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.

30 replies »

  1. 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 contacted the Marketplace they told me they could not change the plan while it is in effect. If I Icancell it I cant sign up again till the Marketplace opens again next fall.
    I guess I got Screwed by the Marketplace and the Insurance Company. All I know is that being on just Social securety, I cant afford this insurance. the amount im paying out of pocket is more than what I paid for group insurance at my former employer making more than twice my Social Security earnings, and my income level is such that i dont even have to file income tax, but I have to file income tax to get a silver plan through the Marketplace .I want to thank the Marketplace and my insurance company for all this mess. I’ll probably have to file bankruptcy ,or skip some of my other bills to pay for this if I keep it( the insurance).I’m very irritated with the whole idea of Obamacare

  2. 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 from expectations: Ha. You have very low expectations. Placing people on Medicaid is not the insurance promoted during the election season. How many people that signed up have actually paid? Many of the sign ups on the exchanges are transfers from much better insurance.

    The IT fiasco is the tip of the iceberg and demonstrates how woefully this administration is in trying to build anything. It’s like ‘cash for clunkers’ that increased the prices for used cars that the less fortunate people buy. Note how the program destroys cars and builds nothing. That is what this administration does best.

  3. 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 pool being screwed and insurers losing their shirt, yet last week, Wellpoint–the exact plan he talks about–increased its earnings BECAUSE of exchange based enrollment.

    We need to take a breath here….the insurers are on their way to being the regulated utilities that most the ones supporting reform (not including Wellpoint) wanted to be. And as they get more and more of the employer risk pool joining the exchanges, they’ll do fine!

  4. 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 examine it carefully before deciding whether or not we want to swing at it. Politicians, by contrast, like to throw us 100 mile per hour fastballs mixed with wicked curves. Maybe that’s part of the reason why they’re held in such low regard.

  5. 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.

  6. The reinsurance phase-out is pushing up rates. Fees are assessed against all commercial lives (individual, small, large). Pot of money is then allocated to the individual line only. It is a subsidy to individual. This re-insurance phases out over 3 years, pushing up rates on individual above normal trend in aggregate. All carriers assumed an average level of reinsurance in 2014. Given there is very little credible experience for 2015, all carriers are assuming the new average level of reinsurance payments in 2015. Since 2015 reinsurance is less than 2014, the result is higher individual increase versus trend across industry and lower small/large group increases versus trend (holding all else constant).

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

  8. 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 show outright denial, projection, minimization, deflection, and pathological rationalizing how the progression of this legislation has been the definitive example of how deeds are so opposite of words. If the law is so great, why the continual delays and exemptions? Yes, those are the deeds, we get it!

    The architects of this lying legislative intrusion had 3 and a half years to figure out how to implement it, and after 6 more months, still show idiocy and ignorance and plain insensitivity to the impacts affecting the public.

    I guess I have to wonder with people who just reflexively continue to defend this garbage, do you put up with pervasive liars, cheats, and criminals in your day to day lives outside partisan agendas? My working theory of late is we have such a sizeable portion of America that is so profoundly narcissistic and antisocial, it has forced those who aren’t impaired with such personality disordered attitudes to have to basically make one of two choices: either succumb to characterological lifestyles and attitudes, or, avoid or superficially give an illusion of acceptance when forced to deal with the corrupt.

    Oh, there is not a third option, of fighting the level of dysfunction in this country, because you will be crushed. But, one could theoretically start by using the electoral process of not reelecting incompetent and corrupt leaders, irregardless of party affiliation come November.

    Gee, that could be one way to rectify this rectal intrusion by the Democraps.

    Not that I have ANY faith in a Repugnocant alternative. The way they are ranting these past few weeks, they are just chomping at the bit to go to war with Russia.

    Just remember this as a definition to what is antisocial as a political agenda, torture without accountability, or taxation without restraint. I think it sums up the overall agenda of either end of the Republocrats these last couple of decades, eh?

  9. 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 a huge hit. They’ll soon recover, though, and quickly realize that having stocks that grow slowly but steadily over time and provide modest yet reliable earnings is a big plus for any investment portfolio.

  10. 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 Medicare to all of them at a conservative average cost of $5,000 per covered life that would cost $1.04 trillion or 6.5% of GDP. Total federal revenue is only about 17.0%-17.5% of GDP today.

    If employers who no longer had to pay for health insurance raised wages by the amount they were previously paying for insurance and that incremental pay were subject to current FICA and federal income taxes, it would probably raise $250-$300 billion leaving at least $740 billion to be financed by incremental federal taxation which implies at least a 25% increase in federal revenue that would come from either a huge increase in income taxes, FICA taxes or a new broad based value added tax that would probably have to be at least 12% and possibly as much as 15% if FICA and income tax rates remained unchanged. Americans are just not prepared to accept anything like this even if the people in Western Europe are perfectly fine with it.

