Puzder Pick a Second Win on Health Reform
Soon after announcing his intention to nominate Tom Price, MD as U.S. Secretary of Health & Human Services, Donald Trump announced his intention to nominate Andrew Puzder Secretary of Labor. This is yet another good sign for the repeal of Obamacare.
Since the election, the media have asserted repealing Obamacare will yank health insurance from over 20 million people. This refers to Obamacare’s having increased welfare dependency (via expanding Medicaid) and the expensive individual policies offered in its exchanges, subsidized by tax credits.
This has sucked oxygen out of another important part of the debate, which is Obamacare’s regulations on employment. The Congressional Budget Office projects Obamacare will shrink the workforce by 2 million full-time equivalent (FTE) jobs in 2025.
The CEO of CKE Restaurants, which owns the Carl’s Junior and Hardee’s brands, Mr. Puzder warned of the harm to jobs in chain restaurants from Obamacare’s mandate to offer employees overpriced health insurance as far back as July 2013:
Why did the Obama administration earlier this month delay enforcement of the Affordable Care Act’s employer mandate until 2015? The administration claims that it needed more time to get the mandate right. Some have suggested that politics—the concern that negative effects of the mandate might kick in before midterm elections in 2014—may have influenced the decision.
(Andrew Puzder, “A CEO’s-Eye View of Obamacare,” Wall Street Journal, July 21, 2013.)
The mandate was originally scheduled to kick in in 2014, but employers had already reduced full-time employment because the mandate included a “look-back” period. Mr. Puzder examined hiring data for 2013, reporting:
The health-care law’s actual consequences unequivocally appear in the jobs data for this period. Between Jan. 1 and June 30, according to the Bureau of Labor Statistics, the economy added 833,000 part-time jobs and lost 97,000 full-time jobs, for net creation of 736,000 jobs. In reality, the economy overall added no full-time jobs. Rather, it lost them.
(Andrew Puzder, “Obamacare and the Part-Time Economy,” Wall Street Journal, October 10, 2013.)
Most recently, Mr. Puzder noted rising health costs were reducing his customers’ ability to dine out:
Restaurant traffic has declined 2.8% from the start of the year through September, according to the Restaurant Industry Snapshot, a survey of some 25,000 restaurants by research firm TDn2K. At this pace, the firm said, “2016 would be the weakest annual performance since 2009, when the industry was recovering from the recession.”
In many respects the decline is counterintuitive. Gas prices are down, which normally increases discretionary spending and boosts restaurant visits. Food costs are down at grocery stores, which gives them a competitive advantage over restaurants but should also mean consumers have more money to dine out. That hasn’t happened.
A September survey by the research firm Civic Science found that more Americans are spending less on dining out. The No. 1 reason was, not surprisingly, a worsening of their personal finances. Yet the one factor that “jumped off the screen” was increased health-care costs.
According to the survey of regular quick-service diners who had increased health-insurance costs over the past year, 47% cut back on restaurant spending.
(Andrew Puzder, “The Non-Affordable Care Act’s Restaurant Recession,” Wall Street Journal, October 30, 2016.)
Much of the harm done by Obamacare is inflicted by the Department of Labor, which writes and enforces its rules on employers. As a CEO, Mr. Puzder knows how harmful these rules are. As Labor Secretary, he can relieve many of them, even without full repeal of Obamacare.
I do not question that higher health costs have cut into other expenditures.
However, you and the CEO are too eager to blame this on Obamacare.
The vast majority of Americans are in employer plans. And their costs have gone up.
I do not think there is any way to prove that the persons actually on Obamacare — 6 million unsubsidized, and who knows maybe 9 million subsidized — are the culprits in declining restaurant sales.
Bob, ask yourself – do workers on employer-based health insurance have unlimited lifetime maximums on mental health benefits.
Bob, then ask yourself, are these mental health benefits dictated by Obamacare. If the answer is yes, then you are just confused Bob.
YES Bob, we have to blame everything bad on Obamacare.
