High prescription drug prices are often cited as a key concern in public opinion polls; what patients pay frequently reflects a drug’s list price, which excludes discounts and rebates. Unlike list prices, which have increased 5 percent to 10 percent annually for branded drugs over the past five years, actual or “net” drug prices have risen only by 0 percent to 3 percent annually. The discrepancy between the average increases in list and net prices reflects the rapid growth in rebates, which lower only net prices. Rebates are discounts paid by drug manufacturers after a prescription is dispensed to insurers, pharmacy benefit managers (PBMs) and, in the case of generic drugs, pharmacies (either directly or through their purchasing agents).

By basing what they reimburse—but not what patients pay—on net prices, health plans save money. In Medicare Part D, the mounting gap between list and actual prices has increased drug costs for patients and diluted the value of their insurance, while lowering monthly premiums for beneficiaries.

High drug prices continue to attract considerable attention from federal policy makers. In the past year, the House has passed (with predominantly Democratic support) major reform legislation to markedly lower drug prices (H.R. 3), and the Senate Finance Committee has reported (with bipartisan support) the Prescription Drug Pricing Reduction Act of 2020. More recently, President Donald Trump on July 24, 2020, signed four executive orders described by the White House as intended to reduce prescription drug costs. One executive order raises the prospect of sharing rebates with Medicare Part D beneficiaries at the pharmacy counter in the hope of reducing patients’ out-of-pocket spending on prescription drugs.

Drug rebates have increased considerably over the past decade, sometimes reaching 50 percent or even more of list price. The percentage of total Medicare Part D drug spending offset by rebates on branded drugs increased from 11.3 percent in 2010 to 25.0 percent in 2018. As required by Medicare, insurers have in turn reduced Part D monthly premiums by the rebates they collect, which in 2018 totaled $24 billion and represented the difference between higher (pre-rebate) list and lower (post-rebate) net prices. (Tables IV.B8 and IV.B.10: Medicare requires data to be reported on manufacturer rebates paid to insurers and PBMs but not to pharmacies, which results in the collection of rebate data for branded but not generic drugs.) Applying rebates to reduce premiums saves an equal amount for all enrollees, but basing cost sharing on the list price of drugs (as is done in Part D) increases out-of-pocket costs for those using drugs with rebates, especially for those patients taking highly rebated drugs.

In addition to raising costs for this subset of beneficiaries, the trend of increasing both list prices and rebates also dilutes the value of Medicare coverage to beneficiaries, so that Part D provides less financial protection. That is because the Part D standard benefit design includes patient cost-sharing parameters that generally reflect pre-rebate drug prices—either directly or through an actuarially equivalent plan design. Over time, as rebates have grown but these cost-sharing parameters have continued to reflect pre-rebate prices, patients have paid a higher share of net drug spending in aggregate, reducing the value of the Part D benefit overall.

Requiring that plans and PBMs share rebates with Medicare Part D patients at the pharmacy counter—first put forth last year by the Department of Health and Human Services (HHS) and the HHS Office of Inspector General and suggested in the recent executive order—raises stakeholder concerns about increased drug prices and federal spending. In this post, we describe how the growth in rebates has affected Medicare Part D patients and analyze approaches to address the issues, explaining how some of the challenges in the Medicare program differ from the challenge in commercial insurance, where some major steps have already been taken. We recommend that legislation require that an approximation of the rebate amount for a drug is credited to patients.

Rebates And How Drug Claims Are Paid

When insured patients obtain prescription drugs at pharmacies, claims to insurers are typically processed in real time at the point of sale, much like a purchase using a credit card. The pharmacy receives confirmation regarding the patient’s insured status, that the drug is covered, whether any special requirements (such as prior authorization) apply, and how much the patient needs to pay out of pocket. These arrangements generally work well for patients, except when beneficiary cost sharing is based on undiscounted prices and rebates are substantial.

Attempts to ensure that rebates are passed on to consumers face three challenges. First, manufacturers and PBMs (who negotiate on behalf of health plans) regard the terms of rebate agreements as confidential trade secrets. Second, the exact amount of a rebate frequently reflects actual performance computed after the end of a specified period (such as a quarter or year), making the contractually specified amount not known when a prescription is dispensed. Third, antitrust authorities such as the Federal Trade Commission (FTC) have a long-standing position that transparency regarding actual prices will impair competition, facilitate collusion, and result in higher actual prices.

In Medicare Part D and many commercial health plans, rebates do not reduce the amount paid by an insured patient who uses the drug, flowing instead as an aggregate payment to the PBM, which in turn passes all or some of the amount on to the insurer. In a competitive market, these payments to issuers and PBMs will be passed on to consumers in some form. Specifically, rebates can be allocated to only lower premiums, to only reduce what patients pay, or to partially lower both premiums and cost sharing.

The Problem

Consider four examples in which a manufacturer doubles the list price of a drug, from $500 to $1,000, but also newly negotiates a 50 percent—$500—rebate with a PBM. The PBM shares that rebate with the insurer, so the net price to the insurer before considering beneficiary cost sharing is unchanged at $500. In the first case, assume patient cost sharing is set at a certain number of dollars per prescription—such as a fixed $35 copayment—with no deductible; the change in list price from $500 to $1,000 would change neither what the patient pays ($35) nor the plan cost after accounting for both the new rebate and the beneficiary contribution ($465). Assume in the second case that the patient’s insurance has coinsurance (for example, 25 percent) based on increased list prices with no deductible, rather than a fixed copayment; the patient payment would double, from $125 to $250.

In a third case with a deductible of $1,000 or more (and no subsequent cost sharing), beneficiary cost would increase from $500 to $1,000. In a fourth case with the $435 deductible and 25 percent cost sharing that are standard in Part D, beneficiary out-of-pocket costs would increase by $125, from $451 to $576.

In all but the first case of a fixed copayment and no deductible, the cost to the insurer would fall significantly: by $125 in the second, 25 percent coinsurance case; by $500 in the third, high-deductible case; and $125 in the fourth, standard Medicare Part D case. Higher list prices increase what patients pay out of pocket and reduce plan spending by an offsetting amount, reducing premiums in Part D. Patients using expensive, highly rebated drugs pay significantly more, while healthy enrollees save money from the reduced premium. In addition, increasing list prices exposes beneficiaries to more risk and reduces the comprehensiveness of insurance coverage.

These simplified examples illustrate what has happened in Medicare Part D over the past decade. Medicare patients using highly rebated drugs have paid substantially more than they would have if list prices and rebates had not increased rapidly. Our analyses suggest these dynamics have led to about half of Part D beneficiaries who do not receive low-income subsidies (non-LIS) paying more out of pocket than they would if cost sharing were instead based on net price, with about 20 percent paying more than $100 extra per year. (The LIS insulates eligible beneficiaries from high drug prices by having Medicare—not patients—pay most or all cost sharing.)

Effect Of Higher List Prices On Medicare Part D Costs

It is possible that rising list prices matched by rising rebates have also increased federal spending on Medicare Part D but determining the spending impact is challenging. Rising list prices lead to beneficiaries getting more quickly to the donut hole and then to catastrophic benefits, where Medicare pays 80 percent of drug spending. In fact, we find that 36 percent of non-LIS beneficiaries who reached catastrophic coverage in 2017 would not have done so had cost sharing been based on net rather than list prices, which would have reduced federal reinsurance spending on the non-LIS beneficiaries by 19 percent. But the complex way in which federal spending on Part D is determined makes the net effect of rebates on federal Part D spending unclear and beyond the scope of this post.

However, the fact that Part D beneficiaries tend to prefer plans with low premiums creates a strong incentive for PBMs to favor drugs with large rebates, since those rebates enable Part D plans to reduce premiums. Thus, instead of creating incentives for plans and their PBMs to prefer drugs with the lowest net cost, the current system instead favors drugs with high rebates. In turn, this creates a system of incentives that can lead to higher drug spending overall.

Why A Solution Is Complicated

While sharing rebates with patients at the point of sale would address these distortions, doing so could increase Medicare Part D premiums, described in projections by the Congressional Budget Office (CBO) and the Centers for Medicare and Medicaid Services (CMS) Office of the Actuary, which reportedly dissuaded the Trump administration from pursuing initiatives either to ban rebates or share them proportionately with patients. (The details of the recently issued executive order to pass rebates to Part D beneficiaries, which require that neither premiums, federal spending, nor patients’ total out-of-pocket costs be increased by the policy, are contrary to findings by the CBO and the CMS Actuary—the official government scorekeepers. As a result, the executive order might be more about symbolism than actually achieving lower drug prices.) Even though beneficiaries might be better off from a combination of higher premiums, lower cost sharing, and more comprehensive insurance, this might be a hard sell due to the certainty of all enrollees paying modestly more in increased monthly premiums versus the uncertainty of some beneficiaries potentially paying significantly more in cost sharing for highly rebated drugs with high list prices.

Apart from concerns about the impact of increasing average Part D premiums, either change—banning rebates or mandating that they be visible to share with patients—could increase drug costs by having increased price transparency facilitate price collusion as well as limiting payers’ negotiating power to link lower prices from a drug manufacturer with higher sales volume. On the other hand, some analysts have projected that banning or mandating the sharing of the precise amounts of rebates at the point of sale could reduce drug costs by enhancing incentives to build formularies around drugs with the lowest net cost.

Current rules require Part D plans to reveal the point of sale or list prices of each of their drugs. This occurs because the Medicare statute splits the Part D benefit into four different segments, each of which has specified cost-sharing requirements. The first part of the benefit includes the amounts below the deductible. The second part starts at the deductible and ends at the “initial coverage limit.” The third part of the benefit (the donut hole) starts at the initial coverage limit and ends at the catastrophic threshold. The final part of the benefit includes all spending above the catastrophic threshold.

