”
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Chapter Four to job growth in small- to mid-sized businesses, an employer mandate is a potential policy tool to make coverage more affordable for families.
3. While Massachusetts eased qualifications for enrolling in its Medicaid program, the ACA took larger steps in expanding public insurance eligibility.118
In 2015, 36% of Massachusetts residents and 36% of Americans nationwide had publicly funded insurance plans. Chapter 58 expanded eligibility for Massachusetts’ Medicaid program (called “MassHealth”), but it targeted particular communities. Children’s eligibility increased from 200% to 300% of the federal poverty level (FPL), while parents up to 133% qualified under the new law. 119 After national health reform passed, the Bay State transitioned eligible consumers on its exchange (those with income up to 133% FPL) to Medicaid and allowed students on MassHealth by accepting the ACA’s elimination of categorical eligibilities for Medicaid.120 By contrast, the ACA expands Medicaid eligibility to all citizens with earnings at or below 138% of the federal poverty level (in states that accepted the expansion), though people who meet disability-related eligibility criteria can qualify at higher incomes (up to state-determined limits).121 Moreover, the law increases the Federal Medical Assistance Percentage (FMAP) for the Children’s Health Insurance Program (CHIP) by 23% and coordinated enrollment processes for both programs by creating a single application for households to complete.122
118
Nordahl, “Key Affordable Care Act & Chapter 58 Provisions.” McDonough et al., “Massachusetts Health Reform Implementation.” 120 Nordahl, “Key Affordable Care Act & Chapter 58 Provisions.” 121 Musumeci, “The Affordable Care Act’s Impact on Medicaid Eligibility, Enrollment, and Benefits for People with Disabilities.” 122 Rudowitz, “Understanding How States Access the ACA Enhanced Medicaid Match Rates.” 119
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Chapter Four These differences are important when comparing the impact of health insurance coverage on personal bankruptcy seen in Massachusetts versus the trend seen nationally. The ACA achieved coverage gains mostly through the expansion of Medicaid and CHIP federal funding, as 14.5 million of the roughly 20 million newly insured Americans are part of either federal program.123 Under Chapter 58, coverage gains through expanded public eligibility were significant, but the ratio of newly publicly insured to newly privately insured was not to scale with the Affordable Care Act. This is an important distinction relevant to personal financial wellness, suggesting that some of the issues paying medical bills and accumulating medical debt can be attributed not only to whether one has insurance (as the quantitative section of this thesis tests) but also to the type of insurance one has, public or private. Retaining Medicaid expansion under the ACA may well be a driver of reducing personal bankruptcies due to medical costs, highlighting an area that the federal law went beyond the scope of its statelevel predecessor.
4. Insurance market reforms in both laws were largely similar.124
In 2015, the non-group insurance market accounted for 5% of Massachusetts’s residents and 7% of Americans nationwide.
125
However,
asymmetric information made this market hardly free or competitive prior to reform, as insurers screened consumers to attract only the healthiest, lowest cost
123
Greenberg, “Rand Paul Goes Too Far on Obamacare Medicaid Growth.” Nordahl, “Key Affordable Care Act & Chapter 58 Provisions.” 125 Kaiser Family Foundation, “Health Insurance Coverage of the Total Population.” 124
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Chapter Four enrollees, while individuals had no easy mechanism to compare different plans on premium price, deductible price, benefit coverage, and other requirements.126 Reform in Massachusetts pioneered the exchange model of health insurance purchasing in the non-group market through a transparent online platform that it dubbed the Commonwealth Health Insurance Connector Authority (known as the Connector). Chapter 58 further established the Commonwealth Care Health Insurance Program (CommCare) as a mechanism for subsidizing plans on the Connector for low- and middle-income residents whose earnings were above the Medicaid/MassHealth threshold. Subsidy-eligible consumers on the Connector with incomes below 150% of the federal poverty level (FPL) pay no premiums or deductibles, and only modest copays; those with incomes ranging from 151% to 300% FPL pay no deductibles, but premiums and copays on a sliding scale corresponding to their earnings. 127
The reformed
individual market banned underwriting pre-existing conditions, but allowed rating different individuals within a two-to-one band on age, industry, wellness program participation, and tobacco usage; less favorable geography could justify a maximum 50% upcharge.128 Federal health reform offers states the option to build their own exchanges or use the federal platform, while the basic architecture of the online tool (a transparent mechanism upon which to view different insurance plans prices and choices) remains the same from the Massachusetts invention. The only categories that the ACA allows insurers to upcharge customers on are age (older persons can be charged a maximum of three times as much as young adults are charged), 126
Harbage, “The Inefficient Individual Health Insurance Market.” McDonough et al., “Massachusetts Health Reform Implementation.” 128 Nordahl, “Key Affordable Care Act & Chapter 58 Provisions.” 127
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Chapter Four tobacco use (smokers pay up to 50% more), geography, and family composition.129 Moreover, the statute offers subsidies (i.e. advance premium tax credits) so that plan costs range from 2% of income for households under 133% FPL to 9.5% of income at 400% FPL.130 These insurance market reforms are important to financial wellness. Importantly, the subsidies must be sufficient for families on the exchange given the mandate they purchase coverage, otherwise the insurance plans themselves could stretch household budgets. 131 Curiously, however, limiting the categories on which insurers can upcharge patients (a provision where the ACA was more restrictive than Chapter 58), allows more people to get insured, but it may have pushed the insurance industry to make structural changes to plan design (such as high deductibles and narrow networks) that erode the financial security that health coverage theoretically provides. Subsequent gains in personal financial security may accrue mainly in specific patient subpopulations (i.e. those whose insurance covers the treatment for their illness without significant cost-sharing).
