[Ask the Gulch] Have you heard "Insurance companies love Obamacare because they are making more even more money!" - Yet the insurance companyies are retreating from the exchanges in states all over the place... How do these people draw this conclusion?
Posted by AMeador1 7 years, 4 months ago to Ask the Gulch
Once the insurance companies didnt do so well, the argument would be to expand medicare and medicaid at lower prices (higher subsidies), and force the insurance companies OUT.
Maybe the insurance companies have figured out the plan and are exiting before the guillotine blade falls. Interesting thought.
It was known on all sides, and tacitly admitted, that eliminating pre-existing conditions would cause a rise in the risk as would increasing the pool of known-sick participants. Thus a lesser publicized aspect was the federal "short-term" subsidy of insurance companies as they developed adjusted risk models. What was implicit in that was that the cost would increase.
But before I get into the obviousness of that problem and what happened, I have to bring in another somewhat obscure aspect - the control over cost structure. This is one I even missed until this year. There is a requirement that insurance companies spend at least 85% of gross policy price on "medical treatment". To the extent it was talked about, it was in the guise of "placing a limit on profit" - the implication being that insurance companies were "allowed" to profit up to 15% of the price of your plan. This is known as the "Medial Loss Ratio" - or MLR.
But that isn't what it actually is. Out of that 15% "profit" comes the cost of running the company. Salaries, offices, infrastructure, lobbying, taxes, advertising and more all come out of that remaining 15%. I'm sure you can see the problem with this on its own. now technically it ins't a straight 85% as it depends on the market. But since the vast, vast majority of American plans are done in "large group" which is set at 85%, I'll use that level for the general discussion.
Now is where it gets ugly, yet interesting. The two above components are the primary reasons insurers are pulling out of markets - or more specifically the public exchanges. As any prudent financial planner wild do, the companies included the aforementioned risk adjustment learning subsidies in their calculations. Of course, they endeavored to get their rates correct, but still accounted for that subsidy.
As expected they did undershot the costs and thus underprices. As a result their MLR was blown. In many cases the MLR was over 100%. Yes, that means an immediate loss. That means they paid out in benefits more than they they were paid in premiums - and that is before the costs of running a company of any kind. So if we assumed for sake of discussion that a given company had non-MLR costs of say 14% with 1% as profit their loss on a 110% MLR would about 24%.
It doesn't take a genius to see the problem there. But that, still, isn't the extent of it. Remember the risk adjustment subsidy? It didn't happen. So your loss in the above scenario just grew by whatever the amount the government had agreed to give you.
Now here is where it gets funky. Earlier I said the companies actually were pretty good at figuring out the needed rise in premiums to cover the cost. It turns out that for many of them if they government had paid the amount they agreed to they would not have lost large amounts of money. In some cases we are talking literally billions of dollars. This would actually have worked to give the companies the time to raise premiums to meet the new reality that was forced upon them, but the government said "nope, nagonna".
Note that policy rate increases would still have had to happen. As we would rightly expect the ACA didn't change the laws of economics. Nor does any of this argue in favor of the ACA or of subsidizing industries. Nor does it even get into the fiasco of subsidizing plans by way of the consumer. I'm merely relaying what most of us aren't aware of.
Many of the more onerous, but critical, components of the ACA were continually pushed out by the Obama administration. Combine that with the above - which alone is good enough reason to explain the withdrawal - and it makes sense as to why even the big companies are pulling out of various exchanges. Nope, I can't call them "markets". That is because of the final reason I'll go into in this comment: plan mandates.
For decades we've been slowly moving health insurance away from being insurance. I've been against it the entire time - even in high school decades ago. Insurance is for guarding against catastrophic problems. But the ACA intentionally caused a tectonic shift into the system being "rigged", if you will, against that type of plan - against actual insurance. Now we get into some of my opinion.