For standard, non-enhanced Part D plans, coinsurance must equal exactly 25 percent of a drug’s price above the initial coverage limit (part three above) and 5 percent of a drug’s price above the catastrophic threshold (part four above). This makes it easy to reverse engineer drug prices—simply by multiplying the 25 percent coinsurance by four (or the 5 percent coinsurance by 20). Thus, either banning rebates or sharing them with patients would reveal net prices, which could lessen competition and facilitate price collusion: A lack of price transparency benefits health plans and PBMs because manufacturers are more likely to offer lower prices or higher rebates if their competitors will not know about it, and thus will be unable to match such offers quickly. As noted earlier, the FTC has repeatedly taken the position that greater price transparency would increase—not decrease—actual drug costs.

What Can We Learn From The Commercial Market?

As explained in more detail below, commercial insurers, such as United Healthcare, have recently adopted a policy of subtracting an amount related to the rebate from what the patient must pay at the point of sale. In their business for employer-based coverage and individual coverage, United Healthcare and other insurers have been able to adopt this approach because Medicare’s rules specifying coinsurance as an exact percentage of a drug’s price do not apply. As a result, commercial insurers are able to lower what a beneficiary pays for a drug without automatically revealing either the actual net price or rebate amount, keeping both rebates and negotiated prices secret. This approach is also able to deal with the fact that rebate amounts vary according to an insurer’s or PBM’s performance in steering volume, which will not be known until after drugs are dispensed to patients.

Rebates that rely on actual performance in a subsequent period pose a technical challenge for sharing savings with patients at the point of sale—for both Medicare Part D and commercial plans—because the amount of the rebate is not known at the time a prescription is dispensed. To the extent negotiators want to retain performance-based rebates, pharmaceutical manufacturers and PBMs could invest in sophisticated modeling to project expected rebates based on past data. For example, negotiated agreements could specify the projection methodology, and the resulting estimated rebates could be updated periodically to incorporate the most recent actual data. One might characterize such an approach as establishing a “picture frame” (for example, the specification of an econometric model) along with the timing (for example, quarterly) and process for routinely updating the “picture” in the picture frame; this would allow updating rebate amounts without having to update rebate agreements. Careful modeling combined with extensive data should produce prospective estimates that track reasonably closely to what rebates would have been if computed retroactively based on actual performance.

The Price Transparency Challenge

An array of possible mechanisms would permit commercially insured patients to share in the savings associated with rebates while maintaining the secrecy of negotiations, some of which are in use now. The challenge involves reaching a balance between having patients share proportionately in the difference between a drug’s list and net prices, on the one hand, and not revealing to competitors—whether plans or manufacturers—the negotiated rebate and net price on the other. One option would have insurers base cost sharing on fixed-dollar copayments, not coinsurance. Alternatively, they could apply coinsurance to the average cost of a group of drugs with generally similar net costs.

Another option would have coinsurance percentages for a set of individual drugs vary within a range. Knowing the average price or average coinsurance amount for a group of drugs—but not the actual price or coinsurance percentage for a particular drug—would keep the negotiated terms confidential and prevent “reverse engineering” net prices or rebate amounts. Permitting actual prices and coinsurance percentages for highly rebated drugs to vary from the publicly reported average prices and average coinsurance percentages applicable to a group of drugs would maintain the confidentiality of net prices and negotiated rebates.

As explained above, Medicare’s requirements that coinsurance for prescription drugs equal exactly 25 percent above the deductible and 5 percent above the donut hole currently mean that Part D plans could not apply any of these strategies. However, CMS could potentially use its administrative authority to permit Part D plans to adopt these approaches.

The Premium Increase Challenge

While sharing rebates with patients to lower their out-of-pocket costs would likely cause both commercial insurers and Part D plans to incur higher drug costs, commercial insurers have much more flexibility to avoid having such a policy visibly increase premiums than Part D plans do. This occurs because premiums for commercial insurance differ from Medicare Part D in important ways. Commercial insurance typically bundles drug benefits with overall health coverage, so premium cost associated with drug coverage is not separately identified. National Health Expenditures (NHE) data report drug costs account for 10.8 percent of commercial insurance expenditures; thus, if sharing rebates with patients resulted in an 8 percent increase in average cost associated with drug coverage that would translate to only a 0.9 percent increase in the overall cost of commercial insurance. (Interestingly, the Health Care Cost Institute (HCCI) reports drug spending as 19 percent of commercial insurance cost; while there are other reasons for the difference, the HCCI estimate—unlike NHE data—excludes rebates.)

Additionally, commercial insurance typically has flexibility to modify the important elements of drug and non-drug benefits, the actuarial value of insurance versus cost sharing, and the allocation of premiums between employers and employees. As a result, modest changes in the cost of the drug benefit are unlikely to be visible to commercially insured enrollees—they would be rather small relative to overall cost of health insurance and could be easily offset by other modest changes in benefits or financing.

These changes are more noticeable in Part D. To the extent plans pass through the amount, an 8 percent increase in Part D drug costs would increase the average beneficiary-paid portion of the Part D premium by around $2.62, from $32.74 to $35.36.

Stand-alone Part D plans do not have this flexibility available to commercial insurers. The Medicare statute explicitly created a new, stand-alone outpatient prescription drug benefit with a separate beneficiary premium. Current law precisely specifies the formulas allocating prescription drug costs between the government subsidy and beneficiary premiums, so any increase in plan costs would automatically generate increases in monthly Part D premiums. By placing strict requirements on cost-sharing and benefits, Part D effectively precludes offsetting an increase in plan costs caused by sharing rebates to reduce beneficiary out-of-pocket costs with other changes. CMS annually makes public Part D plan premiums in a widely used website that facilitates comparing current and upcoming year new premiums, as well as comparing the premiums of different plans. As a result, even a modest increase in plan costs fueled by lowering beneficiary cost sharing will generate highly visible increases to Part D premiums.

However, it is worth recognizing that only a minority of Part D enrollees would be directly subject to the full brunt of these changes. Forty-four percent of Part D enrollment is in integrated Medicare Advantage plans with Part D benefits (MA-PD). While MA-PD plans do separately determine Part D premiums according to Part D program rules, most Part D plans use supplemental benefit dollars to offset some or all of beneficiaries’ Part D premiums. As a result, while increases to Part D premiums would reduce funds available for plans to put toward other benefits, modest Part D premium increases would likely be absorbed more readily by these plans relative to stand-alone Part D plans.

Among the 56 percent of beneficiaries enrolled in stand-alone Part D plans, 47 percent of them (26 percent of all Part D enrollees) receive low-income subsidies, so premium increases would be borne primarily by the federal government rather than the beneficiary. Additionally, 18 percent of stand-alone Part D enrollees (10 percent of all Part D enrollees) are enrolled in employer-sponsored stand-alone Part D plans, where employers often subsidize premiums. Indeed, only 20 percent of all Part D enrollees are enrolled in stand-alone Part D without LIS or an employer sponsorship. Thus, potential premium increases associated with sharing rebates at the point of sale would only be absorbed directly by a minority of Part D beneficiaries, although they could result in increased other expenses.

Summing Up: Solutions For Medicare Part D

Sharing rebates with patients poses two substantially greater challenges in Medicare Part D than in commercial insurance: how to share rebates without undermining competition, and the political pushback from having monthly premiums increase. A third issue, sharing performance-based rebates at the point of sale, poses similar technical problems for commercial insurance and Part D but is solvable, as commercial insurers have already done, by basing payments on prospective estimates rather than actual amounts of rebates.

Maintaining the confidentiality of net prices and rebates when sharing rebates with patients could be done either by administratively modifying Part D rules or by legislating reforms. Modified rules could permit using averages to approximate actual prices and actual coinsurance percentages, along the lines discussed above. Giving Part D insurers flexibility to approximate coinsurance amounts would avoid revealing actual point-of-sale prices.

However, Medicare would also need to establish guardrails ensuring that insurers appropriately pass rebates through to patients to reduce cost sharing rather than diverting some of the rebates intended for patients to reducing premiums in hopes of increasing market share. For example, CMS rules might require not only that each insurer must share with patients in the aggregate 25 percent of rebate dollars (and 5 percent in the catastrophic range) but also that rebates be allocated to ensure that the coinsurance paid by patients using particular highly rebated drugs appropriately approximates net prices. In addition to guaranteeing fairness, the rules could prevent preferred risk-selection strategies that would redistribute rebates to drugs used mostly by relatively healthy people.

Beneficiary concerns about increased Part D premiums could be addressed by combining legislation to share rebates with patients with broader legislative reforms to the Part D program. Both the Senate Finance Committee and the Medicare Payment Advisory Commission have advanced Part D reform proposals; these proposals would restructure the Part D benefit design to improve its incentives and alignment with the way the program, and the prescription drug market, have evolved since Part D’s inception. Both proposals would lead to federal spending reductions; a portion of savings could be devoted to offsetting the premium increase that would result from sharing rebates with beneficiaries.

       

For more than a year, Georgia policymakers have been pursuing a 1332 waiver that would make major changes to the way Georgians access affordable health insurance. Two prior waiver proposals from the state suffered from major deficiencies that made clear the federal government could not lawfully approve the state’s plan. Georgia is now on its third attempt, but has still failed to offer a vision that is permissible under the statute. While the most recent iteration avoids some of the more serious pitfalls of prior versions, it still does not comply with the statutory “guardrails” for 1332 waivers. Specifically, despite the state’s claims to the contrary, the waiver proposal would likely cause tens of thousands of Georgia residents to lose their health insurance coverage, especially in the first year, and therefore fails to satisfy the statutory requirement that a 1332 waiver may not decrease the number of people with health insurance coverage. The proposal’s analysis also entirely omits the consideration of factors that will increase premiums in the state. Further, the waiver proposal continues to suffer from procedural deficiencies that would make it unlawful for the federal government to approve the state’s application. On August 17, 2020, the Trump Administration deemed the application complete and opened a 30-day period for public comment, running through September 16. The waiver may not lawfully be approved, and the application in fact fails to satisfy the completeness requirements.

