Selling Health Insurance Across State Lines––A Really Dumb Idea

Any candidate that suggests such a scheme only shows how unsophisticated he and his advisers are when it comes to understanding how the insurance markets really work––or could work.

I gave a speech to 750 health insurance brokers and consultants in DC last week.

When selling health insurance across state lines, something Trump and a number of other Republican presidential candidates have been pushing, was mentioned the audience literally laughed. That's what health insurance professionals who spend their days in the market think of it!

This is about as dumb an insurance "reform" idea as has ever been proposed.
This is nothing more than an attempt to take the market back to the days of cherry picking risk––figuring out how to sell policies to only the healthy people. If this were ever enacted it would only serve to shuffle the healthy people into one set of health insurance policies and the sick into another thereby driving down costs for the healthy and in return just driving costs up for the sick––and accomplishing nothing toward fundamentally making insurance cheaper.

People who promote the idea are targeting the many state benefit mandates that drive health insurance policy prices up. The idea is, after the federal Obamacare mandates are repealed, to allow the sale of cheaper policies from states with the fewest benefit mandates to be able to be sold in high mandate states––thereby encouraging the state with more mandates to curtail them.

But if their aim is to eliminate many of these "excessive" state benefit mandates with a federal law, why not just curtail these mandates in all of the states with a federal law? If they are going to stick their federal noses into some of the states that have traditionally regulated insurance, why not just go ahead and stick their noses in all of the states at once and create a level playing field while they are at it?

There are a number of basic problems with this idea:

If it did attract new carriers to a market, it would be a great way to blow up the existing health insurance market––for example, the high market share local legacy Blue Cross plan whose business is in compliance with all of the existing state benefit mandates. A new carrier could conceivably come into the market with much lower rates––because it is offering fewer benefits––and thereby attract the healthy people out of the old more regulated pool leaving the local legacy carrier with a sicker pool still attracted to the richer benefits.

Stripping down a health plan is a great time tested way for a predatory insurance company to attract the healthiest consumers at the expense of the legacy carrier who is then left with the sickest––cherry picking.

Proponents might argue that creating more competition by allowing carriers with stripped down policies into a state would be a great catalyst to force all of the states to reduce their mandates––like creating market chaos is a great tool for reform.

It's a 1990s idea that fails to recognize the business a health plan is now in. Health plans these days don't just cross a state line and set up their business like they did decades ago when the insurance license and an ability to pay claims was all a carrier needed to do business.

This idea was first suggested by the last of the insurance industry cherry pickers back in the 1990s, on the heels of the first generation of insurance underwriting reform (HIPAA), as a way to compete with the more sophisticated managed care companies––and it has long outlasted its relevance.

Today, building a new health plan in a single market can easily cost hundreds of millions of dollars over a plan's first few years of operation. The most important thing a health plan now offers is not an insurance contract but rather a comprehensively managed provider network. Just look at the capital costs for the new co-ops under Obamacare that often received $100 million or more to set up a new plan––and ended up grossly undercapitalized.

This scheme doesn't even solve the duduk perkara it identifies––too many state mandated benefits. So, solve that problem.
Why do we even need to enact this convoluted and market obsolete idea? Why even encourage the return of predatory health insurance cherry pickers? Why create a two-tiered market? Why not fix the real duduk perkara and create a level playing field for everyone at the same time? I suggest the supporters of this idea first ask the leaders of the insurance industry if they would even do this under the best of circumstances (They will just laugh like they did in DC last Monday).

And, if it did work, we're talking about a one-time minor league savings of only a few percentage points. Hardly meaningful cost containment or sophisticated health care policy.

Back in the early 2000s when we had a Republican majority in both houses and a Republican President, the House did pass legislation that would have enabled carriers to sell across state lines. The bill went to the Senate where Republicans couldn't even get 50 votes for the idea. And, state insurance commissioners––Republican and Democratic––have been overwhelmingly opposed to this from the beginning.

Because it's a dumb idea.

Obamacare needs major fixing.

But not with simplistic sound bites that claim this would increase competition but in fact would only lead to the health insurance cherry picking schemes we got rid of back in the 1990s.

Obamacare has already proven that the Democrats who wrote it never understood the insurance markets.

Things like this just prove that some of these Republicans are no smarter.

United Healthcare Leaving The Obamacare Exchanges Is Not The Point––What's Happening To The People Who Have No Choice But To Buy Their Health Insurance Under Obamacare Is

Comments in a recent blog post I took a look at what unsubsidized Obamacare costs consumers and what they get for it (in this case a family of four with mom and dad age-40). In Omaha, for example, the lowest cost Bronze Plan cost $725 a month for a $12,900 deductible plan while the lowest cost Silver Plan cost $926 a month with a $7,000 deductible. In Eugene, the lowest cost Bronze Plan cost $660 a month for a $10,000 deductible plan while the lowest cost Silver Plan cost $814 a month with a $4,000 deductible. In Manchester, it as $601 a month for the lowest cost Bronze Plan that had a $12,600 deductible. The lowest cost Silver Plan cost $778 a month and had a $7,000 deductible.

So now the argument is that after a couple more years of big rate increases, narrower networks and bigger out-of-pocket costs to get the health plans to stability we should all be happy that we will finally get to the place we knew all along we were going?

I suppose the counter argument would be that these costs are the unsubsidized costs and only 15% of the people on the exchanges pay the full cost.

A few points:

• Who is going to pay these ever higher full costs for the consumers who get subsidies? The health insurance fairy?
• While only 15% of those on the exchanges pay full price, 100% of the individual health insurance market in the United States comes under the Obamacare rules and premiums. About 40% of the off and on exchange market does not receive a subsidy and has to pay the full price. An insurance broker recently emailed me that one of her clients looked at these prices and responded, "That is more than my house payment!"
• Subsidized people do get hurt when these prices increase. Unless they move to at least the second-lowest cost Silver plan, they bear the full brunt of the increase. Imagine a consumer covered by the wide network Blue Cross plan that has to move to a cheaper narrow network plan with a bigger deductible in order to avoid the increase. As these costs rise, the subsidized consumers just continue to get squeezed into narrower network and higher deductible plans in order to take full advantage of the subsidy.

And, why are these rates going up so high?

Because three years in only about 40% of those eligible for the Obamacare subsidies are buying the program and that means there aren't enough healthy signing up to pay the bills for the sick. In fact, only about 20% of those making between 251% and 300% of the federal poverty level have signed up for the program––the insurance plans offered are already that unattractive even for those who get big subsidies.

When I hear people say it will be just a couple of more years before the insurance companies, and therefore the market, gets to stability I wonder what they are thinking? Is Obamacare about the market and the insurance companies or is it about the people that have no choice but to buy their health insurance through the new heath law?

Yes, if the carriers raise their rates another 10% to 30% this year and even more the year after the insurance companies could well reach a point of actuarial stability.

But what about the people who rely on these health insurance policies and have no other choice?


How Obamacare will have to be fixed: Consumer-Friendly Obamacare Fixes - USA Today Op-Ed

Figures Don't Lie But Liars Figure: The Disingenuous Obama Administration's Report That Claims Obamacare's Average Premiums Rose By Only 8% In 2015

The Obama administration is out with a report that the average 2015 Obamacare exchange premium increased by only 8% last year.

As best I can tell, that is a true statement.

It is also an incredibly disingenuous statement.

There is an old actuarial saying about how numbers can be manipulated to suite the author's agenda: "Figures don't lie but liars figure." That the 2015 Obamacare exchange rates rose by 8% is as close to a prefect example of this old adage that I can think of.

And, from all the press stories that went out with this as the lead, it appears lots of reporters bought it hook line and sinker.

Here is the operative statement in the report:

"Two thirds (67%) of HealthCare.gov consumers selected a new plan in 2016: all new consumers plus 43% of returning customers. Taking into account shopping, the increase in the average premium was 8% between 2015 and 2016."

Here's the catch: The administration mentions nothing about what kinds of health plans these 43% of returning consumers gave up to lower their increases.

Let me illustrate. Let's say a consumer had a 2015 Silver Plan with a $2,000 deductible in 2015 that was going to increase in cost by 20% for 2016. Because of the big 2016 rate increase, that consumer moved to a much cheaper 2016 Silver Plan that produced only a 5% increase but to accomplish that the consumer had to accept a $3,000 deductible. As a result, and according to the administration's logic, the simpulan rate increase this consumer would have gotten was 5% instead of 20%. To get a cheaper plan consumers might have had to accept a much narrower provider network and/or a much bigger deductible and other out-of-pocket costs.

