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Here’s How We Can Fix Obamacare if We Act Now and Stop Pretending the Problems Don’t Exist

To properly price the exchange health insurance business going forward the carriers have to sharply increase the rates.

A senior executive for Wellpoint, which sells plans in 14 Obamacare exchanges, is quoted in a Reuters article telling Wall Street analysts there will be big rate increases in 2015, “Looking at the rate increases on a year-over-year basis on our exchanges, and it will vary by carrier, but all of them will probably be double digits.”

If the health plans do issue double digit rate increases for 2015, Obamacare is finished.

There are a ton of things that need to be fixed in Obamacare. But, I will suggest there is one thing that could save it.

The health insurance companies have to submit their new health insurance plans and rates between May 27 and June 27 for the 2015 Obamacare open-enrollment period beginning on November 15th. Any major modifications to the current Obamacare regulations need to be issued in the next month to give the carriers time to adjust and develop new products.

If the administration goes into the next open enrollment with the same unattractive plan offerings costing a lot more than they do today, they will not be able to reboot Obamacare.

Simply, health insurance plans that cost middle-class individuals and families 10% of their after-tax income and have average Silver Plan deductibles of more than $2,500 a month are not attractive and people won’t buy them any more enthusiastically next fall than they already have. See: Obamacare: The Uninsured Are Not Signing Up Because the Dogs Don’t Like It

Doubling the fines for not buying in 2015 will only give the Democrats more political problems––and it doesn’t look to me like they are going to enforce the fines anyway.

Health insurance plan executives are now faced with a daunting decision. How do they price the 2015 Obamacare exchange plans?

Even if the administration announces they have signed-up about 6 million people by March 31, the number of people enrolling would be well below expectations––only about 25% of those subsidy eligible will have signed up by the deadline. An enrollment that small guarantees the risk pool is sicker and more expensive than it needs to be in order to be sustainable.

But dramatically increasing the rates will only assure even fewer healthy people will sign up for 2015 and some of those who signed up for 2014 will back out over the higher rates. This is what a “death spiral” looks like.


The health plans will be helped considerably by the “3Rs” Obamacare reinsurance scheme that makes $20 billion available for 2014 – 2016 to cushion the costs of bringing the previously uninsurable into the new health insurance system.

But the reinsurance scheme only limits most of the carriers’ annual underwriting losses––it doesn’t eliminate them.

By the end of 2016, just one year past the next plan year, the insurance companies need to get their Obamacare health plans on a profitable footing.

So, how do the insurance companies set their prices for 2015?

Do the carriers go easy on their renewals continuing to price their offerings below profitable levels, relying on the temporary reinsurance scheme to cover most of their losses, fearing that a big rate increase would finish off Obamacare and hoping the administration can reboot Obamacare in 2015 by getting the enrollment to acceptable levels?

Or, do they presume Obamacare cannot be rebooted given the currently unattractive plan offerings and it’s hopeless to continue to take losses on something that has little or no chance of ever succeeding?

For insurers to have faith Obamacare is worth the continued investment and the risk the administration needs to quickly demonstrate they understand this program is in big trouble and they are willing to make big changes to save it.

And, whatever insurance executives think, do Democrats want to go into the November elections offering the same unattractive health plan offerings at even higher prices? Open enrollment doesn’t begin until November 15 but the plans will be out and will be well publicized before Election Day.

The administration can go a long way toward fixing this and do it within the scope of the statute and their regulatory authority.

Here’s what I would suggest.

Give carriers the ability to offer plans outside the Bronze, Silver, Gold, and Platinum structure.

Let them offer people plans they will find attractive––premium, deductibles, and benefits.

But, require any new plans to:

  1. Satisfy the 60% actuarial minimum in the statute––no “junk” plans.
  2. Give consumers the detail to compare the standard Silver Plan to any new offerings––full transparency.