Bob, when there are so many variables one cannot prove what variable is causing what though the left believes differently when they are in charge of the statistics and using those statistics to push their crazy proposals. What we do know is that the economy didn’t do well under Obama. There are many reasons to place a good deal of the blame onto Obamacare. …And yes even welfare families are known to eat out at some of the fast food chains.
Mr. Puzder’s article on the decline in restaurant sales did not accuse only Obamacare’s cost in the individual market, but also in the group market, which reduces monetary wages and take-home pay.
Company benefits managers are acutely aware that rising medical costs increasingly squeeze out other spending. Most commonly, spending is cut on existing medical and Rx benefits; but other types of coverage are affected too: e.g., termination or deciding not to offer Dental coverage, or vision care. This squeeze has been going on for more than 20 years, and is getting worse.
Worse, Obamacare is bending the underlying medical cost curve up, not down. That rising medical cost comes out of employed people’s pockets in the form of rising premiums, and rising taxes to support Federal insurance programs like Medicare and Obamacare. Plus there are fewer employed people today who carry these burdens – the workforce participation rate has sunk to its lowest level since the 1970s.
So it can come as no surprise that medical costs in the general population also increasingly force people to make different choices where they spend the money left over after paying medical insurance,
(I wonder if the Civic Science survey examined restaurant spending separately for fast food vs regular restaurants vs high end restaurants? I would expect there are differences, wouldn’t you?)
Florida governor says Obamacare was “invented by liberal academic theorists.”
I’m sure the governor was correct. These academic theorists differ from those in the businessworld. When an academic theory doesn’t work the academician isn’t penalized. In fact sometimes he is promoted. The businessman is fired or ends up bankrupt. Conclusion: One should be careful when following an academic’s advice that is based upon theory.
Welfare families have done just fine under Obamacare. If they received Medicaid, their health care is free and in fact under Medicaid some old medical bills are forgiven.
Of the persons a little above the poverty line, millions of them get large subsidies and they may wind up spending less on health care than they did before the ACA.
The people hurt most by Obamacare are the 6 million who buy unsubsidized insurance. They are definitely not going to restaurants like they used to.
Incidentally, for what it is worth, the last time I went to Hardee’s the average burger was priced close to $4. That felt like a price increase vs. five years ago. If that is true, maybe the price increase is what really has lowered fast food traffic.
Bob
You said “Welfare families have done just fine under Obamacare”
If welfare families are doing so well then why are the on welfare?
“If they received Medicaid, their health care is free and in fact under Medicaid some old medical bills are forgiven.”
No Bob their coverage is never Free. Just because they get assistance does not ever change the premium or the cost of care. The only thing that changes is who Is paying the cost.
Every add out today says go to health care dot gov and get affordable coverage most for less than $70 a month. (a total lie). the premium does not change. tax payers pay the premiums.
Yes the $4 burger price is what is really lowering traffic. The burger costs $4 because of rising costs throughout the system, increased health care cost being a big component of increased labor cost at the restaurant, at the transport company, at the foodservice companies.
The best part about Puzder, in my opinion, is his opposition to increasing the minimum wage. He understands that increases in the minimum wage will drive automation in the restaurant sector resulting in fewer entry level jobs than there would otherwise be. This phenomenon has been going on in Europe for years.
It’s possible that part of the modest downturn in visits to fast food restaurants relates to people trying to eat healthier. Soda consumption is also trending down even in the absence of soda taxes. If the long term consequence is fewer obese people, we are likely to see lower healthcare costs than we would otherwise have. That’s something to celebrate even if fast food restaurant franchisees make a little less money.
Good thinking. Minimum wage jobs are entry level jobs. The higher the minimum wage the less likely those from the inner cities without job experience will get those jobs. The minimum wage job is looked at as a job that cannot provide a wage good enough to care for a family. It isn’t supposed to. It is a stepping stone to a better paying job with a higher standard of living.
John Graham, you implied that Obamacare was also raising group insurance premiums. I am not sure that is true.