    Your estimate of 2% of payroll to extend Medicare to people older than 55 needs to be looked at in the context of the current Medicare portion of FICA taxes which is 2.9% of payroll with half nominally paid by the employer but actually paid by the employee in the former of lower wages than would otherwise be paid. As part of the ACA, there is also a new 0.9% Medicare tax that applies to wages and investment income in excess of $250K of adjusted gross income for joint filers and $200K for single filers. The 2.9% combined rate that still applies to most people hasn’t been increased since 1986. A 200 basis point increase would be huge and would be highly unlikely to garner much support especially from the middle class.

  11. 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 their employers for the great relief this brings for employer plans.

    So let’s say the net cost to the Gov’t is $120 billion a year.

    That is 2 per cent of payroll.

    As you have pointed out, Barry, France and other OECD nations pay 13-18% of payroll for health care and they are not generally in the poor house
    (though France may be on the way).

    The extra 2% would not put in America in anyone’s poorhouse.

  12. 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 and into health insurance costs as a 60 year old does.

    Even small group plans were experience rated though their premium could skyrocket if one employee got very sick or there was a very expensive low birth weight preemie case. It was only the individual market that was underwritten to the point where sick individuals could not get coverage at any price other than maybe through a high risk pool (at high cost to them) for mediocre coverage if their state had one.

    Employees generally don’t appreciate that they are paying the entire cost of their health insurance in the form of lower wages than they would otherwise be paid. They don’t see it. They don’t understand it. They think the company is just giving it to them for free as a fringe benefit. They’re wrong.

    It’s also interesting to note that Michael Turpin, an expert on this subject with long and broad industry experience, tells us that unmanaged Medicare for everyone would quickly send the country to the poorhouse.

  13. 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 community rating have been dropped onto the minority of persons who are actually in the individual and small group markets.

    FDR never did this. He always promised better benefits to farmers, or the elderly, etc,, but the cost of those benefits was dispersed over all taxpayers.

  14. 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 Kaiser but it doesn’t seem like it’s very easy to scale or to provide in multiple non-contiguous geographies. Conversely, does it make much sense for insurers to buy hospitals like Highmark did with West Penn Allegheny?

  15. 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. I think for
    all the teeth gnashing. The big hospitals and insurers are aligned
    in their opposition to the homogenization of reimbursement.

  16. 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 are selected against and should run at higher trends, but community rating, the incidence of higher deductible plans and public exchange risk adjustment reimbursement should help.

    The carriers always argue that they will “lose” money. Carriers are really more like financial institutions than risk bearing institutions. Their “losses” are not true losses where their entire claims exceed their profit. They are essentially lower profits than they expected. BTW, there is nothing wrong with turning a profit but not unlike oil and tobacco, as a healthcare executive you must expect noise if you are making a lot of money. How you make money in healthcare is as important as how much you make because on the other side of the shareholder ledger there are disenfranchised people which becomes a public policy issue — in this case 50M uninsured, many of whom simply can’t afford healthcare or don’t want to spend their precious discretionary income on mandated healthcare. This is especially true for young invincibles who think bad things happen to other people.

    As for record earnings, under ACA, the insurers are supposedly held to an 80 or 85% minimum loss ratio based on the line of business ( 80% for ind/small group and 85% for larger employers). For groups over 50, an insurer can make a larger profit on an individual employer but has to keep the aggregate loss ratio for their entire statewide large employer book of business at 85% or “rebate” premiums back to former policyholders.

    Many insurers continue to run loss ratios lower than 85% but then use the excess dollars that would otherwise be refunded in the next policy period to buy down renewals on existing higher spending customers or give “credits”, rebates or premium holidays to new customers to win business. You will see fewer and fewer rebates being paid as the regs go forward as the government made no provision for how the 85% loss ratio needed to be achieved or whether the insurer could rebate excesses from a previous policy period to artificially buy-down the price of their quotes to win prospective customers.

    Carriers earnings are also posting profits from health services subsidiaries that are not included in the maximum 15% SGA limits. Carriers manage pharmacy claims and book undisclosed rebates. They charge capitation charges paid to their own or third party subsidiaries where they can make additional profit for charging higher than the claims. These costs are all booked as “claims” costs.

    Most insured plans don’t break this out for employers and many brokers are too dumb to ask. Most insured employers still have their carrier running margins well in excess of what the Administration thought they were obligating insurers to when the regs were past. The insurers did a good job negotiating the language of the regs to leave wiggle room to move profit dollars around. are allowed to charge to claims medical management costs that are viewed as services that positively impact the cost of claims.

