Bleak Future for Obamacare’s “Beneficiaries”
(A version of this Health Alert was published by the Daily Caller.)
One might be forgiven for thinking health insurers are cracking under the strain of Obamacare’s broken insurance exchanges. But don’t be fooled: it is the 10 million Obamacare enrollees who are in trouble, not the insurers.
To be sure, new nonprofit cooperative insurers, set up with special subsidies to compete in the exchanges, have had a terrible run. They deliberately underpriced their premiums to gain market share, expecting the federal government to bail out their losses. Once the Republicans took over the House of Representatives, then the Senate, this became unlikely. As a result, the administration announced in November that 12 of 23 nonprofit cooperative insurers were shutting down.
However, these nonprofit cooperative insurers, which did not exist before Obamacare, are not important overall. That is why UnitedHealth Group’s November 19 announcement that it is losing $500 million on the Obamacare exchanges and might withdraw from Obamacare in 2017 is a big deal. Just a few weeks earlier, UnitedHealth Group had announced it would expand into 11 new states’ Obamacare markets.
The insurer is also dialing back advertising and brokers’ commissions for 2016, even though it is too late to withdraw from the market literally. (We are in the middle of Obamacare’s third open season.) However, it is the threat of absolute withdrawal in 2017 that has shocked many. By 2017, the fourth year of Obamacare, the market is supposed to have shaken out. Both insurers and Obamacare’s political sponsors understood that insurers would not know how expensive claims would be from those who signed up during the first three years. That is why insurers were given temporary taxpayer subsidies, called reinsurance and risk corridors, for 2014 through 2016. Reinsurance is a direct handout of $25 billion from taxpayers to insurers. Risk corridors were more complicated and supposed to be budget-neutral. Insurers that made more money than expected would pay money to those that lost more money than expected.
When it became clear that the losers far outnumbered the winners, the administration tried to raid the kitty to make risk-corridor payments from the general fund. By this time a new Congress (in which the majority opposed Obamacare) actually read the bill that its predecessor had passed in 2010 and pointed out that the administration could not pay out that money. As a result, Obamacare insurers will only receive $362 million of $2.9 billion of risk-corridor payments requested.
However, even if Congress did cave in and pay the risk corridors in full, payments would finish in 2016. That is what makes UnitedHealth Group’s announcement about dropping out in 2017 so important: it is effectively an admission that three years are not enough to learn how to manage risks in Obamacare’s exchanges. Indeed, it suggests that risks are unmanageable, that the vicious circle of increasing premiums’ driving healthy subscribers away and leaving only sick ones on the books cannot be stopped under Obamacare.
The exchanges have fewer victims than initially expected. The economy has been strong enough that employer-based coverage has stood up to Obamacare. As a result, only 10 million people are caught in them, instead of the 21 million forecast when the law was passed. However, this is a mixed blessing. These 10 million are a politically weak constituency of working-class and lower middle-class citizens in middle age — the people whose needs politicians always talk about but seldom address because they are not politically active.
The only group politically powerful enough to renegotiate the exchanges are the insurers, and they show no more creativity than to lobby for their subsidies to be restored, which this Congress has promised not to do. On the other hand, simply quitting the exchanges is not very painful for large health insurers. UnitedHealth Group’s stock took a small hit when it admitted its struggles, but Obamacare exchanges are a tiny share of its business. As more insurers make the same decision to quit, 10 million Obamacare subscribers will be left high and dry in short order.
UNH “might withdraw from Obamacare in 2017”
I think it’s a bit stronger than “might”.
UNH has capped its Exchange enrollment by ending commissions on new entrants. That effectively stopped new a Exchange business. Seems to me that’s a clear signal that UNH does not believe larger volume is a success factor in Exchange business. I think it follows that it’s unlikely UNH will reduce its Exchange losses in 2016. So the next step – full withdrawal – is much more likely than its being reported.
So I think the more interesting question is exactly how – or, if – UNH will help its present Exchange membership transition to other coverage for 2017.
Thank you. I never exaggerate what the regulated executives themselves say. So, while your statement is quite appropriate, the CEO left himself a little wriggle room, which is appropriate for him as CEO of a public co.
These regulated executives of United Health Group (UNH) knew they were going to terminate commissions to the agent field force and they let the agents spend the money to advertise, among other things, then without warning terminated commissions. Of course nobody cares about these agents and how UNH manipulated them.
UNH is still paying commissions on their Short-Term-Medical (STM) product that only takes health people. So all sick people go to the Obamacare Exchange, without commissions, and the healthy people go to STM with commissions. Then if a STM client gets cancer UNH dumps them on the Obamacare Exchange during the next Open Enrollment for those fools to pay the expense. So, Obamacare is dead.
Obamacare was passed to protect the big money, employer-based health insurance. The goal was to make Individual Medical (IM) very expensive and diminish IM’s competition to employer-based health insurance. Mission accomplished!
“wriggle room, which is appropriate for him as CEO”
Always.
Excellent points John
You put the pieces together!
More young and healthy people would probably participate in the exchanges if (1) the penalty for remaining uninsured were closer to the cost of the lowest cost plan, the maximum age rating band were raised from the current 3 to 1 limit to 6 to 1 and (3) the maximum income threshold of 400% of the FPL to qualify for a subsidy were eliminated.
To the extent that the cost of the subsidies increases with these changes, we should raise broad based taxes somewhat and repeal all the Obamacare taxes on drug and device manufacturers and insurers.
Barry, though you are attacking the problem from more than one side it seems your solution is to tell the young that they have to pay more than their insurance is worth. In other words if funds are limited due to a dumb law known as the ACA simply increase taxes which in this case is on the young.
Why do we do things like that? ‘Because we can’.
Several of the very companies that are now avoiding the ACA exchanges (i.e. Humana and United) are the same firms who buy millions of dollars in ads each fall to promote their Medicare Advantage products.
Yet Medicare Advantage is pure guaranteed issue, pure coverage of all pre-existing conditions.
What gives?
I realize that the insurance products are not precisely the same, but I still think there is a lesson here.
The lesson is government support is needed to lure private insurers into a guaranteed issue market. Lots of support.
