Health insurance, risk, and responsibility after the patient protection and affordable care act

University of Pennsylvania Law Review

Volumn 159, Issue 6, 2011, Pages 1577-1622

  Baker, Tom ^a  

^a UNIVERSITY OF PENNSYLVANIA LAW SCHOOL   (United States)

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EID: 79960187483     PISSN: 00419907     EISSN: 19428537     Source Type: Journal    
DOI: None     Document Type: Review

References (60)

1. See I.M. RUBINOW, SOCIAL INSURANCE 3 (1913) ("[S]ocial insurance is the policy of organized society to furnish that protection to one part of the population, which some other part may need less, or, if needing, is able to purchase voluntarily through private insurance.").
2. Alain C. Enthoven & Victor R. Fuchs, Employment-Based Health Insurance: Past, Present, and Future, HEALTH AFF., Nov.-Dec. 2006, at 1538, 1538-39 (explaining that "[t]he exemption of employer payments for health insurance from employees' taxable income, combined with substantial efficiency advantages of group over individual insurance" has led to the prominence of employment-based insurance).
3. D.R. Jacques, Society on the Basis of Mutual Life Insurance, 16 MERCHANTS' MAG. & COM. REV. 152, 158 (1847).
4. See generally Tom Baker & Jonathan Simon, Embracing Risk (reviewing the line of scholarship that "proceed[s] from an implicit belief that risk is a positive force that can be directed toward socially useful ends"), in EMBRACING RISK: THE CHANGING CULTURE OF INSURANCE AND RESPONSIBILITY 1, 20 (Tom Baker & Jonathan Simon eds., 2002).
5. Medicare Part A (Hospital Insurance), MEDICARE.GOV, http://www.medicare. gov/navigation/medicare-basics/medicare-benefits/part-a.aspx (last visited Mar. 15, 2011).
6. PATRICIA A. DAVIS, CONG. RESEARCH SERV., R41436, MEDICARE FINANCING 2-3 (2011).
7. Medicare Part B (Medical Insurance), MEDICARE.GOV, http://www.medicare. gov/navigation/medicare-basics/medicare-benefits/part-b.aspx (last visited Mar. 15, 2011).
8. Medicare Advantage (Part C), MEDICARE.GOV, http://www.medicare.gov/ navigation/medicare-basics/medicare-benefits/part-c.aspx (last visited Mar. 15, 2011).
9. What is Part D (Medicare Prescription Drug Coverage)?, MEDICARE.GOV, http://www.medicare.gov/navigation/medicare-basics/medicare-benefits/part-d. aspx (last visited Mar. 15, 2011).
10. According to the Medicare Payment Advisory Committee, private Medicare Advantage (MA) plans on average are paid an estimated 13% more per beneficiary than what is paid per beneficiary in traditional Medicare plans. Efforts to Reduce Payments to Medicare Advantage Plans Expected from Obama Administration, Congress, MED. NEWS TODAY (Nov. 26, 2008), http://www.medicalnewstoday.com/ articles/130859.php. To deal with the problem of overpayment, the Act calls for substantial changes to the calculation formula. All counties or similar jurisdictions are ranked in order of their average fee-for-service (FFS) spending, regardless of their territory or population. HCRA sec. 1102(b), § 1853(n)(1)-(2), 42 U.S.CA § 1395w-23(n)(1)-(2). The federal payments (MA benchmarks) will be an applicable percentage of a county's average FFS spending, with higher payments (the MA benchmark as 115% of FFS rates) for areas with low FFS spending and lower payments (the MA benchmark as 95% of FFS rates) for areas with high FFS spending.
11. See generally FRANCES FOX PIVEN & RICHARD A. CLOWARD, REGULATING THE POOR: THE FUNCTIONS OF PUBLIC WELFARE 343-406 (updated ed. 1993) (emphasizing the longstanding practice in the United States of enforcing the idea of work when providing public relief to the poor).
12. As Alma Cohen and Peter Siegelman explain, "Since insurers cannot distinguish between high-risk and low-risk agents, the two groups must be offered the same prices for insurance. Given that the two groups face the same prices, their different risks will lead them to act differently. In particular, high-risk agents can be expected to purchase more insurance." Alma Cohen & Peter Siegelman, Testing for Adverse Selection in Insurance Markets, 77 J. RISK & INS. 39, 43 (2010).