    The sad irony is the carrier is paying claims but also they have become a provider by contracting with their own subsidiaries — potentially providing services for as much as 30% or more of claims. Shareholders applaud this move as they are doing what anyone would do — moving up and down the food chain and purchasing more of the pipes that deliver and charge for health services.

    Yet, how can you be objective when you are charging a customer to manage claims and also allowing for generous transfer pricing, essentially paying yourself for services with the policyholders money. Its quite an ingenuous pivot and all perfectly legal. I’d cynically say buy healthcare stocks as the only thing that can upset their apple cart is the conversion of every employer in the US to self insured, transparent financing and/or a single payer. Don’t count on either. States will lose insured premium taxes if everyone self funds so you can bet that strange alliances will form to try to prevent healthy groups from self insuring and the industry has scared employers into believing the additional risk you assume with self insurance is not worth the risk. Less than 1% of employers ever penetrate their aggregate stop loss so this is a canard. its now 8% to 10% more expensive to fully insure than self fund because of taxes levied on fully insure plans.

    As for single payer, it is not going to happen in the near term although the track we are on could lead to the opening up of Medicare to pre-65 in certain markets to compete in exchanges that do not have enough competition. If this happens, Katy bar the door. Unmanaged fee for service Medicare for all in America will put us in the poor house unless we further cut already slim reimbursements and drive health improvement — two sacred cows that have yet to be slain.

    Personally, whatever we do, we will all have to settle for something less than what we want — high quality, easy access and affordability. If you think we can get that, there’s a bridge I’d like to sell you.

  17. 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?

  18. “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.

  19. 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 they pay in.

    Having been in these shoes before: to rich to qualify for Public aid and too poor to pay cobra charges, on unemployment benefits I know the powers that be haven’t got a clue! So the people who still can’t afford it are STILL NOT COVERED!
    So the Affordable isn’t affordable!

  20. 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 if we at least had complete transparency around contract reimbursement rates. It would be a lot easier for providers if there were more uniformity. They complain that each insurer has different rates, coverage provisions and pre-authorization requirements which increase administrative complexity. There needs to be more standardization here, I think. It seems that insurers should be able to compete based on customer service and controlling utilization by working with providers. Since you’re a former UNH executive, what am I missing here and why are the larger insurers so resistant to an all payer approach or, failing that, price transparency?

    On the doc fix, Congress should just repeal the SGR formula without paying for it but that can’t get through the political process either because Republicans won’t support it.

  21. “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 employment subsidies and put everyone in the same cost coverage boat – then maybe there’d be political will to lower costs.

  22. 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 stop those who guess wrong for the first two years, the exchanges are not the kind of risk pool where you want to be trying to make up for underpricing rates. Prior approval of rates and a radioactive review process will restrict double digit increases that many may feel are required to cover the risk pool. If they cant get them, they may withdraw from the exchange.

    As for my own partial wish list of fiixes. Here are a few. Don’t throw the tomatoes too hard. I offer them with complete disregard for our broken political process.

    1) Make the penalty for purchasing insurance equal to the lowest priced affordable plan so there is no incentive to go bare on coverage.

    2) Consider all-payer legislation for inpatient care indexed to a percentage of Medicare. This is where unit cost disparities are often greatest ( inpatient versus outpatient). It removes barriers to care for new competitive entrants. Consider opening up Medicare or Medicaid pre-65 in markets where there are less than three insurers participating in a public exchange. I know large hospitals will howl at this one.

    3) Address “Doc Fix” issues. The less uncertainty around payment reforms, the less likely payers can justufy keeping reserves well above statutory limits and cling to conservative pricing. The uncertainty has precluded a normal cycle for not for profit insurers where excess reserves get released and lead to a soft market pricing cycle that while not good for for profit insurers, is good for purchasers Transparency and certainty removes the excuse that a war chest of reserves must be held above required statutory limits.

    4) Stop delays and unilateral amendments to legislation – any delays in penalties and requirements change the assumptions made to underwrite the cost of the risk and leads to more margin baked into fully rates.

  23. 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 first two years, the exchanges are not the kind if risk pool where you want to be trying to make up for rates the lag the risk you have underwritten. Prior approval or rates and a radioactive review process will restrict increases that may be required to cover the risk pool.

    As for my own controversial fixes. Don’t throw the tomatoes to hard. In offer them with complete disregard fornour broken political process.

    1) Make the penalty for purchasing insurance equal to the lowest priced affordable plan so there is no incentive to go bare on coverage.

    2) Consider all-payer legislation for inpatient indexed to Medicare where unit cost disparities are greatest to remove barriers to care for new insurance entrants. Open up Medicare or Medicaid pre-65 in markets where there are less than three insurers participating in a public exchange.