5. While there were few differences in benefit specifications and plan requirements, Chapter 58’s lack of a lifetime limit ban was a very prominent point of divergence.132
Both laws prohibit pre-existing condition exclusions and require plans compliant with the individual mandate to offer pharmacy coverage. While Massachusetts did not impose benefit specification requirements for a plan to be 129
Ibid. Ibid. 131 This precise argument constitutes one of the main Republican rebuttals to the ACA - many middle-income households who do not qualify for subsidized plans on the exchanges shoulder a substantial financial burden, especially in states where premiums have increased especially sharply. 132 Nordahl, “Key Affordable Care Act & Chapter 58 Provisions.” 130
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Chapter Four sold on its exchange, the state required individuals to have “Minimum Creditable Coverage” (MCC) to be compliant with its individual mandate. MCC benefits include: inpatient acute care, physician services, diagnostic tests, $2,000 caps on annual individual deductibles, $4,000 caps on annual family deductibles, deductible-free preventive care, annual cost sharing limits ($5,000 caps on individual out-of-pocket costs and $10,000 for families), and unlimited total benefits for a single illness. Importantly, however, Chapter 58 permitted plans to impose lifetime limits (but not annual limits) and still qualify as MCC.133 Plans with annual limits were allowed only for young adults who affirmatively opted into such insurance arrangements (likely because they offered lower premiums). The ACA identifies preventive services, such as cancer screenings and vaccines, as one of its essential health benefits, meaning that insurance policies must cover such services without co-pays or deductibles. 134 Other required benefits include: ambulatory services, emergency care, hospitalization, maternity and newborn care, mental health and substance use support, behavioral health treatment, prescription drugs, rehabilitative and habilitative services (the latter being care that give abilities to the disabled that they have never had, such as walking or speaking), laboratory tests, and pediatric care (including oral and vision).135 Annual and lifetime limits were prohibited, as were cost sharing fees for preventive services, waiting periods longer than 90 days, and rescissions (the practice of dropping plan holders after becoming sick).
Moreover, the ACA
requires all health insurance plans to cap annual out-of-pocket expenses for
133
Burdett, “Romneycare Vs. Obamacare.” Ibid. 135 Levey, “Passing The Buck—Or Empowering States?” 134
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Chapter Four enrollees at $7,150 for an individual or $14,300 for a family plan. 136 Taken together, these reforms reduce the expenses directly felt by patients. More generous benefit specification has two potential impacts on personal financial wellness – for patients, the increasingly comprehensive nature of their coverage insulates them from potentially ruinous medical costs. However, for individuals above the subsidy threshold who are not accessing healthcare services frequently, the subsequent growth in monthly premiums to cover additional, government-stipulated services might pose a significant financial burden. Thus, a core tension of both reforms emerges, as the ACA went farther than Chapter 58 in mandating what services needed to be covered at what cost-sharing levels.
4.5 How the Results of Chapter 58 Predict the ACA’s Impact Beyond
the
granular
policy
differences
and
outcome
variations,
Massachusetts’s experience with Chapter 58 offers an important example for the country to understand where national efforts to expand insurance coverage will succeed and stumble in securing financial stability for patients. When interviewed for this thesis, Dr. Sharon Long, a prominent health researcher at the Urban Institute, identified three key lessons that national healthcare policy can learn from the Bay State. 137 First, she targets provider cost variation and opacity as barriers to reducing financial burdens borne by the individual patients and the healthcare system writ large. This is a particularly acute in Massachusetts, which is home to some of the most prestigious brand-name academic medical centers in the country. Hospital system data subpoenaed by the state attorney general has shown that these elite facilities charge very high prices 136 137
Adler and Ginsburg, “Health Insurance as Assurance.” Long, Urban Institute: Conversation on ACA, Chapter 58, and Personal Finance.
