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Obamacare Premiums Are Going To “Skyrocket”? Forget About It.

Being against Obamacare has been the keystone, the capstone, the mighty sledgehammer, the massive metaphor of your choice for the right for five years now. They couldn’t stop it from being passed. They couldn’t stop it at the Supreme Court.

They weren’t able to choke it off by “defunding” it. They rejoiced at the rubber-meets-the-sky rollout of Healthcare.gov, but then the kinks got worked out of that.They railed at the administration using discretionary powers built into the law to help it work better. Every horror story of Obamacare ruining people’s lives they came up with turned out to be false.

Almost all of the people cynically cancelled by the insurance companies as a way to sell them more expensive insurance got insured again fairly quickly. Then 7 million people signed up on the exchanges, and altogether some 10 million formerly uninsured people now have medical coverage.

But the right still needs to call it a “train wreck.” The magic mantra has to work for them. Just this morning, here’s a Republican Congressman saying that we have to cut Food Stamps because: Obamacare. Say that again slowly?

It’s getting harder and harder on the right to come up with new ways to say it isn’t working when it actually seems to be working. I have to hand it to them, though: Those spin factories are filled with hard-working creative people. Get to work early, stay late, trash Obamacare. Hey, it’s a living.

So what’s the latest? This fall, Obamacare premiums are going to “skyrocket”!

Health and Human Services (HHS) Secretary Kathleen Sebelius went before a House Ways and Means Committee hearing a few weeks ago and claimed outrageously that premiums on the exchanges are likely to rise for 2015, but not by much, and certainly more slowly that in the past.

What? How can this be? Yet another Administration figure has been trotted out to claim baldly to Congress and the American people that Obamacare is basically going to do all right.

TheHill.com got right to work and managed to come up with what they claimed were health insurance company officials eager to forecast that they would have to triple their premiums or more — and they would be rolling out those jack-ups right in time to deal a blow to Democratic chances in the fall elections. TheHill then published it under the breathless headline: “O-Care premiums to skyrocket.”

Neat, huh? Maybe a little too neat. Let’s see whether this claim makes sense.

Capped MLRs: Under the ACA, insurance companies must pay out at least 80% to 85% of premiums for actual medical costs, depending on the type of plan. These are “medical loss ratios” (MLRs). That’s the law. The other 15 to 20% is all they get for administration, advertising, executive bonuses — and profit. If they arbitrarily jack up rates, so that they are paying out a lower proportion in medical costs, they have to give the excess back to the rate-payers. The federal government has already forced some insurance companies to do this.

Those anonymous company officials who complained to TheHill claimed that “everybody knows” that higher costs imposed on the insurance companies by the botched Obamacare rollout will have to be passed on to consumers. Is this is true? Were there huge costs to the insurance companies? Doesn’t matter. Unless they plan to break the law and falsely report their MLRs, these alleged extra costs still have to be absorbed in that 15 to 20%.

So the only reason that they would be able to make premiums “skyrocket” is if the actual healthcare costs per person “skyrocket.” So how are healthcare costs doing?

Healthcare costs: Yes, healthcare costs (National Medical Expenditures) are continuing to go up — at a rate lower than 2%, the lowest rate that has been counted in the 50 years that they have been counting. Not a skyrocket.

But maybe they mis-guessed on 2014, and holy moly, they’re suffering! Or maybe they purposely under-priced their offerings in 2014 to gain market share. So they have to make up for it in 2015?

Price war: Talk to insurance marketing and sales people. I do a lot. They’ll tell you that you really don’t want to be the low-price leader. If you purposely under-price the market, you get the people who buy on price alone, and these are not anybody’s favorite customers. They will buy the cheapest product you offer this year, then drift away for someone else next year, when you have to raise the premiums. And you will have to raise your premiums, because your MLR came in at 110% — you’re spending more on medical care than the premium brought in, and you just can’t do that year after year.

So no, price wars are not the thing to do in healthcare insurance.

But maybe they guessed wrong on how expensive these new people are going to be with their new medical insurance?