The consumer in my example did manage to get themselves a lower cost plan and avoid the big rate increase. But here it is important to remember that rate increases come in three forms:

1. Higher premiums.
2. Narrower networks, and or
3. Higher out-of-pocket costs.

A more truthful analysis of what really happened in 2016 would have looked at what those 43% of returning consumers gave up to keep their average rate increase at only 8%. How many of these folks ended up with much worse plans in order to keep their premiums affordable?

And such an analysis is already common in the employee benefits industry. Look at the various reports issued by the benefits consulting firms each year that report the higher average rate increases before benefit "buy downs" and the lower increases after the benefit "buy downs."

The Obama administration document also points out that the average rate increase was only 4% when government subsidies that cap exchange participants' premiums are taken into account.

Again a technically correct but disingenuous statement because:

1. The document says nothing about what happened to those participants' networks or out-of-pocket costs. Again, how many people moved to plans that had less in the way of benefits or networks or just had their plans' benefits cut? An RWJ report found that "two-thirds of the insurance companies" that offered PPO plans in the exchanges in 2015 "reduced the number of PPO plans they offered or stopped offering PPO plans altogether for 2016."
2. Eleven million people buying Obamacare compliant individual health insurance don't get a subsidy. As the administration points out, the 4% increase only applies to the 85% of people getting subsidies in the marketplace. Again, two correct figures. But what have they left out? According to the most recent CBO estimate, 9 million people in the individual insurance market buy outside the Obamacare exchanges and don't get a subsidy in addition to the 15% in the exchanges (another almost 2 million) that aren't subsidized. The administration has once again all but forgotten the substantial off-exchange market and made no attempt to evaluate the impact of the 2016 rate increases on almost half of the market that is not eligible for any subsidies––these are the people that pay the full price for their coverage.

And, what about the consumers that saw those big rate increases and dropped their coverage?

Another fact the Obama administration report does not mention is how many of the 2015 Marketplace enrollees dropped out for 2016 at the time they saw their new prices and benefits. The administration's report says that 9.6 million people bought health insurance on the federal exchanges for 2015. This report also says that 4 million were new indicating 5.6 million were holdover customers from 2015. But in their December 31 "Snap Shot" report, the administration said there were 6.3 million enrolled on the federal exchanges on December 31, 2015. What happened to the 700,000 that apparently did not renew on the federal exchanges on the same January 1 the rate increases became effective? Lots of people leave Obamacare every month for good reasons. But not 700,000 on the first of a typical month.

What is this Obama administration report all about?

The administration is scared stiff the 2017 rate increases, about to be made public, will be even worse than last year.

When we start hearing about the big increases the administration will just roll this report out once again and make the point that the latest 10% or 20% or 30% rate increases being reported really aren't 10% or 20% or 30% rate increases––after all those 2016 rate increases that were supposed to be so huge only averaged 8%!

If the press once again takes a pass on digging into all of these convenient facts, the Obama administration should have a lot of success with that spin.

Why Are Centene And Molina The Exception To Most Big Health Plan Losses On The Obamacare Exchanges?

This paragraph in a recent AP story caught my eye:

Two companies that report exchange success so far, Molina Healthcare Inc. and Centene Corp., say they have focused on covering low-income customers in markets where they already have an established presence in Medicaid, the state-federal kegiatan that covers the poor. Molina sells coverage in nine states and is thinking about adding two for next year.

Why are these traditionally Medicaid carriers doing so well when most of the health plan market is losing their shirts in the Obamacare exchanges?

See my post at Forbes. 

New York's 2015, 2016 And 2017 Obamacare Rate Increases

New York just announced the 2017 requested rate increases for individual health insurance.

I thought the history of New York's increases was interesting.
For 2015, the exchange health plans asked for an average increase of 12.5%. The New York Insurance Department approved an average 5.7% increase.

Here are the requested and approved rate increases for 2016 (from Charles Gaba):

Here are the 2017 requested rate increases (asterisk means the company offers on the state exchange) recently announced by the New York Insurance Department:

I suggest looking at the biggest market share carriers and noting the consecutive rate increases they requested. The "weighted average" also attempts to factor market share in.

A lot of people will say this is not a big deal because the vast majority of consumers buying Obamacare individual market health insurance policies get a subsidy and are therefore protected from these big increases.

Here is the CBO's March estimate of the size of the national individual health insurance market. They estimate, in 2016, an average of two million people won't get a subsidy on the exchange and 11 million in the individual market won't get a subsidy off-exchange (the exchange is the only place you can get a subsidy).

For 2017, they estimate that, both on and off the exchanges, 12 million will get a subsidy and 12 million won't:

So, lots of people pay the full premium for these plans because they do not qualify for a subsidy.

Let me also suggest that people don't pay rate increases--they pay premiums.

Using eHealth, I found that the cheapest unsubsidized 2016 Obamacare qualified health plan (QHP) offered to a single person, age 40, in Syracuse (Zip 13290), New York was this one:

For a family of four with mom and dad age 40, the cheapest plan was this one:

 

Proponents of Obamacare will point to rate increases lower than New York's average of 17.3% and argue that consumers can lower their costs by switching carriers. For example, they might point to MVP's average increase of 6.1%.

But MVP is the health insurer above. After that 6.1% average increase they are still charging this family $1,158.10 a month--$13,897.20 a year for the cheapest Silver Plan available in this market!!

Everything Will Be Fine As Soon As The Obamacare Market Stabilizes––Not

North Carolina Family Plans Already Cost More Than $10,000 a Year With Rates Going Up By Double Digits for 2017

With one state after another announcing big 2017 Obamacare rate increases the latest refrain from Obamacare supporters is that with maybe one or two more years of rate increases everything will be fine.

Talk about missing the forest for the trees.

The latest example is in North Carolina where market leader Blue Cross, the biggest insurer with 330,000 people covered, is asking for an 18.8% 2017 rate increase. Aetna, with 130,000 customers is asking for 24.5%.
See My Post at Forbes
 

Obamacare's 2017 California Rates To Increase An Average Of 13% With The Biggest Players Going Up 17.2% And 19.9%

After last year's 4% rate increase, California's Obamacare insurance exchange rates appear to be catching up to the rest of the country.

The two biggest carriers are raising rates by much more than the average 13.2% increase. Blue Shield said its average increase was 19.9% and Anthem said it would increase rates an average of 17.2%

According to the LA Times, Covered California officials blamed the big increase on the "rising costs of medical care, including specialty drugs, and the end of the mechanism that held down rates for the first three years of Obamacare."

Well, once again when it comes to Covered California's explanations, not exactly.

On the argument blaming the rising cost of care, in late May Milliman published its Milliman Medical Index indicating that baseline medical cost animo was up 4.7% year-over-year––the lowest annual increase since Milliman first measured cost animo in 2001. And, of course, this 4.7% increase included the cost of specialty drug costs.
On the argument blaming the mechanism that held down rates the first three years coming to an end, what Covered California didn't mention was that the Congress also suspended the health insurance tax under Obamacare for 2017––an action that about offset the end of the reinsurance kegiatan for insurers.

California did have a much lower Obamacare rate increase last year when compared to many other parts of the country. But one of the things I have learned over the years is that it is not uncommon for one insurance company or one market to see better claims experience than others only to have it all come back to average in due course.

California actuaries that I have talked to never doubted that this would ultimately be the case here. They pointed to three things that only delayed the inevitable. First, Covered California canceled 1 million pre-Obamacare policies unlike most states that grandfathered them for a time in the face of the "you can keep your health insurance if you like it" blow back in 2014. Second, the actuaries tell me that California insurers tended to go out for bigger 2014 rate increases than many other parts of the country and, third, almost immediately went to much smaller networks when Obamacare first launched. The combination of these things gave California some room to skate the first two years.

Covered California is also arguing that their regulation has kept the average health plan profit to only 1.5%. That is significant because carriers tend to price for at least a 5% profit in this historically problematic individual health market.

That profits are only priced to be at a 1.5% margin tells me there will be more upward rate pressure next year when the carriers price for 2018 claims and will ultimately need to get back to acceptable margins.