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Chapter Four for routine care, “extracting the rents using the reputation that they have.” 138 Cost variation for the same treatments vexes policymakers, both at the state and national levels; any attempts to push consumers to lower-cost plans might initially find support, only to inflame the public’s ire once they realize that their coverage does not include the famous hospital down the street. Insurers and public payers can only apply so much pressure to these providers to accept lower reimbursement rates before they risk having the hospitals leave their plans to great public outcry at the payer.139 Increasing the transparency of medical costs will be one important factor for reducing medical bankruptcies, even among the insured population. The second lesson Dr. Long offers is that affordability issues will not disappear on their own, given the persistence of distorted market incentives for providers and payers that encourage delivering care in ways that do not always provide value to patients.140 Solving this challenge requires public intervention, and the ACA seems to have already internalized this idea with its initial incentives for alternative payment methods emphasizing value (i.e. improved clinical outcomes and cost reductions). Among these incentives are the voluntary Bundled Payment for Care Improvement (BPCI) initiative and the Accountable Care Organization framework. Finally, she argues that the state has struggled politically to address healthcare spending given the significant role health care plays in the state’s economy. Chapter 58 prioritizes universal coverage over the delivery system 138
Ibid. Medicare is especially limited in reimbursement negotiations, because its founding statute requires the program to afford its beneficiaries “free choice of provider.” See: https://www.ssa.gov/OP_Home/ssact/title18/1800.htm 140 Long, Urban Institute: Conversation on ACA, Chapter 58, and Personal Finance. 139
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Chapter Four reforms and cost containment measures necessary to bring down medical expenses for consumers, explaining in part the Blue Cross Blue Shield of Massachusetts findings on accessibility to care. Thus far, the most Massachusetts has been able to achieve on the cost reduction front is establishing the Health Policy Commission, an independent state agency that makes investments and recommendations for organizations such as Accountable Care Organizations and other value-based healthcare arrangements.141 If national policy is to be successful in making care affordable and insulating individuals from catastrophic costs, she argues, it must learn from Chapter 58’s results and go beyond coverage expansion to tackle the healthcare cost structure. When interviewed for this thesis, Robert Seifert, a researcher at the University of Massachusetts Medical School also mentioned that there are several structural drivers of healthcare costs that remain in place, threatening the affordability improvements from basic coverage expansion and insurance market reform. 142 A whitepaper from the Bipartisan Policy Center identified these factors, citing fee-for-service reimbursement; fragmentation in care delivery; administrative burdens on providers, payers, and patients; an aging population; rising rates of chronic disease; tax-shielded health insurance; defensive medicine to avoid malpractice lawsuits; and high unit prices of medical services.143 These cost drivers are highly complex, and although Chapter 58 did not attempt to address any of them, the ACA has deployed pilot projects for cost containment that, while promising, have achieved decidedly mixed results thus far.144 That 141
Massachusetts Health Policy Commission, “Publications.” Robert Seifert, University of Massachusetts Medical School: Conversation on ACA, Chapter 58, and Personal Finance. 143 Ginsburg et al., “What Is Driving U.S. Health Care Spending?” 144 Weiner, Marks, and Pauly, “Effects of the ACA on Health Care Cost Containment.” 142
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Chapter Four the federal reform goes beyond coverage to address cost is an encouraging sign for Americans to hope for greater affordability in their care, while also explaining why the Bay State’s impressive reduction of its uninsured rate did not, as hypothesized, reduce medical bankruptcy filings as estimated by this analysis. However, leaving these structural drivers largely unaddressed portends future policy challenges of ensuring financial wellness for individuals who hope to manage their healthcare bills. Lifetime limits differences also might explain why the patterns of medical bankruptcies diverge in post-Chapter 58, pre-ACA Massachusetts as compared to post-ACA
nationwide,
despite
many
similarities
in
the
impetus
and
implementation of state and federal reforms. While provisions banning annual and lifetime limits may lead to increased premiums or higher cost-sharing requirements before the out-of-pocket cap, the upside is protection against catastrophic costs, as the ACA intended to do.145 As the examples in Chapter 2 of this thesis illustrate, patients with costly medical conditions quickly accumulate bills that (if in excess of the insurance cap) are fully out-of-pocket, generating a financially calamitous scenario for many families. Perhaps non-trivially, Massachusetts began to see a decline in bankruptcy filings in 2010, when the ACA’s prohibition on lifetime limits took effect. This may be purely correlative instead of causative, yet the varying state and federal approaches to lifetime limited insurance coverage remains a deeply important, albeit seemingly minute, policy difference that at minimum associates with household financial outcome as seen in the Massachusetts bankruptcy curve from 2006 to 2015.
145
Adler and Ginsburg, “Health Insurance as Assurance.”
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Chapter Four Moreover, bankruptcy itself as a measure of personal financial wellness creates comparability challenges. Dr. Sharon Long of the Urban Institute highlighted in her interview for this thesis that medical debt can be old, meaning that those who recently gained coverage may be carrying debt from healthcare bills that they incurred back when they lacked insurance. 146 Therefore, the qualitative analysis presented here cannot eliminate the possibility that Massachusetts saw the increase in medical bankruptcies from 2006 to 2010 (before the 2010-2015 decline) because of existing medical debt that had not disappeared with post-Chapter 58 coverage gains. Further research would be needed to prove that point, yet at present, it constitutes another plausible explanation for why the insurance/bankruptcy relationship in Massachusetts differs from the trend nationwide. Therefore, the case of Massachusetts is useful to studying the relationship between health insurance and personal financial wellness may likely be more complicated than the broader quantitative picture suggests in the previous chapter. Certainly, the state is not a perfect model of the whole country, as evidenced by a median household income figure that far outstrips the national average. But there are important categories upon which it is decently representative of America at large. For example, Massachusetts is more politically “swingy” than it typically gets credit for; despite voting for the Democratic candidate in every presidential election since going for President Reagan in 1984, every Bay State governor, apart from Governor Deval Patrick from 2006 to 2014, has been a Republican from 1991 until today. This interesting political climate influenced the deal making and design of a bipartisan health law, one that 146
Long, Urban Institute: Conversation on ACA, Chapter 58, and Personal Finance.
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Chapter Four shares much in common with the ACA and shows that the relationship between coverage gains and personal financial wellness is a complicated story, more so than the quantitative data might suggest. The lesson of Massachusetts shows that the granular details of public policy can have outsized impact on the capacity of health insurance to adequately insulate patients from devastating medical expenses that could trigger bankruptcy. The parabolic curve of medical bankruptcy filings in the state, even as the uninsured rate consistently fell over the period, challenges the notion that simply occupying “insured” status is not enough to guarantee financial security. Instead, a deep dive into the details of the plans provided reveals the necessary protections and comprehensive coverage for patients to receive the care they need without worry of how it will impact their household budgets.