Georgia’s prior proposals and the current submission

Georgia has been pursuing sweeping changes to its individual health insurance market since early 2019, and is now on its third 1332 waiver proposal. The first iteration, released in November 2019, proposed allowing the sale of individual market health plans that did not offer all of the ACA’s mandated Essential Health Benefits. It also would have converted the ACA’s open-ended premium tax credit into a capped, state-administered financial assistance program that would place consumers on a waitlist when funding ran out. Using modest assumptions, experts estimated that this proposal would cause 110,000 Georgians to lose financial assistance (and therefore, in all likelihood, their health coverage). Such a waiver clearly violates the statute and cannot be approved by the federal government. In December 2019, the state proposed a new plan: benefit requirements would remain unchanged, but plans would be permitted to impose deductibles and other cost-sharing more than $5,000 greater than otherwise allowed under the ACA. This second iteration also proposed limiting financial assistance and using a waitlist when funding ran out; it was also expected to cause coverage losses and reduce the affordability of coverage, and it violated a number of other legal requirements for ACA waivers.

Both prior waiver proposals would have ended the state’s use of the HealthCare.gov enrollment platform. But they did not set-up a State-Based Marketplace (SBM) in its place. Instead, Georgia said it would operate a state-run eligibility engine but would outsource all consumer-facing activities to private web-brokers and insurance companies. That is, consumers who wanted to enroll would be required to use the website of one of several competing private companies to complete an application and select a plan; the state’s role would be limited to “back-end” functions like verifying eligibility and maintaining official records of enrollment.

The state’s latest waiver proposal, released in July 2020, does not propose making changes to benefits, cost-sharing, or financial assistance, so traditional ACA-regulated plans will continue to be sold to Georgia consumers with the standard financial assistance under the law. However, the new version continues to propose eliminating HealthCare.gov as an option for Georgia consumers but not replacing it with an SBM. Indeed, this change in enrollment platform is now the entirety of the proposal’s Georgia Access Model.¹ As in prior iterations, Georgia consumers will be required to shop on the websites of private vendors if they want to enroll in ACA coverage. Notably, these private vendors already sell plans in Georgia (and other states) as a complement to HealthCare.gov through a process called Direct Enrollment. Therefore, the waiver proposal does not create any new options for Georgia consumers to enroll; it simply takes away the HealthCare.gov option. The state proposes to regulate vendors in a manner “similar” to existing federal regulation, with the notable exception of allowing these vendors to market plans that do not comply with ACA requirements alongside Marketplace plans.

Georgia’s most recent waiver proposal certainly avoids some of the shortcomings of prior versions. However, it is still proposing a major change to the way Georgia consumers shop for and obtain health insurance. A state cannot obtain a waiver under section 1332 unless it provides coverage to “at least a comparable number of its residents” as existing law, and as described in the following section, Georgia’s proposal cannot satisfy that condition.

The transition away from HealthCare.gov will likely reduce the number of Georgians with coverage

Georgia’s waiver proposal contains an economic and actuarial analysis that purports to show that 25,000 state residents will gain coverage under the waiver. Specifically, the state asserts 33,000 new individuals will enroll and 8,000 existing consumers will lose coverage. Both of these figures are based on entirely unsupported assumptions, and more realistic analysis reflects that the waiver should be expected to reduce – not increase – the number of people with coverage.

Let’s begin with the state’s assertion that by disallowing enrollment on HealthCare.gov and moving entirely to private vendors, the waiver will draw 33,000 new consumers. The purported mechanism for this new enrollment is as follows:

Allowing multiple, private web-brokers to participate will create competition and provide market incentives to offer improved plan/product selection and enrollment assistance, as well as local, customized customer service to attract uninsured individuals into the market. Web-brokers are typically paid on commission for enrollment, creating strong market incentives to provide education and outreach to drive enrollment and reduce the number of uninsured without cost to the state.

But that explanation fundamentally misstates what the waiver proposal does as compared to current law. As other parts of the application discuss, web-brokers are already allowed to sell Marketplace plans, and already receive commissions for doing so. Indeed, they are a growing feature of Georgia’s enrollment landscape, encompassing 21% of the state’s enrollment for plan year 2020. The state does not contemplate providing any additional inducement or advantages for web-brokers or other private entities; to the contrary, it repeatedly emphasizes that it will build on existing functionality and establish operating standards “similar” to current policy. That is, to the extent private entities face “market incentives” to drum up new enrollment, those incentives already exist, and nothing in the application creates new incentives that could plausibly bring in new business.

Other parts of the application seem to acknowledge this fact. The state explains that it calculated the supposed 33,000 gain by trending forward past growth in enrollment through private vendors. Specifically, between 2018 and 2020, the share of enrollments through private online vendors increased from 13% to 21% – an increase of 4 percentage points per year. If that growth was repeated between 2020 and 2022, the state, claims that would mean about 33,000 additional private-vendor enrollments in 2022 as compared to 2020. Therefore, the state says, the waiver will bring in 33,000 new consumers.²

But this reasoning is nonsensical for several reasons. First, it conflates two different and uncorrelated measures: the share of enrollment that occurs privately (which has increased), and the total amount of enrollment (which they assert will increase in the future). There is no reason to assume such a relationship. Indeed, if HealthCare.gov were eliminated, private enrollment would account for 100% of enrollment – an increase of 79 percentage points over the 2020 share – even if total enrollment dropped precipitously. Second, the state provides no explanation for why this increase would occur under the waiver but not absent the waiver. This is a basic error in applying 1332 rules, which gives credit only for changes that are contingent on the waiver. If the trend from 2018 to 2020 is expected to continue absent the waiver, then the waiver does not get credit for it. Finally, the state does not explain why the trend between 2018 and 2020 is likely to continue in the first place.

Georgia’s assumption that only 8,000 people would lose coverage without HealthCare.gov is equally implausible. As discussed, Georgia is not asking for a waiver to create a web-broker enrollment pathway; it is asking for permission to disallow consumers from using HealthCare.gov or any other Marketplace website. The abolition of HealthCare.gov is likely to lead to a loss of coverage much greater than 8,000. Transitioning away from HealthCare.gov would require all existing consumers to identify a private vendor platform, create an account, and complete a new enrollment; automatic re-enrollment would not be possible. But for 2020, more than 80,000 Georgia enrollees (25% of returning consumers) did not respond to HealthCare.gov’s repeated encouragement to make an active plan selection and instead were automatically re-enrolled in their coverage. If automatic re-enrollment were not possible, some fraction of this group might be motivated to seek out an active enrollment pathway, but assuming without evidence that 90% will do so is unreasonably optimistic. Moreover, even consumers who might normally make an active plan selection would need to find a new enrollment channel and navigate a new enrollment process – barriers that would likely cause some to drop out of the process. Indeed, even if 95% of previous active re-enrollees and 50% of previous auto-enrollees successfully navigate the new process, 52,000 people would still lose coverage. And the actual impact could be larger, as shown in Figure 1. Georgia’s engagement with these issues is limited to observing that “moving from the FFE to the Georgia Access Model will require a detailed transition strategy” – the state provides no information on what that detailed strategy might be.

The waiver proposal also does not address how the state would compensate for the Medicaid enrollment support provided by HealthCare.gov today. In recent years, during each annual open enrollment period about 40,000 Georgia consumers have visited HealthCare.gov and been assessed as eligible for Medicaid under existing eligibility rules. Thousands more likely receive a similar assessment outside of open enrollment, though data are not publicly available. When consumers are assessed as Medicaid-eligible, HealthCare.gov “transfers” those applications to the state Medicaid agency, which works with the consumer to complete enrollment. Private web-brokers, however, have no incentive to support this process. As Georgia repeatedly emphasizes, web-brokers are incentivized by commissions paid for private enrollments, but Medicaid does not pay commissions. Indeed, one investigation found that some web-brokers do very little to support Medicaid enrollment and may provide misleading information to Medicaid eligible individuals that deters them from enrolling. Eliminating HealthCare.gov in favor of web-brokers could therefore substantially reduce Medicaid coverage.  As shown in Figure 1, even a 25% reduction in effective Medicaid enrollment during open enrollment could cause an additional 10,000 person reduction in the number of people with coverage under the waiver in each year.

Georgia could also face reduced enrollment on an ongoing basis as consumers struggle to complete administrative tasks necessary to retain their coverage. Consumers receiving ACA financial assistance must navigate a variety of complex enrollment tasks, including providing income documentation, and, in some cases, providing proof of tax filing. HealthCare.gov and SBMs today engage in extensive outreach to support consumers through these processes, but Georgia will not be assuming any of these outreach functions. Some of today’s web-brokers support consumers in these processes, but others do not. As a result, the transition off of HealthCare.gov could result in meaningfully less post-application support to help consumers maintain enrollment, further eroding coverage.

Finally, the foregoing assumes that Georgia successfully builds a new and unprecedented administrative apparatus in approximately one year on a budget of $6 million – far less time and far less money than the federal government and states had to stand up Marketplaces after the ACA’s passage. Given the technical complexity involved and past challenges, there is reason to be concerned about a smooth and timely launch.