The ACA drafters underestimated this need, and the Rubio-led Republicans are too anti-Obama and (in some cases, I fear) too dumb to understand this.
Bob,
I think many of the folks choosing Medicare Advantage plans are healthier than average – risk scores below 1.0. If their health deteriorates later and they want to ensure maximum provider choice, they can always return to standard FFS Medicare but they will not be able to buy a supplemental plan unless they can pass medical underwriting. MA insurers also receive risk adjustment payments based on individual risk scores. The normalized pretax profit margin on this business is about 5%, at least for the big players like UNH and HUM.
The ACA exchange plans are suffering from adverse selection mainly because large numbers of young and healthy people are choosing to remain uninsured and pay the penalty instead. I think that problem could be mitigated by expanding the age rating band from 3 to 1 to 6 to 1 to more accurately reflect the actuarial risk of each age group. Subsidies would have to be increased for the older folks and we should eliminate the income ceiling of 400% of the FPL beyond which no subsidy is currently available. Broad based taxes would probably have to be increased somewhat to cover the incremental cost of the subsidies unless we just want to further increase the deficit which is the way we financed Medicare Part D. I don’t think that would be a wise approach though.
“many of the folks choosing Medicare Advantage plans are healthier than average”
Underwriters generally expect less-healthy people will be less likely to change insurance plans. This factor probably favors Medicare Advantage vs Medicare. Another factor favoring Medicare Advantage is that seniors reaching age 65 are already familiar with HMO type coverage and less reluctant to choose Medicare Advantage over Medicare.
And even though richer benefits usually attract less-healthy individuals, that has apparently not happened to Medicare Advantage. Perhaps seniors fear that if they relinquish Medicare they are potentially giving up access to Supplemental coverage as well, should their health deteriorate.
(MA enrollment is now nearly 17 million seniors).
I think Barry is correct at least from what I saw in the past. Patients who were sick remained on traditional Medicare and the healthy ones that chose the alternative went back to Medicare when they were sick.
That is what the GAO found out years ago when they studied how much the original Medicare HMO’s were overpaid when risk was taken into account.
Things have changed somewhat, but I believe the underlying incentives still exist.
“the healthy ones that chose the alternative went back to Medicare when they were sick”
AI, I think we’re saying the same things, except for that sentence. I think seniors whose health deteriorates have strong incentive to stay in Medicare Advantage because of its superior benefits.
Medicare Advantage benefits are much superior to Medicare, and arguably superior to Medicare with a Supplement policy. Although Medicare Advantage participants always have the right to return to Original Medicare, they must apply for a Supplement policy. That’s because Supplement policies are subject to underwriting – i.e, proof of reasonably good health. Thus people who return to Original Medicare take a risk of losing coverage and thus have a strong incentive to stay where they are – and especially if their health has deteriorated.
Fortunately that effect has not been enough to overcome the impact of overall favorable Medicare Advantage demographics. I think those demographics reflect Medicare Advantage success attracting younger, healthier individuals who were already in Medicare, plus healthier individuals as they “age-in” to Medicare eligibility.
John,
The biggest disadvantage of Medicare Advantage, in my opinion, is that not all providers accept it. Indeed, there was an article in the WSJ today talking mainly about inaccurate listings of which providers are in an insurer’s network and which aren’t which mentioned that United no longer contracts with the highly regarded Moffitt Center in Tampa, FL. I’m told that the Moffitt Center provides very high quality cancer care. Also, my NYC based cardiologist warned me when I was about to age into Medicare that a number of the best NYC hospitals, including the Hospital for Special Surgery, don’t accept many of the MA plans. Maximum provider choice is worth a lot if you want access to the best ones for sophisticated surgical procedures and cancer treatment.
That said, knowing that you probably won’t qualify for a supplemental plan after getting sick is a clear impediment to switching back to FFS Medicare because it exposes you to potentially unlimited out-of-pocket cost sharing.
“not all providers accept [Medicare Advantage]”
Barry yes, that is certainly an disadvantage, but not a benefits differential.
The article this morning reminded me of T. S. Eliot “it is impossible to build a system so perfect that no one needs to be good” or, more simply, “between the thought and the action falls the shadow”. Maybe maybe so-called managed care will prove too complicated to actually manage. Meanwhile, the cost of delivering medical care continues to rise.
The MA plans are especially popular with lower income seniors, in part, because they eliminate the need for a costly supplemental plan which most of those folks can’t afford. They probably view any limitations on the size of the network of providers they can access as a reasonable and acceptable tradeoff.
“Medicare Advantage benefits are much superior to Medicare, and arguably superior to Medicare with a Supplement policy.”
Not really. As Barry has already mentioned access to many physicians is restricted. But along with physicians and hospitals are testing and treatments that might also be restricted. and hospitals is restricted.
One can only afford to give superior benefits through certain means and a big one that is legal and ethical is by restricting access to all of these things that impact outcomes and quality of life.
“Not really.”
Yes, really.
Do a benefit-by-benefit comparison and the decficiencies of Original Medicare jump out at you. It’s a closer call for Medicare with a Supplement policy, but of course you pay for the Supplement out of your own pocket. And as I point out, there is also an access issue with Supplement policies.
If one values freedom of choice one is better off on Medicare. This is especially true with very complex diseases that are best treated at certain hospitals that may be off limits to Medicare Advantage patients.
Cheaper medical care is cheaper in more ways than price. Having dealt directly with this problem there is no doubt in my mind that Medicare is better health wise than Medicare advantage. Medicare Advantage may be cheaper, but I carry health insurance for the best care.
“If one values freedom of choice one is better off on Medicare.”
Well AI, of course Medicare Advantage – where it’s available – is an option. Not everyone will choose MA. But obviously many millions of people prefer MA. I think this means the freedom to choose a MA plan is important to seniors.
Freedom of physician choice is a factor in the selection of an insurance plan. However this factor diminishes in importance after the plan selection is made.
Seniors who don’t find a MA plan that includes their doctors naturally prefer Original Medicare.
But for seniors who do find a MA plan that includes their doctors and choose to enroll in that plan, the freedom to see other doctors becomes less important – their own doctors are in their plan. And because their doctors are in their plan, they have access to the hospitals where their doctors have admitting privileges.