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CHAPTER FIVE Policy Relevance and Concluding Reflections
The quantitative findings in Chapter 3 provide empirical support of a positive relationship between the uninsured rate and medical bankruptcy filings. The case study in Massachusetts, however, shows that while coverage is an important part of the equation, affordability of care for consumers requires deeper structural change. This chapter reflects on the public policy implications of the academic findings in this thesis, largely mooring the analysis in positive evaluation to avoid normative judgments. In anticipation of forthcoming health policy changes, it discusses high deductible health plans (HDHPs), out-of-network (OON) billing, and increased consumer cost-sharing as potential drivers of medical bankruptcy that could undermine the financial gains of health insurance coverage that this thesis has demonstrated thus far. It also discusses the specific proposals in Congress to change or remove Affordable Care Act provisions in light of the aforementioned findings in Chapters 3 and 4. The chapter concludes with a review of policy recommendations borne from this thesis and the particular political moment it occupies.
5.1 Getting Ahead of Deleterious Insurance Market Evolutions Chapter 2 introduced the concept of high deductible health plans, which have become increasingly prevalent over the past decade. Health policy researcher Drew Altman argues in the Wall Street Journal that the political world’s ACA
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Chapter Five fixation misses how rising deductibles, which have spiked four times faster than premiums and jumped 12% in 2016 alone, “are transforming the nature of health insurance from more comprehensive coverage to skimpier insurance with higher out-of-pocket costs.”147 Insurers market these HDHPs to businesses and groups by trumpeting the comparatively lower monthly premiums, and among small employers, the message is resonating loudly; 65% of Americans working for firms with fewer than 200 employees are now enrolled in high-deductible plans.148 149 One estimate shows that escalating cost-sharing requirements constitute a uniquely American issue, with the risk of large, fully consumer-borne medical expenses up to four times higher in the United States than in Canada.150 As this thesis highlights, such changes threaten personal financial wellness. The primary hypothesis of the quantitative section was that health insurance coverage insulates enrollees from the potentially calamitous costs of their medical treatment, should they need it. However, in a world with widespread high-deductible plans where insurance provides less financial protection for fewer categories of care, the logic of such a hypothesis unravels. Health coverage becomes more a symbolic than a substantive component of household budget security, jeopardizing the progress over the past seven years in reducing medical bankruptcy. This scenario is somewhat akin to the 2006-2010 trend seen in Massachusetts, where coverage did not immediately quell cost concerns. Medical bankruptcy persisted in the Bay State even after the reduction in the uninsured rate through Chapter 58; there, this thesis argues that the introduction of a lifetime limit ban under the ACA was critical to rein in 147
Altman, “The Missing Debate Over Rising Health-Care Deductibles.” Ibid. 149 Humana, “HDHP High-Deductible Health Plan for Groups and Businesses.” 150 Baird, “The Financial Burden of out-of-Pocket Expenses in the United States and Canada.” 148
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Chapter Five healthcare debt. Therefore, the findings in this thesis indicate that high deductible plans, with their shifting of costs to consumers, may similarly jeopardize the theorized financial protection afforded by health insurance. How should public policy respond to this problem? The new administration, in conjunction with the 115th Congress, does not appear particularly keen on maintaining the foundational apparatus of the Affordable Care Act. However, there are legitimate policy options to repair the specific ailments that existing health reform either has not alleviated or allowed to swell. Under current law, the maximum deductible in 2017 is $6,550 for individuals and $13,100 for families, but this provision has been insufficient to stem the consistent polling showing at least one-fifth of households concerned about out-of-pocket expenses. 151 One policy solution is to lower the maximum deductible, which would relieve financial pressures on patients at their most vulnerable moments. However, this would almost certainly cause insurers to raise premiums, which could then burden monthly household budgets. That is a political non-starter as lawmakers are already feeling the heat about the current premium increases, which are most acute on the individual market exchanges. Another policy option would be to strengthen the cost-sharing assistance provided to 57% of federal marketplace enrollees in 2015, a program that substantially reduces deductibles, copayments, coinsurance, and out-of-pocket limits for low- and middle-income Americans. 152
In the 2016 presidential
election, Democrats appeared to pursue this strategy, endorsing a new refundable tax credit of up to $2,500 for individuals or $5,000 for families distressed by out 151
Quincy and Turner, “Are Out-of-Pocket Medical Costs Too High?” Centers for Medicare and Medicaid Services, “March 31, 2016 Effectuated Enrollment Snapshot.” 152
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Chapter Five of-pocket costs even with existing cost sharing assistance, where the credit is pegged progressively to income so that support is higher for those with lower socioeconomic status.153 However, conservatives vehemently disagree with the original cost-sharing assistance program, let alone additions to it. House Republicans sued the Obama administration over these subsidies on the grounds that Congress never appropriated the funds for these subsidies, winning their case in a district court, though the judge stayed her decision so that subsidies can continue to be paid until the final resolution of the legal dispute.154
155
While unpopular with many
