Category Archives: health insurance

Obamacare: The fix is in

Megan McArdle says all the right things about the doc fix.

Recall one of Obamacare’s key assumptions was that it would start paying doctors at something called the Sustainable Growth Rate. The SGR was cooked up a few years ago to index doctor and hospital payments, but every year the medical lobby has successfully staved off implementation. This annual event is called the doc fix.

Now the situation has gotten so out of whack that switching over to the index would reduce reimbursements by 25%. Rather than grapple with it during the health care debate, the Democrats pushed the issue to this month, then quickly kowtowed to the medical lobby.

To Congress’ credit, I suppose, they didn’t just blow a hole in the budget on this one. They found a way to pay for the doc fix. They are cutting subsidies that will help consumers pay for the insurance that the new law is forcing them to buy.

So at 30,000 feet, here’s what happened. Doctors and hospitals will be getting paid more at the expense of the middle class. As I’ve argued before, to reform our health care system, every party will have to be squeezed. Health insurers are being required to hit 80%+ loss ratios, and agents are getting pinched, too. But providers will have to feel the squeeze, too, but I’m still waiting for that to happen.

Instead we get this Congressional slice and dice. If that doesn’t change, health care reform is doomed.

The medical loss ratio game

The Department of Health and Human Services largely rubber-stamped the NAIC’s recommendations for medical loss ratios. Recall these are the rules behind calculating that health insurers spend 80 cents of the premium dollar on providing medical services (85 cents for group health plans). Insurance Journal summarizes here.

Unhappy are the insurance agents. They wanted commissions left out of the formula, since that essentially caps their income. You can hear their complaints here. Though I wouldn’t be surprised if they find a way to, at least in some states, add placement fees. Agents routinely charge these in nonstandard auto markets (where the hard-to-insure find policies with low limits and low premiums).

Also, more people will be buying individual policies, so while commission rates may fall, agency revenues may actually increase.

You may think I am not too sympathetic to the agents’ plight, and you’d be right. Our health care system is so bloated that to fix it, everybody is going to have to take a financial hit – hospitals, doctors, insurers and, yes, agents.

How bloated? Well, yesterday the International Federation of Health Plans published its annual comparison of health care costs across countries. Here’s a typical slide from the pdf:

We pay twice the going rateYeah, we pay twice as much as anybody else for an appendectomy.

And News-Insurances.com passes along the latest Commonwealth Fund report showing, basically, that we have the worst health care in the world:

Americans are the most likely to go without health care because of the cost and to have trouble paying medical bills even when insured, a survey of 11 wealthy countries found Thursday.

“The US stands out for the most negative insurance-related experiences,” the New York-based Commonwealth Fund, the private foundation that carried out the study, said in an accompanying statement.

The study found that a third of US adults “went without recommended care, did not see a doctor when sick, or failed to fill prescriptions because of costs,” it said.

That compares to as few as five to six percent in the Netherlands and Britain, according to the study.

Just remember as the next phase of the health care debate rolls out – any repeal of Obamacare returns us to this status quo.

 

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PCI week!

PCI is the shorthand for the big annual convention of the Property-Casualty Insurers Association of America. I’ve always thought of it as the U.S. version of the Monte Carlo Rendez-Vous, a big meeting for the U.S. industry’s powerhouses to get together.

I only went to one of these meetings, and it was when the meeting was hosted by PCI’s forerunner, the National Association of Independent Insurers, so things may have changed a bit. There were a lot of high-powered events – I think Colin Powell spoke – but the gathering was mainly so all the players could talk shop dawn to dusk.

In some way, the official events seemed irrelevant. I distinctly remember having nothing to do and thinking the last thing I wanted to do was attend one of those high-powered events. It was an admission of your insignificance, that you were so tiny that you couldn’t command a meeting – kind of like going to a dinner party and only talking with your spouse.

So I don’t know how much credence to put in the theme of this year’s conference, Politics and Private Markets: The Uncertain Path to Prosperity, or in the remarks of David Sampson, CEO of PCI.

Sampson told PCI Reporter “there is so much political engagement in the marketplace right now, and so many policy uncertainties have been generated and inserted into the market, that basically everyone is staying on the sidelines.”

And I’ve heard that, too. I have trouble believing it. But it’s the theme of the conference, so I choose to extend my remarks: Continue reading

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NAIC formally OKs medical loss ratio rules

Via NAIC News Release.