Almost all group policies have had maternity benefits, mental health benefits, guaranteed issue and community rating for quite a few years. Obamacare has not forced these plans to expand benefits.
Obamacare has not affected the large self-funded group plans in any way that I can discern. (and this is over 50% of the employees covered)
Obamacare did force some rate compression in the small group market. The benefits of having a healthier workforce were reduced, and the firms with unhealthy workforces got a break.
I honestly do not know the final count of how many plans got hit with higher premiums and how many plans saw lower premiums. Anyways, this is a smaller effect that your generalization, John.
Even the self-funded plans got hit with the fee to fund PCORI ($2.17 per member 2016) and the fee to fund reinsurance ($27 per member). Fully insured plans also had to pay the health insurance tax. Plus there were a bunch of restrictions on HSAs, HRAs etc. (The restrictions on HRAs were largely lifted via 21st Century Cures Act this month.)
But I agree the effect is not catastrophic.
Regarding the growth of actual medical costs, it’s interesting to note that according to the CBO’s Monthly Budget Review, Medicare costs net of offsetting receipts for the first two months of FY 2017 came in at $81 billion which is fully 20% LESS than the first two month of FY 2013 which was $101 billion. That’s despite four years of enrollment growth and upward reimbursement rate adjustments. Maybe there’s something positive happening here on healthcare costs despite the ACA and not because of it. If so, we should all be pleased, especially John Fembup and me.
Sorting out health insurance, subsidies and medical welfare for the non-Medicare and non-Medicaid populations in order to approach universal insurance coverage is a different matter. The two thorniest issues related to replacing the ACA will be high risk pool financing (which has an abysmal history) for those with expensive known medical risks and additional subsidies for those for whom age-based tax credits prove inadequate to afford health insurance where they live and at their age and given their health status which may be subject to rate ups.
“Maybe there’s something positive happening here on healthcare costs despite the ACA and not because of it.”
Maybe so, and that would be terrific news – provided it reflects a real reduction in medical costs, vs some tactic Medicare is using to reduce its spending by shifting costs to other payers or to seniors.
Whatever explains the reduction You noticed, it likely has a complex explanation. A few ideas:
1. The annual percentage growth in overall medical spending was on the decline for years pre-dating ACA. Economists and consultants disagree on the exact numbers but they agree on the decline. Examples
http://www.nationalreview.com/corner/364903/debunking-myth-obamacare-cost-cutter-veronique-de-rugy
http://www.pwc.com/us/en/health-industries/health-research-institute/behind-the-numbers.html
PwC believes the overall cost growth rate will hold for another year at its present level of 6.5%. That’s not great news – but it’s a lot better than 9% – 10%.
The point here is that determining Medicare premiums requires calculating expected Medicare cost. That calculation requires an estimate of cost growth, which usually reflects historical data with adjustments for coverage changes. If expected cost growth Is greater than actual growth over a period of a few years, it’s likely the Medicare premiums will contain a greater than anticipated margin. In that case, Medicare cost net of receipts might well decline over a period of years,
2. Between 2012 and 2016, Medicare Part A copays increased by 11% and Part B deductible increased by 19%. These changes shifted costs to Medicare enrollees and would have at least moderated net costs paid by Medicare. Meanwhile, during the same period Medicare copays and deductibles were increasing, the Part A buy-in premium plus the standard Part B premium increased by 5.5%. That’s consistent with the overall cost growth rate noted above; but as the Medicare premiums seem to have tracked with actual trends, it appears less likely they would contain more than the expected margins.
3. Medicare Advantage enrollment rose by 4.5 million seniors between 2012 and 2016.
http://kff.org/medicare/fact-sheet/medicare-advantage/
When a senior elects Medicare Advantage, Medicare no longer self-funds that senior’s actual medical cost, but buys an insurance contract from the senior’s private insurer, paying a fixed annual premium determined by Medicare’s own complicated bidding system. The point here is that 4.5 million people in Medicare Advantage not Medicare may well have had a favorable effect on Medicare’s net cost. That might happen, for several reasons, such as (a) if the people choosing Medicare Advantage for its superior coverage were less-healthy on average than the remaining traditional Medicare population or (b) the private insurers taking the risk risk are more diligent in managing Medicare claims than when they were simply paying claims for Medicare in an administrative role, collecting a fee but bearing no risk.