Actuarial risk: It would be reasonable to assume that the insurance companies took their best shot at the actuarials for 2014. These are new markets and new customers, and there are lots of them. It’s a “bet the company” deal to get it wrong by any major amount. They have already figured in the really sick people who couldn’t get insurance before, and the bump in utilization from not-sick people who are newly insured and getting various problems taken care of, and so on. Looking forward to 2015, there is no new, extra actuarial bump in the offing, except that more of the uninsured, having missed the window this year, are likely to sign up when the window opens again in the fall.

But what about the balance of young and old?

Death spiral: What about the dreaded “demographic death spiral,” with too few healthy young people signing up to balance out the 50-somethings and the chronically ill? Didn’t happen. Apparently a pretty good percentage of young healthy people signed up, especially in the last surge, enough to come close to the Administration’s projections and hopes. Now, of course, you can always just claim that the Administration is “cooking the books,” that’s an easy out. But my read is that the Administration, having been seriously burned on the “you can keep your insurance, you can keep your doctor” misstatement, is actually being quite cautious in its claims. I am not seeing any dancing in the end zone here.

But what if a particular insurance company got it wrong in a particular market? Won’t they get burned badly and have to jack up rates to make the loss back?

The Three Rs: The insurance companies are back-stopped by each other and the federal government if they guessed seriously wrong through the provisions in the law called the “Three Rs” (reinsurance, risk corridors, and risk adjustment). No one is going to be “forced” to make their rates “skyrocket.” If they want to stay in the market, they will be looking for very moderate increases.

Still, aren’t the insurance companies themselves saying that things are way out of whack, they are taking it in the shorts, and they are going to have to jack up premiums for 2015? Actually, no, they are not.

How the insurance companies really see it: There are plenty of reasons to believe that running most citizens’ healthcare financing through for-profit public companies is a bad idea. But it does have at least one advantage: unlike not-for-profits, for-profit public companies by law have to show a certain amount of transparency. They have to open the doublet and show us what they’ve got. In annual reports, in 10Ks, and in conference calls with Wall Street analysts, what CEOs and CFOs say has legal weight. Of course they want to sound positive, because they would like to drive the stock price up. But material forward-looking misstatements can get you sued by your shareholders. So unlike in alleged anonymous unattributed whines to political blogs, public company executives have some care about what they say.

And what are they saying? They’re doing fine. Wellpoint, one of the nation’s largest health insurers (it operates many of the for-profit Blue Cross/Blue Shield plans) recently raised its earnings projections. Why? According to CEO Joseph Swedish, mostly because way more people signed up for its Obamacare plans than it expected. Think about that: This also clearly means that Wellpoint expects to make money off of all those new customers at the prices they were quoted. Absent some huge demographic or actuarial bump, they don’t expect that they will have to “skyrocket” premiums next year to make up for some mistake.

This is just the latest in a string of positive financial projections since the first of the year from all the big for-profit insurance companies, including Aetna, Cigna, Humana, and UnitedHealth Group. Swedish at least doesn’t think this is temporary. In the same analysts call, he predicted that Wellpoint is currently in a position to “drive profitable growth over the next several years.”

So: Actual healthcare costs are almost flat. Healthcare insurers don’t really do price wars. They were serious about their actuarial guesses for 2014, including all the new expenses of really sick people and the previously uninsured. The “demographic death spiral” did not really appear. The Three R’s protect the insurance companies from getting the risk seriously wrong. And in public, when misstating things could get them into big lawsuits, they say they are doing fine, they can handle the risks, and they expect to make money.

So no, there is no reason to believe that rates for 2015 are going to shoot up, “skyrocket,” explode, use metaphor of your choice here. None.

There is plenty to find fault with in the ACA, and plenty of room to debate about the perfect way to reform healthcare. But I would expect people who want to add to that debate to come armed — with things like research, logic, facts, real quotes from real people, and an understanding of how this industry actually works.

With nearly 30 years’ experience, Joe Flower has emerged as a premier observer on the deep forces changing healthcare in the United States and around the world. As a healthcare speaker, writer, and consultant, he has explored the future of healthcare with clients ranging from the World Health Organization, the Global Business Network, and the U.K. National Health Service, to the majority of state hospital associations in the U.S.

