CEBS GBA Exam 2 with complete solutions

What is the basic assumption underlying concept of a free market and how is it challenged by the theory of "bounded rationality?" (Mod 1.1) - Answer- Assumption that rational customers will make informed decisions about value, quality and price, while producers who meet consumer's demands will be rewarded with market share and profit. However this is challenged by the consumer's "bounded rationality" - rational consumer is only functional up to a certain point because choices are constrained or bound by limited knowledge and understanding of their choices. What are economic benefits of a free market? (Mod 1.1) - Answer- If an individual does not like their provider or health plan, the should be able to "vote with their feet" and select other options. This choice empowers customers, regulates producers and drives efficiency. Describe several ways the US Healthcare market does not function like a normal market. (Mod 1.1) - Answer- Healthcare market has significant asymmetry in information between consumers, providers and insurers. Moral hazard is a problem because the marginal cost of covered care is zero, causing some to overconsume medical care. Many consumers choose doctors initially by convenience, accessibility or recommendation. Cost has also been shown to be lower on priority scale for choosing a provider. List several recent initiatives in the US that purport (to claim, often falsely) to use market forces to increase efficiency in the healthcare system. (Mod 1.1) - Answer- 1) Employers are offering more HDHPs with some as high as $10,000. These plans, often paired with HSAs, are coupled with the idea of transparency, or making more info available to consumer on cost and quality. Idea is that consumers will have more skin in game and be prudent purchasers of care with their own money. 2) ACA is creating marketplaces that employ a form of managed competition where standardized health plans compete on cost and quality. 3) Public Medicaid and Medicare programs are moving towards requiring or making choices available for managed care products that structure care within provider networks. Indicate the approximate percentages of the population covered by major health programs. (Mod 1.2) - Answer- Largest portion of Americans (48%) receive health insurance through an Employer, 16% through Medicaid, 15% through Medicare, 6% purchase insurance on their own How did ACA change Medicare? (Mod 1.2) - Answer- ACA expanded Medicare's wellness and prevention benefits, improved prescription drug coverage and financed experiments to control health care costs by testing alternative payment methods and delivery systems. How did ACA change eligibility for Medicaid benefits and how is this change affecting the number of people who are enrolled? (Mod 1.2) - Answer- ACA shifted program eligibility from category based (ex: single parents with dependents or people w/disabilities) to an income-based standard. Medicaid once covered fewer than half of low-income Americans, but now ACA Medcaid expansion has been steadily increasing enrollment, with largest increase in the states who are participating. Explain significance of US Supreme Court case National Federation of Independent Business v Sebelius in 2012 (Mod 1.2) - Answer- ACA sought to expand Medicaid coverage to all individuals and families with incomes below 138% of the poverty level. US (first time) would have had a solid safety net of insurance coverage for all lower income citizens. In the case, the court rules states could choose not to expand (and Medicaid funding would not be withheld). By Jan 2015, 25 states chose not to expand. How has ACA affected number of uninsured Americans? (Mod 1.2) - Answer- Prior to ACA, 16.3% or 49.9 million Americans were uninsured. By 2014, this number reduced to 13% and by the first quarter of 2016 to 8.6%. Describe private health insurance coverage with regard to a) size of firm b) HDHPs with Medical Savings Accounts c) variability of coverage by states (Mod 1.2) - Answer- a) 98% of employers with 200+ EE's offer health insurance but fewer than 45% of firms with 3-9 EE's do so. Larger employers offer more choice of health plans than smaller employers; small employers tend to offer POS plans that require higher EE cost sharing to go outside network. b) In 2006, HDHPs with medical savings accounts accounted for 4% of ER-sponsored market, but by 2012, accounted for over 20%. In 2016, this rose to almost 30%. c) Range of ER-based options and quality of options available vary widely by state. The percentage of the population covered by private insurance varies as well as the options for different types of coverage. What are the basic differences between the four medal categories of ACA health plans? (Mod 1.3) - Answer- Bronze, Silver, Gold and Platinum plans all have same actuarial value. However, they differ in regard to amount of deductibles, coinsurance, other out of pocket costs and premiums. Bronze plan has lowest premium but most out of pocket costs. Platinum plan has lowest out of pocket cost, but highest premium. Why is the Silver Plan the most popular choice among ACA plans? (Mod 1.3) - Answer- Majority who enroll are eligible for federal tax credit subsidies tied to a