Give carriers the ability to swap current benefit mandates (that were set by regulation not statute) for lower premiums and deductibles and be completely transparent in what those trade-offs are while still complying with the underlying statutory requirement that the plans must be worth at least 60% of total health care costs. The administration has the power to do this within the scope of the law.

Would such a range of choices lead to anti-selection within Obamacare?

Yes. But it would be manageable just as broad choices are manageable within the Medicare Part D program and the Medicare Advantage program where consumers are very happy with the choices they are offered and the plans have succeeded in getting an excellent spread of risk.

Without the sense Obamacare is salvageable the Obama administration risks having carriers giving up hope that Obamacare will ever work. The administration needs the insurance companies to believe this is fixable for them to remain committed.

Ardent Obamacare supporters won’t want to do this.

Want to save Obamacare? Want to have at least a chance of avoiding an Election Day debacle in November?

I believe the administration has about a month to give health plans the confidence this can be saved.

If the carriers do what the Wellpoint executive has told Wall Street analysts they are about to do, Obamacare is finished. The “death spiral” will have begun.

But there is a way for the Obama administration to get the new health law back on track.

Robert Laszewski has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog, where this post first appeared.

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cobblawgroup.net/?p=4265daveallanMatthew HoltRandom Observer Recent comment authors
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cobblawgroup.net/?p=4265
Guest

avolablog.it

dave
Guest
dave

after all the problems I had signing up , when I said apply on the Marketplace site,it went to a site where I could sign up by email, phone or contact the insurance agency. I opted for the insurance agency and they billed me $269.00 a month , out of pocket, for a plan that I thought should have been $19.00 a month out of pocket.They did not give me a quote or anything they just billed me. I called the insurance agency and told them I cant afford this, and they said go back to the Marketplace. When I… Read more »

Matthew Holt
Guest

Either there’s a secret we dont know or Bob is talking rubbish again, like he has since (lets remember) he said that we would only have a successful reform if Republicans joined in to pass it with Democrats–or when pigs flew. Then he said that there would be terrible rate shock, and instead rates in the exchange were on average well below expected. Then because of healthcare.govs troubles no one would sign up–but we’re not so far away from expectations despite the IT fisacco. I am the only surprised (well not really) that Bob is now obsessed with the risk… Read more »

allan
Guest
allan

Is there a reason my posting was not posted? — MHolt: “Bob is talking rubbish again” Talking rubbish is not advisable when your own dialog is at the bottom of the bin. MH: “Bob is talking rubbish again” Obamacare was supposed to reduce costs not inflate them and despite your stating that rates were below what was expected they are on average above the rates that we should have expected based upon the promises of the President and everyone else involved. Add to that high deductibles and small panels and you have insurance that is rubbish. Not so far away… Read more »

Bob Hertz
Guest

Note to Barry:

Of course not all employers would raise salaries if they did not have to buy health insurance. Employers who are ‘living on the edge’ would gladly just stop health insurance and do nothing (I have seen this happen when I sold insurance to numerous companies in construction.)

The only way to expand Medicare downwards in age would be to do it a few ages at at time, like down to 63 and then 62, etc. The tax bite would not be very noticeable. Health care reform seems to depend on low visibility for taxes.

Barry Carol
Guest
Barry Carol

Bob, I don’t like the one or two years at a time approach to expand Medicare eligibility because I think it’s sneaky. It reminds me of the comment attributed to Jean Baptiste Colbert who said: “The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least amount of squawking.” I believe in transparency, especially with respect to taxation and healthcare costs. Taxation should be as transparent and visible as possible. It should be like a nice slow pitch over the middle of the plate so we voters have time to… Read more »

Joel Hassman, MD
Guest
Joel Hassman, MD

Get the law back on track? Why? It never was on any semblance of a “track” to benefit the public in the first place, outside the few perks that should have been intrinsic all along, covering people with preexisting conditions, providing realistic care options to those without access to insurance, and maximizing preventative services if used appropriately. Just part of the tricks of the magician, or moreso the thief. Pay no attention to the crook’s hands, just listen to his voice and watch his face! It is just beyond both disingenuous and dishonest how the Obamacare suppoprters, apologists, and defenders… Read more »