I am sure that Covered California will now be telling us that consumers can escape these increases by shopping for a lower cost plan.

Just remember, health insurance costs come in three ways: higher premiums, bigger deductibles and co-pays, and narrower networks. The cheapest cost plans are cheaper for a reason.

If fact, I went onto Covered California and downloaded the 2016 cost of a plan for a family of four (mom and dad age-40 in Compton) and found that Anthem and Blue Shield were already among the highest cost plans while the plans most identified as Medicaid-like––Molina, Health Net, and LA Care––were the cheapest:

And, if this family goes to the cheaper Bronze plans offered in Compton, they will see their individual deductible go up––in 2016 the increase would have been from $2,250 to $6,000 while the family deductible would have gone from $4,500 to $12,000 in 2016.

They will also tell us that most people get subsidies. Yes, on the exchange. But about half the market doesn't get a subsidy when the on and off exchange individual market is taken into consideration. The people who aren't subsidized take the full hit for these big rate increases.

California: Welcome to Obamacare!

See my post at Forbes on what supporters were saying a year ago about Covered California being the model for Obamacare's long-term success.

According To Aetna We Have Two Kinds Of Insurance Companies Under Obamacare: The Less Worse Off And The Worse Worse Off

Surviving Co-Ops Sue Feds Over Inadequate Obamacare Reinsurance Payments While Aetna Complains the Payments Aren't Enough For Their Only "Less Worse Off" Financial Results

I don't know if you noticed the recent juxtaposition between the surviving co-ops complaint that they shouldn't have to pay the big legacy carriers money under the Obamacare "3Rs" reinsurance scheme with Aetna's complaint this week that these same payments aren't enough for them to be confident they will continue in the exchanges.
Of the original 23 insurance co-ops created under the Affordable Care Act, only seven remain.

And, those seven are having a tough time of it. So tough that at least three are suing the federal government over the way the "3Rs" reinsurance scheme works. The are complaining that the risk adjustment provisions of the law unfairly favor the big legacy health plans such as the big publicly traded plans, like Aetna, and the big market share Blue Cross plans.

So, now the co-ops complaint is that they'd be doing fine if it weren't for the Obama administration's flawed risk adjustment kegiatan designed to move money from the plans with the healthiest customers to those with the sickest.

The irony that the risk adjustment system is telling us that these co-ops have the healthiest consumers and are still going broke should not be lost.

Meantime, one of the legacy carriers, that has been benefiting from these payments, Aetna, is threatening to pull out of the exchanges because of their big 2016 Obamacare losses and is blaming part of it on the failure of the same risk adjustment system to adequately reimburse them for their losses!

CEO Mark Bertolini told Bloomberg, "the mechanism of risk adjustment in those exchanges is not going to appropriately reflect" their expected $320 million in Obamacare exchange underwriting losses in 2016.

According to Bloomberg:

Bertolini said big changes are needed to make the exchanges viable. Risk adjustment, a mechanism that transfers funds from insurers with healthier clients to those with sick ones, "doesn't work," he said. Rather, than transferring money among insurers, the law should be changed to subsidize insurers with government funds, Bertolini said.

"It needs to be a non-zero sum pool in order to fix it," Bertolini said. Right now, insurers "that are less worse off pay for those that are worse worse off."

Well that's a mouth full.

While the co-ops complain they're getting screwed by having to pay money to the big guys, one of the big guys is complaining they are only less worse off and suggesting the government just has to make up their losses or they are going to take their marbles and go home.

And, let me suggest to Mr. Bertolini that before any Congress appropriates more money to subsidize Aetna in the exchanges there is a better chance Democrats will pass a public option for him to compete against.

So we have two kinds of insurance companies in Obamacare.

The "less worse off" and the "worse worse off."

Other than that, the Obamacare market is "stable."

Obamacare Is Failing. And There Is Only One Way To Fix It

See my op-ed at CNBC

And my earlier post on the steps necessary to make Obamacare viable

Those Whining Obamacare Insurers

Affordable Care Act defenders need to understand that if we don't quickly move on to a robust conversation about how to fundamentally make the individual health insurance market viable many of the remaining often not-for-profit plans will have to walk away from the Obamacare exchanges.

See my post at Forbes

Obamacare On Life Support?

My comments on CNBC today.

Latest Proposals To Fix Obamacare Come Up Way Short--The Insurance Industry Trade Association Joins The List Of Deniers

In my last couple of posts, I have lamented the degree to which prominent Obamacare supporters have been denial about the trouble The Affordable Care Act exchanges are in. Now we can add the insurance industry trade association, AHIP, to the list.

With the Obamacare exchange exits by the publicly traded health plans, the not-for-profit Blue Cross and regional HMOs now form the backbone of the Obamacare exchanges. I am not predicting any imminent exits on their part, but another year will be a different story if this isn't fixed. If you look at the size of their statutory surplus accounts and their staggering ongoing losses in the face of reports the risk pool continues to deteriorate, it's a simple exercise in math so see what's coming.

The clock is just plain ticking on the time left to fix Obamacare.
But some people still don't see the imperative to act. This from the Fiscal Times:

Larry Levitt, a senior vice president of the Kaiser Family Foundation and a strong champion of the Affordable Care Act, said in a tweet today [August 16th] that the Obamacare open enrollment period for 2017 will be key in determining the importance of Aetna's stunning withdrawal from the jadwal exchanges.

"If signups grow, concerns [about Aetna] will fade," he wrote. "If not, expect a debate on fixes."

Let's summarize: Today 40% of the eligible exchange population is enrolled and we need closer to 75% to get a healthy risk pool, the health plans have requested 2017 exchange rates that are, according to Charles Gaba who closely tracks Obamacare, a national average of 24% more, the deductibles and co-pays will be bigger in 2017, and the networks will be narrower. After all of this there is a reason to think people will find the Obamacare plans more attractive and the enrollment will be better in 2017?

Then there are all of the reports of a "smoking gun" over Aetna threatening the DOJ to pull out of the exchanges if their Humana merger wasn't approved. I have always wondered if Aetna has been trying to get on the good side of the administration for the last three years over Obamacare because of a larger agenda--protecting their Medicare Advantage payments that the Secretary of HHS can tweak one way or the other every year, and more recently, the Humana merger.

Apparently some people now think that since Aetna has been "outed" the Obamacare exchanges are just fine and Aetna's underwriting losses--or any of the other carriers losses, jumbo rate increases and exchange exits--aren't real.

Meantime, the Robert Wood Johnson Foundation (RWJ) is out with a report that points to a couple of steps to stabilize the Obamacare exchanges.

RWJ suggests increasing the tax credits to make the programs more affordable. First, just which Congress are they expecting to be elected that will approve spending more money on Obamacare? They want to increase taxpayer subsidies on a jadwal that is clearly failing to attract the people it was supposed to serve?

Once again, these Obamacare supporters are focused on the one-half the market that gets subsidies and just ignores the other half of the people in the individual market who are not eligible for a subsidy. These are the people who don't have employer-based coverage or Medicare and their incomes disqualify them from a subsidy. These are people who have both bought and haven't bought Obamacare compliant coverage. What is RWJ suggesting for the millions of these people that pay full freight and sustain the big rate increases on their own?

RWJ is also suggesting putting in place a federal "fallback" plan that could be similar to the Federal Employers Health Benefits Plan or a plan that would leverage Medicare to meet any gaps in carrier coverage. Sounds like the public option to me. Again, without 60 votes in the U.S. Senate and Democrats taking control of the House in the 2016 elections, just how will that be accomplished in time to save Obamacare from the track it is on?

Then there is the president of AHIP, the health insurance industry trade association, in an op-ed in USA Today. She talks about fixing the "risk corridor" reinsurance jadwal that paid only 12% of expected payments last year because more companies were losing money than making money (by a ratio of 8:1) and thereby unable to pay into the fund. She also wants relief from the health insurance tax that partially funds Obamacare. So, her ajuan can be easily translated to asking Congress to pony up more money for the insurance companies to bail them out. Good luck with that.

She also calls for the administration to tighten up the late enrollment process so consumers can't game the system and buy coverage when they get sick. On its own not a bad idea but a relatively small part of any solution.

The scope of these AHIP proposals is shocking when coming from the insurance industry. Shocking because they completely ignore the mendasar financial perkara Obamacare is having--too many sick people have signed up and not enough healthy people because the insurance plans the carriers are offering are so unattractive to all but the sickest because of the tight regulatory box Obamacare puts them in.