Also, because seniors often see multiple physicians, most MA plans do offer an adequate panel of specialists. The federales have rules about this and, besides, plans who do not offer adequate specialist panels find marketing very difficult.)
Yes, choice is important though at least in the past and probably in the present MA or whatever the older plans were called raided traditional Medicare.
“Freedom of physician choice is a factor in the selection of an insurance plan. However this factor diminishes in importance after the plan selection is made.”
Let us briefly think about what you said. The fundamental reason for insurance to exist is to transfer unexpected risk to an insurer. You are discussing offsetting risk that is already a known quantity. If you agree with the fundamental reason for insurance to exist then you are looking to insure future risk that is unknown.
You guys keep talking about the penalties .. There are very few who do not qualify for subsadies that owe a penalty because of the affordability exemption. Even for a health 25 year old the premiums for a 6800 deductible are over $3500 a year. That would exempt the individual from a tax penalty tell they made about $43,000 . Who would buy insurance unless they were sick if you could buy cheaper alternative for a third the price without any penalty then switch to a ACA plan if you do get sick. UHC sees what is happening around the country. They are one of the few complaines that people,can buy short term plans for a year at a time That will always get you to the next open enrollment …
They get the young, they get the healthy and they get most of the SCHIP kids. Why insure the sick!!! UHC has a brilliant business model.
“Even for a health 25 year old the premiums for a 6800 deductible are over $3500 a year”
Presumably, the premium would be significantly lower, perhaps half as much, if the maximum age rating band were 6 to 1 instead of 3 to 1. Moreover, a short term medical policy, assuming you can pass underwriting, isn’t considered creditable coverage under the ACA which means the penalty for not having creditable coverage would still have to be paid. Finally, these plans generally don’t cover maternity benefits and often don’t cover prescription drugs and they come with high deductibles.
While they still may be a good option, especially for perfectly healthy young men, the combined cost of the ACA penalty for not having insurance, which goes up in 2016, plus the much lower premium that would need to be charged with a 6 to 1 age rating band instead of 3 to 1 could lower the cost gap between STM and ACA coverage enough to attract significant numbers of young and healthy people who aren’t signing up now.
Barry, you wrote, “Moreover, a short term medical policy, assuming you can pass underwriting, isn’t considered creditable coverage under the ACA which means the penalty for not having creditable coverage would still have to be paid.”
That’s not true. The big ham just said there is no penalty unless their income is high enough. In Tampa a 50-year-old couple with 2 children earning $100,000 a year has no penalty for going STM. The lowest priced premium on the Exchange is $971 per month so they would have to earn $154,650 a year before a penalty would apply.
You say STM is an option for perfectly healthy young men. What are you talking about? My STM for the above family is $512 a month which is half price of the cost on the Exchange. Plus, the deductible is only $3,000 per person instead of $6,850. Plus, the STM is a PPO instead of the Exchange which is an HMO. PLUS, plus, the deductible on accidents is $100 on the STM.
I’m sure that millions of people will pay the penalty when they don’t have to because their CPA will think exactly like you Barry.
Ron,
The income criteria that allows someone to avoid paying the penalty is a separate issue from whether or not STM is creditable coverage that, by itself, creates an exemption from paying the penalty. It isn’t.
The big ham didn’t say that STM created the exemption. He said the income level created the exemption. I agree and pointed out to you that the family above has to have a Modified Adjusted Gross Income (MAGI) of $154,650 a year or more or they are exempt from the Obamacare penalty.
Those are the facts.
Ron, I assume you are applying the exemption to those that have demonstrated income problems with evidence such as a utility bill that was not paid and therefore leads to a turn-off notice (sham or otherwise) or alternatively one of the other exemptions where the % of the annual lowest cost insurance is greater than a certain amount.
Can you provide a more in depth explanation of the numbers. In your example the annual expense for insurance was $11,652 which was less than 8% of their income. What is the percentage amount for 2016 that must be met for the exemption?
Al, no I don’t enroll people into UHC with no commissions because I don’t want to do their customer service for nothing.
Yes, you are correct that $971 a month is $11,652 per year which is 8% of $154,650 and the average American family earns much less.
As TIME goes by the cost of health insurance will continue to rise much faster than Americans’ incomes so fewer and fewer people will have to pay the penalty.
You do agree that UHC taking the healthy clients with their STM – then when the clients get sick just dump them onto the Obamacare Exchange and let Blue Cross pay the expenses. This will make the Obamacare plans go up even faster. Obamacare forgot to regulate STM so it is coming back to cause them grief.
All I see for the ACA is outright failure or continuous corrections year after year while bringing pain and financial loss to America for years to come.
I know little about the type of insurance you are selling and without seeing it couldn’t judge its value.
I don’t think I asked about your commissions.
I told you about commission because then you could understand why enrolling people without commissions is a bad idea because the client still come to you when they need help and it’s not worth the headache.
Ron, no problem. I believe in commissions and paying people for their knowledge. However, I like it to be my choice. That keeps the fees down and the quality up.
Additionally, Ron, if the individual is self employed, is the STM insurance able to be deducted from total income when calculating the necessary per centage amount?
You should talk to a CPA if you want tax advice. Health insurance has some crazy laws that give employer-based health insurance a tax advantage. Then State Insurance laws say that an employer can’t pay “ONE PENNY” of the premium of portable Individual Medical (IM) on an employee. The last thing these big health insurance companies, that bribe our politicians in both political parties, want is ANY competition to employer-based health insurance.
Now the IRS has the penalty and it is very large to try and stop this competition to employer-based health insurance. Employer-based health insurance has to have the deck stacked in their favor or they couldn’t compete.
That’s why they got Obamacare passed was to drive up the cost of Individual Medical and they have been successful.
Thanks, no CPA needed. This question was out of curiosity not need.
Presumably, the premium would be significantly lower, perhaps half as much, if the maximum age rating band were 6 to 1 instead of 3 to 1. Moreover, a short term medical policy, assuming you can pass underwriting, isn’t considered creditable coverage under the ACA which means the penalty for not having creditable coverage would still have to be paid. Finally, these plans generally don’t cover maternity benefits and often don’t cover prescription drugs and they come with high deductibles..