Silver level plan. People may still select a higher cost Gold or Platinum plan, but will have to pay higher premiums. Cost-sharing subsidies to lower out of pocket costs are only available to Silver plans. Do users of ACA marketplace exchanges have many choices and does evidence indicate they choose the most cost-effective plans? (Mod 1.3) - Answer- Ton of choices and options (ex: in TX, 15 carriers offered an average of 31 plans per county). A consumer comparing plans may see different premiums, coinsurance and deductibles, but plans also may differ on every measure of out of pocket costs including physician copays, ER payments, hospital stay payments. Studies have found despite wide range of benefits, people are not choosing most cost-effective plans....people on average choose plan 10% more expensive than what would be optimal. Other studies suggest limiting variation in plan designs would be choices more comprehensible (able to understand). What is the provision in Part D Medicare law that gives a significant benefit to pharmaceutical companies? (Mod 1.4) - Answer- Part D Medicare Law prohibits the government from using its purchasing power to negotiate widespread discounts with drug plans. Do Medicare Part D beneficiaries have many choices and does the evidence suggest they choose the most cost-effective plans? (Mod 1.4) - Answer- Provide numerous choices (ex MA has 27 standalone, TX has 32). Most people do not select the optimal plan or take advantage of open enrollment periods to obtain a more cost-effective plan. Few people switch plans even when it would be in their advantage to do so. Define each part of Medicare (A,B,C,D) and the services provided under each (Mod 1.4 - Reading) - Answer- Part A = Hospital Services Part B = Physician & Diagnostic Services Part C = Medicare Advantage - Alternative Managed Care Option Part D = Prescription Drugs -Greatest choices in Part D and the Medicare Advantage Plan, which is where most of analysis is focused on. -C and D are paid out of pocket by recipients; A & B are funded by payroll deductions (taxes) What is Medicare Part C and why do some people select it? (Mod 1.4) - Answer- AKA Medicare Advantage: -Recipients have the option to enroll in a health plan with a narrowed network of hospitals and providers that covers Part A and B but with lower out of pocket costs. These plans often include their own prescription drug coverage. Unlike Part D, this is a voluntary choice and beneficiaries always have the option of going back to the traditional plan. It is a choice to restrict options and consolidate the different elements of Medicare, including cost sharing. People select these plans because of lower costs and greater care coordination. Like Part D, Part C has significant state variation. What have researchers found with regard to consumer benefits and efficiency of Medicare Part C? (Mod 1.4) - Answer- 45 studies - in general that Part C's HMO and PPO programs have a better record than traditional fee for service plans in the provision of preventive services and the more efficient use of resources. Despite high performance, a sub-group of sick beneficiaries in traditional Medicare tends to rate their care more favorably than beneficiaries in Part C - due to easier access to specialists. Compared to Part D (which provides a separate, uncoordinated prescription drug benefit), choice here is less complex and could lead to greater consumer benefits and efficiency. Discuss consumer choices for Physicians and Hospitals in the Medicaid Program (Mod 1.4) - Answer- Federal government mandates open choice to both Phys & Hospitals; however, in the 90s, states could obtain waivers for this provision and require Medicaid recipients to enroll in a limited-network managed care plan (most states did). Continued movement to Medicaid Managed Care Organizations (MMCOs) - with comprehensive coverage paid on a risk basis. MMCOs receive a per-member, per-person payment to provide defined set of benefits for all. Traditionally, Medicaid pays physicians much less than private insurance or Medicare - this limits the number of physicians who may take Medicaid, which will limit choice. What is the difference between Medicare and Medicaid? (Mod 1.4 - Reading) - Answer- Medicare: Medicare is a federal program attached to Social Security. It is available to all U.S. citizens 65 years of age or older and it also covers people with certain disabilities. It is available regardless of income. Medicaid: Medicaid is a joint federal and state program that helps low-income individuals and families pay for the costs associated with medical and long-term custodial care. The federal government funds up to 50% of the cost of each state's Medicaid program, with more affluent states receiving less funding than less affluent states. Because of this federal/state partnership, there are actually 50 different Medicaid programs, one for each state. Medicaid is also often used to fund long-term care, which is not covered by Medicare or by most private health insurance policies. In fact, Medicaid is the nation's largest single source of long-term care funding. Summarize ACA with regard to: 1) Pay or Play Mandate 2) Minimum Level of Benefits (Mod 1.5) - Answer- 1) ERs with 50+ EE's who work