Tag: health insurance premiums

ObamaCare’s Premium Refunds: Bad News for the Sick

USA Today and Politico Pulse report that ObamaCare has prompted BlueCross BlueShield of North Carolina to rebate $156 million to its customers in the individual market.  This may seem like good news.  It’s actually bad news, particularly for BCBS’s sickest customers.

Pre-ObamaCare, BCBS’s customers – whether healthy or sick – had coverage with an insurer that had already pre-funded their future medical needs. Competition protected them from BCBS skimping on care: if BCBS got a reputation for skimping, it would have a hard time enrolling new customers.

Post-ObamaCare, BCBS no longer needs that pile of cash, so they’re returning it to their customers. That hurts sick enrollees because BCBS is doling it out to all enrollees – not just the sick enrollees whom that money is supposed to serve. This cash-out is actually a transfer from the sick to the healthy.

Also, every BCBS customer who is sick or becomes sick in the future will have less protection against their insurer skimping on care. Competition used to discourage insurers from providing lousy access to care, but under ObamaCare competition will reward skimping. Under ObamaCare’s price controls, insurers that gain a reputation for providing quality coverage to the sick will attract sick people and go out of business.  Insurers that gain a reputation for providing lousy access to care will drive away sick people and thrive.

ObamaCare & Health Insurance Premiums: Out of the Frying Pan, into the Fire

During the (initial) congressional debate over ObamaCare, President Obama vilified Anthem Blue Cross of California for a 39 percent rate increase.  On Wednesday, the Hartford Courant reported that ObamaCare itself may increase premiums by similar amounts:

Health insurers are asking for immediate rate hikes of more than 20 percent in Connecticut for some plans, citing rising medical costs and federal health reform laws as reasons…

In what might appear to be an oddity, companies are citing a huge range of effects that the health care reform mandates will have on plan prices — from near zero to well over 20 percent. The reason is that among all the plans, some already deliver the provisions required by health reform, while others do not…

Anthem Blue Cross and Blue Shield in Connecticut, by far the largest insurer of Connecticut residents, said in a letter that it expects the federal health reform law to increase rates by as much as 22.9 percent for just a single provision — removing annual spending caps. The mandate to provide benefits to children regardless of pre-existing conditions will raise premiums by 4.8 percent, Anthem said in the letter. Mandated preventive care with no deductibles would raise rates by as much as 8.5 percent, Anthem said.

It was unclear how those separate factors would add up for Anthem’s plans, but those potential increases were all on top of rising medical costs.

If those increases are cumulative, ObamaCare could increase premiums for some Connecticut residents by more than 36 percent.

Compare that to what President Obama said in his weekly radio address on February 20:

The other week, men and women across California opened up their mailboxes to find a letter from Anthem Blue Cross. The news inside was jaw-dropping. Anthem was alerting almost a million of its customers that it would be raising premiums by an average of 25 percent, with about a quarter of folks likely to see their rates go up by anywhere from 35 to 39 percent

And as bad as things are today, they’ll only get worse if we fail to act… We’ll see exploding premiums and out-of-pocket costs burn through more and more family budgets.

It sure seems like President Obama promised that ObamaCare would make things better.  Instead, it pushed us out of the frying pan and into the fire.

HHS Secretary Katheleen Sebelius said that Anthem Blue Cross of California’s 39 percent rate increase “just doesn’t make a lot of sense to people across America.”  She said those “extraordinary” increases threaten “to make health care unaffordable for hundreds of thousands of Californians, many of whom are already struggling to make ends meet in a difficult economy.”  Will she say the same about ObamaCare’s premium increases?  Or will she threaten to put Anthem Blue Cross and Blue Shield of Connecticut out of business for its insolence?

ObamaCare Regs’ Effect on Uncompensated Care Overblown

An Obama administration “fact sheet,” released alongside the interim final rules for several of ObamaCare’s cost-increasing mandates, claims those mandates will reduce the “hidden tax” imposed by uncompensated care:

By making sure insurance covers people who are most at risk, there will be less uncompensated care and the amount of cost shifting among those who have coverage today will be reduced by up to $1 billion in 2013.

According to research by the Urban Institute, that “hidden tax” isn’t very large:

Private insurance premiums are at most 1.7 percent higher because of the shifting of the costs of the uninsured to private insurers in the form of higher charges.

As the Congressional Budget Office repeatedly lectures Congress, “Uncompensated care is less significant than many people assume.”