GOP lawmakers, federal cost-sharing assistance is a crucial lynchpin for consumer affordability and for insurance market stability, as insurers depend on having consumers with federal subsidies. Moreover, this solution is preferable to lowering the maximum allowable deductible by avoiding the risk of triggering a spike in premium costs. However, it remains a daunting task to convince a Congress and White House deeply skeptical of the Affordable Care Act to support it by increasing consumer financial assistance. To be sure, there are legitimate questions of the fiscal appropriateness of increasing government spending to ensure affordability instead of changing the structural environment that allows healthcare costs to escalate. Yet it is entirely suboptimal to precipitate an increase in medical bankruptcies by allowing care to become affordable as consumers’ share of healthcare bills spikes through the HDHPs. Democratic candidate Hillary Clinton, an ACA supporter who pledged to strengthen the law and reduce out-of-pocket costs, offered a platform of 153
Clinton, “Lowering Out-of-Pocket Health Care Costs.” Luhby, “Republicans Postpone Settlement of Obamacare Cost-Sharing Subsidies Lawsuit.” 155 Jost, “House Seeks Pause In Cost-Sharing Reduction Litigation (Updated).” 154
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Chapter Five additional alternatives to blunt the financial distress that high deductibles can produce for patients. She proposed a requirement of all insurance plans to cover three doctor visits without needing to meet the plan’s deductible first, thereby increasing access to care for low- and middle-income Americans.156 Just as with the individual mandate and essential health benefit stipulations, however, the distributional aspects of this policy must be acknowledged. Such a regulatory prescription, while a boon for those who are older, sicker, or poorer (and therefore those likely to face financial challenges for their care), would inspire additional doctor visits among those in the aforementioned groups – at surface, a good thing – but also incur additional costs to insurers, who would likely pass on those costs in the form of higher premiums to consumers. Younger, healthier, or wealthier Americans who are less likely to access medical services would ostensibly miss out on the policy’s benefits while funding its costs. Distributional disparities may not invalidate the legitimacy of Clinton’s proposed insurance coverage of three sick visits pre-deductible limit. After all, the Federal Reserve issued a report in 2015 detailing its findings that 47% of Americans are unable to finance an unexpected $400 expense without borrowing money or selling assets.157 The people who would benefit from such a policy may be relieved from forgone care or even potential medical debt (or bankruptcy). Reasonable arguments can be made that achieving such a goal powerful enough to justify price increases elsewhere in the market.
156
Clinton, “Lowering Out-of-Pocket Health Care Costs.” Larrimore, Dodini, and Thomas, “FRB: Preface, Report on the Economic Well-Being of U.S. Households in 2015.” 157
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Chapter Five Ironically, another policy solution to rising deductibles could be loosening network requirements for health insurance plans, effectively giving consumers the choice between coverage that comes with high deductibles or coverage that limits where they can seek reimbursable care. This is not an option that was discussed in either presidential campaign, likely owing to the political perils in explaining something so granular and potentially anathema to a popular electorate that is no fan of provider network limitations. However, as the final substantive section in Chapter 2 acknowledges, both HDHPs and narrow networks are the two most popular remaining strategies for insurers to keep premiums down in the absence of underwriting for preexisting conditions, capping reimbursement at annual and lifetime limits, and issuing plans that do not comply with benefit specification requirements. Theoretically, deregulation of the content and scope of network requirements, largely set by states, would allow Americans who seek affordable premiums a choice of either higher deductibles or provider network limitations. Under such a model, very educated consumers who select narrow network plans can secure lower premiums while avoiding high deductibles and preserving access to care, though they must be vigilant about which facilities and which physicians they allow to provide them medical services. The findings of this thesis suggest that such a strategy of “competition” among HDHPs and narrow network plans may be a race to the bottom when it comes to protecting against medical bankruptcy with health insurance enrollment. Just like HDHPs, surprise billing because of increasingly prevalent narrow network plans represents another avenue that dampens the power of health insurance coverage to insulate patients from the brunt of their medical expenses in acute moments of need. With 51% of all ambulance rides reported as
88
Chapter Five out of network in one study which used a large, nationally representative dataset of employer sponsored plans, evidence suggests that patients have limited ability to control whether their services are being provided in network. 158 Again, as Chapter 5 in this thesis warns, health insurance coverage does not automatically reduce risks of medical bankruptcy if the quality of the insurance itself is in some way substandard. Twelve states have passed legislation to address surprise medical bills, with the expectation that enhanced insurance protections will prevent calamitous personal financial outcomes. New York is among the leaders in this group, which spans “red”, “blue” and “purple” states, and its policy towards out-of-network charges may serve as a model for national policy. Most notably, Albany guarantees “hold harmless protections” for insured patients in the Empire State. This means that patients receiving emergency services pay their health plan for each physician from whom they receive care as if the physician were in-network, regardless of whether the provider participates in their plan’s network. 159 Under hold harmless protection, patients are also not responsible for paying their doctor directly, removing them from the equation of the often large, catastrophic, and uncovered “surprise” charge to their out-ofnetwork physician that they might otherwise take out loans or risk their financial wellbeing to meet. New York’s law further limits how much insurers are liable to pay for patients in this situation, an important step because the full billed charge of non-
158
Garmon and Chartock, “One In Five Inpatient Emergency Department Cases May Lead To Surprise Bills.” 159 New York State Department of Financial Services, “Protection from Surprise Bills and Emergency Services.”
