Broad Coalition Calls For Congress Not To Hand Health Insurers’ Losses To Taxpayers
UnitedHealth Group’s proposal (threat? promise?) to withdraw from Obamacare’s health insurance exchanges, and the failure of Obamacare’s COOPs are both events which NCPA has been predicting for a long time (see here and here).
Two years ago, we identified Obamacare’s “risk corridors” as a vehicle through which the Administration would expose taxpayers to unlimited liability for insurers’ losses in Obamacare. Due to our research and testimony, Congress prevented this exposure last December.
What with the exchanges unravelling so quickly, we are not surprised to learn that lobbyists are pressuring Congress to restore unlimited liability. We joined a broad-based coalition to write a letter to Congress urging the current policy be maintained.
Obamacare must be completely renegotiated from root to branch. Just handing taxpayers’ money to insurers for losses they incur will not solve the problem.
I think the 3 R’s were a reasonable approach to help the insurance industry transition from pricing its products under medical underwriting to pricing them on a guaranteed issue basis. After three years, they should have enough real world experience to price policies without a government backstop.
Risk adjustment payments, by contrast, should be a permanent feature as they are for Medicare Advantage. Payments to insurers that have an above average number of higher risk enrollees, though, should not exceed contributions from insurers with a higher than average number of lower risk enrollees.
Thank you. One of the items on my research agenda is to compare risk adjustment in Obamacare exchanges versus Medicare Advantage.
Sorry Barry I must disagree. The free market is to hard to regulate. The premiums have gotten so high that most of Americans are exempt from the ACA penalty. Healthy people are buying short term plans that are underwritten and about a third the cost of ACA compliant plans. This leaves only the subsidized clients and clients with health issues.. Both have high utilization issues. This is the perfect goverment designed death spiral …
The people in charge are completely incompetent.
Note to John Graham –
I wonder if in your zeal to discredit the ACA, you have exaggerated the effect of a risk adjustment ‘bailout.’
I believe that a realistic maximum of a full bailout would not exceed $12 billion a year.
Leaving aside the snarky comment that this is absolute peanuts compared to Treasury bailouts in 2008, let’s look at a worse case scenario.
If private insurers eventually desert the ACA because they cannot make money on guaranteed issue coverage, then I think there would be an expansion of Medicaid, and possibly lowering the eligiblity age of Medicare down to 55 or so.
Either of these steps would cost vastly more than $12 billion to taxpayers.
This might be a case of “pay the two dollars,” to quote an old Jewish joke.
You may well be right. I do not think the collapse of exchange coverage means we will march automatically into the bright, sunlight, uplands of limited government control of health care. Without good policy choices, it will descend into expanded Medicaid or high-risk pools.
“No. We cannot sustain these losses. We can’t really subsidize a marketplace that doesn’t appear at the moment to be sustaining itself.”
Said UnitedHealthGroup CEO Stephen Helmsley, who took home over $66 million in 2014.
Dr Gorback, I don’t mean to suggest that Mr. Hemsley’s total compensation is anything other than what it is. But I looked at the details and discovered this.
First of all, of Mr. Hemsleys $66 million compensation, $46 million was from stock options. Keep in mind that if United stock had not gone up, those options would have been worthless. But more importantly United did not pay Hemsley that $46 million. Investors in the market did, when they bought the optioned stock. It is a mistake to argue or imply that this part of Hemsleys compensation somehow detracted from patient care. It did not. I’m not suggesting you meant otherwise – I’m just sayin.
Now, disregarding the $46 million leaves about $20 million. That $20 million was compensation paid to Hemsley by United. The more exact figure was $20.5 million, the sum of his $1.3 million direct salary plus a $4.0 million bonus, plus $15.2 million vesting of prior years’ stock grants. That $20.5 million is still a lot of money; it did not come from the market, but from UNH’s business.
So how much does that represent in someone’s medical insurance premiums?
United’s 3Q 2015 revenue from insurance operations was $32.9 billion, or about $131.6 billion annualized.
The amount United paid Hemsley was 0.0001558 of United’s insurance revenue. Let’s work with that fraction, even though Hemsley was also responsible for the other, non-insurance segments of United’s overall business. To state this fraction another way, United compensated Hemsley less than 16 cents for each $1,000 of medical premiums. To state yet another way, if your family medical premium is $1,000 per month, you are paying Hemsley less than 16 cents. To state still another way, if Hemsley worked for free, your premium could in theory go down by 16 cents. Who would even notice?