Does the insurance industry trade association not understand that the solution lies in a viable risk pool driven by a substantial growth in enrollment in turn driven by offering people plans they want to buy? Do they not understand that just asking for more money to prop up a failed business plan is no solution? Do they not understand that there is no way any Congress--Republican or Democratic--is going to give the insurance companies more money?

The Republicans aren't going to bail insurers out because they never thought this was going to work in the first place--and resent the carriers for their "collaboration" with the Obama administration. Democrats aren't going to bail them out because they will use any political capital from an Obamacare failure to move to the public option, if not single payer. They never trusted the carriers in the first place.

I don't know whose denial about the state of affairs over Obamacare is worse, some of the Obamacare defenders or the insurance industry trade association.

Talking about fiddling while Rome is burning.

Congressional action to fix Obamacare even in 2017 will be problematic. But there are thousands of pages of regulations the next President does control that can provide fertile ground for substantial improvement if not a mendasar fix.

The Blues Have Deep Reserves And They'll Be Here Long After We're Gone--Here's How It Really Works

The denials about just how bad the Obmacare exchange situation is keep piling up.

Maybe the most uniformed and naive was this comment in the Dallas Morning News:

"The Blues have deep, deep reserves, and they'll be here long after we're gone,"[Sabrina] Collette [a research professor at Georgetown University], said. "They're probably calculating they can ride out this rocky time and emerge with a dominant position."

In the same article it was reported that local Dallas HMO Scott and While Health Plan is withdrawing from the exchanges. The article also pointed out that Texas Blue Cross has lost more than $1 billion on the exchanges over the last two years and is now seeking a rate increase of 60% for 2017.

These Blue Cross plans, particularly the community-based not-for-profits like Texas, do not have a bottomless bank account.
It's easy to look at the surplus accounts (reserves for outstanding claims are not the same as free capital, or surplus) of these Blue Cross plans and see unlimited bags of money. In fact, the not-for-profit parent company of Texas Blue Cross, Health Care Services Corporation (HCSC), has about $9 billion in surplus.

In May, S&P downgraded parent company HCSC's A+ rating to a still strong AA-. But S&P was clear that their continued confidence in the company was predicated on a return to profitability overall and in the Obamacare business specifically.

Fitch Rating Services was even more direct in their report from last October:

The deterioration in HCSC's risk based capitalization [the free surplus capital with which to offset losses] is material and places downward pressure on ratings...[Risk based capital] has declined significantly from 614% of the CAL [company action level at which point the enterprise is in danger of not having sufficient cushion reserves] at year-end 2013 [just before Obamacare], and Fitch estimates could fall to 400% by year-end 2015 if losses continue at the same rate as the first half of 2015.

Sorry for all of the brackets but this gets complicated. The most confusing part of all of this is that people look at $9 billion in surplus and think we can run the tank down to 1/2 or 1/4 and there is no problem. In October, what Fitch was saying was that, when you consider the point at which this company would be in real trouble, the parent company was in the process of losing about a third of its state regulated cushion (614% to 400% of the risk-based capital threshold) in just the first two years of Obamacare!

Now, read that last line in bold a second time. Ya, it's that bad.

Let's be clear, HCSC is still a well-capitalized and well-run company that operates Blue plans in a number of states. That they are giving 60% rate increases to their losing Texas Obamacare business speaks to their competence in this regard. But they have to see these Obamacare losses end and this business has to stabilize soon for the good of all of their other customers and their solvency. They don't have nine years to lose $9 billion.

This is why the clock really is ticking on Obamacare's exchanges.

With their backs against the wall, Blues plans might exit. They might also just keep raising the rates by large amounts knowing that the subsidized Obamacare subscribers will have these giant excess premiums paid by taxpayers no matter how big they are, while at the same time driving the millions of people that don't get subsidies out of the market with exploding rates. A really bad outcome either way.

Things will not magically improve. To fix this we have to see a big wave of healthy people sign up in the coming 2017 open enrollment.

Today 40% of the eligible exchange population is enrolled and we need closer to 75% to get a healthy risk pool, the health plans have requested 2017 exchange rates that are, according to Charles Gaba who closely tracks Obamacare, a national average of 24% more, the deductibles and co-pays will be bigger in 2017, and the networks will be narrower.

After all of this why should we expect that people will find the Obamacare plans more attractive during the next open enrollment and the risk pool will be better in 2017?

Big Obamacare Rate Increases Don't Reflect What People Actually Pay––Wrong!

How many people in the individual health insurance market don't get a subsidy to pay for their health insurance, or wouldn't be eligible for one it they did buy it?

Here is what an Obama administration spokesperson said yesterday about all of the big 2017 Obamacare rate increases: "Headline rate increases do not reflect what consumers actually pay," said Kathryn Martin, acting assistant secretary for planning and evaluation at the Department of Health and Human Services.

What she is once again referring to is that 85% of those getting subsidies could get their rate increases eliminated or blunted by the subsidies. It is worth pointing out that the consumer only avoids the big increase if they are in, or move to, the lowest or second lowest cost Silver Plan.

Staying with a higher priced plan they might now be in will not avoid the increases.

And, once again, the administration doesn't tell us that moving to a lower price plan may require higher deductibles and co-pays and more limited provider networks.

But more importantly, why does this administration, and so many Obamacare supporters that parrot this line, continue to ignore the many millions of people who do not get a subsidy and have no choice but to take the full whack from these rate increases if they want to stay covered?
The administration did appear to accomplish this week's spin goal of getting a message out that Obamacare is doing just fine. Here are some of the headlines driven by the administration's press briefing as they appeared in Kaiser Health News today under the heading: "HHS Analysis Says Subsidies Will Help Buffet Consumers From Marketplace Turmoil:"

• The Hill: "White House: Most Obamacare Users Will Be Shielded From Premium Spikes"
• Modern Health Care: "HHS Says 2017 Obamacare Plans Will Be Affordable Despite Insurer Exits"
• Morning Consult: "HHS Report: Most Marketplace Consumers Will Have Affordable Coverage Options"
• Dallas Morning News: "HHS Department: Fear Not, Obamacare Will Remain Competitive"

How many people in the individual market do not get a subsidy––and are not shielded from these increases?

Also this week, Mark Farrah Associates, an insurance industry data aggregator and web publisher, did take a look at that question. They looked at all of the individual health insurance regulatory filings in each of the states.

Here is what they found:

As of February 2016, 7.5 million people bought individual coverage outside the exchanges and therefore did not get an exchange subsidy. They reiterated the administration's claim that 12.7 million people bought coverage in the exchanges as of last February.

In fact, by March, only 11.1 million people had completed/paid their enrollments with only 9.4 million getting a subsidy and 1.7 million not getting one.

Adding the 1.7 million not getting a subsidy on the exchange to the 7.5 million off the exchange not being subsidized as of February, there are apparently about 9.2 million people in the U.S individual health insurance market that do not get a subsidy!

Now, some of these 9.2 million could be in grandfathered plans soon to be terminated, or even in limited medical plans still on the books. But any new policy these people would have to buy would have to be Obamacare compliant in order for them not to face the fine.

While this estimate serves to approximate what the market looks like, it is not definitive.

You would think with all of the endowment money the likes of The Commonwealth Fund or The Kaiser Family Foundation has someone would have attempted to find out how many people are out in the cold having to pay the full premium, deductibles, and rate increases for their coverage. After all, how many times have you seen a study, poll, or report from these folks supportive of the Affordable Care Act's accomplishments––particularly the good the law has done to expand coverage for the poor? Are they also not interested in the middle class?

And of course, this data only looks at the people who have bought a policy. While we know that only about 40% of the subsidy eligible have bought a policy, how many of those not subsidy eligible are still without any coverage?

Arguments referring to the 85% of those in the exchange getting a subsidy, in the narrowest sense, are correct. They are also incredibly disingenuous.

But you wouldn't know that reading these headlines.


My comments about this today on CNBC

Detailed Obamacare Blue Cross Enrollment--About Half The Enrollment Doesn't Get A Subsidy!

About half of those buying Obamacare compliant individual health plans do not receive a subsidy.

I was struck by this comment coming from one of Obamacare's most vocal supporters, Vox's Sarah Kliff:

Obamacare's insurance expansion is on the path to looking like other safety net programs we know, offering limited services to a predominantly low-income population.