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Chapter Five participating providers tends to be far higher than normal contracted rates. 160 Were the insurer required to step in and cover the entirety of the difference of an out-of-network physician with patients only contributing what they would for an in-network physician, costs to the payers would rise, resulting in premium price growth. In New York’s case, the payer must offer a reasonable payment amount while the provider can contest unfairly low reimbursement through a neutral arbitration process. Unfortunately, state-level action, though helpful, does not entirely solve the issue of surprise medical billing. Due to the Employee Retirement Income Security Act (ERISA) of 1974, state regulations do not apply to self-funded employer-sponsored plans, which constitute half of the privately-insured market and are just as likely to be at the center of an unexpected out-of-network charge as other plan types. 161 New York sidestepped these restraints by not directly regulating health plans themselves but instead establishing independent dispute resolution entities (IDREs). Such action falls within bounds of ERISA-limited authority as has historically been understood by judicial rulings on the matter, and can be taken up by other states or scaled nationally. Indeed, to preserve the financially protective benefits of health insurance coverage demonstrated in Chapter 3 of this thesis, the federal government would be well-served to address medical bills. As Loren Adler of the Brookings Institution argues, the ACA took two important steps to protect patients from surprise emergency room charges (capping patient cost-sharing to their insurer at in-network levels and capping health plans obligations to providers at the 160
Adler et al., “Stopping Surprise Medical Bills.” Hall, “How the Department of Labor Can Help End Surprise Medical Bills | Brookings Institution.” 161
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Chapter Five greatest of either: median contract rates, Medicare rates, or mutually agreed upon “usual, customary, or reasonable” rates) while neglecting the third step, limiting how much out-of-network providers can directly bill patients in excess of the payment patients make to their health plans for such care.162 One federal policy option is to implement this third protection to accompany existing law while mitigating catastrophic, uncovered financial costs to patients. While likely effective towards its desired goal of preventing bankruptcy from emergency room debt and preserving the empirically observed financial protections conferred by health insurance given the ERISA handicaps on states, federal action of this kind further usurps the authority of states to implement the regulations most appropriate for their residents. Understandably, one-size-fits-all provider network requirements and limitations on out-of-network physician charges directly born by patients neglect the varied needs and conditions in different states. Empowering states with the opportunity to demonstrate alternative solutions to patient, provider, and payer billing in “surprise” situations given the fallback federal baseline would be a potential policy strategy to unite conservatives and progressives on this issue. On the 2016 campaign trail, Secretary Clinton proposed expanding disclosure requirements for the costs of both in- and out-of-network medical services as another policy tool to reduce the frequency of surprise medical bills.163 This provision mirrors the recommendation of the National Association of Insurance Commissioners, a group of insurance regulators from all fifty states, which called for disclosure requirements in 2015, though few states incorporated
162 163
Adler et al., “Stopping Surprise Medical Bills.” Clinton, “Lowering Out-of-Pocket Health Care Costs.”
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Chapter Five those guidelines into law. 164 Greater network price transparency encouraging patients to be better educated consumers of their own care is a nonpartisan policy aim.
5.2 Analyzing Republican “Repeal-and-Replace” How public policy intersects with medical bankruptcy protection is likely to evolve as GOP majorities in both chambers of the 115th Congress work with a newly installed Republican administration to dismantle President Obama’s healthcare law. Opponents of the ACA concentrated much of their criticism on costs, citing burdens on the system and on individuals that are unsustainably expensive. However, as the new president recognized ahead of his nationally televised primetime address to Congress in early March of 2017, health reform is “an unbelievably complex subject.”165 Addressing the complexity of healthcare costs, the specific crux of ACA criticism, proved difficult for the repeal-and-replace movement. On March 6, 2017, House Republicans publicly released the American Health Care Act (AHCA), their ACA alternative that drew inspiration from Speaker Ryan’s A Better Way policy blueprint and Health and Human Services Secretary Tom Price’s proposals from his time in Congress. The bill earned searing reviews from analysts across the political spectrum for its impact on insurance market stability and personal financial security. The National Review Editorial Board speculated that the AHCA’s reforms would have resulted in adverse selection by weakening the incentives for the relatively healthy to buy insurance.166 Brookings published 164
Giovannelli and Williams, “Regulation of Narrow Networks.” Howell Jr., “Nobody knew that health care could be so complicated.” 166 The Editors of the National Review, “A Disappointing Start.” 165
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Chapter Five a study projecting individual market premium increases would be 13 percent higher than those that would occur under current law should the House bill take effect. 167 A recent Kaiser Family Foundation analysis found that tax credits to families under the proposed replacement plan would constitute a one-third reduction from the benefits offered under the current law, causing deductibles to increase as consumers seek plans with lower premiums. 168 169 Transforming Medicaid into a block grant and eliminating the eligibility expansion funding by 2020, as the AHCA hoped to do, would shift the costs of care to states according to one article in Health Affairs, forcing local leaders to make difficult decisions between either trimming benefits or beneficiaries.170 Perhaps the most ominous estimate came from, of all places, the nonpartisan Congressional Budget Office, which predicted that despite a prospective $337 billion in savings to the federal treasury over the next decade, 24 million fewer Americans would have health insurance in 2026 under the AHCA than under current law.171 These policy changes, if revisited in future attempts to repeal and replace the Affordable Care Act, affect medical bankruptcy. Reducing the number of lowincome Americans on Medicaid, via the defunding of the program’s expansion, belies earlier findings that increases in Medicaid eligibility corresponded with reductions in medical bankruptcy.172 Repeal of the expansion would be likely to jeopardize the financial health of previously Medicaid-eligible taxpayers. Moreover, reducing the breadth of coverage for beneficiaries who remain eligible 167
Fiedler and Adler, “How Will the House GOP Health Care Bill Affect Individual Market Premiums?” 168 Cox, Claxton, and Levitt, “How Affordable Care Act Repeal and Replace Plans Might Shift Health Insurance Tax Credits.” 169 Altman, “Why Deductibles Would Rise under the GOP Health Care Plan.” 170 Rosenbaum, “The House Manager’s Medicaid Amendments.” 171 CBO, “Budgetary and Economic Effects of Repealing the Affordable Care Act.” 172 Gross and Notowidigdo, “Health Insurance and the Consumer Bankruptcy Decision.”