Cynthia
Guest
Cynthia

Health insurers wouldn’t be in such a financial pickle if their P:E ratios weren’t so outrageously high. Overpricing of health insurance stocks has only gotten worse ever since ObamaCare was deemed by the Supreme Court as the so-called “Law of the Land.” If health insurers, as a particular asset class, would be reclassify as a public utility, as they should be, investor expectations of these companies would fall in line with what they are really worth. Oh sure, health insurance executives would no longer be afforded multimillion dollar salaries, and anyone who’s invested in health insurance stocks would initially take… Read more »

Bob Hertz
Guest

Mr Turpin has great insights, but I do not agree about Medicare sending us to any poorhouse. Say that we lowered the age of Medicare to 55. A big step, but hear me out. That would bring about 25 million persons into Medicare. Let’s say that the cost for these persons in unmanaged care is $8,000 a person. (I think that is about what new 65 year old entrants into Medicare actually cost.) 25 million times $8,000 is $200 billion. Set against that would be premiums that the 55-65 year olds would pay themselves, plus some kind of assessment to… Read more »

Barry Carol
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Barry Carol

Bob, Michael Turpin’s comment about sending us to the poorhouse was based on unmanaged Medicare being extended to everyone, not just people over 55 years old. There are currently roundly 52 million people on Medicare and 55 million on Medicaid. If you subtract the 10 million people eligible for both programs, that leaves 97 million net. There are 315 million people in the U.S. If we subtract 10 million illegal immigrants who presumably wouldn’t be eligible for publicly financed health insurance that leaves 305 million. Deducting the 97 million already on Medicare or Medicaid leaves 208 million. If we applied… Read more »

Cynthia
Guest
Cynthia

What is sending us to the poorhouse is the medical-industrial complex, not Medicare per se , whether it’s unmanaged or not.

Bob Hertz
Guest

Michael Turpin confirms what I have thought for a long time — namely, that the drafters of the ACA were absolute babes in the woods vs. the insurance industry. Kind of like the League of Women Voters trying to regulate the Mafia. As for letting pre-65’s into Medicare: this was proposed by Robert Kuttner several times, and backed up by Mickey Kaus on his blog in October. it would cost a lot of tax money, but the pain would be spread over all taxpayers. The great flaw of the ACA has been that the costs of guaranteed issue and modified… Read more »

Barry Carol
Guest
Barry Carol

Bob, Employer health plans, whether fully insured or self-funded, have always been community / experience rated. Some employers pay more per covered life than others based on the average age and health status of their workforce and their families. There is also guaranteed issue as long as the employee signs up when he first joins the company or can meet the qualifying event criteria like losing coverage under a spouse’s plan. A 30 year old who needs single coverage has the same $5,000 or so (minus the employee’s share of the premium) of annual total compensation allocated away from wages… Read more »

Michael Turpin
Guest

Billy, core insurer trends are running at 4-6%. Read any analyst report. Core trends need to be adjusted upwards to account for products, case mix of participants etc. Carriers are still using very conservative assumptions for RX and Medical trends which is cushion that they can book later as earnings if results come in below the trend they are using. Analysts reports refer to this as “releasing reserves”. I call it overcharging my clients. A large employer who is self insured with 3000 employees is probably seeing trends closer to 4%. One could argue that by definition individual policy pools… Read more »

Barry Carol
Guest
Barry Carol

Michael, I’m interested in your thoughts about the potential for large hospital systems to get into the health insurance business and become large Kaiser-like integrated delivery systems. Presumably, they current lack the actuarial expertise to properly price insurance offerings but Ezekiel Emanuel thinks they could buy that expertise pretty easily for a reasonable price. I also wonder what happens when patients need care when traveling outside their home region. How is reimbursement determined under those circumstances and does it matter if care is delivered under emergency conditions, including in an ER, or not? Some of this exists now outside of… Read more »

Billy Wynne
Guest

Great post. Two (rhetorical-ish) questions:

1. What have YoY premium increases been over the past few years? A 10% hike for 2015 strikes me as in line with the trend.
2. If the enrollment picture is so grim, why are insurers also reporting, often on the same Street calls, improved earnings estimates due to more favorable than expected Exchange books?

