Hogan Knows

This is an excellent and detailed report refuting much of SustiNet.  For those of you looking for a meatier piece….this is it.  I’ve copied their summary below.  Jeff

Key Findings

This report examines these elements from an analytical perspective, bridging actuarial,

budgetary, and regulatory considerations, in order to offer insight into the potential implications

of the program for the State of Connecticut and its residents.

Key findings of our assessment include:

1. SustiNet shows an increase in state spending, not a reduction, once the conversion of

SAGA to Medicaid (which has already occurred and is unrelated to SustiNet) is accounted

for. Using a baseline cost that reflects that the SAGA conversion to Medicaid has already

occurred, and excluding what appears to be an anticipated $15 million increase in tax

revenues attributable to a drop in employer-sponsored coverage, the cost estimates in the

SustiNet report indicate that the program will result in a net cost increase of $77 million in

2017. Even including the $15 million in projected additional revenues due to the reduction in

employer-sponsored coverage, there is a $62 million net cost increase to the state in 2017

rather than a savings of $224 million.

2. Implementation of SustiNet carries “insurance risk” and liability implications for the

state. The State would, through the SustiNet program, take responsibility for paying the

benefit costs for all SustiNet enrollees – and the associated risk if premiums are lower than

the actual claim costs. This is a significant issue given that with the size of the proposed

SustiNet population even a very small underestimate in required premiums could result in

significant liability for the state. The SustiNet report notes that the State currently oversees

approximately $8 billion in spending through health programs for the populations that would

be combined into the SustiNet program. A one percent error in setting premiums for a

program of this size could result in a loss of $80 million.

3. Establishment of a Basic Health Program (BHP) is not dependent upon implementation of

SustiNet. Capturing additional federal funding through expanding Medicaid and

implementation of a Basic Health Program (BHP) is not dependent upon implementation of

the SustiNet program. In fact, the particular goal of capturing additional federal funding

through the creation of a Basic Health Program may be made more difficult by

implementation of SustiNet to the extent that the BHP option would be made available

through an exchange or those receiving coverage under the BHP are combined as part of

SustiNet with other populations, as this would appear to be inconsistent with federal

requirements. In addition, in lieu of pursuing a BHP the state might wish to consider further

analyzing the option of facilitating those who would be eligible for the BHP to obtain

federally subsidized coverage on the exchange.

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4. Combining diverse enrollment populations as proposed under SustiNet raises significant

actuarial and policy challenges as well as potential unintended consequences. Combining

all of the SustiNet enrollee populations into a single, uniform pool involves a number of

serious actuarial and policy challenges. It appears that the report contemplates implementing

the SustiNet program as a single risk pool, using a consolidated provider network with a

single set of provider payment rates, and a common set of benefit options. Because the

different populations have different demographics, pooling them will likely increase

premiums for some populations, while reducing premiums for others, creating implicit

subsidies between the populations. Creating a common set of benefits would either require

certain populations, such as State Employees, to receive reduced benefits or, it would lead to

the creation of a benefit plan that is likely to be very expensive relative to other coverage

options expected to be available on an exchange. Similarly, equalizing payment rates to

hospitals, physicians, and other providers would require either increasing payment rates for

the providers currently serving some populations (such as Medicaid-eligible individuals) or

reducing them for providers currently serving others (such as State employees).

In addition, it appears that the current State Employee Health Plan (SEHP) design has an

actuarial value that is significantly in excess of the 90% platinum level established in the

federal reform law, which might, in turn, frustrate the offering of the current SEHP package

on an exchange.

5. Diminishing returns to size. There are natural limits to the savings that can be achieved

through size alone. Once an insurance pool reaches a critical size, the marginal benefit from

additional growth becomes quite small. The SEHP, for instance, covers over 200,000

employees, retirees and dependents. Medicaid and HUSKY enrollment exceeds 500,000.

Programs with this level of enrollment in a single state have the critical mass necessary to

bargain effectively with providers and to establish efficient administrative systems. It is not

clear that the additional enrollment achieved by combining the Medicaid/HUSKY

populations with SEHP would result in materially better results from provider negotiations,

or materially improved administrative efficiencies. In addition, the complexities of serving

such disparate populations would likely complicate both network negotiations and the

administrative process.

6. While combining populations carries unintended consequences, unbundling raises

questions over stated goals. While combining populations raises the challenges and

potential unintended consequences highlighted above, on the other hand, if the SustiNet

enrollee pool were unbundled it would undermine the stated goals (whether realizable or not)

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of using the combined enrollment to drive provider negotiations and using consolidated

administration to reduce overhead costs and improve the management of health delivery.

7. Exchange requirements would apply to SustiNet and highlight the insurance carrier risks

the state would be taking on under the program. There are specific federal requirements for

health plans to participate in the new Exchanges. While the SustiNet report does state that

the program would obtain a state insurance license in order to enable the program to offer

coverage through the Connecticut exchange, our review suggests that the federal

requirements could represent a significant barrier to SustiNet’s participation in the exchange.

8. The goal of seeking to accelerate payment and delivery system reform efforts is laudable,

but few specifics are provided. The goal of seeking to align incentives and leverage the size

of the covered population envisioned under SustiNet to encourage reform of the health care

delivery and provider payment system is laudable. The SustiNet report includes “optimistic”

projections based on the assumption that SustiNet is successful in reducing the growth in

health care spending by one percentage point each year beginning in 2012. Too few specifics

are provided for us to be able to evaluate the ability of SustiNet to achieve this goal. We

would note, however, that a variety of delivery system and payment reform initiatives are

proceeding already in both the private and public sectors. It is unclear what the SustiNet

program would add to these efforts.

A more detailed discussion of these key findings is provided in the body of our report.