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ObamaCare Clusterfuck: The calculators are broken because actuarial value is a crapshoot

I really, really hate to quote the Washington Examiner, but unless the guy's actually into fabrication (like Breitbart, but I'm guessing), there are problems. (Oddly, or not, nobody on the "progressive" sites seems to be applying their undoubtedly superior critical thinking skills to ObamaCare's rollout at all.) Richard Pollock, Washington Examiner:

States and insurance companies are supposed to use an "Actuarial Value" calculator. The actuarial value measures benchmarks for the four state standardized plans.

An AV value of 60 means the state plan covers 60% of the costs and enrollees pay 40%. The four plans range from 60% to 90% coverage.

Employers are to use a "Minimum Value" calculator, which assesses whether an employee health plan meets minimal federal criteria.

CMS released "beta" versions of the calculators in November 2012 and a "final" calculator this February.

The most glaring problem, according to users, is that the calculators do not reflect real world conditions.

Paul Hencoski [is] a lead partner at KPMG, the audit and accounting firm [which] represents 19 states trying to set up health care exchanges.

"There's been some question around the results they've been getting. And whether they represent the true actuarial value of what was being offered, Hencoski told The Washington Examiner.

Julie Peper, a senior consulting actuary at Wakely Associates in Denver, CO whose firm is advising Oregon, Vermont and Massachusetts agrees. "There are some things that are different in the AV calculator than what will be in practice," she said.

Mark Jamilkowski, director of KPMG's actuarial services practice told The Washington Examiner the situation is so acute "There are some states we know of that are interested in launching their own calculator."* KPMG would not identify the states.

Insurance brokers who assist employers say the MV calculator contains flaws too. Susan Rider, an account executive with the Indianapolis brokerage firm of Gregory & Appel told The Washington Examiner, "they don't ask the right questions. There are a lot of things missing from it that I as a broker look for in a plan."

Rich Stover, a partner with New Jersey-based Bucks Consulting, an actuarial firm, says the MV calculator is so rigid it cannot accept special features in large employer plans.

CMS declined to be interviewed for the story. Never a good sign.

We've discussed problems with actuarial value before: Kaiser did a study and found "substantial variation" in how three firms in the business of benefit determination calculated (if that's the word I want) the actuarial value of the same plan, "in spite of agreement upfront among the firms on a common set of major assumptions." In other words, actuarial value is a crapshoot. Highly paid professionals are throwing darts at a board.

So it's no wonder the calculators don't work; the problem with a lemon market is that it can't compare lemons to lemons. Now all this is being played out in software (and highly public software at that).

And it all comes down, again, to bad requirements coughing up a system architecture hairball: If health care were a right, and single payer delivered that right, the problem of determining the actuarial value of different insurance plans goes away entireliy, because it doesn't need to be done in the first place. "The cheapest, fastest, and most reliable components are those that aren't there" (Jon Bentelely).

NOTE * I read this as KPMG simultaneously shouting out to the Feds to fix this (which I don't think can be done) and to the States for more contracts. That's the consulting world! So of course they would use something like The Examiner to push the story, since... C'mon, you think Think Progress would?

UPDATE Adding, I suppose you could turn this around and say "The calculator is the way you determine actuarial value." It's the standard, so it's right by definition. So all the pissing and moaning from the insurance companies boils down to they aren't getting the results they've been used to getting in the past, which is what they mean by "the real world." OK, but ObamaCare accepts the health insurance paradigm, for good or ill. So if the actuaries are saying, "This is fucked up and bullshit," it might make sense to listen to them, even if actuarial value is itself fucked up and bulshit. It's always possible to make a bad situation worse, after all, which Obama has already accomplished in several other areas of endeavor.

UPDATE The Hill gives a Republican view:

On Tuesday, Republicans on the Senate Finance Committee wrote to Sebelius charging that the fundraising campaign “appears at best to be an inherent conflict of interest and at worst a potentially illegal augmentation of appropriation.”

Well, "augmentation of appropriation" sounds interesting. Looks like a staffer's been doing some research....

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beowulf's picture
Submitted by beowulf on

Its hard to count all the ways Liz Fowler helped out her industry while she was an embedded lobbyist on Max Baucus's staff, one of her neatest tricks was making "actuarial value" an important part of the bill.

Actuaries are the bean counters who compute insurance risks and premiums, but once you accept that its wrong to underwrite the old, poor and sick out of the health care system, there's no point in computing healthcare insurance risks and premiums.

Of course, its a sleight of hand, govt-mandated premium payments are, to the individual, the same thing as govt-mandated tax payments. But if it were a tax, everyone would say its pretty damn regressive to levy a tax based on age instead, of say, income. omeone at 4 x FPL will be mandated to pay 8% of his income just on premiums ( what % of income do you think someone who's 400 x FPL will pay in premiums?). Deductibles and co-payments aren't included in cap and will cost over and above that.

By way of comparison, look at Bernie Sanders single payer bill. Bernie's state-based single payer plan is flawed in that he assumed, as Obama did, that states would cooperate (The feds already run Medicare and need to build out from there).

However Bernie gets the financing right, he'd fund it with an employer (but not employee) payroll tax, high income surtaxes and securities transaction tax. So far as I can tell, the words deductible and co-payment are nowhere in the bill.
http://www.govtrack.us/congress/bills/112/s915/text

Leaving aside the superiority of coverage, one does

Submitted by lambert on

... all this is pretty foreign to me. Suppose one accepts the argument in the UPDATE that if one accepts AV (which we don't, for moral reasons) the CMS AV calculator just becomes the standard, and that's that? (Probably not, because it's the mapping of AV to the actual delivery of services that is at issue, and Kaiser says that's not really do-able.

Trying to keep the focus on the calculators as narrow as possible....

beowulf's picture
Submitted by beowulf on

The only way universal coverage and actuarial value mix is if we assume the risk of medical expenditures and the ability to pay premiums & copays are equally distributed (both internally and to each other). Since life is a bit more complicated than neoclassical economics "rational agent" models, actuarial value is nothing more or less than mathematical astrology.

As I remember reading somewhere (maybe on this very page)...
once you accept that its wrong to underwrite the old, poor and sick out of the health care system, there's no point in computing healthcare insurance risks and premium. :o)

quixote's picture
Submitted by quixote on

Okay. This is driving me nuts. What is actuarial value? I assumed when they said 60/40, 70/30, etc., plans that meant insurance pays 70%, you pay 30%. But apparently not. Those are "actuarial values."

Huh?

The closest I've come after much thrashing around is that actuarial value refers to what the insurance will pay for the whole population. But if you, personally, have diabetes for instance, then you're a standard deviation or two above the mean for the population, so the insurance company will want to be paid for the extra risk they take on in your case.

So your actual cost for insurance could be higher than 30% in a 70/30 plan, because you're riskier than the average of the pool. Alternatively, I guess, if all your grandparents lived to 100 and never saw a doctor, your costs might be lower, but somehow I suspect insurance companies do only one-tailed stats. :P

Anyway, could a knowledgeable soul point me toward a definition for this stupid term? I'm getting to the point of waking up at two in the morning and muttering it to myself.