Again I’m not saying Hemsley doesn’t make a ton of money. I’m not even arguing he earns it. I’m just putting it into perspective.
Perspective is always useful, wouldn’t you agree?
I understand all that. Too bad about the shareholders who got diluted BTW, no matter the fraction; that money came out of someone else’s hide.
My point is that it’s hard to shed tears for a company that has a $66 million employee, options or no. And if they’re dying on the vine how did the options end up in the money? Why isnt UHC a penny stock?
The irony, of course, is that Helmsley and his ilk bought and paid for this legislation. They shot themselves in the foot and want us to pay for it.
“Perspective is always useful”
Or, not, as the case may be.
It depends on your perspective.
The scale of potential losses is also relevant. I do not have the precise figures for United, but here in MN the state Blue Cross had verified losses of $200 million on the ACA exchanges in 2014. United was in over 25 states in 2015 on the exchanges, with varying numbers, but still I suspect the potential losses to United are huge.
Helmsley may think he is saving his company.
It is still a mystery to me why these losses were not obvious back in October 2015 when United was making optomistic predictions about the exchanges. Does management not listen to their own actuaries? Or do they have lousy actuaries (which I severely doubt)?
My supposition is that these insurance companies (Aetna, United, Humana…) were strong armed into participating with Obamacare in closed door meetings like Bank of America was forced to purchase Merril Lynch and Countrywide Morygage with all the bad debt and fraud which that entailed. Do you really think any of these large insurance companies who have mastered actuarial sciences would have joined Obamacare unless threatened to do so. Now they can rightfully show they are losing hundreds of millions of dollars in this new ACA venture and it must be discontinued for the viability of the company. The only question is whether Obama will outlaw these insurances because they’ve backed out of Obamacare or punish them in other ways
another note to John Graham –
I am going to take a friendly job at the very title of this post.
The broad coalition that calls for Congress to stop covering insurer losses has NOT protested against Congressional subsidies to Medicare Advantage insurers.
In fact this blog had some well-reasoned articles in 2009 or so defending these subsidies.
And to my knowledge, the ACA’s proposed $15 billion cutback in Med Advantage carrier subsidies never happened. There have been no increases in Med Advantage premiums at my agency.
Once again, we see that Congress will spend many billions protecting seniors from health insurance inflation…..but spending $12 billion on risk adjustment that will help lower the ACA premiums — oh, that is a great offense.
Seniors have huge voting strength, whereas the part timers and self employed and unemployed who benefit from the ACA have no voting strength. The subsidy to insurers issue seems less like principle, and more like political hardball.
As discussed earlier in the thread, we have not criticized risk adjustment, just risk corridors. And we’ve been proven right. We prefer MA to Fee-For-Service Medicare, but only relatively. We do not support MA absolutely.
I wish they’d make up their minds. Back during the fight to pass the bill the insurers publicly supported the ACA while secretly funneling money to the Chamber of Commerce to oppose it. Then they supported it in the Supreme Court battle. Then UHC crows about record profits just 6 months ago (see below) and now they don’t like it again.
UnitedHealth Profit Soars On ObamaCare, Optum
BY VANCE CARIAGA, INVESTOR’S BUSINESS DAILY
04/16/2015 04:09 PM ET
UnitedHealth Group delivered its best quarter in years Thursday as it benefited from new ObamaCare customers, another strong Optum-platform showing and tame medical expenses. The nation’s No. 1 health insurer also raised its full-year 2015 sales and earnings guidance. UnitedHealth (UNH) logged first-quarter earnings of $1.46 a share, up 33% vs. a year earlier and above estimates for $1.35. …
I don’t know how broad this coalition is but it shouldn’t come as a surprise. Congress managed to pass a bill that satisfied neither free market proponents nor socialists and the insurers don’t get much love from either group.
Mike, it’s a business move by UHC. They stopped paying agents on the exchange but they still pay agent commissions on their Short-Term-Medical (STM) which only takes healthy people. So I wonder which program the agents will sell. Then when the people on their STM get cancer they dump those sickos on the Obamacare exchange and let those fools pay the bill. So, we have the destruction of Obamacare without any votes for repeal.
Other people figured it out way before UHC because they are a little slow. Plus, their STM is not as good as the competition. Hopefully, Devon or John never write about this until we get all of our ducks in a row.
The duck is AFLAC, not UNH!
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