The only thing that has kept the entire system propped up was the existence and use of catastrophic health insurance - even when many plans didn't proclaim to be one. The ACA is, by design or not, a death knell to that type of plan. Lets be honest here and realize that a catastrophic health plan is the only kind that can actually work in insurance as demonstrated by every other kind ranging from renters insurance to car insurance. Once you get rid of that, there is nothing to support the other more costly aspects. Imagine a car maker which has one car line that generates huge net revenue, and a dozen lines which all generate a loss but not as much as the net revenue of the main line. What happens when the government tells you you can't make that line any more? You lose the revenue which was subsidizing the other models.
It doesn't matter if the government mandates everyone must buy a car. The government mandating people to buy a car which costs you more to make than you can sell means you will be out of business - and the customers will be out of a car and its service. And as the insurance industry is learning, you can't rely on government subsidies to keep you afloat unless your industry is agriculture or military and you have decades, if not centuries, of momentum to keep them alive.
One final note. Much of the claimed salvation of the risk pool swelling with sick people with a 100% risk of exceeding their premiums was the group of "young, healthy Americans". One rarely mentioned (I've never seen anyone else say it but I'sure someone has) problems with that is that the ACA also said they can remain on their parents' insurance. Thus they were actually excluded from being in that pool as long as they had parents. So the "pool" of 25M new customers was limited out of the gate. The consequences of the above factors also caused that pool to not materialize as from what I know a significant portion of the people on the plans on the exchanges migrated from having insurance already to getting it at lower price on the exchanges. IIRC something 11M of that 25M fall into that category.
I don't buy into there being a plan behind all of this to destroy insurance companies. I think it is simply incompetence resulting from ideologically driven progressive intellectualists lacking than any grasp of reality. That group of people lacks the courage of their convictions and the intellectual ability to actually come up with such a plan, let alone execute it.
I know you know about the first one so I won't explain it. ;) The second one is a bit tricky. Normally when taking about subsidies we are referring to government subsidies. in this case we aren't. In this case we are talking about the aforementioned misuse of insurance.
When you look at what price changes occurred in healthcare over the last thirty years a certain pattern emerges. that pattern neatly explains a huge portion of the problem. Items covered by insurance went up, while items not covered went down in price. Again this isn't something that should surprise any economics savvy person. But even those who aren't get the light bulb over their head when they see this fact.
We need to eliminate the expectation that insurance should pay for routine things. We also need to shift it away from "healthcare" and back toward "catastrophe preparedness". The more non-breaking things insurance pays for, the more it acts as a subsidy and the pricing problems that occur for subsidized items will persist. The subsidization of much of the medical care field is sustaining a higher price level.
As a result of reducing the direct costs of an insurance plan, you can have cheaper rates. The main vectors here are the reduction/elimination of "co-pay" or "no-pay" for maintenance items, and the tiering of deductibles. One avenue to look at is the HSA - Health Saving Account - plans. In these you have less "coverage" and a higher deductible, but are able to stash money away in a savings account for medical use - even things not covered by you insurance. Unlike Flexible Spending Accounts there is no penalty for not spending it all by the end of the year.
Consumers who had HSAs, many surveys report, generated a better understanding of their healthcare and had a more critical eye toward what they consumed. This makes sense as they are spending something they have - a savings - as opposed to something they don't - Other People's Money. So one concrete thing that would improve things (over time) is the immediate removal of FSAs. People don't generally view FSAs as their own money - primarily because even though they pay into it they lose it if they don't use it.
Next we need to get rid of the expectation that the employer provides your coverage. While I am not in favor of banning them from doing so we can stop the subsidization of it. This is an aspect the Republicans are indeed talking about doing. Currently around half of premiums are paid by employers. The employee then gets a tax benefit on the remaining premiums they pay. If an individual pays for their own coverage they pay more for premiums and get no tax benefits.
The tricky bit about this is how we shift from employer to individual. The painful but obvious answer is to remove the tax benefit, tax people on their employer-paid premium portion, and provide a tax break for those buying it themselves. This would be painful because of the conversion of tax benefits but primarily because of the massive short term drop in "covered consumers" as people can't afford insurance any longer. But without the artificial demand boost, guess what has to happen to insurance.