But even taking the state’s numbers at face value, Georgia’s application also makes major errors in the timing of its enrollment effects. In particular, the waiver proposal models all effects as if they occur in the very first year of the waiver – the state’s assumed 33,000 person gain (associated with “market incentives”) and 8,000 person loss (associated with the “transition”) all occur in 2022. But while losses associated with the transition would in fact occur in the first year, gains would be expected to phase in over time, since the alleged gains presumably arise from web-brokers enrolling a slightly larger fraction of the reachable market at any given time. If one assumes the 33,000 gain phases in linearly over the 5 years of the waiver, then even on Georgia’s own terms coverage losses exceed gains in the first year of the waiver.³

To summarize, it is clear that Georgia’s waiver proposal cannot satisfy the requirements for approval of a waiver under Section 1332 of the ACA.  The statute directs that to be approved a waiver must “provide coverage to at least a comparable number of its residents as” current law. The Trump Administration’s 2018 guidance on waivers further explains a waiver can be approved only if “for each year the waiver is in effect, the state can demonstrate that a comparable number of state residents eligible for coverage under title I of PPACA will have health care coverage under the section 1332 state plan as would have had coverage absent the waiver” (emphasis added).⁴  Georgia suggests that 25,000 people will gain coverage under the waiver, but that claim is unwarranted for three distinct reasons:

• The state offers no plausible support for the assumption that 33,000 additional consumers will enroll, or, indeed, that any additional consumers will enroll because of the waiver.
• The state’s assertion that only 8,000 people will lose coverage is inconsistent with available evidence. Simple modeling based on the most recent enrollment period (with assumptions very favorable to the state) suggest more than 50,000 Marketplace and 10,000 Medicaid consumers could be lost.
• Even taking the state’s figures at face value, coverage losses would still be expected to exceed coverage gains in the first year of the waiver.

The waiver application makes other major analytic errors

Beyond the state’s problematic assumptions about the coverage impacts of the waiver, the actuarial and economic analyses included with Georgia’s waiver submission make several other major analytic errors. These errors or so severe that they render the analyses incapable of meeting a variety or requirements in the statute and applicable regulations and underscore that the submission cannot provide a basis for approval.

Fails to consider premium impacts of increased broker commissions. Transitioning all enrollment to private vendors (most of whom are commission-supported) is likely to meaningfully increase the total volume of broker commissions paid in Georgia, which will in turn increase premiums. As of 2018, 42% of HealthCare.gov enrollments were supported through a broker (either a web-broker or otherwise), which means that insurers were required to pay commissions on less than half of their enrollees. While that figure may have risen somewhat in the intervening years, there is likely still a significant fraction of enrollment that occurs without a commission. But under Georgia’s proposal, insurers would pay a commission for the much larger volume of consumers enrolling via web-brokers. Further, consumers who do not enroll through brokers must enroll through an insurer’s website, which the insurer also must support financially. The cost of broker commissions and the insurer’s own enrollment infrastructure is baked into premiums, so an increase in these costs would directly increase premiums in the state. Yet despite touting the importance of commissions in enrollment throughout the waiver application, the state never considers this obvious premium impact. Indeed, the state repeatedly notes that broker-supported enrollment is “without cost to the state” – but neglects to consider who those costs are passed on to.⁵

Increased premiums will meaningfully affect the calculation of deficit neutrality under the waiver and must be accurately modeled in order to be offset against other deficit impacts associated with Georgia’s proposal. It also could affect the calculation of affordability under the waiver and may feed into further losses in coverage.

Fails to consider premium impacts associated with increased marketing of non-compliant plans. The waiver is likely to lead to an increase in enrollment in non-compliant plans, which will also increase premiums for compliant plans. Specifically, while Georgia’s waiver application generally anticipates that private vendors selling Marketplace coverage will be required to comply with standards that are “similar” to those partnering with HealthCare.gov, there is one notable exception: Georgia will allow private vendors to display plans that do not comply with ACA consumer protection requirements alongside regulated plans. (Under current law, the same vendors can sell both types pf plans, but must display them separately.)  The state explains its rationale as follows:

By enabling diverse plan types to be offered side-by-side with QHPs and Catastrophic Plans, consumers will be able to view the full range of options available to them within the State and select a plan that best suits their needs and price point. The goal is to increase healthcare coverage options across the State without eroding the QHP market to provide consumers with expanded options.

This statement (and the rest of the waiver proposal) fails to acknowledge the trade-offs that are inherent in this approach. It is not possible to promote underwritten and non-compliant plans that the state believes some consumers will prefer without “eroding” the regulated market – if healthy enrollees can receive lower premiums from underwritten plans, that will, axiomatically, worsen the ACA risk pool and increase premiums. This is the trade-off associated with the promotion of non-compliant products, and, indeed evidence on web-broker operations to date suggests that some web-broker entities are likely to aggressively promote unregulated plans given their larger commissions. The state entirely ignores these premium impacts in their consideration of the waiver. As above, this failure means that the state’s deficit neutrality, affordability, and coverage analysis are also inadequate.⁶

Makes unsupported risk profile assumptions. The waiver analysis also makes unsupported assumptions about the relative health risk of individuals leaving the market due to transition difficulties. In two other contexts, the federal government has examined the age profile of those losing coverage due to administrative obstacles, and found that young people are about 25% less likely than older people to respond to requests for documentation. This suggests that people losing coverage during the transition to web-broker driven enrollment (likely to number in the tens of thousands, as described above) will be younger and healthier than those who remain. Yet the state does not mention this impact in discussing the group that would lose coverage. In addition, the state assumes that 88% of new enrollment would be into bronze plans, and that the risk profiles of those enrolling into bronze plans would match those of current bronze enrollees – with by far the best profiles of any metal level.⁷ By contrast, only 21% of 2020 enrollees selected bronze plans. No explanation is given for this assumption.

Miscalculates user fee impacts. As in prior versions of the waiver, the state asserts that the state’s migration away from HealthCare.gov will not affect federal administrative costs. As we have argued elsewhere, this is incorrect. Some HealthCare.gov functions entail fixed costs, and so the absence of HealthCare.gov user fees from Georgia will not be fully offset by reduced operating costs. The federal government is clear that such costs must be accounted for in deficit neutrality calculations, and the state fails to do so.

Conflates with- and without-waiver impacts. As noted above, in modeling the waiver coverage gains, the analysis trends forward data on the current performance of web-brokers. These are effects under current law and would be expected to occur in the absence of the waiver. But the analysis treats that as a “with waiver” impact despite the fact that it should be reflected in the “without waiver” baseline.

Lacks a plausible sensitivity analysis of coverage impacts. The application also foregoes any plausible sensitivity analysis of the coverage impacts of the waiver. It asserts without evidence a net gain of enrollment of 25,000 people as described above, and then models alternative scenarios where either 15,000 or 35,000 additional people enroll – and uses those alternative scenarios to claim that the analysis is robust to potential losses of coverage. But simply assuming a coverage gain does not, in fact, actually demonstrate that the waiver will result in increased coverage.

The waiver application suffers from procedural deficiencies that render it unapprovable

The analytic deficiencies described above create significant procedural issues that make it unlawful for the federal government to approve Georgia’s waiver (or even deem it complete) and are compounded by other procedural problems with the waiver.

First, the submission Georgia has provided does not meet federal criteria for a complete waiver application. Therefore, it was not lawful for the federal government to have declared it complete and proceed to the next phase of waiver consideration, and it cannot serve as the basis for approval. Specifically:

• The waiver proposal does not include adequate actuarial and economic analyses. Federal regulations require analyses that “support the State’s estimates” of coverage, affordability, comprehensiveness, and deficit neutrality under the waiver. The documents provided by the state fail to do so. As described in detail above, the state makes entirely unsupported (and unsupportable) claims about coverage gains and losses, neglects to consider important and obvious factors that will raise premiums in the state and makes other related errors. The analyses provided by the state fail to meet the standards for actuarial and economic analyses under the regulation.
• The waiver proposal fails to specify the provisions of federal law it seeks to waive. The regulations require that an application must include “a list of the provisions of law that the State seeks to waive including a description of the reason for the specific requests.” Georgia does not do so. It simply states that “Section 1311 would be waived only to the extent that it is inconsistent with the operation” of the proposal. Elsewhere, the state offers, “Georgia is requesting waiver of Section 1311 in part, to provide the State flexibility to determine the operations to best support its innovative consumer-centric model…. Georgia will remain in full compliance sections of PPACA that are not waived.”  But section 1311 is a massive and multifaceted provision with over 100 subsections, paragraphs, and clauses. It includes not only extensive standards for Marketplaces but also rules on CMS responsibilities, plan certification, navigators, quality improvement, and mental health parity. Thus, Georgia does not make “specific requests” for provisions it seeks to waive as required by the regulations, nor does it include “a description of the reasons for the specific requests.”  This basic omission renders the waiver incomplete and unapprovable. It also makes it impossible for the federal government or stakeholders to judge whether the state will, in fact, be in “full compliance” with portions of the law not waived – since it is not clear what provisions are encompassed.
• In important respects, the application also fails to include an adequate description of the state’s waiver plan. A complete proposal must include “comprehensive description of the… program to implement a plan” under Section 1332. Georgia has certainly articulated a vision – removing the state from HealthCare.gov and shifting operations to private vendors. But it says very little about how this program would operate. The application briefly notes that the state will take on a variety of complex functions around maintaining enrollment records and reconciling data with plans and with the IRS – but it does not describe how it will conduct or fund those initiatives. Indeed, it is unclear the extent to which the state is even aware of the complexity of the operational processes it proposes to undertake. Similarly, as noted above, the state offers that it will have a “detailed transition strategy” but does not tell stakeholders or the federal government what it will be. These are not mere details; they are critical to the successful operation of the plan as Georgia envisions it, and without further explanation the application cannot satisfy the standard for a “comprehensive description.”