Perry
Guest
Perry

“However the major problem is making the powers who can make changes to be aware of these factors!”

With all due respect Mr. Laszewski, I think most of us who read and post in these blogs are in agreement with you that there are many problems.

The pretenders (as Ms Hickman mentioned ) are the ones empowered to do something about it, and unfortunately, keeping up the pretense, as in Zeke Emmanuel’s declaration that all is going well in Obamacare.

Ms Hickman
Guest

Yes the ideas in this article can resolve some of the plan’s problems when it comes to up coming rate hikes. However the major problem is making the powers who can make changes to be aware of these factors! So many don’t have a clue as to how this governmental plan has been a way for the insurance industry to make PROFITS!!!! From the consumer side there is not any provision for how they pay their premium costs if the lose their job. They have to wait till next year to get the tax credits refunded to them for what… Read more »

Peter1
Guest
Peter1

“If the health plans do issue double digit rate increases for 2015, Obamacare is finished.” Why I’m staying out. I’m not turning over premiums to carriers that I would normally pay to myself only to have ACA go bust and I would loose that money altogether. “1) Make the penalty for purchasing insurance equal to the lowest priced affordable plan so there is no incentive to go bare on coverage.” For me Michael that would be thousands of dollars. You might as well say force people to buy the least cost Cadillac. I’d agree if we decoupled health insurance from… Read more »

Michael Turpin
Guest
Michael Turpin

Barry is correct. The policies that were cancelled and rewritten to incorporate coverage to meet minimum mandated requirements. Also, age banded community rating creates risk compression and with an expectation that a disproportionate amount of initial purchasers would be older consumers, insurers hedged. Also, insurers furthered hedged due to a rate filing process that requires an insurer by May 2014 to file rates effective for January 2015. With normal claim lag, the carriers effectively two months of claims experience to calculate 2015 rates. It will be a stab in the dark to peg risk correctly and while reinsurance will back… Read more »

Michael Turpin
Guest
Michael Turpin

Barry is correct. The policies that were cancelled and rewritten to incorporate coverage to meet minimum mandated requirements. Also, age banded community rating creates compression and with an expectation that a disproportionate amount of initial purchasers would be older consumers, insurers hedged. Also, insurers furthered hedged as the rate filing process requires an insurer by May 2014 to file rates effective for January 2015. With normal claim lag, the carriers effectively two months of claims experience to calculate 2015 rates. It will be a stab in the dark and while reinsurance will back stop those who guess wrong for the… Read more »

Barry Carol
Guest
Barry Carol

Michael Turpin, Great comments as usual. I certainly agree about increasing the penalty. The only reason I didn’t mention it is that it probably can’t get through the political process but if it could be done by executive order, it should be. Regarding an all payer approach, in listening to Wellpoint’s recent Investor Day webcast, they again mentioned their superior discounts vs. competitors because of their leading or very strong #2 market position in each of the 14 states where they are a Blue Cross licensee. I wonder, though, if payers, providers and insured members wouldn’t all be better off… Read more »

Michael Turpin
Guest
Michael Turpin

Barry, insurers ( I don’t speak for UHC and they would not want me to) consider their negotiated fees as their secret sauce and it proves a formidable barrier to entry for someone who might be able to offer better service and consumer engagement but lacks the economics to offer larger multi site self funded employers with an alternative. Think if we had all-payer Legislation with health plan ACOs. My guess is insurers would be disintermediated because they no longer had much to offer the providers — except perhaps tools to better manage and track their own population risks. No.… Read more »