Likewise, these mandates’ effect on uncompensated care will be less significant than the Obama administration would like you to think.  Using data from the Centers for Medicare & Medicaid Services and a reasonable assumption of 6-percent annual growth, total private health insurance premiums in 2013 will be in the neighborhood of $1.1 trillion.  So the administration is boasting that these mandates will reduce the 1.7-percent “hidden tax” imposed by uncompensated care to 1.61 percent.

Indeed, the whole of ObamaCare may not do much to reduce the “hidden tax” of uncompensated care. After Massachusetts enacted a nearly identical law, the Urban Institute reports, “high levels of emergency department (ED) use have persisted in Massachusetts. Specifically, ED use was high in Massachusetts prior to health reform and has stayed high under health reform.”  A lot of uncompensated care comes in through the ED.

Finally, notice how a 1.7-percentage-point premium surcharge is a bad thing if President Obama is ostensibly rescuing you from it, but a good thing if he’s imposing it on you.

SEC vs. Goldman Sachs: Legislation by Demonization

The Obama administration thinks it has discovered the perfect formula to cram legislation through in a hurry:  Demonize some prominent firm within an industry you plan to redesign, and then pass a law that has nothing to do with the accusation against the demonized firm.  They did this with health insurance and now they’re trying it with finance.

With health insurance, the demon was Anthem Blue Cross Blue Shield of California, which Obama accused of raising premiums by “anywhere from 35 to 39 percent.” Why didn’t some curious reporter interview a single person who actually paid 39% more, or quote from a letter announcing such an increase?  Because it didn’t happen.  Insurance premiums are regulated by the states, and California wouldn’t approve such a boost.  Yet the media’s uncritical outrage over that 39% rumor helped to enact an intrusive, redistributive health bill that has nothing to do with health insurance premiums (which remain regulated by the states).

Today, the new demon de jour is Goldman Sachs, a handy scapegoat to promote hasty financial rejiggering schemes  The SEC’s suspiciously-timed civil suit against Goldman looks as flimsy as the last month’s health insurance story.  It also looks unlikely to win in court.

As Washington Post columnist Sebastian Mallaby explains, “This is a non-scandal. The securities in question, so-called synthetic collateralized debt obligations, cannot exist unless somebody is betting that they will lose value.”  In such a zero-sum contest, big investors who went long knew perfectly well that other investors had to be taking the other side of the bet.  Goldman lost $90 million by betting this CDO would go up; John Paulson went short.

Columnists have moralized about the unfairness of the short investor (Paulson) negotiating the terms of this deal with a long investor, ACA Management, which had the last word. This too, notes Mallaby, “is another non-scandal.  An investor who wants to bet against a bundle of mortgages is entitled to suggest what should go into the bundle. The buyer is equally entitled to make counter-suggestions.  As the SEC’s complaint states clearly, the lead buyer in this deal, a boutique called ACA that specialized in mortgage securities, did precisely that.”

Like the earlier fuming about Anthem California, this new SEC publicity stunt is likewise irrelevant to the pending legislation.  Congress hopes to get standardized derivatives traded on an exchange. But synthetic collateralized debt obligations dealing with a customized bundle of securities could not possibly be traded on an exchange, and would therefore be untouched by reform.

Losses sustained by a few financial speculators on one exotic derivative had nothing to do with starting a global recession in December 2007 or the related financial crisis of September 2008. The core of the latter crisis was mortgage-backed securities per se, yet Goldman was only the 12th largest private MBS issuer in 2007.  Fannie Mae and Freddie Mac were and are the biggest risk; any reform that excludes them is a fraud.

The SEC’s dubious civil suit against Goldman is a wasteful diversion at best. It has nothing to do with the Obama administration’s suicidal impulse to impose more tough regulations and taxes on banks to encourage them to lend more.

[Cross-posted at NRO’s The Corner]

Monday Links

  • An overview of the many hurdles the health care bill still faces in the House.
  • Will conservatives ultimately oppose the war in Afghanistan? Join us for a lively discussion this Thursday at Cato featuring Joe Scarborough, Grover Norquist, Rep. Tom McClintock (R-CA) and more. Registration free. Will be broadcast online live Thursday at the link.

Health Cost Projections to 2019: The Doc Fix Trick Again

Congressman Paul Ryan (R-WI) takes the President to task for cooking the books on projected health care costs, most egregiously with the “doc fix” – namely, assuming Medicare slashes physician payments by 21.3% this year and subsequently lets them fall continuously in real terms.

What nobody seems to have noticed is that the same phony “doc fix” taints the new “Health Spending Projections Through 2019” from Centers for Medicare and Medicaid Services (CMS).