A lot of hand-wringing in the media over today’s vote, but my sense was things were pretty well set up weeks ago.

Now HHS must formally accept.

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NAIC OKs medical loss ratio rules

NAIC News Release: MLR Passes. The rules go to the fed for the final verdict.

Model regulation here.

NAIC letter to the feds is here.

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Judge throws hurdle before Obamacare

The New York Times:

In a foreboding ruling for the Obama administration, a federal judge in Florida decreed Thursday that a legal challenge to the new health care law by officials from 20 states could move forward and warned that he would have to be persuaded that its keystone provision — a requirement that most Americans obtain insurance — is constitutional.

Earlier this week, a Michigan judge seemed to move in the opposite direction.

Caveat to the following discussion: I’m not a lawyer, though I play one on the internet.

The contitutional question turns on the Commerce Clause, which only allows the federal government to regulate interstate commerce. It can’t regulate commerce within a state. And till Obamacare, it has never required commerce to take place – in other words, it has never forced people to engage in commerce. Requiring someone to buy insurance does creates the precedent.

So the latest decision is interesting on a couple of levels.

First, insurers should really favor the requirement that everyone get insurance. It increases market penetration.

In addition, it combats adverse selection. If insurers cannot turn down risks – true under Obamacare after 2014 – but customers aren’t forced to buy, then customers can wait till they’re sick to get insurance. So here, insurers should be opposed to the conservative interpretation of the Commerce Clause.

Second, it’s ironic that the argument against said requirement is based on the Commerce Clause. For about 125 years, the Commerce Clause was interpreted so that insurance was not considered interstate commerce. That idea was overturned in 1944 with the South-East Underwriters decision. By that time, an intricate system of state regulation had built up, so Congress quickly passed the McCarron-Ferguson Act. That shifted insurance regulation back to the states but also allowed insurers to share actuarial-style data to develop rates efficiently. In South-East Underwriters, insurers favored the conservative interpretation of the Commerce Clause. And of course, Obamacare supporters opposed McCarran-Ferguson because it allowed insurers to slip past federal anti-trust laws.

So, to quote Mark Twain, “The past does not repeat itself, but it rhymes.”

(h/t SamJFriedman via twitter)

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Chart of the Day: Health care inflation

Apropos of nothing, I offer up this:

We're not No. 1!This is the average annual increase in spending on health care per person over 30 years, drawn from data downloaded from the OECD, a consortium of the world’s wealthier nations.

In some ways, this shows how well a country has controlled its health care costs. (There are other forces driving this, notably the aging of the population.)

I look at this and see some good news.

The United States (red bar) isn’t No. 1 in a metric measuring health care spending. Costs in the U.S. have risen an average of 7.8% a year – close to the top, but not No. 1 with a bullet as we rank in most measures of health care profligacy.

And we aren’t that much higher than the 7.0% average (black bar). [Actuaries: Netherlands is the median at 6.9% a year.]

I should acknowledge we are talking about interest rates compounded over 30 years, so a small annual difference builds into a big absolute difference. So the fact that we are just 0.8% above average per year implies a 30% difference over 30 years.

Still, this implies that our system hasn’t grown bloated over the last 30 years. It was bloated to begin with, but the lack of costs controls over three decades meant our system just got crazy expensive.

Second, this tells me that over the long haul, corrections to the system don’t have to do a lot to bring costs back into line. We don’t have to halve the medical inflation rate. Just bringing it down a little more than a point will, over a couple of decades, make an enormous difference.

The bad news goes to people who think we’ll straighten out health care costs overnight. To do so – shrinking to 8% of GDP from 16%  in just a year or two – would devastate the economy, as if we had cut everybody’s paycheck around 9%.

 

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Actuarial tidbits: health care

 

More for less

 

A lot of folderol floating about on health care the past couple of weeks. I thought I’d hit it all at once.