Complicated, for sure.
John F. – You’re right. It’s pretty darn complicated to figure out what exactly is going on with Medicare costs when patients’ out-of-pocket costs are added back in. The Medicare Advantage insurers target a 5% pretax profit margin on that business. Those plans, which include limited provider networks, are attractive to healthier seniors but also to low income seniors who may be less healthy. The lower income seniors who are not also eligible for Medicaid like the fact that they don’t need to buy a supplemental plan which can be expensive. In fact, they can’t buy one even if they wanted to if they have an MA plan. The healthier seniors don’t care so much about the limited provider network and like the added benefits like gym memberships and maybe some dental and vision care.
The insurers are constantly telling investors that their inpatient bed days per 1,000 MA members continue to trend down and ER visits are trending down as well. Maybe they are learning how to work with providers to manage care more efficiently with extra effort devoted to managing the care of the sickest members. Those are positive developments for sure.
Interestingly, for the commercially insured younger population, the greatest cost pressure is from hospital outpatient care which is rising in the high single digits according to United much of which is due to higher prices per service, test or procedure. Prescription drugs are the next worst pressure point with costs increasing about 7%-8% per year. Physician fees are only rising about 3% per year and hospital inpatient costs are going up about 4%-5%. Total medical trend is still estimated at about 6% plus or minus 50 basis points with only two percentage points of that attributable to increased utilization of services and drugs.
My own Part D plan with Optum Rx has more than doubled in premium cost since I started buying it in 2012. Coverage is only marginally better in terms of copays. There is no deductible on that plan. I suspect the soaring cost of specialty drugs is the primary culprit even though they account for only 1% of prescriptions written and serve only 2% of patients in any given year but they account for close to one-third of drug costs.
I watched the HHS secritary on a news show this morning. It’s no wonder The ACA is such a disaster. She truly believes the ACA is fixable . Unfortunately she has no clue how insurance works or what insurance is for. Her idea to fix the ACA( which is unfixable) is to expand subsadies. Typical political fix. Throw more money at a problem .
These politicians are all confused. They actually think employer based plans are the good insurance plans..
kind of like the war on poverty. Let’s throw more money at it so we can fix it,.
On a side note Obama signed the 21st century cures act yesterday allowing HRA plans to once again be sold in the small business market. Now small employers can dump there insurance and allow employees and dependents qualify for tax credits and offer a defined contribution per employee.
To bad the ACA has left the individual market on life support but at least there is now hope for a recovery …
“These politicians are all confused. They actually think employer based plans are the good insurance plans.”
Lee, I’m not so sure they do. I think they are wary of the politics of appearing to do the same to employer based group coverage of 150 million people, that they did to the individual markets with Obamacare. So they’re content to lie low and let Obamacare simmer.
Remember we got our employer-based system in the first place because of government wage and price controls. And it actually worked OK so long as medical costs were low, the post-war economy boomed, and unemployment was low and rarely lengthy. None of these factors continue to apply. But we still have our intrusive government that resents private enterprise, and that is not any more likely to run a medical welfare system any better than it runs Obamacare . . . .or Medicaid, for that matter.
Happy New Year.
Thanks for comments,Lee.
Regarding the ACA cheerleading from Sec. Burwell:
You are correct that more subsidies will not cure the adverse selection that plagues the ACA.
However, more subsidies will help a lot of trapped middle class people to survive the ACA for the next year or two.
A 60 year old in Omaha has to pay over $1,000 a month for a high deductible plan with 50% coinsurance, if his/her income exceeds $48,000 a year. That is all he can buy, as short term will be cut back to a 90 day maximum. He could try a Christian ministry plan if it fits him.