Second, the state has not conducted an adequate public comment period. Regulations require that, prior to submitting the application, the state provide “a public notice and comment period sufficient to ensure a meaningful level of public input.” (This is in addition to the requirement for the federal government to provide a comment period following the application’s submission.)  But Georgia offered only 15 days for public comment on its proposal. While the federal government has not specified a minimum time period, it has noted that complex waivers will require longer comment periods in order to be “meaningful.”  Given that Georgia proposes to disrupt existing arrangements for hundreds of thousands of people who currently shop through HealthCare.gov, additional time is required for comment to be considered meaningful, and, indeed, many commenters made that very clear in their own submissions to the state. Nor can the state rely on the public comment period it conducted in 2019 on a prior waiver proposal. Public comment was provided on an entirely different proposal that affected EHB and financial assistance, and would not be reflective of stakeholder concerns or feedback on the current set of ideas.

Finally, we have argued elsewhere that Georgia lacks the necessary legal authority to implement the waiver it proposes because the state has not enacted authorizing legislation. Georgia has enacted legislation allowing the state to apply for a waiver, but state statute does not authorize the state to implement this specific set of waiver proposals. Under the statute and regulations, the federal government cannot approve a waiver unless the state has adequate authority, and Georgia also fails that test.

Better solutions are available

Ultimately, it is unclear what problem Georgia’s waiver is intended to solve. The proposal’s narrative highlights the 1.5 million Georgians who remain uninsured, “one of the highest” uninsured rates in the country, and bemoans the drop in enrollment in the Marketplace in the early years of the Trump Administration. The state insists that coverage “will continue to decline” across the state absent the waiver. But, in fact, between 2019 and 2020, premiums fell in the individual market and enrollment in the Marketplace increased. Preliminary rate information suggests premiums in the individual market will continue to drop in 2021.

Georgia has proposed a waiver that by their own analysis will capture less than 2% of the uninsured in the state, and, in fact, should be expected to cause large losses in coverage – exacerbating the problem they claim to address. If Georgia wants to make meaningful progress in reducing it’s uninsured rate, it should expand Medicaid so that 518,000 uninsured Georgians below 138% of the federal poverty level can access affordable coverage.

       

On September 23, the USC-Brookings Schaeffer Initiative for Health Policy and the Center on Regulation and Markets at Brookings will, in honor of Uwe’s work, host the second of three webinars examining whether a larger public role is appropriate.

This panel will examine three commonly discussed approaches to expanding the government’s role in determining health care prices in private insurance markets: (1) limits on out-of-network prices; (2) comprehensive price regulation; and (3) creating a public option. The panelists will discuss how the effects of these different policy approaches might differ from each other and how they might compare to an approach that focused solely on improving competition in provider markets.

Viewers can submit question for panelists by emailing events@brookings.edu or via Twitter with #HealthCarePrices.

       

On October 7, USC-Brookings Schaeffer Initiative for Health Policy and the Center on Regulation and Markets at Brookings will, in honor of Uwe’s work, host the final webinar in a series examining whether a larger public role is appropriate.

This panel will examine the systems used to determine the prices of health care services in other developed countries. The panel will provide a typology of the approaches commonly in use in other countries and examine a few specific systems in greater detail, with a particular focus on determining what lessons these other countries’ systems may have for policymakers in the United States.

Viewers can submit question for panelists by emailing events@brookings.edu or via Twitter with #HealthCarePrices.

       

On September 9, the USC-Brookings Schaeffer Initiative for Health Policy hosted, in honor of Uwe’s work, the first of three webinars examining whether a larger public role is appropriate.

The event also featured introductory remarks that will place the full webinar series in the context of Uwe’s long work on this topic. The event opened with Leonard Schaeffer, USC Sol Price School of Public Policy professor and Judge Robert Maclay Widney chair, who knew Uwe well over a long period, followed by Richard Besser, the president of the Robert Wood Johnson Foundation. Tsung-Mei Cheng, Uwe’s wife and colleague, who in recent years has written about initiatives in Germany and Taiwan to constrain health care prices, spoke about Uwe’s thinking on these issues.

Viewers can submit question for panelists by emailing events@brookings.edu or via Twitter with #HealthCarePrices.

       

Health insurance is a highly regulated product, overseen by state and federal authorities.  However, today’s market features a wide variety of loopholes that allow unregulated products  to proliferate, which may lead many consumers to purchase inadequate coverage without realizing it and increase premiums for people who rely on traditional comprehensive coverage. One pernicious example is fixed indemnity coverage, a benefit that is exempt from regulation but often masquerades as a traditional health insurance product. Fixed indemnity products are offered in problematic and nontransparent ways in the individual market for health insurance and by employers offering coverage to their workers. However, Congress, federal regulators, and states all have options to tighten regulation of these products and prevent them from undermining health insurance consumers and markets.

What is fixed indemnity coverage?

Traditional health insurance charges its enrollees a monthly premium, in exchange for paying for some or all of the health care services an individual receives. Fixed indemnity (also called hospital indemnity) coverage is designed differently, with payments made on a “per time period” basis. Rather than paying health care providers for providing specific services, fixed indemnity coverage provides a payment for each day (or month, or other time period) an individual is hospitalized or experiencing illness. 

Historically, this benefit was understood as a form of income replacement. That is, these policies were intended not to pay for medical care directly but instead to provide an alternative source income at a time when ability to work might be limited just as expenses were rising. Because it was thought to serve a different purpose than traditional health insurance, fixed indemnity coverage has, since the mid-1990s, been defined as an “excepted benefit” that is not subject to most federal health insurance regulations. Notably, the health insurance standards of the Affordable Care Act (ACA) do not apply to excepted benefits, so fixed indemnity coverage may discriminate based on pre-existing conditions, decline to cover the ACA’s essential health benefits, and need not cap enrollees’ annual out-of-pocket spending. 

What does this market look like today?   

In its historic format – paying a fixed benefit per day of illness, like $100 per day a patient is hospitalized – fixed indemnity coverage does not function as a substitute for health insurance. It is insuring not against the costs of health care services, specifically, but against the risk of disrupted income at a time of increased expenses. Households may of course reasonably choose to buy this product, especially as a complement to traditional health insurance. 

However, some modern benefit designs look very different. We are not aware of systematic data on fixed indemnity coverage in the individual or group market, but plan materials available to prospective consumers provide a glimpse into the nature of the benefits. Rather than paying a fixed amount per day of illness or hospitalization, generally, many existing fixed indemnity plans vary payment widely based on the specific health care services enrollees receive. That is, they pay $100 per visit to the pediatrician (or, in some plans, “per day” an enrollee visits the pediatrician), $30 per prescription for amoxicillin, and $1,000 per tonsillectomy. Plans may also have a more complex benefit design that mimics traditional insurance, requiring enrollees to hit a deductible before payout begins. Moreover, some modern indemnity products pay these amounts directly to health care providers – not to the enrollee – and have a network of providers with whom they have negotiated discounted rates for enrollees of the plan. In other words, these fixed indemnity plans can begin with a design that looks very much like a traditional health plan, append the phrase “per day” or “per service” to their reimbursement schedule, and render themselves exempt from regulation. 

One striking example is an app–based product available for sale in eleven states[1], which has 170,000 different reimbursement amounts for specific services. To pick just a few examples, the plan reimburses $3 for a blood draw, $153 to see an OBGYN, $1,119 for a 30 day course of the antibiotic Xifaxan, $7,198 if admitted to the hospital for a skin infection, and $10,903 if admitted to the hospital for a collapsed lung. Figures 1 and 2 show excerpts from the plan website, including a handful of the thousands of different payment amounts in this “fixed” indemnity product. While the plan is not transparent about how these payment amounts are derived, the benefit arrangements for hospital admissions and outpatient services appear to largely use Medicare’s Diagnosis Related Group (DRG) and Healthcare Common Procedure Coding System (HCPCS) service definitions, respectively, with a separate payment amount for each DRG and HCPCS code – the same basic structure as many traditional health insurance products.    

While this product is the most extreme example we encountered in our research, all fixed indemnity products we encountered vary payment amounts with the intensity of the medical care received to at least some degree. Payment for outpatient care is often highly variable, while payment for hospital services often varies along a smaller number of dimensions. For example, one plan pays an amount for hospitalization that varies only with whether or not the admission is for illness or injury, but outpatient services are paid as a multiple of the Medicare allowed amount for the actual care received. A large national carrier (that has a major online presence in many states) offers a multi-faceted reimbursement formula for surgeries: benefits are paid based on a four-tier schedule reflecting the complexity of the surgery plus separate amounts for anesthesiologists, assistant surgeons, and the outpatient facility fee. In this product, payment for a hospital admission does not vary based on the specific diagnosis, but does reflect characteristics of the care needed, such as whether it is in an ICU, what providers treat the patient on a given day, and whether the hospitalization is for illness or injury. Another carrier offers a fixed payment per day of “hospital confinement” but varying payments for short-stays in the hospital, emergency room visits, nursery stays for a newborn, “intensive” hospital diagnostic services, and the like. Many plans also allow consumers to select the level of reimbursement they would like to purchase ranging from, e.g., $100 to $3,000 per day of hospitalization – where the former reflects a product that might logically serve as income replacement while the latter is a benefit that is more likely to be conceived as payment for medical expenses. Figure 3 displays excerpts from some of these plan materials.  