at least 30 Hrs/Week on Average; gives ER choice to pay or play with respect to sponsoring EE Benefits. ER who fail to offer qualified health benefits to EEs must pay a penalty per EE per year. EEs who are cut loose by ERs who pay the penalty must obtain coverage elsewhere bc of the individual mandate, or they will pay a penalty too - can purchase a plan on state/federal exchange, with tax subsidies available for low to middle income individuals. If EE chooses to play, must follow all rules of ACA. 2) ER covers at least 60% of covered expenses, expressed as actuarial value of 60%. Considered a floor because they represent the bottom/min level of benefit that can be offered to EEs with triggering penalties. Briefly describe the Cadillac Tax in ACA (Mod 1.5) - Answer- 40% non-deductible excise tax (paid by ER) that will be levied on value of all affected health care programs a participant elects that exceed certain dollar thresholds in 2020 and beyond (extended from 2018 date); while minimum coverage is the floor, Cadillac tax is considered ceiling or top value of health benefits. ER's need to manage between floor and ceiling; roughly half of large US Employers will begin to hit the threshold in 2020 and percent is expected to rise in subsequent years. What is a private exchange for health benefits? (Mod 1.5) - Answer- Built and administered by benefit consulting and admin firms as well as carriers/firms that specialize in private exchange admin. These marketplaces of health insurance/related products allow EEs to pick from a pre-selected variety of plans offered by 1 or more insurance companies. ERs who utilize private exchanges will remain plan sponsors - the exchange will manage communication, enrollment, pricing, compliance, etc...Insurance carriers and PBMs pay claims, issue insurance contracts and perform traditional duties still. What is big attraction of private exchanges for employers? (Mod 1.5) - Answer- Opportunity to change from traditional premium contribution model (where ER pays 75-80% of premium) to a defined contribution model. Traditional contribution model escalates the cost to the ER each yr as costs increase. Since exchanges provide a wider array of choices to EEs, the ER can more easily change from the traditional contribution model to a defined contribution model where a flat amount, like a voucher, is provided to EEs who then apply that flat amount to the plan they select. In subsequent years, ER may increase the defined contribution but at a level that is not directly tied to cost trend. Private exchanges can operate with or without defined contributions. List top strategies large employers are considering to improve health and reduce healthcare costs (Mod 1.6) - Answer- -Develop/enhance workplace culture so employees are responsible for own health -Develop/expand healthy lifestyle programs -Make changes to avoid excise tax ceiling -Adopt/expand use of financial incentives to encourage healthy activities -Review healthcare benefits in total rewards context -Analyze viability of private exchanges -Expand enrollment in account based health plans (ABHPs) -Adopt/expand use of new technologies to improve health engagement and cultivate more informed consumers of healthcare -Redefine company subsidy for healthcare Discuss growing trend of low-cost and on-site health care clinics (Mod 1.6) - Answer- Growing trend of low-cost retail clinics and telemedicine options offers promise of lowering cost of on-demand care. Ex: CVS Minute Clinics; includes flu shots, low acuity clinical visits on demand, physicals, etc. Offers wide range of services from prevention/basic triage to management of chronic conditions (diabetes/HD) - supported by nurse practitioners and web based technologies; could provide cost relief but could also exacerbate the problem of fragmentation in healthcare where coordination of care is needed. What is single strongest drive of healthcare cost? (Mod 1.6) - Answer- Misaligned incentives for providers created by fee-for-service (FFS) reimbursement. Single most significant opportunity to lower cost and improve health/healthcare outcomes can be found in full implementation of value-based care. Fee-for service (FFS) is healthcare's most traditional payment model where physicians and healthcare providers are reimbursed by insurance companies and government agencies (third-party payers) based on the number of services they provide, or the number of procedures they order. Payments are unbundled and paid for separately. Big struggle is that even though some of these may not be needed, or supported by evidence-based data, still offered. Value-based care (holistic) is a philosophy of healthcare realized when clinicians intentionally consider the quality of care provided, and the overall outcomes of that care, in relation to cost-efficiency. In the value-based care model doctors and specialists consider "best practices" when treating patients, since they are reimbursed for the quality and efficiency of care they provide. When successful, physician entity groups receive incentive payments for providing better care for individuals at a lower cost. What is value-based care? (Mod 1.7) - Answer- Value Based Care is a transformational change designed to shift from a