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Chapter Five might have left enrollees one illness or procedure away from bankruptcy; coverage reduction is a likely consequence of block granting because the cost of healthcare increases faster each year than the inflation growth of federal grants to states. Americans on private plans were likely to be affected by the AHCA as well. Building on the discussion in Section 5.1 regarding higher deductibles, privately insured patients under the AHCA might have found that their premiums eventually decrease relative to what they would be under current law (as per the CBO’s prediction). To engineer the lower premiums, however, health plans would require insured patients to make significant financial contributions whenever they access medical services, a departure from the traditional model of insurance insulating patients from the acute costs of their medical needs. Given the previously cited Federal Reserve analysis and the interviews done in this thesis, seemingly moderate medical expenses can cause patients to debt-finance their care, as their financial obligations accumulate over time, eventually leading to bankruptcy. Given the analytical concerns with the AHCA and personal financial wellness, it is worthwhile to consider policy strategies that could stabilize health insurance exchanges in the individual market, which, in theory, alleviates personal financial concerns. Among these strategies are restoring risk corridor funding, loosening community rating requirements, and incentivizing individual enrollment beyond the existing mandate. In a November 2013 opinion article published by the Wall Street Journal, Senator Marco Rubio (R-FL) decried the Obama administration’s risk corridor
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Chapter Five program as an insurer bailout.173 The program aimed to mitigate pricing risk for insurance companies, who, to their credit, were entering a murky business environment consisting of a redesigned individual insurance market with an uncertain risk pool and legally established premium transparency to consumers. Insurers needed to pitch plans inexpensive enough in price to attract customers but pricey enough to at least break even given the cost of the consumers’ care. Risk corridors, as originally imagined, were an agreement among participating insurers to share profits and losses in the first years of the federal and state marketplaces; that is, if one insurer incurred losses on the exchange after attracting more high-cost patients than a second company who earned a profit by getting healthier people enroll in its plans, the second insurer would cover the losses of the first. During the ACA exchange rollout, the Department of Health and Human Services clarified the risk corridor program would have backstop federal funding. 174 This meant that if all insurers on the exchanges incurred losses because their premium revenue did not cover the cost of insuring enrollees who, unsurprisingly because of the new policy of guaranteed issue, were sicker than anticipated, the federal government would cover those losses so that the insurers broke even. While the risk corridor program aimed to be a transitional policy as insurers adjusted to how to best price this new market with new enrollees, Senator Rubio saw federal funding as an insurer bailout and inserted a line item
173
Rubio, “No Bailouts for ObamaCare.” Bagley, “Trouble on the Exchanges — Does the United States Owe Billions to Health Insurers?” 174
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Chapter Five requiring that risk corridors be “budget neutral” to the federal treasury in the omnibus budget bill that passed Congress in December 2014.175 Despite Senator Rubio’s antipathy to the program, risk corridors are a legitimate policy option to stabilize the insurance market and slow premium growth, which in turn mitigates the risk of medical bankruptcy.
While
implementing the Obama-era risk corridor proposal is unlikely in today’s political environment, it could alleviate the healthcare-driven financial concerns of many Americans purchasing insurance on the individual market. Adjusting community rating requirements, as the AHCA does, is a different approach to bring young people into the individual market. Current law prohibits insurers from charging older adults more than three times what they charge younger consumers, effectively increasing premium prices for young people to compensate for older (but not yet Medicare-eligible) people paying less in premiums than the value of the medical services they receive. Dr. Ezekiel Emanuel at the University of Pennsylvania, one of the ACA’s creators, identified the GOP proposal to widen this age underwriting ratio to five-to-one as a fix that would stabilize the market by bringing in more young people.176 However, even as overall annual premium price growth slows with an increasingly predictable risk pool for insurers, which would presumably occur should community rating requirements change in favor of young people, there would be an adverse impact on older adults who would now be responsible for higher premium prices. Generous tax credits to these older Americans to alleviate the increase in their healthcare costs present clearest policy strategy to address this skewed distributional effect. 175 176
Loyola, “Rubio Scores a Direct Hit on Obamacare.” Cain, “Obamacare Architect Ezekiel Emanuel.”
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Chapter Five Incentivizing enrollment with mandatory lock-out periods for people who voluntarily forgo insurance is another potential policy tool to bring young, healthy people into the insurance market, while also curbing the “gaming” of insurance markets in which people wait until they are sick to enroll in a plan, at which point they cannot be charged more than a healthy person with the same coverage. Princeton’s Paul Starr, an advocate of this lock-out strategy rather than the individual mandate, wrote the following in a 2011 New Republic article: “An individual opt-out would provide an escape valve for people who, rationally or not, see the mandate as a threat. With this added provision, people without coverage through a group or Medicaid would have three basic choices. They could use the new insurance exchanges to buy coverage, receiving subsidies if they qualified. They could take the five-year opt-out. Or they could do neither and pay the annual penalties, though those penalties would be higher, defined as a tax, and backed up with enforceable 177 sanctions.”