I
Bob, you write, “He could try a Christian ministry plan…”
Bob, the documents say that they are not required to pay anything for the money that is given them.
I would think you would be into documents and what they say.
I hit the ‘send’ button too soon.
I was going to add that I do not know any other way to help this person other than more subsidies. Maybe we can fiddle with the tax code to help them, but I always prefer direct on budget cash over tax gimmicks.
Bob,
you said.
I was going to add that I do not know any other way to help this person other than more subsidies.
how about Repeal the ridicules law that was championed by the liberal politicians. The Democrats destroyed the individual market. They are now trying to blame the problems on everyone else. “Rubio caused it, STM caused it, greedy insurance companies caused it.” Give us more money so we can fix an unfixable problem after all its just money.
Adverse selection is not the problem. its an effect of horrible plan design and mandates that makes buying insurance a horrible deal.
I talked with a 50 year old couple who has Nebraska BCBS today. Their premiums are going from $1300 a month to $2007 with a %13,000 deductible. that’s not insurance that’s self insuring!
“that’s not insurance that’s self insuring!”
Obama carefully avoided saying “if I like your insurance, you can keep your insurance”?
Because, it seems obvious now, he doesn’t like anybody’s insurance.
Lee, repealing the law (as in most current proposals) will not help the couple from Nebraska unless we also repeal guaranteed issue.
If we repeal guaranteed issue, then you are right. Insurance companies will come in and offer a reasonable policy to the Nebraska couple if they are in good health.
However, there will need to be some solution for the people in poor health, those who will not receive an offer of insurance from any sane insurance company.
Bob – You’re absolutely right about the unhealthy and already sick. Lee and Ron might say they need medical welfare, not health insurance but that’s just semantics. The bottom line is they need insurance coverage that works for them at a premium they can afford which I would cap at 10% at modified adjusted gross income with no income ceiling. Allan prefers to take wealth into account as well but that’s more of a side debate.
I suppose, in theory, we could turn the ACA exchanges into explicit federally subsidized high risk pools. So anyone who can’t pass underwriting and that insurers won’t cover at any affordable price can go to the exchanges and buy a high risk plan equivalent at least to a current Bronze level plan and maybe even a Silver plan if we want to blow the wad.
There is also a separate issue that relates to lower income people who make too much to qualify for Medicaid but are healthy enough to pass underwriting at least with a rate up for smoking, asthma, etc. For them, age-based tax credits plus their own contribution toward the premium, again capped at 10% of modified adjusted gross income, may be insufficient to cover the full cost of the premium especially if they are older and / or live in an area where medical costs and healthcare prices are high. They will require additional subsidies on top of the age-based credit so they can afford a policy.
Finally, if we keep guaranteed issue for those who maintain continuous coverage with no more than a 63 day gap between plans, those who lose their job and their source of cash flow to pay their bills may have to stop paying their health insurance premium because they no longer have income and cash flow. Then they run afoul of the 63 day coverage gap rule and will have to pass underwriting to get a new policy but they may not be able to pass underwriting. In Germany, the unemployment insurance fund pays the premium for those who lose their job as part of their unemployment benefits. Maybe we could consider copying that idea.
The bottom line is that there are a lot of dollars that will have to come from somewhere to approach universal health insurance coverage. The easy part is providing low cost coverage to healthy people. Anyone can do that with underwriting and no mandate to purchase insurance. The hard part is finding ways to cover people who need it most. It will be expensive to do that which is why it’s hard. Taxpayers want more from government than they’re willing to pay for. That’s unfortunate.
“Lee and Ron might say they need medical welfare, not health insurance but that’s just semantics”
That is not semantics in the quibbling sense. It is an absolute necessity to distinguish one from the other if one wants any program to function in an economically stable environment. This is exactly the problem. Some don’t realize it is their lack of insight into how markets work that is causing many market distortions. They then claim their own created distortion is the reason socialism is needed. That is an ignorant and dangerous way of looking at the problem.