She might be right about Obamacare devolving into a low-income style safety net program. But she couldn't be more wrong about the people who have no choice but to buy Obamacare if they want health insurance.

In the September 2016 issue of the trade publication, The AIS Report on Blue Cross and Blue Shield Plans, reporter Steve Davis did something no other reporter I know of has done. He called a number of Blue Cross plans and asked how many of their Obamacare individual health insurance policyholders get a subsidy and how many do not. His report covers 26 state Blues plans.

Why is this important?

First, the administration keeps telling the press that 85% of exchange participants get a subsidy. That is technically correct but awfully misleading. I have been arguing for years that about half of the Obamacare individual market does not get a subsidy when you include all of those customers that purchase their individual health insurance policies off the exchange.

As an administration spokesperson put it a couple of weeks ago, "Even in a scenario where all plans saw double-digit rate increases, the vast majority of consumers would continue to have affordable plans." If you believed that line, you will be quite surprised by what Davis found.

Then there are all of the Obamacare supporters like Kliff. Apparently, the millions of middle class people who have no choice but to be in the Obamacare health insurance market are invisible to them and it's just fine that they have no choice but to get their health insurance from a safety net kegiatan "offering limited services to a predominantly low-income population."

Consumers who do not get a subsidy pay the full premium, absorb all of the big rate increases, as well as the full deductible and co-pay increases.

So, how many individual health insurance policyholders are there that don't get a subsidy?

Davis surveyed a number of Blue Cross plans by calling them and asking that question and here is what he found:

Anthem: 784,550 with a subsidy and 1,015,450 without a subsidy. "The publicly traded company, which operates in 14 states, ended the second quarter of 2016 with 1.8 million members in the individual market. About 923,000 are covered by policies purchased through an exchange, the company reported July 27. The remaining 877,000 are covered by an individual policy purchased outside of an exchange...Using CMS' estimate that 85% of people who purchased coverage through an exchange qualified for federal subsidies, for Anthem that would translate to about 784,550 people with a subsidy...That leaves a little more than 1 million people––138,450 on the exchange and 877,000 off the exchange--who won't get a subsidy."

Health Care Service Corp: 881,000 members with a subsidy and 818,550 without a subsidy. "HCSC operates Blues plans in Illinois, Oklahoma, Montana, New Mexico, and Texas. As of December 31, 2015, HCSC says 61% of its 1.7 million individual members in five states purchased their coverage through the exchange. That works out to a little more than 1 million lives. But if 15% of those members don't qualify for a subsidy--and the other 663,000 purchased ACA compliant coverage outside the exchange--818,550 individual members won't have a federal subsidy."

Arkansas Blue Cross and Blue Shield: "As of July 1, 215,271 individuals were enrolled in on-exchange metallic plans [presumably 15% or 32,291 did not get a subsidy]...Another 59,915 individuals are enrolled in non-ACA-compliant insurance policies purchased outside the exchange."

BlueCross Blue Shield of Kansas: 46% of non-group members purchased coverage outside the exchange and 54% purchased coverage on the exchange [presumably 15% of those did not get a subsidy]. Of the off exchange plans, 56% are in non-compliant plans.

Blue Cross Blue Shield of Louisiana: Of the 206,793 people covered by an individual health plan, and assuming 85% of those on the exchange get a subsidy, only about 63,000 are subsidized. "Of the Blues plan's 206,793 people covered by an individual product, 21% enrolled outside of HealthCare.gov. Another 36% are covered by a policy purchased on the exchange, and 43% are covered by a non-compliant plan."

Blue Cross Blue Shield of Massachusetts: "Of the Massachusetts Blues plan's 43,000 non-group members, just 3,000 have coverage through the state-run insurance exchange."

Blue Cross Blue Shield of Michigan: Using the 85% assumption, 136,000 get a subsidy and 106,000 do not. "About 160,000 lives are covered by an individual policy sold through HealthCare.gov, while 82,000 enrolled outside the exchange..."

CareFirst Blue Cross Blue Shield: Using the 85% assumption, 99,529 are getting a subsidy and 175,641 not getting a subsidy. "As of July 2016, CareFirst had 275,170 members covered by individual policies in its service area of Maryland, Northern Virginia and Washington, DC. Of those, 117,093 were covered by a policy sold through an exchange. Outside of the exchange, 121,331 were enrolled in an ACA compliant plan and 36,746 had a non-compliant grandfathered policy."

Independence Blue Cross: Using the assumption that 85% of those on the exchange get a subsidy, 107,000 are subsidized, and 73,000 are not. "Of the 180,000 individual members, 70% enrolled through Healthcare.gov. The Blues plan doesn't have enrollment in transitional plans."

For those of you keeping score, that is about 2.3 million with subsidies and 2.4 million without subsidies. 

As you can see, there are still a relatively small number of grandfathered plans in a few states. But these plans are only available to those who had them in 2013 and they can only have them as long as their carrier is willing to let them continue. All new people rolling through the individual health market are required to be in ACA-compliant plans.

And, what's the political outlook for Obamacare given that these millions of middle class voters appear "on the path to [being in a health plan] looking like other safety net programs we know, offering limited services to a predominantly low-income population?


Postscript: After reading this post, Charles Gaba at ACAsignups.net just estimated the on and off exchange enrollment for these Blues plans based upon his data. "Roughly 48% (2.3 million) of all individual policies sold by these carriers are subsidized, while another 48% are ACA-compliant but unsubsidized (8% on exchange and 40% off exchange). The remaining 4% or so are grandfathered/transitional enrollees."

Just another confirmation: About half the individual health insurance market is subsidized and half is not.

Will The Administration's Making Good On Billions Of Dollars Due The Health Plans Solve Obamacare's Exchange Problems?

Amy Goldstein at the Washington Post is out with a story reporting that the Obama administration is looking to use an obscure federal law to pay billions of dollars in Obamacare risk corridor liabilities to participating insurance companies.

You might recall that the administration was only able to pay 12.5% of what insurers were owed for 2014 under the reinsurance kegiatan designed to protect health plans from losses in the insurance exchanges. It has been assumed that payments for 2015 losses would fare no better.

The mendasar duduk kasus was that carriers who lost money did so at a rate eight times greater than the level of carriers who made money in 2014––there just wasn't enough money coming from profitable carriers to pay the carriers losing money all that they were owed under the reinsurance scheme. When the administration said they would try to make up any deficit from other funds, Republicans put a provision in a budget bill that prohibited that.

Because these payments were not made, most insurance companies took a major hit to their bottom lines. The hit was so bad that many of the new Obamacare co-ops collapsed at least in part because of the incomplete payments.

Now, the administration apparently thinks it can use an obscure and bottomless "Judgement Fund" that is used to fund any legal liabilities the federal government incurs because of law suits––a number of insurers who didn't get paid have sued. The administration apparently thinks they can access this money simply by "settling" with the suing health plans and applying that "settlement" to all health plans owed money. The Congress does not have to approve such "settlements." If the administration now finds a way to pay the carriers all that they were due, I have to believe Republicans will challenge them in court just as they have done the administration's controversial interpretation of the health law that enabled them to pay insurance companies directly for the low income participants' out-of-pocket subsidies.
Will this prompt a turnaround for the Obamacare insurance exchanges that have been struggling with inadequate enrollment, very poor insurance company operating results and resulting big rate increases and health plan exits?

No.

What these payments would do is to help the health plans restore billions of dollars in lost surplus because of the lack of the promised payments in the first place. In that sense it is good news for the insurers that participated in 2014, and presumably 2015.

But the risk corridor reinsurance kegiatan will end at the end of this year by statute. There can't be such relief in 2017 and years beyond without the Congress and President agreeing to extend the reinsurance program.

This scheme would do nothing for health plans in 2017 and beyond. In that sense, what the administration apparently wants to do would have a retrospective impact only. It would have no impact on the market that these health plans see for 2017 that has caused them to give big rate increases or to exit the exchanges altogether.

This money will help the six remaining co-ops that might otherwise join the 17 that have folded.

That aside, finding a way to pay this money does nothing to solve the mendasar duduk kasus that the Obamacare insurance exchanges face: The health insurance products the carriers are required to offer are so unattractive to the healthiest consumers (only about 40% of those eligible for subsidies have so far signed up) that the insurance risk pools are unstable.