Carriers’ network arrangements can also be sophisticated and reminiscent of traditional insurance, as shown in Figure 4. One fixed indemnity plan boasts of its large network with nearly 5,000 hospitals and a million physicians nationwide. Enrollees in the plan receive a discount below the providers’ usual rate for self-pay patients, though the magnitude of the discount is unclear. The fixed indemnity carrier will pay its scheduled amount to the provider, and the provider will bill patients for any remaining balance. (In this plan, if the payment amount is larger than the provider’s bill, the additional amount would be paid directly to the consumer.)  Some carriers offer ID cards, intended to be used like a traditional health insurance card where the provider bills the plan through standard electronic transactions. Another carrier offers a payment card that is linked to the enrollee’s plan and is used by the enrollee at the point of care for participating providers. When the payment card is used, the plan pays its share, and the enrollee’s credit or debit card on file with the plan is automatically debited for remaining amounts. These sorts of arrangements illustrate that the fixed indemnity product is clearly designed as the primary source of payment for medical care. A product intended to provide general income replacement or to help families pay a variety of expenses would have little need for a complex mechanism to route payments directly to providers; a product marketed to consumers as a substitute for traditional health insurance, on the other hand, has a clear reason to rely on these arrangements.  

What are the problems with this type of benefit? 

Fixed indemnity benefits that masquerade as traditional health insurance pose risks for consumers in the individual and employer markets.  

Product limitations 

First, consumers may purchase this product as a substitute for health insurance despite its serious limitations compared to comprehensive health insurance. Consumers are often seeking a product that transfers catastrophic financial risk to the health plan, but fixed indemnity products – almost by definition – do not do this. They set a payment amount associated with a specific service or kind of service is received, and consumers are responsible for any difference between this set payment amount and the actual cost of care.[2] In some fixed indemnity products, the plan will leave consumers exposed to significant additional costs in almost all cases: plans that pay $500 per day of hospitalization or $700 per surgery will leave most patients exposed to very large costs. But even the more complex products with widely variable (and generally higher) payment amounts can also expose consumers to high costs because of the variation in provider charges for services. These problems may be especially acute for non-shoppable and/or urgent health care needs, when consumers’ opportunities to investigate lower-priced alternatives may be limited. 

Beyond the limits inherent in the benefit design, some of these products include very low annual or lifetime benefit maximums layered on top of the per service benefit limits. For example, one carrier offers a plan with $10,000 annual limit.  These plans also exclude coverage for health care needs based on pre-existing conditions. Some screen for health conditions at enrollment. For example, a hypothetical 37–year old woman is denied the opportunity to enroll online if she reports taking generic medications to treat migraines – even if reporting no other health care needs. Other plans (particularly those offered through associations as described below) boast of allowing anyone to enroll but refuse to pay claims associated with pre-existing needs of their members for some period of time. Data are not available, but it is likely that carriers engage in extensive post-claims underwriting to deny claims, as is seen in other underwritten health insurance markets.   

Some consumers, particularly healthy people, may deliberately elect this benefit, preferring the lower premium and lower or absent deductible to the comprehensive coverage available in regulated plans. Others, though, purchase fixed indemnity products thinking them to be traditional, regulated health insurance. As described above, fixed indemnity products can very much resemble traditional health plans, especially for consumers who are not familiar with insurance terminology. Some plans (generally those with designs less reminiscent of traditional health insurance) describe their benefit as supplemental or highlight that it can be used to pay a variety of non-medical care expenses. But for plans with the more advanced designs described above, marketing tends to emphasize that they are a “simple” form of health benefit, and to use words like “health insurance” or “health plan” throughout their materials, as shown in Figure 6. All plans also include a disclaimer mandated by federal law in their marketing materials, though not always in a prominent location. 

Indeed, brokers marketing these products have been trained to use scripts that are designed to obscure the nature of the plan or make consumers believe the product is regulated under the ACA. Consumers who accidentally purchase a fixed indemnity plan may find themselves surprised by large bills if they have a serious medical event, such as a woman who faced $20,000 in medical bills after a partial amputation of her foot or a consumer who was shocked her plan paid only $2,000 after a major injury. Moreover, the use of post-claims underwriting makes it very difficult for consumers to know the value of the coverage they are purchasing, because they cannot know what future health needs might ultimately be called a pre-existing condition. 

Undermining risk pooling 

In addition, even when consumers fully understand the benefit they are purchasing, fixed indemnity products (like other forms of underwritten health insurance) cherry-pick healthy enrollees out of the regulated market. Thus, while they may be a lower-premium, albeit limited, coverage option for consumers who can pass underwriting, they lead to higher premiums for those who enroll in comprehensive and regulated coverage. This also increases costs for the federal government, which subsidizes premiums for about 70% of individual market enrollees. All forms of unregulated coverage have this impact, though some fixed indemnity carriers appear to deliberately encourage relatively sicker consumers to seek their benefits from the Marketplace, as shown in Figure 7. 

Employer misuse  

Finally, unlike short-term health plans (another familiar form of junk insurance) that are available only to individual consumers, fixed indemnity plans have also been used by employers to avoid regulation. To be sure, some employers offer fixed indemnity plans that are intended as a supplement to traditional health insurance – an optional income replacement product that employees may choose to carry alongside their health coverage. However, we find widespread anecdotal evidence of employers misusing fixed indemnity products and offering them to their employees as the primary employee health benefit, in ways inconsistent with the justification for exempting these plans from regulation. 

Fixed indemnity products may appear to be an attractive low-cost option for employers because they need not comply with various ACA requirements, most prominently the prohibition on annual and lifetime dollar limits on benefits. They allow an employer to offer some coverage for a type of medical care, like hospitalization, without becoming responsible for the full magnitude of what that type of care may cost. (In the individual market, another significant driver of low cost is that the plans are underwritten and the healthy do not pool risk with the sick, a feature that is less applicable in the employer context.)  Moreover, because employees are unlikely to be aware of the likely costs of these services, they have limited ability to accurately evaluate, for example, $300 per day in hospital benefits.  

One important downside of fixed indemnity plan from an employer’s perspective is that it does not qualify as an offer of coverage under the ACA’s employer mandate. For this reason, it is generally not in the employer’s interest to offer only a fixed indemnity plan. However, some employers have arrived at a strategy that allows them to minimize both their exposure to employer mandate penalties and the scope of the ACA’s consumer protections.  

Specifically, they offer two health benefits – a regulated plan that covers a very limited set of services (like primary and preventive care) and a fixed indemnity plan that covers all other benefits. One common design is to offer only the ACA’s required preventive services in the regulated plan, and offer all other benefits through the fixed indemnity product. A cursory search reveals numerous vendors and consultants that market this arrangement to employers (usually using the term “MEC plan” to describe the very limited regulated plan). Excerpts from plan enrollment materials presented to employees appear in Figure 8. 

As the figure shows, plan enrollment materials are technically accurate, but generate the impression that the fixed indemnity plan is a form of employer coverage similar to the regulated plan. As shown above, it is described as coverage for “day to day medical expenses” or “medical, Rx, and dental benefits.”  This seems likely to generate confusion among enrollees; a worker offered one of the plans shown in Figure 8 posted on Reddit with the query “I feel like my employer is deliberately giving me misleading information about my health insurance and I need your help.” Another employee offered a plan from a major national carrier could not figure out how his ulcer medications would be covered, while still another providing advice to a family member about enrollment was convinced the plan should have an out-of-pocket maximum. Given this confusion, people may enroll and only uncover the limitations when they have a medical event. For example, a man in Texas was surprised by $67,000 in hospital bills after a heart attack , unaware his employer plan offered most of its benefits through a fixed indemnity product that would pay only $400 for the episode of care.[3]  

What can policymakers do? 

Congress, federal agencies, and states can all take steps to address misuse of the fixed indemnity market and limit the exemption from regulation to plans that truly serve a different purpose from traditional health insurance. 

Congress  

The simplest solution is for Congress to change the law  so that a fixed indemnity plan only qualifies as an excepted benefit if two conditions are met: (1) the benefit design must be truly “fixed” and (2) enrollees must maintain other coverage. To ensure a fixed design, policymakers can clarify that fixed indemnity plans cannot offer benefits that vary with an individual course of treatment, while still allowing plans to vary payment based on major distinctions like the setting of the care (e.g. whether a patient is hospitalized). Congress may also consider adding anti-abuse language that establishes clear authority for regulators to prevent attempts to evade these prohibitions. 

For example, Congress could add the underlined text below to the language appearing at § 2721(c) of the Public Health Service Act (and make parallel modifications elsewhere in federal law) to achieve these objectives:  

(3)Benefits not subject to requirements if offered as independent, noncoordinated benefits

[….]

(B)Hospital indemnity or other fixed indemnity insurance that meets all of the following requirements:

(i) The coverage is provided only to individuals enrolled in other coverage that includes the essential health benefit package as defined in section 2707(a) of this title,

(ii) The coverage does not vary payment with the services received, the severity of the illness, injury, or diagnosis, or other characteristics particular to a course of treatment; and

(iii) The coverage does not duplicate, supplant, or mimic the benefits otherwise provided under this title.

This step may be particularly important if Congress also takes action to restrict or eliminate short-term plans. Given the ongoing signs of abuse of the fixed indemnity benefit form and the fact that major players in the short-term plans market are already offering complex fixed indemnity products, there is a real risk that closing down the short term plans loophole without also addressing fixed indemnity coverage would simply lead the underwritten market to shift to fixed indemnity plans. Therefore, if Congress wants to eliminate underwritten alternatives to individual insurance, it would be wise to address these products together. Indeed, one of us has argued elsewhere that a comprehensive fix should also tackle a few other forms of unregulated insurance along with short-term and fixed indemnity plans. 

Federal agencies 

In the absence of new legislation, federal agencies can also take steps to limit problematic fixed indemnity polices. In fact, in 2014 the federal government attempted to adopt new standards for fixed indemnity plans, but critical parts of those regulations were blocked by a federal court. Specifically, the 2014 regulations attempted to impose a requirement that fixed indemnity enrollees in the individual market carry another form of coverage, but the court concluded that the statute did not allow agencies to define “additional criteria” for fixed indemnity plans. Therefore, if policymakers wish to pursue that approach, it must be implemented legislatively. But nothing in the court’s opinion affects the federal government’s authority to define a fixed indemnity plan through regulation. Congress has regulated most forms of health insurance but provided that fixed indemnity plans are exempt; therefore, there must be specific features that distinguish excepted from regulated coverage. That is, agencies retain authority to regulate the degree to which fixed indemnity coverage must actually be “fixed.”   