The downside to this strategy, as Kaiser’s Larry Levitt points out in an interview with Bloomberg News, is that when push comes to shove, we may not be prepared to refuse to care for the uninsured when misfortune befalls them.178 However, an influx of the healthy young adults who have thus far resisted entering the individual market would stabilize premiums for everyone purchasing insurance on their own; moreover, if the actuarial balance improves from the new composition of enrollees, then insurers may not need to rampant high deductible and narrow network offerings. Starr’s proposal, albeit unlikely given the current composition of Congress, would be a viable policy strategy to make healthcare expenses a more predictable segment of household budgets.
177 178
Starr, “The Mandate Miscalculation.” Coy, “Eleven Alternatives to Obamacare’s Individual Mandate.”
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Chapter Five 5.3 Remarks on Data Inference in Public Policy Debate It is difficult to carry out informed public policy dialogue without complete information and data sources to analyze. Healthcare expenses constitute nearly a fifth of national GDP, while costs to individuals and families continue to be a prominent subject of popular discussion. With an issue of this magnitude, one would hope that health policy debates found themselves deeply ensconced in empiricism. Yet challenges in available data make such clarity unrealistic for medical bankruptcy analysis. One well-regarded paper from the National Bureau of Economic Research investigated the relationship between Medicaid expansion and debt collections for non-medical bills, using the Federal Reserve Bank of New York Consumer Credit Panel/Equifax dataset to measure financial outcomes of adults aged 19 to 64.
179
Despite basing their study on a rigorous
methodological foundation, the authors acknowledge the difficulty in classifying debt type from the existing sources of information. As another study argues, “interviews are unlikely to isolate whether bankruptcy filers who experienced high medical costs would have still declared bankruptcy in the absence of any medical costs.”180 Herein lies another difficulty with medical bankruptcy – the process is so longitudinal and the debt can be a product of many other factors (lost time at work or physical impairment leading to loss of income, for example) that disaggregating the forces behind a patient’s decision to file when performing a large national survey is deeply challenging.
179
Hu et al., “The Effect of the Patient Protection and Affordable Care Act Medicaid Expansions on Financial Well-Being.” 180 Gross and Notowidigdo, “Health Insurance and the Consumer Bankruptcy Decision.”
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Chapter Five This thesis, while making reasonable assumptions in its methodology, grapples with the same core questions as its predecessors in the literature. Chiefly, without indicating whether medical debt triggered bankruptcy, the estimates used to evaluate state-level variations in this thesis are by no means certain. The regression model used fixed effects and included many covariates to compensate for this challenge, but it nonetheless remains an important caveat to lawmakers who seek to extrapolate policy solutions and political arguments from the conclusions in the academic community regarding this subject. As we embark on what could potentially be a significant overhaul to the nation’s healthcare system, there is right now a default retreat to intuition in the face of data ambiguities. To improve public discourse on health policy, personal bankruptcy forms should include a space for filers to indicate the type of bills on which the debt accrued. Researchers would then be able to filter through bankruptcy data by debt type, allowing for more certainty in the estimation and analysis of medical bankruptcy. The experience of this thesis shows that while educated analysis remains possible despite some of the unavoidable challenges with the federal dataset, clarity in the filing process would lead to downstream improvements in health services, economics, and public policy scholarship. The ultimate end of such clarifications would be to inform more rational and evidencebased policymaking.
5.4 Conclusion The primary pursuit of this thesis has been to investigate the relationship between a state’s level of health insurance coverage and its population-adjusted proportion of medical bankruptcy. Both the quantitative and qualitative analyses
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Chapter Five focus on 2006 through 2015, covering the years leading to and following the enactment of the Patient Protection and Affordable Care Act of 2010, the most significant reform of the United States healthcare system since the introduction of Medicare and Medicaid in 1965. The results of the complete work offer several primary conclusions. First, in the past ten years, there has been a statistically significant association between the uninsured rate and medical bankruptcy such that the two indicators are directly proportional to one another. This result indicates that coverage gains achieved through various means – Medicaid expansion, guaranteed issue, the clarification of the individual market through the exchanges, allowing young adults to remain on their parents’ health insurance until age 26, etc. – represent a legitimate success of health policy in protecting Americans from financial calamity due to their medical care. However, this success has as much to do with the strength and breadth of available plans as it does with slashing the uninsured rate, as the case study in Massachusetts highlights in the second major conclusion of this thesis. Chapter 58, largely the inspiration for later national reforms, had one major point of distinction from its federal descendant – at the state level, there was no prohibition on lifetime limits to insurance coverage until the ACA instituted such a ban in 2010. Medical bankruptcies in Massachusetts reflected this policy pattern, falling only after the ACA eliminated lifetime limits. Finally, this thesis pivoted from a retrospective accounting to a futureoriented analysis, discussing the relative merits and pitfalls of proposed policy tools to address nascent insurance market trends. Findings from the regression model and case study offer a vital empirical grounding to the current discussions
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Chapter Five on how to mitigate the financial stresses that insurance costs and medical expenses too often place upon hard-working American families across a wide range of income levels. At the time of the submission of this thesis, Congress, and indeed the country, is locked in vigorous and ongoing debate regarding the future of the Affordable Care Act and the American healthcare system at large. It is the sincere hope of this author that those conversations on Capitol Hill and around dinner tables from coast to coast take seriously the findings of this analysis regarding the importance of preserving and enhancing insurance protections for the American people to strengthen both medical and financial health.
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Honor Code Pledge
“This paper represents my own work in accordance with University regulations.”
________________________________ Kishan Bhatt April 4, 2017
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