predominantly FFS reimbursement environment, wrought with problems of waste and access, where providers work independently from one another to care for individuals, to compensation models that align incentives for teams of care providers to take ownership of managing health, cost and outcomes of specific populations. Identify two key components of the shift away from FFS to value based care (Mod 1.7) - Answer- Focus on eliminating waste - spending on services that lack evidence of producing better healthcare outcomes compared to less expensive alternatives; inefficiencies in the provision of health care goods and services; costs incurred while treating avoidable medical injuries (preventable hospital infections); fraud and abuse. Another key component includes improving access to appropriate medical care at the right time, place, cost and result. Includes the availability of facilities & technologies during evenings, weekends and other off-peak times, as well as the growing use connected technology where patients can speak directly with clinicians in a live video chat in their homes, etc. Employee health benefit plans that are built on value based accountable care organizations (ACOs/eACOs). Describe the six essential elements of eACOs. (Mod 1.7) - Answer- -Commitment by Employer to built a robust and sustained culture of health that focuses on well-being/productivity of EE's through workplace food options, vending mach, ergonomics, etc -Health and pharmacy benefit plan design that encourages use of high-value care, provides incentives for using high-performance integrated networks and encourages smart decisions at point of care/conserving $ -Powerful data management and measurement; connects chronically ill/complex patients with a physician led team which develops evidence based care plans; provide experts w/the ability to analyze data in order to determine drivers of cost, effectiveness, ROI, inform change -High performance network of health system facilities and providers paid through value based care, including PCPs/specialists, etc -Integrated clinical prescription drug management model (low net cost purchasing power, aligned formularies) -Well-designed/well-managed health promotion/workplace wellness that aligns incentives for engaging in health assessments, screenings, etc. When care is needed, drive right care, right time, right place, right price/outcome Describe the transactional components that must take place for transformation to value based care to work (Mod 1.7) - Answer- -Health systems w/multispecialty practices and sufficient primary care resources build high performance networks w/population health management infrastructure. Needs to manage the balance b/w traditional FFS reimbursement and compensation structures aligned with managing cost/quality of population -Payers enter partnerships with high-performance networks that execute a service contract to manage health, cost and outcomes of population (or attributed live/downloaded risks) on a fixed fee, shared savings, shared risk or other financial model except FFS reimbursement -Employers implement the 6 components of eACOs and enter into contracts directly with health systems or with payers who have those partnerships to deliver value based care. If the pure premium is $1,000 and the loading percentage is 40%, what is gross premium? (Mod 2.1) - Answer- Pure premium = expected claim experience Gross premium = Pure premium / (1 - Loading %) Ex: $1,000 / (1 - 0.40) = $1,000 / 0.60 = $1,666.67 Stated differently, 60% ($1,667 x 0.6 = $1,000) of gross premium would be allocated for losses (loss ratio) and 40% ($1,667 x 0.4 = $667) would be allocated for loading (expense ratio). What is included in the loading percentage? (Mod 2.1) - Answer- A mark-up the insurer charges to cover its objective risk, profit and costs of marketing, adjudicating & processing claims, coordinating benefits and providing access to its network. In other words, all costs, other than losses and loss adjustment expenses, are including in loading percentage. Costs are reduced by any investment earnings when premiums are calculated. What are two major factors that determine the size of the loading percentage? (Mod 2.1) - Answer- Differs greatly between group and nongroup markets. One study found 10% average in group and about 50% in individual markets; loading fee also varies by firm size, with smaller loading percentages for larger groups. In additional, the the size of the loading percentage is going to depend not only on the actual marginal costs of running the insurance plan but also on the nature of competition the insurer faces. What does ACA require in terms of the medical loss ratio for small groups up to 100 EE's and nongroup plans, and what is the mandate for fully insured large groups? (Mod 2.1) - Answer- ACA requires the medical loss ratio for small groups up to 100 EE's and for nongroup plans to be no less than 80%. For fully insured large groups, medical loss ratio can be no less than 85%. If an insurer has a medical loss ratio below this threshold, it is required to refund a share of its premium back to purchasers. ACA requirement does not apply to plans where the ER is responsible for the payment of covered plans, that is, self-funded plans.