Current regulations governing fixed indemnity coverage in the group market specify that fixed indemnity coverage “must pay a fixed dollar amount per day (or per other period) of hospitalization or illness (for example, $100/day) regardless of the amount of expenses incurred.”  Some of today’s carriers thus infer that any payment schedule that appends the phrase “per day” to a benefit amount and does not vary with actual costs is permissible. Even more problematically, regulations governing the individual market allow payments to vary per time period “and/or per service ([for example] $50/visit).”  This per service language was added at the time of the 2014 rule change described above that required enrollees to carry other coverage. The agencies concluded that because carriers knew enrollees had other coverage, the benefit would naturally be designed to avoid duplicating traditional coverage and there was no need to impose restrictions on design that ensured this outcome. However, when the federal court struck down the requirement to have other coverage, the “per service” language remained in place.  

The statute does not compel these expansive definitions. Federal agencies can pursue a definition in both the group and individual market specifying that indemnity coverage must be “fixed” in meaningful ways that distinguish it from traditional coverage. For example, the agencies could adopt the approach articulated above, specifying that the coverage “must pay a fixed dollar amount per day (or per other period) of hospitalization or illness (for example, $100/day) regardless of the amount of expenses incurred, the services received, the severity of the illness, injury, or diagnosis, or other characteristics particular to a course of treatment.”  It should also be coupled with updates to the disclosure requirements that educate consumers on the specific role of fixed indemnity coverage.

This would require most fixed indemnity carries to make some changes in their benefit designs, and would likely eliminate the segment of the market that attempts to compete directly with comprehensive coverage. This would certainly generate opposition from plans and could be expected to lead to litigation. However, the agencies have a strong argument that a plan paying $8,958 dollars when an enrollee is hospitalized for a lung artery blockage and $8,870 when hospitalized for a peripheral blood vessel disorder cannot claim that the statute requires agencies to categorize its benefit as “fixed.”    

Federal regulators also have options to better oversee the way in which employers offer fixed indemnity coverage, even without amending their regulations. The statute specifies that fixed indemnity coverage in the group market is a “noncoordinated” excepted benefit, a term not defined in statute. Existing regulations therefore require that “there is no coordination between the provision of the benefits and an exclusion of benefits under any group health plan maintained by the same plan sponsor.”  Yet recall in Figure 8 that we saw employers presenting their fixed indemnity and regulated coverage as a package consisting of complementary parts. Employers appear to interpret the prohibition on “coordination… with an exclusion” to forbid only contractual coordination of benefits prohibitions, as that term is used in insurance law. But a more natural use of the phrase would suggest that the fixed indemnity plan in these examples is, in fact, very carefully coordinated with the benefits excluded from the regulated plan. The agencies could explain as much in guidance, stating that the sorts of pairing employers are offering today represents unlawful coordination with an exclusion within the meaning of the regulations. 

States  

States may also pursue variants of these potential federal steps. Just as 25 states have acted to address the proliferation of short-term plans in their markets, states can also limit the reach of fixed indemnity plans. Indeed, anecdotally, we see evidence of fixed indemnity plans designed to compete with comprehensive individual market coverage in many states that have taken aggressive action to prevent short term plans.[4]  Therefore:  

• States may establish a requirement in state statute, regulation, or bulletin that fixed indemnity plans may only be sold to people with other coverage. The court decision striking down this approach in federal regulation does not affect states: states have plenary authority to regulate insurance products, not rooted in the text of the Public Health Service Act, and so may impose “additional criteria” under state law as long as they are not weaker than federal standards. 

• Similarly, states can require that fixed indemnity benefits do not vary with “the services received, the severity of the illness, injury, or diagnosis, or other characteristics particular to a course of treatment,” or similar standards that limit the amount of variation within the plan. State regulators may also have authority to simply refuse to approve indemnity products with benefit designs they deem insufficiently “fixed,” so they should carefully review products seeking approval. 

That said, substantive standards in state law are not all that is necessary. Some fixed indemnity plans are operated through “out-of-state associations.”  The association forms in a single state and is licensed to offer an individual fixed indemnity product in that state – but sells the product to residents of many other states.[5]  In that case, the state of residence has not examined or approved the product and it does not necessarily comply with the substantive or solvency  protections of state law. (This same conduct appears to be very common in the short-term plans market as well.)  Federal law does not authorize out-of-state associations to operate in this way; states have authority to regulate insurance sold to their residents. Some states have clearly asserted jurisdiction over these plans and barred them from sale; states should uniformly take this step.  

States also have some ability to oversee employers’ conduct in offering fixed indemnity plans. The Employee Retirement Income Security Act (ERISA) and its implementing regulations do not authorize employers to offer “self-insured” fixed indemnity coverage; fixed indemnity plans are only an excepted benefit to the extent that they are offered under a “separate contract of insurance.”  Therefore, employer fixed indemnity benefits are offered as insurance in a state and are subject to state oversight. Further, the prohibition on “coordination with an exclusion” in another plan is imposed on the (insured) fixed indemnity product – not just the employer – so the state may enforce it directly. Thus, states can issue guidance that limits complementary indemnity and MEC plans. 

Researchers 

Finally, we note that much more information is needed about the fixed indemnity market. Ongoing investigation by Congressional leaders, states and insurance commissioners, and a variety of journalists and independent researchers is beginning to provide a clear picture of short-term limited-duration insurance. We have a far less comprehensive and data-informed view of the fixed indemnity market. While the anecdotal evidence presented here and elsewhere is a start, additional research can fill important gaps.  

[1] Those states are: Alabama, Arkansas, Florida, Georgia, Indiana, Kentucky, North Carolina, Oklahoma, South Carolina, Tennessee and Texas.
[2] Historically, and in many modern plans, this risk is at least two sided, with the consumer receiving the full amount even if their medical services cost less than the designated payment amount. But even that assumption appears to be eroding. We could find at least one example of a plan that appears to pay at least some parts of its benefit only up to the amount of provider chargers, and does not pay excess amounts to enrollees, as shown below.[3] The worker was paying $130 per month for the benefit which appeared to cover him and his wife. A married couple in the same region with an income $47,000 or less would receive subsidies that allowed them to pay less than $130 per month for Marketplace coverage.
[4] For example Delaware, Oregon, and Maryland all restrict short-term plans to 3 months or less, but a popular fixed indemnity product from a major carrier designed to resemble major medical is available for sale; the product is also available in a number of states that otherwise restrict short term plans including Colorado, Illinois, Louisiana, Maine, Michigan, Minnesota, Missouri, Nevada, and Wyoming.
[5] These associations are different from “Association Health Plans” under federal regulations.

       

The Families First and Coronavirus Relief Act (FFCRA), as amended by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, provides that testing for the detection of SARS-CoV-2, the virus that causes COVID-19, and the associated office, urgent care, or emergency room visit shall be free to the patient, so long as the federally-declared public health emergency is in effect. This protection applies to virtually every form of health coverage, including Medicare, Medicaid, and private insurance (other than some forms of coverage, such as short-term plans, that are exempt from much insurance regulation). Federal law also establishes a fund that will pay for tests delivered to uninsured patients if a provider chooses to seek reimbursement.

Unfortunately, since enactment, a number of press reports have highlighted examples of insurers, employers, and providers not following the law. Some of this likely stems from uncertainty in how to interpret the law or about its existence, while some may reflect efforts to skirt their legal obligations. Recent guidance put forward by the Trump administration adds some clarification, but also leaves a few important questions unanswered.

Clarifying and enforcing existing law is important, but more is also needed to guarantee financing for COVID-19 testing that promotes public health goals.

This blog aims to clarify the existing laws and guidance governing payment for COVID-19 testing, highlight ambiguities, and suggest improvements.

What the law requires

The FFCRA specifies that all COVID-19 testing approved by the Food and Drug Administration (FDA) or for which emergency use authorization (EUA) has been requested (until the EUA has been ruled on) and any associated medical services shall be covered by Medicare, Medicaid, and private insurance without any cost-sharing requirements for the patient. Coverage must be provided without “prior authorization or other medical management requirements.” In addition, the costs of testing and associated medical services for the uninsured can be paid through the National Disaster Management System (NDMS) at 110% of Medicare rates, and a state can opt to cover these costs for uninsured patients through their Medicaid program (with the costs effectively reimbursed in full by the federal government).

Additionally, Sec. 3202 of the CARES Act requires commercial insurers to pay for out-of-network testing at whatever dollar amount the provider publicly lists as the “cash price” on their website. Note that the term“cash price” in this instance has little meaning since all COVID-19 tests can be free at the point of sale to all patients. Trump administration guidance (Q9) interprets the combined FFCRA and CARES Act provisions as prohibiting testing entities from balance billing beyond publicly-listed “cash price” amounts for test services. Further, providers who accept CARES Act provider relief funds are not allowed to balance bill any presumptive COVID-19 patient (including a patient seeking testing) for out-of-network covered medical services.

Recent Trump administration guidance attempts to clarify how insurance companies and group health plans should implement these requirements. The guidance documents explain that the mandate to cover testing with no cost-sharing applies to all types of COVID-19 diagnostics – PCR tests, antigen detection tests, and serology tests – including when a patient is asymptomatic. However, the guidance also interprets the statute to apply only to testing done for “diagnostic purposes” and “when medically appropriate for the individual, as determined by the individual’s attending health care provider in accordance with accepted standards of current medical practice.” The agencies have defined an “attending health care provider” as any licensed provider making an “individualized clinical assessment.” The guidance further specifies that at-home testing ordered by a medical professional must be covered at a cost of $0 to the patient.