I don’t even know what to say about such an uniformed response. 90% of the population is exempt because of income. Rx’s are covered and the only person who would want coverage for maternity is someone who doesn’t understand the cost and benifits of insurance. (I’ll see if I can find some crayons and walk you through what maternity covers and what it costs some other time). Higher deductibles? $2500 vs a $13,000 ACA plan. I guess DR Gruber miss spoke when he said the Amerocan people are stupid. What he meant to say is they are uniformed sheep!
In my state of MN this year, the average age of persons using the state ACA exchange is just over 50.
Now this is partly because MN has a very generous Medicaid package for the young and poor, but still, this is ominous for future rate increases on ACA plans.
People, we are being scammed. In 2 days millions of people in Iowa, Florida and Texas will be losing their doctors and forced onto HMOs because of Obamacare and nobody is saying a word. The New York media has everybody in IOWA worried about an ISIS attack instead. Don’t worry about the Fascists in America but instead be worried about ISIS on the other side of the world. In 2000 George W. Bush wanted tax credits of $4,000 to purchase Individual Medical (IM) insurance and Al Gore said that health insurance cost was $8,000 per family. Dr. Goodman said that it cost $6,000 per family and I was running around IOWA putting 30-year-old couples with 2 children on HSA Qualifying insurance for $78 a month. McCain and Romney wanted tax credits for the purchase of IM but the media won’t report. This is trillions of dollars so the propaganda machine is working over-TIME.
In New Hampshire taxpayers are paying $31,000 a year for employer-based family insurance to Blue Cross with a $2,500 deductible for government employees. The taxpayers are giving the employees the $2,500 in a FSA so Blue Cross has limited expenses. The Feds are losing Income and Payroll Tax on this $31,000 or $10,000 per year. The current crop of Republicans running for President still want tax credits for the purchase of IM. Now it’s age-based tax credits and the 50-year-old couple with 2 children would get $8,000 and the cost for medically underwritten STM is only $6,144 per year so the balance of the $8,000 or $1,856 would go into the family’s tax-free HSA.
So Republican Healthcare Reform drops the cost to the Feds from $10,000 down to $8,000 for a savings of 20% which is important with a $18.5 Trillion debt. But, the cost to the employer and employee drops to ZERO. The biggest expense for local governments, States, Counties, Cities and school districts drops to ZERO so local taxes will plummet.
Republican Reform lifts the heavy burden of over-priced employer-based insurance off the backs of America’s employers so the economy will explode like never before.
The New York media is scamming us and in the 1st 5 Presidential Debates there was not one Obamacare question. The media is using Trump and ISIS as a distraction so we don’t consider Reform in America. Just keep the money flowing to the people who are getting it now and let the middle class in America totally disappear.
America, you are being slonged. Why won’t the NCPA discuss Republican Healthcare Reform and age-based tax credits of Bush, Rubio or Rand Paul?
Now the employers are out of the health insurance business and into the tax-free HSA business for the benefit of employees. There is no Payroll Tax, Unemployment or Workers’ Comp expense on employer HSA deposits so employers LOVE them when they understand them. Tax-free HSAs are compensation without taxation. Employees also earn HSA funds tax-free. Rand Paul Reform increases the amount that may be deposited each year into a tax-free HSA to $5000 for a single and $10,000 for a family and this amount increase by the CPI exactly like current law.
Tax-free HSAs turn high premiums and taxes into assets for employees.
Consumers are king with the tax-free HSA. If your employer does not maximize your tax-free HSA deposits each year you should. Consumers have immediate access to HSA balances for QME and unspent funds are dedicated to retirement health care expenses which may be excessive. We can calculate the balance at age 65 for 25-year-old couples with a $10,000 annual deposit that doesn’t increase with CPI and using 10% annual rate of return with mutual funds. The balance at age 65 is $2,710,242. Remember, 65-years-old is young in a 21st Century lifespan. When these couples are 75-years-old their tax-free HSA balance would be $7,189,048! I’m sure many of these Americans will live to be 100 years old. Rand Paul’s Reform will target wealth to the poor and middle class instead of only Blue Cross CEOs. Rand Paul’s Reforms will EMPOWER Americans to save premium, eliminate taxes and build wealth!
Rand Paul’s steadfast leadership brings clarity to complexity!
Ron,
How about helping us out with a balanced perspective with respect to what a short term medical policy actually covers vs. those gold plated Blue Cross policies that you refer to. Does STM cover maternity? How about alcohol and substance abuse treatment? What about mental illness? What about prescription drugs including very expensive specialty drugs? Of course, as soon as the policyholder gets sick, he won’t be able to renew the policy the next year or, at best, will be offered a plan, probably at a higher premium, that doesn’t cover anything to do with the disease or condition he now has. These STM carriers seem happy to sell policies to healthy people at low cost as long as they don’t have to pay out any claims or, at most, minimal claims. What a business!
Barry, I’m always balanced. I will answer your question with my STM which has more than just 5 questions like UHC. Yes, maternity is a covered expense and the child is covered from the second of birth. No, alcohol abuse, drug addiction and mental illness is a non-covered expense just like the old days before your beloved mental health parity, sorry. Yes, Rx is covered 100% after the $3,000 deductible.
You are correct that STM takes the consumer to the next Obamacare Open Enrollment where they have their choice of plans with no medical underwriting.
I have always sold the security of personable and portable Individual Medical (IM) insurance until Obamacare changed the rules and made STM an attractive low-cost option.
You say that Blue Cross employer-based insurance is “Gold Plated.” I know that employer-based insurance takes the premium for 18 years then when the employee gets cancer and she is too sick to work the required 30-hours-per-week, the Eligibility Requirement, the employer just slams the balded headed woman on a Short-Term-COBRA (STC) for insurance termination and laughs all the way to the bank.
This has been happening since WW-2 with employer-based health insurance and I completely agree with you that is a flawed business model, or how you say, “What a business!”