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Lou
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Lou

I’ve always been a democrat and voted for Obama, twice. I feel like a sucker. Before a couple weeks ago, I wasn’t really against or for Obamacare. I didn’t feel I understood it well enough to take a side. Well, I sure know about it’s ramifications now and fear this is only the beginning. I am unemployed due to major mental illness. I don’t take any government assistance. My wife works while I take care of the home and we get by. She makes enough so that we are not in poverty, but for 2 people, we are low income.… Read more »

Kenny
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Kenny

I am self-employed and was forced by Anthem Bluecross to switch to Obamacare in starting Jan 2014. As a result, my insurance premium more than doubled, and it comes with a very high deductible. In addition, my family doctor told me they are not accepting new patients with Obamacare, and the only reason he agreed to see me is that he’s been my doctor for more than 10 years. He urged me to change my insurance coverage. I am also told that I cannot get specialist care as they will not be accepting new patients with Obamacare. Recently, I received… Read more »

MrMax
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MrMax

This article must be joking. I have had wonderful health insurace via a PPO through my employer for the past 5 years. The premium increases have been so low, in fact, that my employer absorbed them entirely during that time and continued to pay 95% of the total for all of us. This year? As as direct result of ACA, the healthcare company we buy from will increase the premium 50%. Think about that. FIFTY percent. In one year. Even with bad years and bad increases, that is shocking. A committed of our employees reviewed the available ACA plans and… Read more »

Brett
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Brett

I just divided my new monthly premium for a “bronze” plan by what I was paying before. Both are HSA-eligible high deductible plans. My increase is 164% in 2015 over what I was paying in 2014. I am young, healthy, and have no pre-existing conditions. In fact, aside from dental cleanings and regular checkups, I haven’t visited a physician in over five years. As a consequence of the new law, my largest fixed monthly expense is now health care. My health care premium exceeds housing, transportation, clothing and food expenses. Every month my health care premium costs more than dining… Read more »

Shasta
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Hi there just wanted to give you a brief heads upp and let yyou know a ffew of the images aren’t loading properly.
I’m not sure why but I think its a linking issue.

I’ve tried it in two different web browsers and both show the same outcome.

Me
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Me

Funny how the feds are saying there will be a 10% increase, higher deductibles and increases in copays

I am guessing this is an Obamacare propaganda site

Sonya Hopson
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Sonya Hopson

I’m all for everyone having affordable coverage. Sadly my parents, who worked their whole life, did not qualify for subsidies and were paying what they could afford. After ACA deemed their insurance as not good enough, they now pay twice what they were paying, and with a deductible that could bankrupt them should they ever be hospitalized.

Mr Riley
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Mr Riley

In 2011, Medicaid was flailing with its cost. Voila, the 2010 ACA was presented. Problem: upping eligibility for Medicaid assistance [so a lot of folk would have to buy into ACA for getting any health insurance, so that Medicaid would not go bankrupt] and hoping that the government’s double dipping [taxpayer money towards spiraling Medicaid cost would be alleviated by forcing Americans onto ACA would be the solution] would then alleviate the Medicaid problem by another dipping means that would be costly to all except those receiving 100% Medicaid. Which means our economy is so bad that taxpayer monies just… Read more »

Bob Hertz
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I have been in ER’s as a visitor about 10 times in MN. I never saw a patient who was not in clear pain and distress. Of course that is not very scientific. One solution would be to levy an initial charge of $75 for all ER visits, i.e. about the same as an urgent care clinic might charge. ER’s can also do triage, though as you say it will not be easy to then turn a patient away. As for health plan coverage— I sure seemed to run across a lot of plans that had the same high deductible… Read more »

Bob Hertz
Guest

If we were truly paternalistic about emergency care, we would just put ER’s into the federal budget like police stations or fire departments. I know this would be hard to do in accounting terms, but not impossible. Instead we are mandating the purchase of insurance that generally has high deductibles, even for emergency care. I have been involved in several cases involving young nieces and nephews of mine. They had insurance with deductibles in the $2,500-$5,000 range, and they needed ER care. So they wound up with bills for $1,800 or $2,700 that they could not pay, and had to… Read more »

Barry Carol
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Barry Carol

Bob, There are safety net hospitals that treat large numbers of low income and uninsured patients that tell us that as many as half of their ER visits are unnecessary meaning they could have been dealt with perfectly well by a primary care doctor, urgent care clinic or an NP in a retail store clinic. If people knew that emergency room treatment offered first dollar coverage, many more would use if rather than go to a much less costly setting where they might have to pay a deductible or co-payment. Lots of better health plans do cover emergency treatment for… Read more »