The carriers will be very happy to get the money, including those that have already said they would exit the program.

But this does nothing to change the 2017 outlook or the pending rate increases or the pending exits.

The Good And The Bad Of Obamacare

See my comments on CNBC today using this link.

In this interview, I mentioned the information a broker in Naples Florida sent me regarding some of their customers buying Obamacare compliant individual health insurance.

Here are the broker's 2017 examples:

Family of four, mom and dad age 40, two kids. Lowest Bronze annual premium $13,176. Deductible $7,150 single, $14,300 family. Income $130,000. Not eligible for subsidies. Exempt from the individual mandate because their premium exceeds 8.16% of their modified adjusted gross income (MAGI). The broker points out that their premium plus one deductible totals $20,236––16% of MAGI––the point at which they can begin to collect on claims (there may be some nominal first dollar benefits such as a wellness benefit).

Single woman age 45. Lowest Bronze premium $4,968. Deductible of $7,150. Income of $50,000. Not eligible for a subsidy. Exempt from the individual mandate because her premium exceeds 8.16% of her MAGI. Broker points out that her customer's premium plus the deductible totals $12,118––24% of the customer's MAGI––the point at which she can begin to collect on claims.

Couple ages 64 and 61. Lowest Bronze premium $20,004. Deductible of $7,150 single and $14,300 family. Income of $150,000. Not eligible for subsidies. Exempt from the individual mandate because premium exceeds 8.16% of MAGI. The broker points out that the total of their annual premium and one deductible is $27,154––18% of their MAGI––the point at which they can begin to collect on claims.

Premiums obviously vary by market. Rather than taking my word for it, I suggest you go to HealthCare.gov and check out a few markets. You do not need to log in to browse the plan offerings. You need only insert a zip code and age and family status, as well as to enter a big income like $100,000 to be assured of getting the unsubsidized price no matter their status. The unsubsidized price is the price that half of the people buying Obamacare compliant plans are paying.

Obamacare: Dead Law Walking!

There is no doubt that Obamacare is dead.

The only question is just exactly how Republicans will get rid of it.

While Republicans have the votes they will need in the House, Republicans will not have the 60-vote Senate supermajority necessary to get rid of all of it. Therefore, they will use their slim Senate majority and Senate budget reconciliation rules. It takes just 51 Senators to make spending decisions.

There are two routes they will consider:

1. Immediate repeal and replace that can rebuild insurance reform under the Senate 51-vote budget rule. Following this route will mean that the pre-existing condition reforms, for example, would have to remain in any new law because they are not budget related and would have to stay. The individual mandate (the Supreme Court declared it a tax) could be done away with as well as all of the exchange subsidies and the Medicaid expansion because they are spending related. Just what this path would look like in detail will depend upon what Senate budget rules ultimately determine to be budget items and whether that would be enough to build a health law consistent with a Republican vision.
2. Effectively repealing by using the Senate 51-vote budget rules to gut the financing of the law on a future date certain. That would be followed by the Republicans saying to the country and the Democrats that Obamacare would continue as is until that future date––Obamacare would continue to cover everyone in the exchanges and under Medicaid. But if Democrats didn't cooperate in legislating a new health insurance law, they will argue, it will be on the head of the Democrats that people lost their coverage on the day funding ends. This course could have the effect of forcing the Congress to agree on a new bipartisan path for health insurance reform––or result in one incredible implosion of coverage if the Democrats didn't cooperate.

Either way, Obamacare is over.

The big stakeholder lobbies––insurance companies, hospitals, pharma, and doctors, will all be seen by the Trump administration as having been collaborators with the Democrats to pass this law in the first place. As a result, their organized lobbies will have far less to say this time. Insurers in particular, some CEOs were big cheerleaders when the law originally launched, are in a particularly difficult spot in this regard.

For victorious Republicans, Obamacare may well be the one thing that represents what the Obama years have stood for and therefore needs to be dismantled sooner rather than later.

Trump and Pence repeatedly made it clear that Obamacare would be repealed and replaced. They now have a mandate to do it and their supporters expect results. No Republican is going to stand in front of this freight train.

But, there is much more to consider here. The Obamacare exchanges are now in an underwriting free fall––how much worse will this election make things before Republicans address it? Will carriers begin to pull out in increasing numbers not wanting to be the last haven for a worsening pool? How can anything bipartisan be accomplished given the stark ideological differences between Democrats and Republicans on the health care issue? More on all of this later––it is now 3 am!

To say it is a new day in Washington, DC may be the understatement of them all.

Now What Do We Do? Trumpcare?

Of course, "Now what do we do," is the famous line from Robert Redford's character in The Candidate, stunned by his victory and confused about what to do next.

But it doesn't really apply here.

A few thoughts as all of this sinks in:

• Some will tell you the Republicans are unprepared for repeal and replace. Wrong. There is a plan. Don't let anyone tell you there is not. The plan was written by Paul Ryan as part of his "Better Way" document released in June of this year. It is not in legislative form, but it is as detailed as the plan Bill Clinton or Barack Obama had the morning after they were elected. I fully expect Speaker Ryan to take the point on putting the legislative details on the table, which will generally follow this outline.
• As I pointed out in my blog post earlier this morning, Obamacare will effectively be repealed. No ifs, ands, or buts about it. The Trump voters voted for him expecting that he and the Republicans would do it and there is no turning back. This will be the first if not one of the first jadwal items. Speaker Ryan, at his press conference this morning, reaffirmed that.
• The repeal part will be the easiest part––not a literal repeal but a defunding of the money used for the exchange subsidies, the Medicaid expansion, and that run the exchanges. 
• The much harder part will be the replacement. Republicans will say to Democrats, "Help us create the new insurance system or be responsible for the consequences." Some are saying the Democrats won't cooperate. Here is why they will. In 2018, there are 23 Democratic and two Independent Senators (who caucus with the Dems) that will be up for reelection––a great many in states that Donald Trump won last night! There is a clear mandate here to replace Obamacare. If these Democrats fight it and that arguably results in millions of people thrown off their coverage they will do so at their peril.
• The best news here is that defunding and then replacement of Obamacare could ironically set the table for the first real bipartisan legislative effort in a very long time. The one we should have had in the first place.
• As challenging as creating a replacement will be the transition period before the new plan can be operative. It is not possible to instantly replace the Obamacare policies and the exchanges overnight. There will need to be a transition period between the old and the new that will be at least a year, if not two, for the new market to be prepared and implemented. 
• I have to believe that the ongoing 2017 open enrollment will be a real duduk perkara for the insurers that are already losing lots of money in Obamacare. Healthy consumers, promised a new and cheaper plan by the Republicans, will likely hold back rather than pay the big prices and suffer with the big deductibles. That means fewer healthy people in the pool while the sick people stay with Obamacare during 2017.
• Insurers will be asking a very important question this morning: Why should we stay with Obamacare during the transition and lose even more money while the jadwal deteriorates at an accelerating rate? Beyond 2017, why should an insurer withstand more losses during what will likely be the transition year of 2018? I expect that Republicans will find themselves in the uncomfortable, but necessary, position of having to subsidize these losses in the transition or have no insurers for people. Don't forget the point I have been beating the drum on for the last three years––half of those with Obamacare compliant individual health policies do not get a subsidy. I expect the vast majority of these people, hit with the big premiums and deductibles, voted for Trump and the Republicans. If for no other reason, Republicans have to worry about supporting these people in the transition. 
• Obamacare may be dead law walking but it will be the only individual health insurance marketplace––and the place millions of people get their Medicaid coverage––for at least 2017, and very likely, 2018. Republicans will have to support it in the transition or face their own "If you like your health insurance you can keep it," debacle.
• Can I coin a new term here? Trumpcare.
• Will Republicans do a better job of paying attention to how the market works than Democrats did? I don't presume anything here. The Obamacare repeal and replace effort has left the station. No turning back. But, health care is hard. It is easier to screw it up than get it right. Democrats just learned that lesson. Republicans would do well to see what happened to the Democrats as sobering example of what not to do. A fully ideological Republican plan that doesn't pay attention to how this market really works could put the Republicans right back where the Democrats are today.
• As Barack Obama said eight years ago, "Elections have consequences."