On the other hand, the guidance says that health plans need not cover testing done for general workplace safety or public health surveillance, because these tests are not for “individualized diagnosis or treatment.”  Health plans are not required to reimburse for tests that an individual is required to obtain to, for example, return to work or school, which means workers and students may be expected to pay for those tests themselves. Together, this creates some ambiguity about coverage for tests conducted at “drive-through” or other general access sites or in circumstances where a patient has no specific reasons to suspect exposure but wants to be sure of a negative result (such as before visiting family). Has a clinician ordering a test at a drive-through site made a sufficiently “individualized” determination?  Does seeking peace of mind before interacting with others constitute a “diagnostic purpose” or a “surveillance” purpose?  Arguably, the most natural read of the guidance would suggest coverage should be provided in these circumstances, but some payers may continue to otherwise interpret agency statements.

What isn’t allowed

Judging by stories in the press and conversations with stakeholders, it is clear that some insurers, employers, and providers are skirting the law. Consumers are being billed – sometimes thousands of dollars – for services where existing law clearly prohibits it.  Widespread news coverage of these cases may deter others from seeking testing, so it is important for policymakers to understand these shortcomings so they can promote widespread compliance.  We note four legal requirements, in particular, where unlawful consumer bills have emerged:

1. Out-of-network testing entities cannot balance bill patients. It was initially unclear whether a testing entity, such as Gibson Diagnostic Lab, could balance bill for the difference between their charges (or list price) and the publicly-listed “cash price,” but recent Trump administration guidance clarifies that this action is prohibited.
2. Health plans cannot decline to cover office, telehealth, urgent care, or emergency room visit that results in an order for a COVID-19 test and cannot charge any cost-sharing from the patient. This requirement applies to the “administration” of a COVID-19 test and all “items and services furnished to an individual” during visits “that result in an order for or administration of a [COVID-19 test].” Recent guidance clarifies that this requirement includes services to determine whether a COVID-19 diagnostic test is necessary, such as a flu test or chest x-ray, if a COVID-19 test is subsequently provided. Out-of-network services also must be covered without cost-sharing, although the out-of-network provider can subsequently balance bill the patient for the visit or associated services (but not the test itself).
3. Health plans cannot exclude serology testing done for “individualized” diagnostic purposes when ordered or administered by a medical professional, nor can they exclude testing for asymptomatic patients with suspected exposure.
   
4. Self-insured employer health plans cannot escape these requirements. The statute and Trump administration guidance are crystal clear that all the COVID-19 testing coverage rules apply equally to self-insured employer health plans. Astoundingly, we have heard  reports of self-funded plans claiming that the law does not apply to them and the CEO of the National Alliance of Healthcare Purchaser Coalitions admitted as much to California Healthline.

Where current law falls short

Clarifying and enforcing the existing laws is important, but there will still remain critical gaps in access to and support for COVID-19 testing.

Billing of uninsured patients

Under current policy, a provider has the option to seek reimbursement from the federal government for testing an uninsured patient, but is not required to do so. Therefore, some uninsured patients may still end up getting billed for COVID-19 testing, or avoid testing out of fear of being billed.

Peverse incentives for out-of-network test pricing

The CARES Act mandates that commercial insurers pay for out-of-network COVID-19 testing at whatever price the testing entity lists on a public website, discussed in more detail in a previous blog. This requirement creates a perverse incentive for some providers to price gouge for out-of-network testing, although abuses to date appear relatively limited (likely in part because almost every lab needs to contract with insurers and employers for at least some services).

Access to “non-diagnostic” testing

Under current guidance, health plans and other forms of coverage need only cover tests done for “diagnostic purposes” and “when medically appropriate for the individual, as determined by the individual’s attending health care provider in accordance with accepted standards of current medical practice.” This leaves a glaring gap in access to and how to pay for other forms of testing that connote public health benefits, such as regular testing of employees at higher-risk jobs or students and teachers and making available convenient testing for individuals before engaging in travel or higher-risk activities. Widespread testing conveys broad benefits to public health, the economy, and personal well-being, reducing risk associated with necessary activities and enabling a wider spectrum of economic and social activities to be conducted safely.

Relying on employers and school districts (or workers and students themselves) to fund regular testing, as current law does, will almost certainly result in sub-optimal take-up and risks exacerbating existing inequities. Employers with lower-wage workforces and school districts with less financial resources may be less able or willing to cover the costs of testing on their own.

Testing quality and capacity constraints

Making free COVID-19 testing available, on its own, does little to address testing capacity constraints, which appear to be emerging as a significant problem once again. Similarly, little federal effort has been made to incentivize features of COVID-19 testing that could be useful for public health goals, such as accuracy or quick turnaround times.

How to make things better

There are important steps that the Administration and Congress can take to improve financing for and coverage of COVID-19  testing. These include some discrete items – clarifying coverage requirements, limiting billing of the uninsured, and addressing out-of-network pricing – and also larger reforms to improve access to and financing of testing that patients do not independently seek out. Each of these issues is discussed further below.

Clarify coverage for office visits

First, FFCRA clearly requires coverage without cost-sharing of the visit at which a COVID-19 test is delivered and existing Administration guidance specifies that this mandate encompasses out-of-network coverage for all services described in the statute, which should make patients secure in the knowledge that their testing truly will be free of charge. Yet there are widespread reports of individuals being charged for visits at which COVID-19 tests are delivered, perhaps because payers have not focused sufficient attention on ensuring their claims systems recognize these cases and handle them appropriately. The Administration can issue simple and unequivocal guidance that should focus payer attention and put an end to these bills.  If they do not do so, Congress can also restate this issue in their next relief package.

Limit billing of the uninsured

Under current policy, a provider has the option to seek reimbursement from the federal government for testing an uninsured patient but is not required to do so.  The Administration can take steps to limit the extent to which uninsured patients are billed, and require many providers to seek federal reimbursement through the NDMS as their source of payment.

Specifically, we have previously argued that providers that receive funding from the broad “Provider Relief Fund” should be required to refrain from billing the uninsured for all COVID-19 services (testing and treatment) as a condition of receiving any funds.  The Administration has declined to take that step to date, but they could certainly adapt the policy to apply only to testing coverage.  Providers that accept any federal funds from either NDMS or the Provider Relief Fund could be required to seek NDMS funding for all tests delivered to the uninsured. As above, if the Administration fails to take this step, Congress could also establish such a requirement.

Fix out-of-network pricing for COVID-19 testing

Lawmakers should also address the distorted pricing for out-of-network testing. Private insurers should be required to pay for out-of-network diagnostic COVID-19 testing and associated services at prevailing in-network rates or Medicare prices (which tend to be similar for lab tests), or a multiple thereof, rather than at whatever price the provider publicly lists on a website, and balance billing above this amount should be explicitly prohibited. If such a fix proves not possible, lawmakers should at least codify Trump Administration guidance that explains that existing state balance billing protections and out-of-network payment requirements supersede the federal law where applicable.

Improve access to and financing of COVID-19 testing

The Trump administration interprets FFCRA and the CARES Act to require coverage only for tests done for “diagnostic purposes” and “when medically appropriate for the individual, as determined by the individual’s attending health care provider in accordance with accepted standards of current medical practice.” But the statute does not contain such restrictions: the statute requires coverage for services without “prior authorization or medical management requirements.”  The guidance’s reliance on whether or not a test was sufficiently based on an “individualized clinical assessment” is arguably exactly the kind of medical management that Congress was trying to prevent. It makes it impossible for an individual contemplating a test to know with certainty that his insurance will cover the service, because coverage relies on judgments made between his insurance company and provider that he cannot ascertain in advance. Indeed, a bicameral group of lawmakers wrote to the federal agencies arguing that the guidance as “contrary to statute” and testing should be covered “without conditions or limitations,” because the intent of the statute was to give all consumers confidence that their testing would be covered and remove financing as a consumer concern.  Agencies should revisit their guidance and align with the statutory requirements, such that any individual seeking testing from a drive-through or general access site has assurance her insurance will cover the service. Congress could also order reversal of the guidance in future legislation.

However, insurance coverage need not be our only strategy to pay for COVID-19 testing. Indeed, there are good reasons to pay for testing for public health surveillance or for workers and students through direct federal subsidies rather than indirectly through private health insurance. COVID-19 testing would continue to be covered with no cost-sharing by private and public insurers for all tests consumers independently seek, but the federal government would pay directly for regular testing of employees in higher-risk professions deemed essential, particularly where the incentive or ability to pay for testing themselves is weaker, for students and teachers, and for any public health surveillance purposes.

Having the federal government directly pay for COVID-19 testing also simplifies the process of updating coverage guidelines in light of new evidence and administering large back-to-work or back-to-school testing programs. Additionally, direct federal payment makes easier the creation of financial incentives for features of testing desirable for public health purposes, such as quick turnaround times and accuracy, that may be viewed as less valuable to an insurer. Guarantees of both pricing and volume tied to such features can help overcome testing capacity constraints. There are almost certainly more hands-on approaches to addressing these capacity constraints that should be pursued, but we steer clear of specific recommendations in this area given our lack of expertise.

Direct federal payment for COVID-19 testing that patients do not independently seek out makes executing a strategy easier, but fundamentally what is needed most is federal leadership and a plan. And, of course, federal planning should tackle issues far beyond the financing issues discussed here. The federal government needs to step up to guarantee widespread access to accurate COVID-19 testing with quick turnaround results and the viability of back-to-work and back-to-school testing.