Ron,
When the individual medical policyholder gets cancer and can no longer pass underwriting, is she canceled when it’s time to renew for the next year? If she is offered a renewal, by how much does the premium typically increase? These underwritten polices are economical as long as you don’t need to use them and they’ll pay claims for covered services, tests and procedures while still in force which is presumably for a maximum of twelve months from the date of purchase or renewal. But then you can no longer pass underwriting to qualify for coverage in the following and subsequent years.
By the way, when I first started with my last employer in the early 1990’s, we had a colleague who developed AIDS a number of years earlier and the disease had progressed to a late stage. He spent a lot of time in hospitals and only came to work when he could and worked from home when he could. The company continued to pay him his full salary. At the time, our self-funded employer plan had a $1 million lifetime benefit ceiling and he exceeded that amount but the company found a way to keep paying the bills. Not every employer throws you out like an old shoe when you develop a serious illness.
Barry, No, Individual Medical (IM) from TIME Insurance Company did not cancel the heart attacks, cancers and strokes like employer-based health insurance does when the employee is no longer Eligible to get and keep the insurance.
TIME doesn’t raise premiums due to individual claims experience, you know that. With IM clients don’t have to pass medical under-writing every year, and you know that too. I enrolled a client on 6/11/2001 who had a little 6-year-old boy. When he was 9-years-old he had a brain aneurysm and has been in a wheelchair ever since. I talked to her yesterday.
Barry, if you would have taken 10,000 calls from people on the 18th month of the employer-based health insurance COBRA you wouldn’t be saying that employer-based health insurance doesn’t care about their legal rights and will pay a whole bunch more than the Lifetime Maximum Benefit. Doesn’t that sound goofy. TIME’s Lifetime Maximum Benefit was $8 million but the most any of my clients spent was $2.5 million on a bone cancer and that was 10 years ago.
My little brother got home last night from his surgery in Iowa City and has a scar that is 6 inches long into his skull. He did inter-cranial surgery over Christmas. He has his health insurance from his employer and I will tell him that you say don’t worry because a lot of these employers will let you keep your insurance even if you can’t work anymore. That aught to make him feel a lot better.
Ron,
Actually, I wasn’t familiar with TIME or how they operate in setting premiums so I didn’t know that. Even though we disagree on a lot of this, I appreciate your input and feedback.
Ron, I think a lot of the problems being faced is that people don’t know what is or is not important when buying health insurance. They also don’t know what was in earlier policies that didn’t have to contend with the ACA and recent regulations. Thus when they compare the average insurance policy to the ACA they use todays insurance policies and only consider the worst ones. Then they compare them to the best of the ACA. This is totally faulty logic and reasoning.
Three quick points from a fellow insurance agent:
1. United will not issue a short term policy to anyone who is pregnant.
The short term plans that I sell go for a maximum of 6 months. Then a new app is required and new underwriting is done.
So, a woman who got pregnant after she bought her first contract would still be pregnant when six months was up, and she would be turned down for a second short term contract.
2. My United Health commission on short term plans is 22%, on off exchange plans it is 8%, on ACA exchange plans it is zero. Tells you something.
3. Ron, this is kind of inside baseball, but as for Time Insurance, which I thought was a decent company, didn’t Time almost go broke last year on its health business? Wasn’t it part of the Asuurance fiasco?
2.
“My United Health commission on short term plans is 22%”
Yikes Bob. I had no idea. If we add in the cost of underwriting, advertising and marketing, along with broker commissions and other administrative overhead, where does that put the medical loss ratio? It sounds like it could easily be less than 50% given the high deductibles that probably also come with these plans. It looks like cherry picking on steroids with very high administrative costs to me. I also wonder what percentage of applicants who thought they were healthy enough to pass underwriting wind up being rejected.
Barry, in Individual Medical (IM) the second year the commissions go way down if that makes you happy. With TIME Insurance going out of business all of my renewals are dropping to ZERO so that aught to make you happy too. It doesn’t make my wife happy.
The STM deductibles are usually smaller than Obamacare deductibles. In New Hampshire the taxpayers are paying $31,000 a year for government employees with a $2,500 deductible on employer-based health insurance.
Employees are always overly concerned about the deductible because that’s the only thing they know until recently when they are feeling the cost of premiums. When somebody is paying $1,500 a month for their COBRA with a $1,000 deductible and are scared of a $5,000 deductible with a premium of $500 a month you know they are new at this. I just ask them the question backwards. I ask them, “Lets say you had a $5,000 deductible now. Would you pay $12,000 extra per year to lower your deductible $4,000?” They say NO that would be stupid.
Self employed people buy insurance and they know when you raise the deductible you lower the premium. They care about premiums where employees don’t because they think somebody else is paying for that.
Bob, if you only sell 6 months STM then those work after July 1st each year. UHC’s 360 day plan costs more but it could be used after Jan 1st each year if it is available in your state.
YES, Obamacare killed TIME Insurance. They were the lowest priced PPO on the Florida Exchange and I heard they lost $90 million in the 1st 3 months of the year and decided to get out of the health insurance business. In 2016 there is not one PPO on the Florida Exchange. I guess nobody wants those TIME clients in 2 days from now when TIME says, “You are done!”
Ron, Obamacare killed TIME insurance. Will Obamacare be charged with TIME’s death? No, the collectivists will blame the death on greedy capitalists who don’t know how to run insurance companies.
I blame a guy named Scott Krienke who jumped into Obamacare with both feet and killed America’s oldest health insurance company. This death was seen by every health insurance company in America and they are bailing on PPOs on the Exchange everywhere.
Ron,
When you get a prospective client who most likely can’t pass underwriting, what did you tell them before the ACA was passed and what do you tell them now? just curious.
Depends,
Pre ACA we would have to know what state. What health history. Are they self employed. There were several options. All more expensive but in order to answer that question specifics would be needed. Insurance is not a one size fits all, like the goverment thinks.
Ron is partly correct here. There were a lot of “small group” insurance plans which were really just a self-employed person and his or her family. They snuck into group plan status to get guaranteed issue.
What I think we are really debating here is this:
– the uninsured were and are a problem, whether they were uninsured due to medical history or just being broke.
– anyone who is not a hardcore libertarian has wanted to help this group.
– One could in theory help this group by setting up high risk pools, and giving out subsidies so that high risk persons could afford to buy what the pools are selling.