13. See Tom Baker, Containing the Promise of Insurance: Adverse Selection and Risk Classification, 9 CONN. INS. L.J. 371, 376-78 (2003) (explaining the "competitive power of risk classification," which "produces a classification 'arms race,' in which insurers either maintain their classification edge or face the loss of low risks to the competition and the migration of the high risks to their insurance rolls");
14. see also Deborah A. Stone, The Struggle for the Soul of Health Insurance, 18 J. HEALTH POL. POL'Y & L. 287, 298 (1993) (noting the common insurance convention that "people are [considered] uninsurable for life insurance if their mortality is five or more times the standard mortality").
15. See Tom Baker, Risk, Insurance, and the Social Construction of Responsibility ("[W]hen it comes to health, disability, property, liability, and term insurance, if your withdrawals equal your deposits, you have, in at least some respects, a very unfortunate life."), in EMBRACING RISK, supra note 8, at 33, 36.
16. See id. § 1343(a), 42 U.S.C.A. § 18063(a) (creating a state-based risk adjustment mechanism for plans in the individual and small-group market). For a recent empirical study of the importance of risk adjustment to redressing classification by design, see Karen Eggleston & Anupa Bir, Measuring Selection Incentives in Managed Care: Evidence from the Massachusetts State Employee Insurance Program, 76 J. RISK & INS. 159, 171-73 (2009).
17. Extensive information about the FEHBP can be found at the website maintained by the U.S. Office of Personnel Management. Federal Employees Health Benefit Program, U.S. OFFICE PERSONNEL MGMT., http://www.opm.gov/insure/health/ (last visited Mar. 15, 2011);
18. see also Stuart M. Butler & Robert E. Moffit, The FEHBP as a Model for a New Medicare Program, HEALTH AFF., Winter 1995, at 47, 48-51 (explaining that FEHBP enrollees "can choose from a variety of health plans, ranging from traditional fee-for-service plans, to insurance plans sponsored by employee organizations or unions, to managed care plan");
19. Harry P. Cain II, Moving Medicare to the FEHBP Model, or How to Make an Elephant Fly, HEALTH AFF., July-Aug. 1999, at 25, 35 (comparing the FEHBP to Medicare and arguing that "the FEHBP has outperformed Medicare every which way - in containment of costs both to consumers and to the government, in benefit and product innovation and modernization, and in customer satisfaction").
20. But see Alain C. Enthoven, Effective Management of Competition in the FEHBP, HEALTH AFF., Fall 1989, at 33, 34 (arguing that because of adverse selection problems, in the 1980s some FEHBP "plans ⋯ gain[ed] or los[t] market share not because they [were] more or less efficient, but because they ⋯ attracted a less or more costly clientele").
21. See Address Before a Joint Session of the Congress on Health Care Reform, 2009 DAILY COMP. PRES. DOC. 693, at 3 (Sept. 9, 2009) ("[I]f you are among the hundreds of millions of Americans who already have health insurance through your job or Medicare or Medicaid or the VA, nothing in this plan will require you or your employer to change the coverage or the doctor you have.").
22. But see Amy B. Monahan & Daniel Schwarcz, Will Employers Undermine Health Care Reform by Dumping Sick Employees?, 97 VA. L. REV. 125, 146-53 (suggesting that current regulation of the large-group market may fail to prevent employers from engaging in risk classification and "dumping" high-risk employees).
23. See U.S. CENSUS BUREAU, STATISTICAL ABSTRACT OF THE UNITED STATES: 2010, at 98 tbl.128 (129th ed. 2009) (reporting $146.2 billion of $2.24 trillion in national health expenditures in 2007). This discussion also omits the health care costs of military families and veterans. These costs are distributed through general federal taxes. In 2007, Defense Department health benefits were $31.7 billion, and Veterans health benefits were $33.8 billion. Id.
24. See HCERA § 1101, 42 U.S.C.A. § 1395w-102. This discussion does not address Medigap insurance, a form of private insurance regulated by the federal government that provides benefits supplemental to Medicare. See generally What Are Medigap Basic Benefits?, MEDICARE.GOV, http://www.medicare. gov/find-a-plan/staticpages/learn/more-about-medigap-basic-benefits.aspx (last visited Mar. 15, 2011) (listing the basic benefits of each Medigap plan).