It Isn't News That Trump Wants To Keep The Pre-Existing Condition Reforms----He Said So In February

Far from a news scoop, Donald Trump first said that he would preserve consumer protections against health insurance pre-existing conditions last February.

See my post at Forbes

Will It Take A Crisis To Replace Obamacare?

My interview this morning with Steve Inskeep on NPR's Morning Edition. 

We discussed repeal and replace, Republican proposals for replacement, the mendasar differences between Democrats and Republicans on health insurance reform, and the outlook for what is likely to happen.

Obamacare Repeal, Transition, And Replace: The Republicans Have A Tiger By The Tail

I wouldn't be surprised to see Obamacare more fixed than replaced before this is over. I'm not sure Republicans have really come to grips with the daunting task they face for both replacing Obamacare and managing through what will certainly be a problematic transition.

See my post at Forbes

Republicans Are Being Awfullly Naive About The Transition Period In Repeal And Replace

"To have an orderly ["Repeal and Replace"] transition, I think Republicans need to reimplement the risk corridors by February or March. That is the only chance they have. I don't think there is a single Republican member of Congress who has thought about this. I am reading all of these quotes and they're completely blind to the fiasco on the individual market that they're about to create."

Read my complete interview with Sarah Kliff at Vox.

Fixing Health Insurance Reform Is A Zero Sum Game: The Only Way Republicans Can Lower Costs Is To Provide Less Coverage––Wrong!

Don't Underestimate the Value of Rearranging the Deck Chairs

Anna Wilde Mathews and Louise Radnofsky have a well-done story in yesterday's Wall Street Journal. They point out that a relatively few sicker people account for most of the cost of care:

Congress has begun the work of replacing the Affordable Care Act, and that means lawmakers will soon face the thorny dilemma that confronts every effort to overhaul health insurance: Sick people are expensive to cover, and someone has to pay.

That is right.

But, this statement would seem to infer, as I have observed the general discussion about fixing Obamacare has often inferred, that there is a certain cost to health insurance and that Republicans can rearrange the deck chairs any way they want but the cost will be the same.

Wrong!

What I think this story, and the general discussion about how to cover people in the future is missing, is that Obamacare is so flawed that by itself it is manufacturing plan premium levels that are at least 30% to 40% higher than they need to be.
Readers of this blog are probably tired of hearing me point out that the Obamacare insurance exchanges cover only about 40% of those that are subsidy eligible, when the longstanding insurance industry underwriting rule calls for 75% of an eligible group to be covered in order to have enough healthy people enrolled to pay the costs of the sick. But again it is this critical point that is being missed.

What would happen if the plans were more attractive––if people saw value in them? And, if we had 75% of the eligible group signing up as a result, what impact would that have on current premiums?

I have asked a number of health plan actuaries that hypothetical question. Hypothetical because the health plans don't have the flexibility to rearrange the product pieces so as to make the insurance plans more attractive.

Their answer has consistently been that prices could come down at least 30% to 40% from 2018 prices. Said another way, the anti-selection load the current Obamacare exchange plans are carrying is worth at least 30% to 40%. And, that makes sense. When Obamacare launched for 2014, the carriers conservatively priced for an acceptable claim level. The reality was much higher––2018 prices are now about 30% to 40% higher after adjusting for baseline trend.

Here is the bottom line: Obamacare's insurance exchange scheme is so poorly designed that it is literally an anti-selection machine.

Here is a hard concept to grasp but one that is real––fix the plan designs and we can reduce the medical loss ratios by encouraging an influx of relatively healthy people that can pay the claims of these same sick people from the extra premiums that come from more relatively healthier people signing up. With a better enrollment, we can pay for these same sick people, and the claim costs of the new enrollees, and charge premiums that are substantially less than today's.

In other words, it's not so much the numerator of the medical loss ratio that has to change (the claims), it is the denominator (the total premium). The premium duduk perkara can be fixed in two ways. First, we could raise the plan prices––which is what has been painfully going on for three years. Or, we could increase the denominator by getting more healthy people into the pool.

As we fix, or replace, Obamacare this is what we need to be focused on. That is why it is wrong to conclude that this is all a zero sum game and Republicans will eventually learn they have these sick people to cover and no amount of rearranging the deck chairs can bring the premiums down.

This may be the one place rearranging the deck chairs––in the form of more flexibility in plan design––will actually work.

Repeal And Replace Obamacare: How Will All Of This Sort Itself Out?

Will the Republicans Follow Through on Their Promise to Repeal Obamacare?
Yes.

You have probably been reading press stories that bring into question whether or not Republicans will actually keep their campaign promise to "repeal" the Affordable Care Act (ACA). In fact, there is much discussion going on among Congressional Republicans about repealing key funding elements of the ACA as part of a budget process prior to having a replacement ready to pass the Congress.

But, they will defund the core elements of Obamacare sooner rather than later on their way to replacement. They have to. Repealing Obamacare as a first priority was a core campaign promise. If Congressional Republicans and President Trump fail to do this they will suffer a precipitous drop in credibility with their base.

Do Republicans Have a Replacement Plan?
Yes––at least a pretty specific outline for what they would do.

Speaker Paul Ryan's "Better Way" outline, last year's very similar Burr, Hatch, Upton bill (my analysis here), and a number of other similar Republican proposals lay out a clear path for a preferred Republican alternative. Donald Trump said this weekend that his plan, likely very similar to these, will be released once his new Secretary of HHS is confirmed.

These plans share the same key elements but have not yet been put in legislative form or been "scored." Just exactly what the new subsidy/tax credit scheme would look like and how it would impact consumers compared to what we now have in Obamacare is the biggest unknown.

The duduk masalah isn't that they don't have a plan. The duduk masalah is that Republicans don't have a plan that will garner the required 60 votes in the U.S. Senate to become law. With 52 Republicans, they will need at least eight Democrats to join them. There simply are not the eight Democrats, or a guarantee that all 52 Republicans can be counted on, to ensure something like the general Republican replacement outline can become law.

Does This Mean That Republicans Will Retreat on Repeal Until Such Time as They Can Secure the Needed Democratic Support?
No.

First, Republicans are now in so deep on the repeal promise they can't retreat and maintain credibility with their Republican/Trump base.

Second, the reality is that Washington, DC wouldn't be able to find a bipartisan route to get past gridlock on such a complex and politically charged issue as Obamacare without facing hard deadlines for replacement.

Those that argue that Republicans should first have the replacement plan in place before proceeding make the assumption that without the imperative repeal/defund would create the two sides would be able to come to a bipartisan solution. In this Washington, DC? I just don't see that happening.

But Hasn't the Republican "Repeal and Replace" Strategy Now Put Them on the Defensive?
Yes.

Republicans are clearly losing the messaging battle with Democrats now on the offensive. A lack of a clear message about replacement creates a huge information gap that is easy to fill with bleak assessments for how the health insurance market will quickly collapse in the wake of Republican defunding.

Right now, Democrats are effectively, but disingenuously, arguing that repeal without a replacement will lead to millions of people losing their insurance. Disingenuous because Republicans have never intended to repeal without a seamless transition to replacement. But the Democratic arguments just had gasoline poured on them by the Congressional Budget Office (CBO) My follow-up post at CNBC.com deals with how the two sides could come to a bipartisan compromise.

Is The Trump Administration On Its Way To Its Own If You Like Your Health Plan You Can Keep It Fiasco?

On Friday night the administration issued an executive order giving Trump administration appointees enormous flexibility in modifying how the Obamacare individual health insurance market works.

Specifically, President Trump has given his administration the power "to waive, defer, grant exemptions from or delay the implementation of any provision or requirement of [Obamacare]."

The administration has not been clear about just exactly what it is they now want to do.

Their action raises a basic question: Why grant this flexibility if it is not their intent to materially change the way Obamacare works in the individual health insurance market?
Every Republican I know of thinks that Obamacare is failing and unstable––particularly because the plans it offers consumers are especially unattractive to working class and middle class people who can only buy individual health insurance that complies with Obamacare rules. Maybe some of these Republicans know this because that is what I have been saying for three years.

If the Republicans are able to repeal and replace Obamacare, in a best case scenario, they won't be able to have the new kegiatan up and running any sooner than 2019––and that could easily slip to 2020. First, they have to repeal Obamacare. Then they have to replace it by getting at least eight Democrats onside in the Senate. Then the Trump administration and/or the 50 states will have to write the new rules for the new marketplace. Then the health plans will have to develop and price the new plans. Then the states will have to approve them for sale.