– But this is on budget and would require a tax increase, at least from a marginally honest Congress.
– So the ACA solution was to shove the uninsured into the general insurance pool. Premiums would go up but that does not directly appear as federal spending. The cost to cover the uninsured is imposed on the other buyers in the individual insurance market. A well-insured government employee or professor who makes less than $200K does not have to pay any extra income tax in this scenario.
Bob, self employed people didn’t always “sneak” into small group plans they were forced. You know it was illegal for a business owner to pay ONE penny of the premium for his son’s insurance, an employee, with Individual Medical (IM) by State law in every state. Now the IRS has fines on a National level. By law, they must have group insurance.
I believe in age-based tax credits for the purchase of IM which would collapse the current system of over-priced employer-based health insurance and set America FREE.
I also believe in high risk pools for people like my daughter with MS.
You are correct that people in the Individual Market are paying the price when employer-based plans terminate their sick. I have never seen that thought outside of the NCPA blog.
Ron, if you had a limited amount of free public money to give away, would you choose to give it first to (a) healthy people in the form of tax credits for inexpensive underwritten insurance, or (b) subsidies for risk pools or other non-underwritten plans?
I don’t believe we can afford to do both.
Bart, we can afford to give employees 100% write off on health insurance that costs over $27,500 a year so why can’t we afford a much smaller age-based tax credit?
I mean which country is so broke that they can’t afford to save money?
Subsidies for high risk pools is a totally different deal that everybody in America should help pay for including Donald Trump and his self-insured plan who is creating the need for the high risk pool to begin with. Making the people on Individual Medical Insurance pay the whole cost is not fair.
Barry, $27,500 is far from typical. If you want to use this figure to argue against abuse of tax-free perks by public employee unions, I’m with you.
But for the bigger picture, employee coverage is among other things an enormous high-risk pool, where the added cost to healthy employees is roughly offset by the tax exclusion, and where higher-cost people receive a sort of double subsidy in the form of being allowed to participate at below-underwritten rates in addition to the tax exclusion.
Yes the system is very imperfect, but if you want to kick everybody out of the employer plans, you are going to need a sizeable risk pool to take on the ones who don’t qualify for one of your IM plans. And that risk pool will require considerable support in order to allow premiums to be set at anything close to an affordable level.
In your replies to Barry, you seem to favor tax credits large enough to pay for 100% (or in some case more than 100%) of individuals’ premium costs– in essence giving everyone free health insurance. I don’t see how we can afford to do that while simultaneously subsidizing risk pool coverage for a large minority of working people (and presumably most people on COBRA and HIPAA, and many on exchange plans).
I would like to move away from employer-based insurance as well, but don’t believe shunting the money toward those who need it least is the way to go.
Sorry, I meant to address Ron not Barry.
Bart,
I agree with you.
Ron argues aggressively in favor of providing insurance to healthy people as inexpensively as possible through underwriting, but he never addresses how to cover the unhealthy and already sick at a premium they can afford.
As I’ve said numerous times, high risk pools never worked because politicians are not prepared to spend the money it would take to make them work.
“I believe in age-based tax credits for the purchase of IM”
“I also believe in high risk pools for people like my daughter with MS.”
Ron,
The problem with both is cost. First, with respect to the tax credit, the CBO estimates that the current employer tax preference is worth about $250 billion per year. In 2008, John McCain proposed a $2,500 credit for individual coverage and a $5,000 credit for family coverage both of which were not age based. Employer provided insurance currently covers about 150 million lives about one-third of which I would guess are children. For the 100 million adult lives, the current employer preference could support a $2,500 tax credit per adult if it were an even swap. To make it age based assuming a median age of 40 and an age rating band of 6 to 1, if 60 somethings got a $5,000 credit, the 20 somethings would get $833. If you extended McCain’s proposed $2,500 credit to the pre-ACA uninsured adults (excluding undocumented immigrants), that would add about $75-$100 billion per year in forgone tax revenue to the cost of the program.
On a community rated basis, it would probably cost $9,000-$10,000 per year to cover each of the 60 somethings and perhaps $1,500 to $1,750 to cover young adults in their 20’s. With underwriting, the young and healthy could probably buy a policy for little more than their tax credit and the older healthy folks might be able to as well.
On the other hand, if all the sick people wound up in the high risk pools, it could easily cost $20,000 – $25,000 per year to cover each of them. Moreover, if insurers knew that there was a heavily subsidized high risk pool standing by to cover everyone that they thought would be unprofitable to cover on an underwritten basis, the number of people in the high risk pools would probably rise sharply while the previously healthy would be quickly dumped into those pools once they got sick and were no longer profitable to cover. The bottom line is that the pools would be way too expensive for the politicians to stomach paying for. That gets us back to square one if the unhealthy and already sick have to live in a world of medical underwriting with no place to go for insurance. The healthy, by contrast, would be fine at least until they got sick.
Barry, central planners like you and the government cannot control Free and Open Markets any better than you can control the weather. You corrupt the system and now we have multi-millionaires like Dr. John Graham getting 100% write off on his over-priced employer-based health insurance and poor employees get nothing when they can’t afford the employer’s expensive plan and purchase IM on their own with after tax dollars. Multi-Billionaires like Trump get 100% write off!
Then these poor employees who get no write off or subsidy have to pay high Medicare taxes so fat cat millionaires can float on their boats in Tampa Bay and scarf down free drugs on Medicare. America was not started to take from the poor and give to the rich like you central planners have decided.
People on IM do not have their insurance terminated when they are sick like employer-based insurance. So when you say that all of the sick end up in the high risk pools you are mistaken. I say that before an IM insurance company is going to terminate a client for non-payment of premium the State should be notified and the State should have the option to pay the premium instead of the medical problem. This way we could hold the insurance companies feet to the fire and save the taxpayers a ton of dough.
I don’t think we need as large of an age-based tax credit for older people as you say. This would be better – age-based tax credits for the purchase of personable and portable Individual Medical (IM) insurance of the consumers’ choice. The amount of the credit is; age 1-18 = $1,000, age 19-35 = $1,500, age 36-50 = $2,000, age 51-64 = $3,000.