25. See Lawrence D. Brown & Michael S. Sparer, Poor Program's Progress: The Unanticipated Politics of Medicaid Policy, HEALTH AFF., Jan.-Feb. 2003, at 31, 33.
26. See W. Kip Viscusi & Michael J. Moore, Workers' Compensation: Wage Effects, Benefit Inadequacies, and the Value of Health Losses, 69 REV. ECON. & STAT. 249, 249 (1987) (noting research showing that "workers are willing to trade off additional wage compensation for higher workers' compensation benefits").
27. See Marjorie E. Kornhauser, Normative and Cognitive Aspects of Tax Compliance (noting that even though Americans have traditionally harbored a "strong anti-tax sentiment," tax compliance in the United States is relatively high), in 2 TAXPAYER ADVOCATE SERV., INTERNAL REVENUE SERV., NATIONAL TAXPAYER ADVOCATE: 2007 ANNUAL REPORT TO CONGRESS 138, 145-46 (2007).
28. See, e.g., Regina Austin, The Insurance Classification Controversy, 131 U. PA. L. REV. 517, 520-26 (1983) (discussing the use of actuarial classifications in personal automobile and property insurance);
29. Deborah S. Hellman, Is Actuarially Fair Insurance Pricing Actually Fair?: A Case Study in Insuring Battered Women, 32 HARV. C.R.-C.L. L. REV. 355, 358-59 (1997) (asserting that the strong outcry against actuarial assessments of battered women "taps a deeper intuition about the fairness of health insurance underwriting itself");
30. Jonathan Simon, The Ideological Effects of Actuarial Practices, 22 LAW & SOC'Y REV. 771, 774 (1988) (arguing that "actuarial practices alter[] the way we understand our status as subjects" and cause people to "be stripped of a certain quality of belon-gingness to others that has long played a role in our culture").
31. cf. Tom Baker, On the Genealogy of Moral Hazard, 75 TEX. L. REV. 237, 291 (1996) ("[O]ur insurance arrangements form a material constitution, one that operates through routine, mundane transactions that nevertheless define the contours of individual and social responsibility.").
32. Cf. TIMOTHY ALBORN, REGULATED LIVES: LIFE INSURANCE AND BRITISH SOCIETY, 1800-1914, at 5-7 (2009) (describing the rise of the actuarial profession in nineteenth-century Britain).
33. See generally ELIOT FREIDSON, PROFESSION OF MEDICINE: A STUDY OF THE SOCIOLOGY OF APPLIED KNOWLEDGE 72 (1970) (observing that "[a] profession attains and maintains its position by virtue of the protection and patronage of some elite segment of society which has been persuaded that there is some special value in its work"); CORINNE LATHROP GILB, HIDDEN HIERARCHIES: THE PROFESSIONS AND THE GOVERNMENT 135 (1966) (explaining how professionals take advantage of government regulation to maintain control of their professions).
34. See TOM BAKER, INSURANCE LAW AND POLICY 710-21 (2d ed. 2008) (describing legal grounds for antidiscrimination litigation).
35. Cf. Mark V. Pauly & Philip J. Held, Benign Moral Hazard and the Cost-Effectiveness Analysis of Insurance Coverage, 9 J. HEALTH ECON. 447, 459-60 (1990) (noting the importance of moral hazard in evaluating when insurance coverage should be available).
36. See generally Harald Schmidt, Bonuses as Incentives and Rewards for Health Responsibility: A Good Thing?, 33 J. MED. & PHIL. 198, 212-13 (2008) (discussing how bonuses may be thought of as both working in favor of and counter to health solidarity).
37. See Allison K. Hoffman, Three Models of Health Insurance: The Conceptual Pluralism of the Patient Protection and Affordable Care Act, 159 U. PA. L. REV. 1873, 1927-42 (2011) (explaining the "Brute-Luck" theory of health insurance, which "stands for the idea that insurance should prioritize coverage of medical expenses for harms that the insured could not reasonably foresee and forestall").