Insurance has to come back down. The above vague plans of higher deductibles and less routine/maintenance benefits would become more attractive. This would help a market correction of pricing in the industry. Shifting back toward individual consumption of insurance and out of pocket paying for routine things will bring an awareness of the price to consumers but also close the loop on the effects of their choices. We've seen this effect with the rise of the HSA - which was growing prior to the ACA. Thus there is reason to believe that if we resume that direction we would see that increase in awareness and actions return.
Another dirty little secret of the industry is that many doctors have lower rates for those without, or who don't use, insurance; it is often substantial. I've personally seen cases where I paid less than half the insurance companies negotiated rate. The reason I was given in every case is that they don't have to deal with the insurance companies. There are two factors driving that. The first is the hassle of the interaction. The second is the difference between getting money now versus maybe later.
This exposes that a primary driver of cost is the insurance companies, and the antiquated process, themselves. (An aside for the tech savvy: the entire U.S. healthcare/insurance industry runs on text files and FTP. I'm not kidding in the slightest.). I've even had lower costs in some cases opting out of using my insurance than I would have had I used it. Plus it benefited the relationship between us and our doctor.
But I'd go a step further than the shifting of tax benefits and the use of HSAs. I'd move from HSA/FSA and IRA/401k to the "universal savings account". Now I'm not a fan of specific tax breaks because I view it as a form of coercion - "use your money this way, or we'll take it from you". But, given the situation we are in I think a reasonable start would be to make the tax break for savings, not for spending it on a given thing.
When you look across the board you'll see an underlying economic problem we have is lack of personal savings. I won't go into details here but it affects wages, credit, and insurance all in significant ways. So I'd shift the existing breaks for specific savings accounts to a general savings account. Combine the limits as you combine the account, and let people save and then spend for whatever they deem necessary. If someone wants to save of possible, or known, future medical expenses, college, retirement, or any combination they can. And if something comes up and they need the money, they have it available and can choose when and how to apply it. Not to mention the much simpler process, this would aid a return to personal financial responsibility, and lessen the need for insurance. This would, over time, aid in the lowering of medical costs and insurance plans, as well as reduce the fear/threat of a higher deductible. As a broad, and extreme, example if every family had 5-10k in savings a 5k deductible isn't that concerning. Thus, a 10k becomes less concerning, and more feasible.
Ultimately the above is basically reducing the interference in the supply and demand curves we currently have. The "individual mandate" is merely the clear extreme of what was already causing problems. The requirement that "insurance" cover everything under the sun is likewise the extreme of insurance covering more than catastrophic coverage. Rolling these back is absolutely key to "fixing" the sucking chest wound that is healthcare. How to actually achieve some of the in concrete terms is a bit thornier. But I think if we started with removing the mandate, removing the federal decisions on what plans can/must cover, remove the tax advantage to employer provided, and simplify things by shifting to a universal savings account (and couch/explain it in terms of being able to handle your health care), we would have a good start.
But it still comes down to the simple fact that if there were making money hand over fist, they would have stayed in the exchanges. Clearly they are not - so they are leaving.
As for what you're talking about, maybe there is some method behind that madness.
Very true .Profit or loss , these "odds makers know what they are doing and they make profits.
DOB
The SCOTUS ruled a mandate was unconstitutional, and restricted the tax that was substituted. The big surge was in people with serious medical problems that had been uninsured, instead of the healthy. The outlay far exceeded the income for many insurers, even with huge deductibles and premiums, so they started bailing out of the exchanges. Some even left the healthcare market altogether.
The media, most of which have become a Democrat mouthpiece and propagandist, have downplayed the negatives, putting up government ads showing people who love the ACA. Of course these positive stories are coming from people with heavily subsidized policies, while the rest who are saddled with monthly premiums of $1000 or more and deductibles of $10,000 or more are ignored. Naturally, when you see such huge premiums, it's not hard to think the insurance companies must be raking in the profits.
I'm starting to think of it as a cluster$#@& that needs to be eliminated altogether. "Insurance" paying for routine medicine started as a gimmick to get around wage controls in WWII. It became a standard practice, and now when we think of paying for medicine we don't think of laying down money for work done and services rendered. People instead look for another gimmick to get something for nothing, no underwriting but no mandate either.