This amount is enough to pay 100% of healthy people medically under-written health insurance.
“This would be better – age-based tax credits for the purchase of personable and portable Individual Medical (IM) insurance of the consumers’ choice. The amount of the credit is; age 1-18 = $1,000, age 19-35 = $1,500, age 36-50 = $2,000, age 51-64 = $3,000.
This amount is enough to pay 100% of healthy people medically under-written health insurance”
Ron,
I have four questions for you on this. First, insurers tell us that, at the population level, older folks use six times more healthcare than younger people. If that’s the case, how can they afford to only charge the healthy older people twice as much as they charge the healthy younger people?
Second, in any given year, what percentage of the population would be unable to pass medical underwriting if everyone below age 65, including those currently on Medicaid, applied for it? Do the numbers change if you exclude the current Medicaid population?
Third, for those who can’t pass underwriting, what’s your estimate of what it would cost to cover them in a high risk pool and how would that be paid for?
Fourth, I still don’t understand how the IM insurers price their policies once individual members get sick. Are they basing it on the cost of covering the whole pool or everyone who first signed up in a particular year or is it based on what they call blocks of business? If someone develops a serious illness and is likely to cost a lot of money to cover and the insurer had the ability to transfer that person to a high risk pool, why wouldn’t they do that?
Barry, I’m like you. I’m a central planner for FREEDOM. Others have suggested a different amount for the age-based tax credits but I think they are wrong. One prominent group says $900 for children and I raise that to $1,000. They suggest $1,200 for those between the age of 19 and 35 years-old and I raise that to $1,500. Then we do have the same age-based tax credits after 36 years of age. I will admit that under my one-size-fits-all FREEDOM plan that younger people will have more left of their age-based tax credit after the purchase of IM which means they have a larger tax-free HSA deposit than an older person would have, if anything at all.
Dr. Devon Herrick is a Medicaid professional but I can tell you that just because you are broke that doesn’t mean you are sick. The age-based tax credits would strip the healthy out of Medicaid so we would stop paying too much for them. Devon says that survival odds increase if you are uninsured instead of being on Medicaid. Those that are medical providers would prefer people on IM instead of the low reimbursement rates of Medicaid so everybody wins again except those bloodsucking Blue Cross CEOs.
Thank you. The problem with segregating the ill into high-risk pools is that those people are powerless to design the pools. Better for taxpayers to give them an explicit subsidy (tax credit).
Even better is health status insurance. In such a system of life-time risk pricing, your daughter would never be underwritten in her life as long as you and your wife had such a policy before she was born (and as long as you or her paid premiums).
Dr. John Graham in your dream world your fictitious health-status insurance pays you a lump sum large enough to cover your higher medical insurance premiums so sick people can change insurance companies and pay a higher premium.
http://object.cato.org/sites/cato.org/files/pubs/pdf/pa-633.pdf
There is no such thing. This Health-Status Insurance (HSI) isn’t even well thought out. So tell me, how much would my daughter get “Lump sum” at 30-years-old to cover a lifetime of higher health insurance premiums with MS? Remember, her Rx is $80,000 per year now.
Plus, this so-called Health-Status Insurance would have to make lump sum payouts on every condition that raised medically under-written health insurance premiums. This would be impossible.
Plus, Senator Patrick Moynihan said you can’t predict how much Medicare will cost in 30 years because you don’t know what treatments will be invented. Your Health-Status Insurance has no idea how much premiums will be in 30 years so how can they make the lump sum payout today?
When these PHDs get together and start throwing ideas around they really need somebody with an under-writing guide there to help them understand the difference between preferred rates and standard. Also, don’t forget some insurance companies charge 25% extra for high blood pressure medication even if it is under control with medication.
Ron,
I think you’re 100% right on this one.
Before the ACA was passed, NJ had guaranteed issue but the catch was that you had to have a prior insurance policy in force such as employer coverage before being laid off and no more than a 63 day gap (two 31 day months plus one day) between the expiration of the prior policy and the start of the new one. I think that’s about as close to health status insurance as we can get.
Someone like your daughter would have qualified for health insurance under NJ’s prior guaranteed issue rules if she had prior insurance and a coverage interruption of no more than 63 days. She would be able to buy the policy at a standard community rate. The tradeoff, of course, is that health insurance was much more expensive for healthy people than it would be in underwritten states and young people especially would find it to be a poor value and perhaps unaffordable.
I’m glad you pointed out the very high cost for specialty drugs to treat MS. These are the people who need insurance the most and, in the past, the high risk pools in the 35 states that had them were nowhere near up to the job of providing decent coverage at an affordable premium.
Barry, like Al says, “Health insurance pays for an unforeseen claim or expense.” Health insurance is cheap, cheap cheap. A healthcare delivery system for sick people is expensive. We need to separate the 2 and save everybody that is cheap and put them on insurance they don’t lose. We should not overpay for healthy broke people on Medicaid. The age-based tax credit does this.
You say that in the past we did not properly fund the high risk pools and you are correct. But every success in life comes after many attempts and failures. We have never been here in America where we are repealing Obamacare and deciding how to replace. But, here we are in 2016. I will be the 1st to admit that it would have been smarter to do this in 1996, instead of HIPPA, when the baby boomers were 40 instead of now when they are sicker and 60-years-old. Plus, we have lost 95% of the Individual Medical insurance companies. But, we have no choice because this is the hand we were dealt.
What these Republican Presidential candidates think is that this change over can be managed and market disruption will be minimized. I disagree and submit it is impossible to manage Free and Open Markets. They have a life of their own. All we know for sure is that competition is critical in Free and Open Markets to keep prices low and value high for the consumer. The only thing the politicians can do is create an opportunity for free markets.
Dr. Graham says the credit should go directly to the sick person for the high risk pool. The IM companies simply charge more for those with medical conditions. Al also says that everybody is very uninformed about medical under-writing and the possibilities of the insurance industry because they have been brainwashed into oblivion. I suspect that in high school we should educate Americans what insurance is before they take on those responsibilities for the rest of their lives.
Theunderwritingguy would say that 17-year-old girls who need attention and try the suicide thing will have their health and life insurance premiums go up for a long time so they shouldn’t do that if they are on a budget in the future.