As far as the high risk patient. Many of them aren’t really high risk in the sense they cannot afford risk based insurance. They just don’t want to pay such high costs for their own care. I don’t think poorer people should be subsidizing richer folk. Using the modified gross income does just that. It permits the country club Liberal to be subsidized by the guy that cleans the shower after the Liberal uses it.
“we could turn the ACA exchanges into explicit federally subsidized high risk pools” We could also place them on Medicaid and let them pay for it with the ability to buy out and purchase a private plan. (That is not my preferred way to go, but one that makes sense since we are putting welfare patients together and not ruining the marketplace)
Unemployment, guaranteed issue and all these other things can also be managed by insurance even the health insurance people carry. But, the government can’t determine how to insure people. Only the insurers can if patients are permitted the freedom to buy the policy that suits Them best. The problem is that some believe that they should dictate the nature of the insurance offered and what the individual is permitted to buy.
“The hard part is finding ways to cover people who need it most.”
We found it and it is called Medicaid. Let us use it and have those using it pay (Using the socialist’s favorite term) their FAIR share.
I should add that in order to provide an incentive for insurers to participate in high risk pools, they will need a measure of protection from the 3 R’s — risk adjustment, reinsurance and risk corridors to increase the likelihood that they are at least able to break even and maybe even earn a modest profit on this business.
The incentives for insurers to participate in insuring individuals is that that is how insurers make money. What you are requesting is the ability in a mandated environment for a private company to charge the buyer (taxpayer) for the service plus profit and then not carry the risk.
That is the model we all want. We earn the profits and someone else pays the losses.
I have no expertise whatsoever in auto insurance, but this industry has developed a method to cover all high risk drivers without the federal government being involved at all to my knowledge.
All the auto insurers make contributions to a fund, and the fund supports the carrier or carriers that have agreed to “host” the high risk pool.
This was cited in the Wall Street Journal letters column yesterday.
Could this work for health insurance?
Bob – I’m not an expert on auto insurance either but there are a couple of important differences between auto insurance and health insurance. First, premiums are much lower. If a safe driver can insure a car for $1,000 per year, it might cost a high risk driver $3,000 or maybe $4,000 at the outside. Very few drivers would be considered uninsurable as far as I can tell. Second, most people, especially younger and healthier people perceive plenty of value in having car insurance especially if they have assets to protect. They drive their car all the time either to work, to run errands or for pleasure driving or all three. By contrast, healthy people might never go to the doctor or visit one only rarely.
Regarding Allan’s suggestion to just give high risk people Medicaid and let them pay a premium based on their ability to pay, I don/t think the states would be willing to incur that incremental cost for their share of the program. Medicaid is already the second highest budget item for most state governments after K-12 education. If the states won’t pay, the feds would have to pay. If the feds pay, they will probably require a one size fits all approach with maybe an occasional hard to get waiver to try something different granted to a state or two here and there.
Moreover, if insurers know that anyone who they decline to insure has an adequately funded high risk pool standing ready to provide those folks with heavily subsidized insurance coverage, underwriting standards are likely to tighten and even more people will be deemed uninsurable by the regular private underwritten insurance marketplace. I think the free market folks will be surprised at how much it costs to cover all the people that the insurance underwriters don’t want, especially if employer provided insurance were to disappear or at least shrink significantly.
“I think the free market folks will be surprised at how much it costs to cover all the people that the insurance underwriters don’t want”
That is the mindset of the collectivist. Insurers will cover risk no matter what the cost as long as they can adequately adjust their own risks.
“If the feds pay, they will probably require a one size fits all approach”
That is only if their mindset is one size fits all and not the competitive mindset. Right now we have a socialist type of government thta passed the ACA which you supported. Trump is coming in. Maybe he will have a market oriented type of government that hates collectivism and will throw one size fits all out. You don’t know.
“I don/t think the states would be willing to incur that incremental cost for their share of the program.”
