Forbes colleague and insurance industry veteran Robert Laszewski has reviewed Congressional Republicans’ potential responses to a victory in King v. Burwell, the lawsuit that could upset Obamacare’s tax credits, and found them deeply wanting.
With respect to the House Republican proposal to give (what are effectively) block grants of Obamacare money to states:
I have no earthly idea how a state might opt out and build a brand new health insurance system in just a few months—and do it for what might only be two years!
With respect to Senator Johnson’s proposal (which I previously discussed), he is equally dismissive:
Johnson’s plan would continue subsidies only for people already getting their health insurance coverage on Obamacare and only through September 2017.
Most importantly, no new people would be able to enroll in Obamacare subsidized coverage during this period.
This proposal would be an underwriting nightmare for the insurance companies leading to much higher prices and fewer options for consumers during the transition period.
If a pool of insured people is closed to new enrollments there is a tendency for the healthy people to leave the pool and for the sick to stay in the pool. We call that anti-selection.
The technical term we use in the health insurance business to refer to a program closed to new enrollment is a “closed block.” Closed blocks always see higher claims levels the longer this goes on—the block “ages” as its profile just gets progressively sicker. And, its rates have to keep climbing.
I am not sure I agree with Mr. Laszewski that the problem introduced by Mr. Johnson’s proposal is the same as the classically observed closed-block problem. In the old individual market, insurers could recruit healthy new applicants 24/7/365. In Obamacare, there is limited ability to enroll outside open season.
So, it is not healthy people switching out of their Obamacare plans. It is people who leave Obamacare to get employer-based benefits or Medicaid. That is, switching is primarily driven by household economics, not health status.
(However, I may be quite wrong. Mr. Laszewski has decades of experience in the health insurance business, which I do not.)
I don’t know why Lazewski should be so hard on them. They’ve only had since, oh, 1960 or thereabouts to work on them.
Part of what Bob L is getting at is this:
at some point, an ACA market with no new entrants just becomes completely unattractive to private insurers. As someone said back during the Clinton health plan debate, “What if you gave a managed care party and no one showed up?”
I am an insurance industry veteran like Bob L. History does tell us that the recent filing of big price increases by ACA insurers could be the first sign of their getting prepared to exit the market.
You’re kidding, right?
If one could assume that a functioning alternative would be in place in a couple of years, then Laszewski’s concerns might be misplace. From what I’ve seen so far, I’m not willing to make that assumption.
Priority #1 should be to avoid compounding the mess.
note to John F —
I am definitely not kidding about insurers abandoning the ACA exchanges…
see the following history by P Suderman
http://reason.com/blog/2013/10/24/this-is-what-a-health-insurance-death-sp
Inquiring minds might ask why insurers are so happy with Medicare Advantage, which also features guaranteed issue.
The answer is that a more mature risk adjustment system helps a lot, and the insurers get about $12,000 for each Medicare Advantage customer.
“I am definitely not kidding about insurers abandoning the ACA exchanges…”
Bob Hertz, please note I don’t disagree that some insurers, maybe a lot of insurers, will exit the ACA exchanges. But that’s not what you said earlier. I disagreed with the notion you expressed earlier, that premium increases could be the first sign of market exodus by insurers. I think that if there is a market exodus, it will happen because of factors that are much, much more fundamental than premiums. And I think that is an important distinction.
As to the Suderman article, I think you misread it. In your defense, Suderman was not all that precise about the death spiral. But Suderman did not say that filing of big price increases could be the first sign of insurers getting prepared to exit the market. You said that.
Here’s what Suderman actually said:
“If you change the enrollment requirements – by, for example, ditching the mandate – while leaving the law’s preexisting condition rules in place, health plan participation will likely be lower. The result, as one insurance official told NPR yesterday, is that insurers will want to change their premiums. And in this case, “change” means “raise.”
Suderman actually said that changing enrollment requirements happened first. So a better candidate for the first sign of an impending death spiral in Obamacare is the feds reneging on ACA’s enrollment terms – under which the insurer set its premiums in the first place. As an insurance industry veteran like Bob Laszewski, surely you know all this.
Suderman goes on to describes what he thinks will happen next, and this is where he loses precision:
“That’s where the real trouble starts. Insurers raising prices as a result of lower than anticipated enrollment is an early step toward an insurance death spiral”
Not necessarily. It’s important to keep in mind that the US is not one unitary market, not for any insurer. Every insurer that offers managed care policies does so in its own, specifically defined geographical markets, usually by county. No insurer offers managed care policies in every county in the US. I know of no insurer raises its premiums by the same amount across all the counties in which it does business; or for that matter, for all its products within any county.
In the early 2000’s Aetna’s financials swung to a loss, and “experts” widely predicted that when Aetna raised premiums in response, it would trigger a death spiral. That didn’t happen. Aetna recovered and swung back to profitability in less than 18 months. That happened because smart people know that raising premiums across the board is not smart. Aetna raised premiums selectively where it could, market by market and product by product; made adjustments to product features; withdrew from a number of markets; and even withdrew some products from entire states.
It’s also worthwhile to note that Suderman’s examples of death spirals did not arise from within insurance company policy, but from misguided legislation written by (imo) misguided legislators.
Back to 2015, I think insurers understand the feds did not deal in good faith with them, or the public, regarding enrollment rules as Obamacare started up. Big surprise. But perhaps more important the insurers now have actual enrollment and utilization data on which to base their premiums for 2016. I expect to see some insurers withdraw from selected markets, especially those where they feel higher premiums cannot fix their losses; and that they will raise premiums in markets where they feel higher premiums will succeed. Some insurers may withdraw from ACA exchanges entirely. But none of that means raising premiums is “the first sign of their getting prepared to exit the market”.
Why does any of this matter? I suppose it doesn’t – unless you are concerned with getting it right someday. As I suggested at the top, Republicans (and Democrats) have had at least since 1960 to think about our medical cost problem; but we still have no solution and things seems to be getting worse all the time.
One way to “leave the exchanges,” of course, is to consolidate. As we see in the stock market, the great consolidation is happening right now.
It’s time for Obama to strike a deal with Cuba, Mexico, Costa Rica, Brazil, Panama and Argentina, all of which offer equally good health care at bargain prices. These countries, together with others like India, Thailand, Hungary and the Czech Republic could take care of the healthcare needs of Amerikans at a much lower price.
Cuba has been available for cheap abortions for decades. Planned Parentghood could easily change its business model and offer excursions to Cuba for abortions at a very low price.
One hopes that Medical Tourism is provided for in Obama’s TPP and other trade treaties.