We just have to make sure that people like Trump help pay for the high risk pools. Large self insured plans are a big part of the problem and they should help fund the solution.
So, the problem we have is how to fund the high risk pools.
Ron,
If high risk pools were funded sufficiently to make them work, which I define as providing people who couldn’t pass underwriting with decent insurance at an affordable (to them) premium, I would be OK with them.
I just think they would cost more than most people think and I’m skeptical about the willingness of politicians to vote for a funding mechanism that would make them work.
She would not buy it at 30-years old. You would have bought it before she was born, and she would take over premiums when she earns her own income.
The only question unaddressed by Prof. Cochrane is what happens when the individual stops paying premiums due to lack of income.
Bob, why do you assume that hardcore libertarians wouldn’t want to help as well? They may want to help even more than the most liberal Liberal, however, they might have different methods. One should consider that those methods could be better.
Al, you do have a point. Private charities have done a marvelous job and still do helping desperate persons with extreme medical costs. You can go online and find many charities to help with cancer, etc, and the government did not create these caring institutions.
However there is a dark side of Americans who are hounded about medical bills, right up to declaring bankruptcy although some are too proud to do so.
There are some very ugly stories in this vein on the same internet.
When it comes to libertarians, I am probably too influenced by the story of Ron Paul’s employee who got no help with his medical bills, and the event at a Paul speech in about 2012 when the crowd cheered at the idea of an uninsured person might die from lack of care.
Bob, those having a good deal of money generally could have afforded excellent insurance and not gone bankrupt. Not to be cold and unfeeling, but those with minimal wealth in the $100,000+ range are actually making a good trade. $100,000 for a life is inexpensive even though I would have preferred them to carry insurance rather than go bankrupt.
Then again in most of those cases what causes the bankruptcy? Inability to work? Loss of insurance? Other debts? Bad habits? Over all I think government policy in the healthcare arena has caused more harm to Americans than bankruptcy caused by high medical bills so I wouldn’t disparage the rand Paul supporters so much.
Ron seems to be heading toward a good point regarding the concept of health status insurance….
namely, what insurance company would have any financial interest is writing this coverage? and for what demographic?
This may be analagous to the product debates in life insurance.
Whole life insurance is a great product, but agents are instructed (realistically) to market the product to wealthy families or young professionals with secure and rising incomes.
Meanwhile the majority of consumers buy cheap term insurance which is 95% not likely to be in force at the time of ciaim.
(that is why it is so cheap)
Health insurance is absolutely term coverage.
Long term care insurannce more or less pretended to be like whole life, but medical improvements have forced every single LTC company to raise rates, and sometimes to do so as a last resort to prevent bankruptcy.
In other words, I share the skepticism about health status insurance.
AI, you said December 30, @ 10:15:
“Let us briefly think about what you said. The fundamental reason for insurance to exist is to transfer unexpected risk to an insurer. You are discussing offsetting risk that is already a known quantity. If you agree with the fundamental reason for insurance to exist then you are looking to insure future risk that is unknown.”
Not sure where you got this. I’m not talking about offsetting any risk that is already a known quantity. Known quantities are not even “risks”. I am saying that before you enroll in a managed care plan, check first to see if your physicians are in the panel.
That is not offsetting risk that is already a known quantity. It’s just smart buying behavior, and smart risk management too. Future risk is still unknown, and remains unknown even after you have chosen a plan – whether or not your physicians are in the plan.
(I’m posting here because we ran out of space in our string above.)
John, we were discussing access problems that can occur when a person signs up with an HMO in the context of which is better, MA HMO or traditional Medicare (excluding costs for the particular programs). You believe the former and I believe the latter.
Insurance exists to manage unexpected risk. If you eliminate unexpected risk you are not dealing with a true comparison. One of the most important considerations is, will the care of complex diseases be as good on an HMO with a limited panel or on traditional Medicare with an open panel?
If just after one signs up with the HMO and finds that treatment is best performed at MD anderson or Sloan Kettering which are not on the HMO’s panel, should that person be presumed to be getting as good care as the one with an open panel that goes to one of those institutions? It just so happens that many of the very difficult to treat and most complex diseases are best managed by certain physicians in certain institutions and to keep costs down many prepaid healthcare businesses don’t contract with a lot of them to the point that physicians at least in the past weren’t even supposed to mention that those options exist.
When the Obama administration opened up a temporary national high risk pool in about 2010, the average claims per person was $32,000 and the pool used up its $5 billion funding in a fairly short time.
I do not know why the average was that high. The last average that I read about was $12,000 per year per person.
Even at $12,000 per year, and assuming that the insureds pay $500 a month themselves (which is a stretch), the taxpayer cost for 5 million persons in high risk pools would be $30 billion a year.
I only bring this up to say that any proposal with less than $30 billion a year is not realistic.
AI I still think we mostly agree.
Please note that I had not been focusing my comments on access, rather on benefit differentials. MA benefits are superior to Original Medicare. Medicare law requires MA insurers to provide benefits at least as good as Original Medicare, and the large majority of MA plans provide better. So much better that participants in MA plans need not purchase (at their own expense) a Medicare Supplement policy Anyone can verify the superiority of MA benefits by making a line by line benefit comparison.
Regarding access, about all I’ve said here is that seniors should first check to see if their physicians are in the MA network before deciding whether to enroll. I don’t disagree that HMO plans restrict provider access. That’s how they are designed.
But 36% of MA participants – nearly 6 million seniors – are enrolled in MA PPOs and Private Fee-for-service plans. In these plans, out-of-area access is not so restricted as in HMOs. And even in MA HMO plans, more than 10 million seniors have enrolled, showing willingness to trade unrestricted access in Original Medicare, for better benefits in MA HMO – usually for the same premium, and always without the need to buy Medicare Supplement. These facts vividly illustrate why significant numbers of seniors find value in MA plans. It’s not just my opinion vs. yours.
(Keep in mind that even HMOs occasionally approve out-of-network care, even out-of-area care, if not available in their service area or network. And remember that it’s seldom necessary for most patients to go to MD Anderson or MSK – despite those organizations’ advertising).