Tag Archives: Loss Ratio

Does the last-minute Obamacare exemption fix anything?

One of my favorite writers on health care policy is Michael F. Cannon of the libertarian Cato Institute. He has an article in Forbes magazine that I think is a good level-set for the Obamacare changes that are happening in 2014 and beyond.

He writes:

[…]President Obama announced, just days before the deadline for purchasing coverage with a January 1 effective date, that he would offer a categorical “hardship exemption” from the individual mandate to anyone who had their insurance cancelled due to ObamaCare.

[…]If these folks choose not to buy health insurance, they will not face a penalty. They will also have the option to buy, “if it is available in your area,” the lower-cost catastrophic coverage that ObamaCare otherwise offers only to people under age 30, or who receive the separate “unaffordability” exemption from the mandate.

The obvious purpose of this policy is to give political cover to Senate Democrats who must face the voters next year, and are no doubt afraid of attack ads like this one.

[…]Yet this exemption may not be of much value to those who qualify, and is likely to create more problems for ObamaCare supporters than it solves.

The people who qualify for this exemption don’t actually want it. They want health insurance. They had affordable coverage, until ObamaCare took it away from them, and that’s what they still want now. Sebelius boasts that ObamaCare’s catastrophic plans cost 20 percent less than other ObamaCare plans, but don’t confuse that with affordable coverage. The Manhattan Institute’s Avik Roy — who is now the opinion editor for the sprawling Forbes empire – notes that ObamaCare’s catastrophic plans can still cost twice as much as what was previously available on the individual market.

But even if they like their catastrophic plan, they can’t keep it. Sebelius has complete control over the duration of the exemptions, which she has described as a “temporary” step “to smooth [consumers’] transition” to enrollment in Exchange plans. So in a matter of months, Obama will violate his “if you like your health plan” pledge again by kicking these folks out of their catastrophic plans. They will get another cancellation letter tossing them into the Exchanges. Their premiums will surge again. They may lose their doctor again.

The exemption means insurers will suffer losses this year, and rates will be higher next year, for all ObamaCare plans.

The president argued before the Supreme Court that ObamaCare’s regulatory scheme cannot work with out the individual mandate. Yet he has now exempted millions of the very people he most needs to comply with it. This exemption siphons good risks out of the Exchanges and destabilizes the risk pools for both the standard ObamaCare plans and the catastrophic plans. Participating carriers set the rates for their Exchange plans with the expectation that these folks would be purchasing bronze, silver, gold, and platinum plans through the Exchanges. But the healthiest members of this now-exempt group are the most likely to go uninsured or purchase a catastrophic plan. So Obama’s blanket exemption makes those risk pools older and sicker.

This blanket exemption also destabilizes the risk pools for the catastrophic plans. It opens those pools to lots of people over age 30, who have higher health expenses than people under age 30, and whom the insurers were not expecting to buy catastrophic plans when they set those rates.

So the effect of this is going to be to raise rates temporarily, because the insurers companies are not getting the younger, healthy people they need to make the rates as low as they originally calculated. They are going to lose a ton of money because the Democrats are changing the rules at the last minute. They people who have coverage are going to be the ones who make all the claims, and the people who normally don’t make claims are now exempt, temporarily – until the 2014 elections. This is going to be a huge hit to the health insurance companies.

As I noted before, the Democrats are going to have to bail out the insurance companies in order to account for the losses. It’s actually in the Obamacare law already, as David Freddoso explained. But will the Democrats use money from their political party to pay for their mistakes? Hell no – they will borrow it from your children, which is what they are so good at doing. There is a cost for electing incompetent people, and it’s going to continue to rise until the fools are voted out.

MUST READ: How Nancy Pelosi plans to bankrupt private medical insurers

Story here at Director Blue. (H/T Fausta’s Blog via ECM)

Here’s section 2714 of the health care reform bill.

(a) In General- Each health insurance issuer that offers health insurance coverage in the small or large group market shall provide that for any plan year in which the coverage has a medical loss ratio below a level specified by the Secretary (but not less than 85 percent), the issuer shall provide in a manner specified by the Secretary for rebates to enrollees of the amount by which the issuer’s medical loss ratio is less than the level so specified.

Unless I am mistaken, this means that medical insurers will be forced to pay out 85% of premiums collected as either losses (claims) or as rebates to customers.

So, private medical insurers will only be able to use 15% of all premium collected for operating expenses, such as salaries, rate dvelopment, claims processing, etc. But is 15% of income from premiums enough to keep a business afloat?

Director Blue writes:

Why would a loss ratio that permits only a 15% administrative margin for insurers cause companies to fail? Consider that the administrative expenses include collecting premiums; processing and paying claims; monitoring patient care; staffing customer service functions; paying costs to state and federal regulators; paying sales agents; and general overhead (rent, power, heat, light); etc.

I repeat: No company has ever survived with a loss ratio approaching 85%.

What are we to make of Obama’s claim that we could keep our health plan if we liked it, in light of this new evidence? If what Director Blue has argued is true, you will be depending on the federal government for health care. You will have no choice. And whatever they tell you to do, you will do it. They will be the sole provider of health care for you  and your family. This is how liberty dies – to thunderous applause.

What the Democrat’s health care bill means to you

Director Blue also has a post up about what the Democrat health care bill means to you, in 90 seconds.

Excerpt:

The CBO now estimates health bill spending at $3 trillion over 10 years. Since the CBO historically underestimates expenses, assume massive new deficits for a country that can ill afford them.

You’ll be required to buy a ‘qualified’ health plan. A family earning $102K a year will pay $1,700 a month in premium and out-of-pocket expenses. ‘Willful’ failure to buy a plan will result in a fine of up to $250,000 and ‘imprisonment of up to five years’. Illegal immigrants are exempt from fines and imprisonment.

Every business in America must provide a ‘qualified plan’ for employees and pay 72.5% of the cost. Failure to do so results in an 8% payroll tax.

Read the rest. I would think that some people who worked for medical insurers voted for Obama. Actually, one of the strongest Democrats I know actually left our company recently to go work for a medical insurer. He said that health care was a safe industry during a recession. He’s going to learn the importance of studying economics if this bill passes.

How the Democrats got endorsements from the AMA and AARP

One last thing. ECM also sent me this article on how the Democrats were able to get endorsements from the AMA and the AARP.