Roll Tide

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. (DC)

Political Cartoons by Michael Ramirez
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Political Cartoons by Bob Gorrell

Insurance 201

Thomas Sowell has column today that is very well sad and I personally know the impact of it. And I have preached at this pulpit before.

https://indyfromaz.wordpress.com/2012/06/19/insurance-101/

In insurance markets, moral hazard occurs when the behavior of the insured party changes in a way that raises costs for the insurer, since the insured party no longer bears the full costs of that behavior. Because individuals no longer bear the cost of medical services, they have an added incentive to ask for pricier and more elaborate medical service—which would otherwise not be necessary. In these instances, individuals have an incentive to over consume, simply because they no longer bear the full cost of medical services.

And does this not sound like ObamaCare to you?? :)

Take it away Mr. Sowell.

Insurance is all about risk. Yet neither insurance companies nor their policy-holders can do anything about one of the biggest risks — namely, interference by politicians, to turn insurance into something other than a device to deal with risk.

By passing laws to force insurance companies to cover things that have nothing to do with risk, politicians force up the cost of insurance.

Annual checkups, for example, are known in advance to take place once a year. Foreseeable events are not a risk. Annual checkups are no cheaper when they are covered by an insurance policy. On the contrary, they are one of many things that are more expensive when they are covered by an insurance policy.

All the paperwork, record-keeping and other things that go with having any medical procedure covered by insurance have to be paid for, in addition to the cost of the medical procedure itself.

If automobile insurance covered the cost of oil changes or the purchase of gasoline, then both oil changes and gasoline would have to cost more, to cover the additional bureaucratic work involved.

In the case of health insurance, however, politicians love to mandate things that insurance must cover, including in some states treatment for baldness, contraceptives and whatever else politicians can think of. Playing Santa Claus costs a politician nothing, but it can cost the policy-holder a bundle — all of which the politician will blame on the “greed” of the insurance company.

(see Adverse Selection).

Insurance companies are regulated by both states and the federal government. This means that, instead of there being one vast nationwide market, where innumerable insurance companies compete with each other from coast to coast, there are 50 fragmented markets with different rules. That adds to the costs and reduces the competition in a given state.

When there are innumerable insurance companies, it is by no means clear that political regulation of them will produce better results than the regulation provided by competition in the market. In a competitive market, insurance companies would cover only those things that their policy-holders are willing to pay to have covered. Policy-holders would have no reason to pay to have insurance cover things that would be cheaper if paid for directly — or not paid for at all, in the case of things that are not a real concern to many people, such as baldness cures.

One of the factors in the number of the “uninsured,” for whom politicians are willing to turn the whole medical care system upside down, is the high cost of insurance that covers far more things than most people would be willing to pay for, if it was up to them. The uninsured who use hospital emergency rooms and don’t pay are a problem only because politicians passed laws forcing hospitals to let themselves be taken advantage of in this way.

Too many political “solutions” are solutions to problems created by previous political “solutions” — and will be followed by new problems created by their current “solutions.” There is no free lunch. In the case of health insurance, there is not even an inexpensive lunch.

Health insurance would be a lot less expensive if it covered only the kinds of risks that can involve heavy costs, such as a major operation or a crippling disability. While such things can be individually very expensive, they don’t happen to everybody, and insurance is one way to spread the risks, so that the protection of a given individual is not prohibitively expensive.

The problem of “pre-existing conditions” is a problem largely because of the way that politicians have written the laws — more specifically, by giving a tax break to employer-provided health insurance. If individuals bought their own health insurance, with the same tax advantages, the fact that an illness occurred after they changed employers would not make it a “pre-existing condition.”

There is no inherent reason for employers to be involved, in the first place. The fact that some guy manufactures furniture or plumbing fixtures in no way qualifies him to understand insurance for his employees. Including him in the loop adds another unnecessary layer of bureaucratic costs.

Political risks are the biggest risks.

So you want to know why your auto insurance is going up “even though I’m a good driver” or your Home insurance is going up “even though my house is worth less”??

Well, it’s very simple. Along with all of what has been discussed there is INFLATION.

http://www.bls.gov/data/inflation_calculator.htm

And the medical costs, repair costs and the lawyer  (you know all those “call me now” lawyer commercials?) costs go up and guess what happens to your premiums. They go up. It’s not personal.

And any real homeowners policy will be based on the replacement cost of the home and not the market value because the market value is a) fickle (just think about 5 years ago) b) includes land and locational factors that have nothing to do with the home.

Example, my home. It’s located with the “noise zone” of Sky Harbor International Airport. Thus my house is technically worth less because you can hear plane noise at a certain level.

If my house burns down do I want the replacement cost based partially on that or do I want it based on the materials to rebuild it?

And if inflation in the cost of those materials cause the premium to go up?

I hope you see the point.

Most people don’t.

Why?

Narcissistic Greed. It’s all about ME! and Insurance should only be about ME.

I don’t want MY policy based on other people.

Which is a fundamentally flawed understanding of the entire concept of insurance in the first place.

And that lack of education is a real problem because it leads people to misunderstand the entire process and the fundamentals underlying the entire concept.

And lets politicians and manipulative Liberals get away with their “solutions” that just cause more problems but make them look good.

And thus, you go for “get rich quick” type schemes by manipulative politicians that actually CAUSE more problems than they solve. But you get the satisfaction of “sticking it” to them. But it’s you that ultimately gets stuck.

Oh, there are ways to bring it down, but reforms to litigation laws and practices (by politicians who are mostly lawyers) is very hard. Lobbyists are very strong in the area. This is their meat and potatoes.

Medical costs are skyrocketing and ObamaCare will just make them worse. Trying to reform that gets you “thrown grandma off the cliff” rhetoric.

So, in the end RHETORIC HAS IT’S CONSEQUENCES.

Consequences in your wallet.

That’s the risk.

Political Cartoons by Glenn Foden

Political Cartoons by Glenn Foden

Political Cartoons by Gary Varvel