38. See EDWARD A. ZELINSKY, THE ORIGINS OF THE OWNERSHIP SOCIETY: HOW THE DEFINED CONTRIBUTION PARADIGM CHANGED AMERICA 4 (2007) ("[T]he shift from the defined benefit modality to the defined contribution format has altered in a fundamental manner the way in which Americans experience and think about retirement savings.").
39. See Pat O'Malley, Imagining Insurance: Risk, Thrift, and Life Insurance in Britain ("Neoliberals, however, by encouraging insurance policy holders to expose their investments to the speculative hazards of the stock market, effectively restored the old sense of gaming to insurance ⋯."), in EMBRACING RISK, supra note 8, at 97, 112.
40. E.g., Maurice Isserman, Michael Harrington: Warrior on Poverty, N.Y. TIMES, June 21, 2009, at BR19.
41. Cf. FRIEDRICH NIETZCHE, ON THE GENEALOGY OF MORALS 45-46 (Douglas Smith trans., Oxford Univ. Press 1996) (1887) (arguing that contract law first required the development of people's ability to keep promises); NIKOLAS ROSE, GOVERNING THE SOUL: THE SHAPING OF THE PRIVATE SELF 10 (1990) (arguing that "[c]ontemporary government ⋯ operates through the delicate and minute infiltration of the ambitions of regulation into the very interior of our existence and experience as subjects").
42. See generally Regulations and Guidance, CENTER FOR CONSUMER INFO. & INS. OVERSIGHT, http://cciio.cms.gov/resources/regulations/index.html (last visited Mar. 15, 2011) (listing the latest regulations and guidance issued to implement enacted health-insurance legislation).
43. See Michael Rothschild & Joseph Stiglitz, Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information, 90 Q. J. ECON. 629, 629 (1976) (asserting that because of imperfect information and consumer risk preferences a competitive market like the insurance market may have no equilibrium);
44. see also George A. Akerlof, The Market for "Lemons": Quality Uncertainty and the Market Mechanism, 84 Q. J. ECON. 488, 489-96 (1970) (explaining the "lemon problem" in the automobile market).
45. see also Transcript of Interview by Juan Dubra with Kenneth Arrow at Universidad de Montevideo (March 2005), available at http://mpra.ub.uni- muenchen.de/967/ (reporting that Arrow first learned about adverse selection and moral hazard when studying for his actuarial exams in the 1940s).
46. See, e.g., Anemona Hartocollis, New York Offers Costly Lessons on Insurance, N.Y. TIMES, Apr. 18, 2010, at A1 (reporting on the "adverse selection death spiral" in the New York HMO market, which was subject to a state community-rating law).
47. Joseph E. Stiglitz - Autobiography, NOBELPRIZE.ORG, http://nobelprize. org/nobel-prizes/economics/laureates/2001/stiglitz-autobio.html (last visited Mar. 15, 2011).
48. See id. (summarizing a study of Harvard's health plan finding that low-risk people left the plan when the annual cost went up by $500). Note that recent research suggests that advantageous selection - i.e. low-risk people preferring the higher-price insurance in some situations - may partially offset some instances of adverse selection. Hanming Fang, Michael P. Keane & Dan Silverman, Sources of Advantageous Selection: Evidence from the Medigap Insurance Market, 116 J. POL. ECON. 303, 306-07 (2008).
49. See generally James C. Robinson, Use and Abuse of the Medical Loss Ratio to Measure Health Plan Performance, HEALTH AFF., July-Aug. 1997, at 176, 176-77 ("In principle, this statistic measures the fraction of total premium revenue that health plans devote to clinical services, as distinct from administration and profit. In practice, however, purchasers, providers, consumers, investors, and regulators interpret the medical loss ratio ⋯ as measuring what they most like or dislike about managed care.").
50. JOHN MAYNARD KEYNES, A TRACT ON MONETARY REFORM 80 (1924).
51. See generally Richard T. Meenan et al., Using Risk-Adjustment Models to Identify High-Cost Risks, 41 MED. CARE 1301, 1308-11 (2003) (concluding that risk models can anticipate which enrollees are likely to be high-cost);
52. Wynand P.M.M. Van de Ven & Randall P. Ellis, Risk Adjustment in Competitive Health Plan Markets (examining risk-adjustment models in detail), in 1 HANDBOOK OF HEALTH ECONOMICS 755, 779-815 (A.J. Culyer & J.P. Newhouse eds., 2000);
53. Florian Heiss et al., Regulation of Private Health Insurance Markets: Lessons from Enrollment, Plan Type Choice, and Adverse Selection in Medicare Part D 23-26 (Nat'l Bureau of Econ. Research, Working Paper No. 15392, 2009) (assessing the quality of risk adjustment mechanisms in Medicare Part D).