Drew Altman, president and CEO of the Kaiser Family Foundation, tries to downplay the CMS forecast “that the public sector will start paying more than half of the nation’s health care bill starting in 2012, and that government spending will grow faster than private spending from 2009 to 2019 (an average of 7.0% per year vs. 5.2%).”

Worrying about such spending trends is a foolish “ideological battle over the role of government,” says Altman, because rapid increases in government health spending is “just the byproduct of economic and demographic trends” (recession and an aging population).   “Is government health spending out of control?” he asks; answering “NO” in capital letters.  “The report simply underscores the need to control health care costs in the public and the private sectors alike.”

On the contrary, the reason government health care spending is projected to slow down to 7% a year is, the CMS explains, “due principally to the 21.3% reduction in physician payment rates … mandated in current law.”

Putting aside such “doctored” projections, “health spending by public payers ($1.2 trillion) is projected to have grown much faster in 2009 (8.7 percent) than that of private payers (3.0 percent).”

That was not because of high inflation in costs of medical goods and services (which should not differ much between government and private payers), but because the government has only in recent years been heavily subsidizing health insurance for the unemployed and drug insurance for seniors, and actively expanding the enrollment of Medicaid programs which (being “free”) often lure people out of employer-sponsored plans.

What Congressional Democrats call “reform” is, in fact, much more of the same—more non-poor people getting Medicaid and other subsidies that are yanked away if you work too hard.

No, It’s Not Health Inflation

Describing  runaway entitlement spending as “health inflation” is terribly misleading (even when Rep. Ryan does it), because doing so confuses rising prices with rising utilization of medical goods and services by people who are insulated from actual costs by taxpayer-financed subsidies.

Government subsidies also raise costs to those using private insurance.  The CMS notes that 2009’s 4.6% increase “private health insurance premium spending per employee … resulted in part from an increase in the proportion of high-cost claims—many of whom have temporary COBRA coverage” [emphasis added], which is 65% financed by taxpayers.

By contrast, health inflation per se is projected to be 2.8% this year – comparable to other labor-intensive service industries and also down from 3.2% in 2009 and 3% in 2008.     Morevoer, “out-of-pocket spending is projected to have grown 2.1 percent in 2009, down from 2.8% in 2008.”

What about all the uninformed media fuss about health insurance companies supposedly “asking for” premium increases of “up to” 39%?

If President Obama really wanted to find out how quickly typical health insurance premiums have been increasing, he could have a staffer call the Bureau of Labor Statistics and ask for Table 3A of the “Consumer Price Index Detailed Report Tables Annual Averages 2009.”  It turns out the consumer price index for health insurance premiums fell by 3.2% in 2009.

ObamaCare 3.0: Higher Implicit Taxes, Quicker Death Spiral

In a recent paper, I showed that the health care legislation passed by the House and Senate would impose punitive implicit tax rates on low- and middle-income workers.  Those bills would also result in higher health insurance premiums over time because they would create large financial incentives for healthy people to drop coverage and only purchase it when they become sick.

The health care proposal that President Obama released yesterday essentially splits the difference on most areas of disagreement between the two bills.  But a preliminary analysis shows that ObamaCare 3.0 would make these perverse incentives even worse.  Families of four earning $22,000 under the Senate bill (100 percent of the federal poverty level) or $30,000 under the House bill or the Obama plan (133 percent FPL) would face the following effective marginal tax rates as they climb the economic ladder:

  • Senate bill - Average: 62 percent.  High: 73 percent.
  • House bill -  Average: 74 percent. High: 82 percent.
  • Obama plan - Average: 72 percent. High: 90 percent.

In other words, over broad ranges of income, families of four would see their take-home pay rise by an average of 28 cents of each additional dollar earned.  In some cases, it would rise as little as 10 cents for each additional dollar earned.  Using smaller changes in income reveals the Obama plan would create EMTRs as large as 200 percent or higher.  That is, earning more money would leave many families worse off financially.

In addition, by requiring insurers to cover all applicants without regard to illness, each of these health plans would remove any penalty on waiting until you are sick to purchase coverage.  Therefore – even after accounting for all relevant taxes, subsidies, and penalties – these plans would create large financial incentives for healthy people to drop out of the market, which would cause premiums to rise for those who remain.  That would in turn encourage more healthy people to drop out, which would cause premiums to rise further, and so on.  Those perverse incentives are much worse under the Obama plan than under the House or Senate bills.  Here are the maximum financial incentives to drop coverage that each plan would create for families of four:

  • Senate bill: $8,000
  • House bill: $7,800
  • Obama plan: $9,900

By increasing the financial incentives to drop coverage, the Obama plan would cause private insurance markets to unravel even faster than the House and Senate bills would.