You don’t know what states would do for even today the sickest are getting care and it is being paid for one way or another so the money for the most part exists. Maybe the states would prefer to subsidize the hospital for patients that can’t pay and sue those that have assets? You don’t know. Maybe the states would come up with a different idea? How can they come up with different ideas if you have already determined (and seem willing to mandate) what states will or will not do.
Bob, that was a letter to the editor. Auto insurance is under state control so he may be right that some states the auto companies have a pool. That, however, is not a good idea for if increasing premiums cause less people to insure as has been demonstrated they they might have more uninsured persons driving cars.
Notable is the fact that before the ACA the percentage of people without health insurance was similar to the percentage of drivers without auto insurance.
There are at least two difference between auto and health that have to be considered when comparing or contrasting them.
First, many claims involve at least two auto insurers. Hence, doctrines like no-fault arise to simplify claims. This is not relevant in health.
Second, people have a different moral perspective in auto insurance. If you have a bad driving record, society is happy for you to have a higher premium because you are unsafe by choice. Society think that is fair. Society does not think it is fair for a woman with a genetic predisposition to breast cancer be underwritten for health insurance.
Barry, you wrote, “I think the free market folks will be surprised at how much it costs to cover all the people that the insurance underwriters don’t want.”
I think that is a very uninformed comment.
But, if I’m wrong, we are all so lucky that someone as smart as you can keep us informed.
Ron, the average cost of the persons who enrolled in the transitional national high risk pool was $30,000 a year. This is the pool which was run by the ACA for about 3 years 2010-2013.
This pool was allocated $5 billion in federal dollars and ran out of money rather rapidly.
Bob, I was talking to Barry about his comment about how health underwriters would decline all but perfect risks. We know that Life Insurance will insure people who have had a heart attack and health insurance would do it too.
But you know Bob that the sick being terminated off of employer-based plans with cancer will be expensive. I have always told people that those employer-based plans are too dangerous because you could lose your insurance and the high risk pools can be expensive.
talk about perfect timing!
I just noticed the following report from Kaiser:
http://files.kff.org/attachment/Issue-Brief-Pre-existing-Conditions-and-Medical-Underwriting-in-the-Individual-Insurance-Market-Prior-to-the-ACA
Thanks for the link Bob. I remember when Ron once estimated that as many as 30% of those with employer coverage could be declined for individually underwritten insurance if employer coverage disappeared. Kaiser’s numbers are close to that estimate.
In typical health insurance models, 25% of your members account for 75% of medical claims in any given year though they are not the same people from one year to the next. At any rate, this report suggests that the number of people needing high risk pool coverage because they couldn’t pass underwriting could be much greater than most people think and the cost of covering them would be extraordinarily high. At the same time, the 150-160 million people who can pass underwriting could buy coverage very inexpensively.
So the rub becomes where to find the money to cover the 27% of the population that insurance underwriters will decline to cover or only cover them on terms that eliminate coverage for the condition(s) that they are most likely to need treatment for. A market that doesn’t work for 27% of the population is a market failure in my book. Throw in those who can pass underwriting but still can’t afford the premium because they earn a low income, are older or live in an area with high medical prices and you have a market failure on steroids. In theory, insurers could quote a premium that adequately reflects the health risk of these individuals but it will be a premium that nobody but the mega wealthy can afford. So whether these people are declined outright or are quoted an unaffordable premium, the cost of financing high risk pools and the subsidies that go with them will be the same – extremely high.
High risk pools are a sound concept but everyone on the Republican side is grossly underestimating the likely cost as far as I can tell. Their past history is abysmal as well. Repealing and replacing the ACA cannot be successful until the high risk pool financing issue is satisfactorily addressed and resolved.
There are no hard figures demonstrating 27%. That is a poorly educated guess and based partially upon the fact that those uninsured are frequently considered uninsurable until proven differently. Put everyone in the individual pool and underwritting will be quite different. The insurers only want to preform enough underwriting so that at the end of the year they meet their desired profit.