  • McDonald’s went through the media spin cycle because it wanted an exemption from the minimum 85% loss ratio requirement for its health plan. Their employees can buy something called mini-med, which is a policy with so-low-they’re-silly ($2K) limits. These policies exist mainly so Mickey D’s can tell applicants that their job comes with benefits beyond that of wearing a paper cap ringed with arches. Above, I cop the graph Kevin Drum built based on numbers that The Incidental Economist ran. The red bar is how much McDonald’s employees pay for coverage today. The other five bars are how much they would pay for coverage under Obamacare, the difference being the current limit is $2,000 while under Obamacare, benefits will be limitless. NY Times makes the same point.
  • To show no one is picking on McDonald’s, USA Today notes that 29 other companies, including Jack-in-the-Box, have similar plans and seek similar exemptions.
  • More worry that consolidation of hospitals drives up health care costs. I’ll keep saying Obamacare boils down to hospitals vs. insurers until someone listens.
  • Group health cost to rise 8.8% next year, most since ’05. And federal employees’ premiums will climb 7.3%. Oddly, when coverage expands, prices do, too.
  • Obamacare sez you can’t discriminate against kids when rating. To avoid adverse selection, some health insurers are refusing to insure kids at all. I can see the concern, but wonder how much those companies are thinking about reputation risk, viz.: Congressman: “Why won’t you insure this child?” Health CEO: “He gets sick too much?” Gone viral, will that help business or hurt it – especially since the company will be forced to write that same risk in 2014.
  • Another alternative is to dump the business altogether.
  • A lot of people think the solution is to dump the current “solution.” Their day in court approaches, but there’s been an early defeat.
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Health care reform: Careful whom you bash

BusinessWeek chronicles CT AG Richard Blumenthal’s election season bashing of health insurers rate hikes.

“The public has a right to expect a thorough examination of all proposed rate increases that go far beyond the pale, such as those requested by Aetna and Anthem,” said Blumenthal.

[Insurance Commissioner Thomas] Sullivan said in a Sept. 22 letter to Blumenthal that the Insurance Department held the line on a rate request from Anthem last fall. The agency pared a rate request by between 39 percent and 58 percent from what had been requested, he said.

BTW, Blumenthal is running for Senator. Could you tell?

In more thoughtful analysis, the Incidental Economist examines how market power – either from hospitals or insurers – can drive costs. Quoting oregonlive.com:

Hospitals with the most clout command payments two to three times higher than the lowest-priced hospitals. And hospital costs overall continue to soar.

Meanwhile, insurers with market power are better for consumers, but worse for hospitals and doctors:

According to theory, consumers get the best deal when the health insurer has considerable market power (monopsony or market share concentrated in very few insurers) and when the insurer is a nonprofit entity (as would be the co-ops recently proposed by Senator Kent Conrad). Nevertheless, a monopsony insurer reduces producer surplus (and therefore overall welfare) by extracting prices from providers below those of a competitive market.

So here’s the deal: When hospitals are powerful, prices rise. When insurers are powerful, prices are held in check. Quiz time:

  1. If you want to hold prices in check, do you bash hospitals or insurers?
  2. If you cravenly seek votes, do you bash hospitals or insurers?
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Medical loss ratio – finish line approaches

An NAIC subpanel lays the groundwork for approval of health care reform’s medical loss ratio requirement, The Hill reports. Issues that remain:

- Aggregation: The draft regulation calls for the medical loss ratio to be calculated for each company by state. The large-group health plans want to be able to aggregate nationwide, Webb said;

- Taxes: The draft calls for deducting most taxes from premiums when calculating the ratio, but Democratic committee chairmen in Congress have requested a more restrictive definition that would lead to a higher effective ratio;

- Fluctuations: Commissioners want to allow adjustments over several years for smaller health plans, to avoid penalizing them if they have a bad year with unusually large pay-outs.

To interject:

Aggregation: Companies like aggregation because its easier and results in smaller fines. Regulators dislike aggregation because a company could conceivably get away with posting a low loss ratio every year in a state (especially a small one) and never pay a fine. And the extra revenue makes them happy, too.

Taxes: I think the Hill blogger has it backwards. A more restrictive definition would leave more tax dollars in premium, which is the denominator of a loss ratio. A bigger denominator lowers the loss ratio. So a more restrictive definition would lead to a lower effective loss ratio.

Fluctuation: They’re talking about credibility here and multi-year calculations. (I think the reporter has it backwards again. A company with an exceptionally bad year isn’t penalized. The bad year raises its loss ratio, meaning it won’t be fined for having a low loss ratio.)

Finally,

A larger panel is scheduled to vote Oct. 14, and if the definitions are accepted the regulation could come before the NAIC’s executive/plenary session at the Fall National Meeting in Orlando for final approval on Oct. 21.

Just to add: I’m pretty sure feds have to approve what NAIC OKs, so there’s another step after Oct. 21.

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