54. See Timothy Noah, Maybe the Individual Mandate Is Enforceable: The IRS Commissioner Explains How He'll Make You Buy Health Insurance, SLATE (Apr. 7, 2010, 6:14 PM), http://www.slate.com/id/2250098 (quoting IRS Commissioner Douglas Shulman as saying that "the vast majority of American people have a healthy respect for the law and want to be compliant with their tax obligations and whatever else the law holds").
55. I.R.C. § 3101(a) (2006). The Medicare tax is levied in addition to the Social Security tax. Id. § 3101(b). The Social Security's Old-Age, Survivors, and Disability Insurance program sets a "taxable maximum" each year; for 2011, the limit was $106,800. See Contribution and Benefit Base, SOCIAL SECURITY ONLINE, http://www.socialsecurity.gov/OACT/COLA/cbb.html (last updated Dec. 29, 2010).
56. Employee health benefits represented 6.6% of employers total cost of compensation during the last decade. Wages and Benefits: A Long-Term View, THE HENRY J. KAISER FAMILY FOUND., fig.3 (Nov. 2009), http://www.kff.org/insurance/ snapshot/chcm012808oth.cfm. Employees' share of the cost of health benefits now represents 30% of the total.
57. GARY CLAXTON et al., THE HENRY J. KAISER FAMILY FOUND. & HEALTH RESEARCH & EDUC. TRUST, EMPLOYER HEALTH BENEFITS: 2010 ANNUAL SURVEY 1, available at http://ehbs.kff.org/pdf/2010/8085.pdf. This means that people who obtain health insurance through work presently pay, on average, 8.6% of gross income for that insurance. Most of that "payment" is in the form of foregone wages.
58. HCERA § 1002(a)(2)(A), PPACA §§ 10106(b)(3), 1501(b), 26 U.S.C.A. § 5000A(c)(3)(A). In 2016, that threshold will be $9350 for an individual and $18,700 for a married couple filing jointly. The penalty is capped at the price of a bronze plan on the exchange. According to the Congressional Budget Office, an individual bronze plan will probably cost about $4000 in 2016, and a family plan will cost about $12,000. See CONG. RESEARCH SERV., R41331, INDIVIDUAL MANDATE AND RELATED INFORMATION REQUIREMENTS UNDER PPACA 8 (2010). An individual reaches the cap at about $169,000 annual income, and a family at about $499,000. Considering that only 5% of U.S. families made more than $199,999 in income in 2008, it seems quite unlikely that the caps will be reached very often. See U.S. CENSUS BUREAU, STATISTICAL ABSTRACT OF THE UNITED STATES: 2011, at 455 tbl.694 (130th ed. 2010), available at http://www.census.gov/compendia/ statab/cats/income-expenditures-poverty-wealth.html.
59. The Congressional Budget Office (CBO) reports: CBO estimates that premiums for Bronze plans purchased individually in 2016 would probably average between $4,500 and $5,000 for single policies and between $12,000 and $12,500 for family policies. For comparison, the previous analysis of the PPACA as introduced found that average premiums among all types of plans in 2016 would be about $5,800 for single policies and about $15,200 for family policies. Average premiums for Bronze plans would be lower than average premiums for all plans because the actuarial value of Bronze plans would be 60 percent, compared with an estimated average actuarial value for all individually purchased plans of roughly 72 percent. Letter from Douglas W. Elmendorf, Director, Cong. Budget Office, to Senator Olympia Snowe (Jan. 11, 2010), available at http://www.cbo.gov/ftpdocs/108xx/ doc10884/01-11-Premiums-for-Bronze-Plan.pdf.
60. Deborah Stone, Beyond Moral Hazard: Insurance as Moral Opportunity ("[T]hrough its effects on political culture and collective political action, insurance increases the number and kinds of events that we consider adverse and worthy of collective responsibility."), in EMBRACING RISK, supra note 8, at 52, 52.