It is the collectivists that have incentivized insurers to insure the ways they do. That is where the problem starts. The collectivists have even pushed for laws to end things like HSA’s and don’t permit the deductibles to rise to their sweet point in many people. Additionally they are the cause of our high expenditures which if they packed up and left could be cut by a third or in half.
As I stated before when I considered retiring I wanted to guarantee my ability to buy a high grade insurance privately rather than use the office policy. Both my wife and myself were considered uninsurable and BC refused to insure us despite numerous physician letters stating our excellent health and low expenses. Neither of us had spent together the equivalent of one of todays premiums over the prior ten years to the time we both went on Medicare. It took two years for me to be fully insured by BC. In my one expensive year I don’t think my total bill exceeded a families premium. I didn’t even meet my co pay deductible that year.
No one from what I have heard is underestimating the cost of high risk pools. …And many that were in those high risk pools could have covered their own insuance or a good part of it out of their own pockets. I know some high risk individuals that drive expensive large new cars, have expensive clothing and eat out in moderately expensive restaurants. I’m shocked seeing this type of abuse that others think is too difficult to discover so that the patient instead of another taxpayer pays the bill.
As a former insurance company employee, let me offer the following.
The insurer has to assume that a new customer will keep his policy more than one year. As Allan relates, they would turn people down even though the applicants had very modest current expenses and good recommendations from their doctors.
.
The reason for rejection was that collectively, the persons with similar histories were more likely to experience a major illness in the next 5 years. Look at one 60 year old and there might be little chance of a major event because this 60 year old takes good care of himself. But look at one hundred 60 year olds and the track record is not pretty.
At my insurer we really dreaded covering large groups of early retirees. The loss ratio on a group with only 60 year olds could knock your financial socks off
Allan seems to like to think in terms of individual level risk but insurers think (and price) in terms of population level risk as they should. The firms that had the lowest medical loss ratios in the pre-ACA days included Golden Rule that cherry picked only the very healthiest risks to cover. At the same time, their thorough underwriting coupled with marketing, advertising, broker commissions, etc. meant it also incurred very high administrative expenses as a percentage of premiums but still earned a well above average pretax profit margin.
Barry, why do you socialists always use the term cherry picked? Banks do it too. Banks are cherry picking people to make loans to.
You didn’t like Golden Rule’s small premiums for customers, sales commissions and high profits. Well your Obamacare sure stopped all of that. You must be very happy Barry that government regulation has destroyed the market.
“Allan seems to like to think in terms of individual level risk but insurers think (and price) in terms of population level risk as they should.”
Every business focusses on issues broader than their own, but when it comes down to the day to day decisions they focus narrowly. If the risk of the population group is low, but the insurer has insured a sicker group Barry’s way would lead to bankruptcy. Instead the insurer looks at the individual risk and the risk of individual groups basing the premium on the actuarial assumptions.
I’m not quite sure how Barry’s inclusion of Golden Rule helped his argument. But, it further showed how Golden Rule was looking at the risk of individuals rather than population health. Apparently, Barry doesn’t like risk adjusted premiums.
Risk-adjusted premium at the individual level is easy to articulate but not so easy for an insurer to execute. For example, I would have been considered uninsurable before I aged into Medicare. Yet after getting a stent in 2005 at age 60, I was fine for the next 10 years needing only medication that cost less than $1K per year and a stress echo every couple of years. Then after ten years, I develop atrial fibrillation and needed an ablation. So, I wasn’t really all that expensive over the total time period but the insurers would have ruled me out for coverage because I had a CABG in 1999.
Other people of similar age may have progressed to heart failure or developed diabetes. Insurers can’t make that distinction among people of similar age so they make generalized population level risk conclusions based on age and medical history to price their policies.
“Risk-adjusted premium at the individual level is easy to articulate but not so easy for an insurer to execute”
How do you think the insurers did it years ago? They didn’t bother with everything. They picked the metrics they needed to make a profit and incentivize a patient to buy their product. They didn’t bother as much with all of the risks until government intervention reached a level that changed the dynamics and caused them to redefine their policies concerning risk.