Barry Carol
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Barry Carol

Bob, I think society is more paternalistic, as you put it, toward health insurance because of the so-called free rider problem. We passed legislation called EMTALA in the 1980’s which requires hospital emergency room personnel to at least try to stabilize patients who need care whether or not they can pay. We’re not willing to just let them die outside (or inside) the ER. The cost of treating people who can’t pay gets built into the bills of those who can and do. The Kaiser Family Foundation estimates than uncompensated care adds at least 6% to hospital bills vs. what… Read more »

Bob Hertz
Guest

Barry, my own background is life insurance, and it sometimes leads me to think that I also know a lot about health insurance. But life insurance is much simpler. There is only one kind of claim– the whole death benefit. Therefore premiums go up or down in lockstep with the death benefit. A $500,000 20 year term policy is always twice as expensive as a $250,000 20 year term policy, at the same age. So I start thinking that a $2 million maximum benefit in health insurance is twice as expensive as a $1 miliion max benefit. As you point… Read more »

Bob Hertz
Guest

Two points, one rather minor and one major: Minor — I assumed that private insurers did indeed collect $1 trillion in premiums, but that they paid out $800 billion in actual claims. Major — based on the post from a couple of days ago by Paul2, I was thinking that a national reinsurance fund which paid 10% of claims would cut premiums by much more than 10%. Remember that Paul2 lost his $150,000 cap on pre-ACA insurance, and his premiums actually doubled! Now the tough question is whether removing the annual/lifetime cap is what caused Paul’s premiums to double. Where… Read more »

Barry Carol
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Barry Carol

Bob, You’re correct about the amount of commercial insurance premiums attributable to medical claims as opposed to administrative costs and profit. As for Paul2’s policy, I think there are probably a number of moving parts and one would have to see the actual policy to make a judgment. I can think of several things that could cause the premium to increase significantly independent of the elimination of the coverage cap. They include the following: Scope of coverage – A lot of less comprehensive health insurance plans don’t include coverage for maternity, chiropractic care, mental illness and substance abuse treatment. There… Read more »

Bob Hertz
Guest

Thanks Barry. I think that you are right about a $150K maximum covering 90% of claims costs. Now let us assume that in a given year, Medicare pays $550 billion in total claims, Medicaid pays $350 B in total claims, and private insurers pay $800 billion in total claims. That is a total of $1.7 trillion. One tenth of that is $170 billion. So the new payroll tax would be about 3% of payroll, in exchange for which health insurance premiums would go down because carriers would not have to reserve as much for blockbuster claims. Now for a lot… Read more »

Barry Carol
Guest
Barry Carol

Bob, I always appreciate your comments. Thanks. I think Medicaid spending now is closer to $450 billion or a bit more for the federal and state share combined. Private insurance for those with employer coverage plus those who purchase policies in the individual market is in the $900 billion to $1 trillion range, now I think. So, we’re approaching $2 trillion for Medicare, Medicaid and private insurance combined. Then you have out-of-pocket payments for individuals which total 12% of healthcare costs in the U.S. but, amazingly, 30% in Switzerland. Then there are all the other things I mentioned in my… Read more »

Bob Hertz
Guest

Thanks, Barry, but I do have one heck of a time with my proposal that if the cost of treatment (better yet, the bills for treatment) exceed $150,000, then the medical providers just accept $150,000 and be done with it. Other than the drug companies, I think that quite a few doctors and ethical hospitals would be OK with this. Then you would not need a reinsurance fund for costs in excess of $150,000, because in my world no bills would exceed $150,000. I am going to stick on this stubbornly, because as you correctly percieve, a large portiion of… Read more »

Barry Carol
Guest
Barry Carol

Bob, I hear you except that I’m not sure how one would administer such an approach. I’ve personally seen low birth weight premature baby cases generate bills well into seven figures. Cancer treatments can exceed $100K just for the drugs. Then there is the need for hospital and physician services plus other care. Even long term care in high cost states can cost more than $14K per month just for the custodial care before any drugs or medical services that might be needed. CHF patients can be in and out of hospitals quite frequently. That all said, it would be… Read more »