    3) Address “Doc Fix” issues. The less uncertainty around payment reforms, the less likely payers can justufy keeping reserves well above statutory limits and cling to conservative pricing. The uncertainty has precluded a normal cycke for not for profit insurers where excess reserves get released and kead to soft market pricing cycle that while not goodnfor for profit insurers, is goodmfor purchasers Transparency and certainty removes the excuse that warchest reserves must be held above required statutory limits.

    4) Stop delays and unilateral amendments to legislation – any delays in penalties and requirements change the assumptions made to underwrite the cost of the risk leads to more margin baked into fully insured assumptions.

    Okay, I’ve opened myself up already to the peanut gallery of pundits. John, feel free ti wade in!

  24. I calculate that as long as average total healthcosts are less than $3,000 per person per year or so (basically, as long as an average individual’s risk of hospitalization is less than 30%) the bronze level plans will be profitable. I do think that we will see unraveling of platinum and gold plans because these are not appropriately risk-rated relative to the bronze plans, but overall I simply don’t see the risks you mention. It’s clearly a design flaw, but Obamacare can easily survive by offering only bronze level plans. Do you have any actual evidence that bronze level plans won’t be profitable? A statement by an insurance executive is the definition of cheap talk.

    I think you are on the wrong track with this stuff about less comprehensive, lower deductible plan. We need insurance to cover extreme tail risks only–all other redistribution should be done through the tax code, not private insurance markets. Thus, comprehensive coverage of expenses over $2,500 is worth quite a lot more than crappy coverage of the first $2,500.

  25. I can think of at least two reasons. First, the benefit package may be significantly more comprehensive than what was offered previously. More coverage means more claims costs, other things equal. Second, the average age of the insured population may be older than previously and its average health status may be worse meaning there are now more sick people with expensive health needs. The stabilization of overall utilization and prices per service, test or procedure are certainly welcome as mitigating factors but they are not the whole story.

  26. Can someone explain to me why insurance rates are going up so drastically while the overall cost of healthcare is remaining almost flat? If this extra money is not going for healthcare costs, then it is going somewhere.

  27. The risk corridors could be made permanent since Medicare Part D had them since inception of that program. I don’t hear anyone complaining about insurance company bailouts for the Part D program. Also, the feds could offer insurers free or very low cost reinsurance above a $1 million attachment point and make that permanent as well.

    I think people have unreasonable expectations around how much comprehensive health insurance should cost. Most large employers spend an average of $5K or more per covered life and they use pure community rating in determining the individual employee premium contribution for both single and family coverage. The French pay 13% of income for what is basically Medicare that pays 70% of the bills and then most people buy a supplemental plan or get one through their employer on top of that to cover the other 30% of charges.

    If it were up to me, the main concession I would make to young healthy people is to allow the purchase of a catastrophic coverage policy with a deductible as high as $10,000 per person or $20,000 per family, raise the age limit for people who can buy such a policy to 40 and make it eligible for subsidies on the same basis as the bronze, silver, gold and platinum plans.

    At the end of the day, if people think health insurance is useful, they need to expect to pay a premium that allows insurers to cover claims costs, reasonable administrative costs and earn a fair profit. You can’t expect to wait until you get sick before buying health insurance and there’s no free lunch.

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

    To “stop pretending”, first you must stop pretending what is going on in the exchanges is insurance. It is not. With no underwriting for the vast majority of risk factors we are no longer talking about insurance.

    What you do not see but the carriers and the administration do is this is a big game of chicken. Both know obamacare cannot work. The administration has picked up most of the most dangerous face tattooed hitch hikers and is speeding along with the intent of wiping out the private “insurance” market. The heavily regulated carriers have no choice but to go along on this reckless pursuit trusting that obamacare either will fall apart spectacularly or at least no more hitch hikers jump into the vehicle and most of the passengers jump out before the ultimate point of impact. The carriers are hoping they can salvage what’s left of their vehicle and continue the journey (probably taking many of the mangled hitch hikers with them to the hospital).

    I believe we should all agree that when obamacare self destructs, we do not reward the driver with a monopoly on the only vehicle remaining. In fact, we should agree to revoke their driving privileges permanently and then pursue criminal charges including vehicular homicides and damages to the private carriers and the public roadways.

    I apologize if I have been pretending people are smarter than they actually are.

  29. Here’s what happens if the insurers walk away: the White House points at them and wags a finger and says to the American people “We tried to get this done. God we tried. And you know, these people just wouldn’t work with us for another year. You have them to thank for the state of the healthcare system” This is a negotiation. An extremely slow moving – and a little messier than usual- negotiation. Don’t forget that.