So, there is no way, under the best of circumstances, the new scheme will be ready until 2019. Meaning Obamacare will have to operate for the rest of 2017 and at least for 2018.

There are a number of potential steps the Trump administration could take, as the order describes it, to modify "any provision...that would impose a financial burden on individuals, families..."

These could include:

• Refusing to enforce the very unpopular individual mandate's penalty for not purchasing health insurance.
• Leaving the mandate and its penalty in place but dramatically increasing the Obama administration's "hardship" exemptions in the face of the expensive high deductible plans people now face.
• Enabling health insurers to offer limited duration health insurance plans that they are still allowed to medically underwrite. The Obama administration had intended to eliminate these policies that provided more than three months of coverage. By bringing these policies back to the market, a parallel market of cheaper plans attractive to the healthy could be created thereby pulling healthy consumers out of the Obamacare pool.

The short of it is that the Trump administration, by trying to bring relief to some consumers, could just as easily further undermine the already shaky Obamacare risk pool.

If the pool were to be made worse than it is now, health plans would be challenged to figure out how they could remain in a market already intended for demolition once the new replacement plan was ready in 2019.

In 2017, 31% of counties have only one insurer and 62% of counties have two or fewer insurers in the Obamacare insurance exchanges.

Republicans need to be careful. Making an already fragile insurance exchange market even worse could easily lead to some markets having only one or no health plans selling individual health insurance in 2018. Even if a health plan chooses to stay, a less stable market could lead to even higher prices and deductibles and even narrower provider networks for consumers.

The Republicans have promised to repeal Obamacare, replace it with something better, and make sure no one is hurt in the transition.

But if you take this new executive order to its logical conclusion, doing things like killing or easing the individual mandate or allowing for cheaper medically underwritten plans can't have any effect other than making an already fragile Obamacare risk pool worse. Making the pool worse can only lead to fewer consumer choices, or no choices, or higher rates and bigger out-of-pocket expenses for those who remain in the Obamacare risk pool.

And, remember, about half of those in the Obamacare compliant individual health insurance market are not subsidized. This is not just about poor people getting subsidies. It is also about the health insurance market millions of middle class consumers participate in––many of them Trump voters.

How can Republicans agree with me that Obamacare is unstable and getting worse and think they can make it even more unstable in the transition and people won't get hurt?

On Tuesday, the Senate Finance Committee will hold a hearing on Congressman Tom Price's nomination to be Secretary of Health and Human Services. Senators should be asking Mr. Price if he intends to stabilize or destabilize the already fragile Obamacare risk pool during the transition to the new health insurance kegiatan President Trump has promised us.

How Republicans And Democrats Could Come To A Bipartisan Compromise Over Obamacare

It's not a question of whether or not Republicans and Democrats will come to a compromise over replacing Obamacare.

The Republican attempts to repeal and replace aside, the law is unsustainable in its current form.

Since it will take 60 Senate votes, and the Republicans only have 52 seats, there is no way we can get to a solution to the Obamacare conundrum without a bipartisan compromise.

So, what might that look like?

See my op-ed at CNBC.com 

Reports Of The Demise Of Obamacare Repeal And Replace Are Greatly Exaggerated

Many recent press reports have centered around the notion that Republicans are stuck in the mud trying to get their repeal and replace promises moving.

That line appeared to be reinforced over the weekend when President Trump said, in a pre-Super Bowl interview, that the process could draw out into next year. My sense is that what Trump was talking about was the fact that the whole process, that includes implementing the replacement, could take well past 2017. Trump, never one for getting the details right, was taken literally by the press looking to write stories about how the whole process was foundering.

Speaker Paul Ryan quickly countered in his press briefing that Republicans will legislate a repeal and replace of Obamacare this year.

As I have reported to you a number of times, that process, especially the replace part, will be very difficult to achieve given the need to have at least eight Democrats onside with a complete replace bill.

But, I can also tell you that the repeal part is still on track to occur this spring, as I have been reporting for some time, likely in March.
That process is following “regular order”—the House and Senate committee process.

The Republicans are now looking to see how much of the replace elements they can include under the Senate budget reconciliation rules.

The latest information I have is that they are looking to include the expansion of health savings accounts (as Pence recently said, paying the subsidies to consumers rather than insurers via an HSA), a provision that would encourage states to create high risk pools and provide federal funds for them (although it still sounds like the amount of money they are talking about may be well short of what would be necessary to adequately fund the pools), reforming Medicaid by creating a form of state block grants via per capita limits, and including a new tax credit scheme to subsidize consumer purchases of individual health insurance.

This is all very preliminary and subject to the fleshing out of lots of details—not the least of which is the adequacy of the consumer tax credits compared to what we have in the exchanges now. You might recall that past Republican proposals would have provided more limited support—the Hatch, Burr, Upton bill would have provided subsidies only up to 300% of the poverty level compared to Obamacare’s 400%.

Each of these elements would have to comply with budget rules requiring them to be spending oriented. All of this would ultimately be subject to being approved by the Senate parliamentarian. Even then, non-budget items like dealing with the current pre-existing provisions of the ACA and plan actuarial value provisions and deductible caps would still likely have to be dealt with in a bill requiring 60 Senate votes.

But, the process to repeal—and include substantial elements of replace in that same budget bill in order to placate Republicans wanting as much of the replace elements to occur simultaneously—is proceeding.

Reports that Republicans are hopelessly floundering are wishful thinking on the part of many that would like to think that Obamacare is too good a law to repeal.

This does not mean that the full replacement of Obamacare isn’t going to be a very, very heavy lift given the imperative to have at least eight Senate Democrats onside.

Frankly, my sense is that some Republicans, and I would put Donald Trump right at the top of this list, wouldn’t be disappointed with a crisis over getting the replacement done as a means to compel Democrats to cooperate in a simpulan replace compromise. Trump may not understand the details of health policy, but he does understand the dynamics of getting deals done!

I would also argue that elements of replace in the repeal bill could still be subject to revision in any simpulan replacement bill. For example, we could see the Republican continuous coverage and high risk pool provisions in the first repeal bill exchanged for a pre-existing conditions provision more consumer friendly in the simpulan bill needing Democratic support.

As I have said before, my sense is that the simpulan bill will look more like a fix (the new word in town is "repair") of Obamacare than the complete replacement conservative Republicans have been talking about.

But, in the end, all of the press reports aside, the repeal of Obamacare is still on track.

Rethink 'Repeal And Replace'

This is an op-ed that I authored in USA Today––two years ago.

Wouldn't change a word of it:

Rethink 'repeal and replace': Column
Robert Laszewski
7:29 PM ET January 14, 2015

Obey health care customers, not political orthodoxy,  when proposing Obamacare fixes

The Republicans seem determined to "repeal and replace" Obamacare. They simply cannot bring themselves to consider fixing what they have come to revile.

Being against the president's namesake legislation has been a big winner in at least two out of the past three elections. But now that Republicans are in charge of the Congress, just attacking Obamacare won't work. They have to put something on the table.

However, they need to come up with something better. An effort to repeal and replace Obamacare would be a huge political mistake. There is no issue that presents a worse political minefield than health care. Each and every potential reform means somebody will be losing something and will be very motivated to stop it.

See the remainder of the op-ed here. 

Obamacare's Insurance Exchanges Are Self-Destructing––And That Is Why Obamacare Needs To Be Fixed In 2017

Obamacare was self-destructing the day before Donald Trump was elected, and the Republican victory, with their talk of "repeal and replace," has only accelerated things.

Aetna's CEO recently was purchased off of the exchanges––Obamacare compliant on and off exchange plans all have to be designed and rated the same.

We have seen the disastrous carrier by carrier 2015 results from the federal reinsurance jadwal that included both off-exchange and on-exchange business. We also know the off-exchange results were bad enough to produce the big 2017 rate increases. And, we do know that these off-exchange people don't get a subsidy and have to pay the full price these big rate increases developed for 2017. The easy prediction is to say that those increases have to be pushing a lot of healthy people, who don't now use their insurance, off of their coverage.

I can tell you that I have talked to a number of health plans that are telling me that when the big rate increases became effective on January 1, 2017, their off-exchange net enrollment shrunk between 15% and 35%. The carriers are also telling me that their off exchange medical loss ratios are just as bad as the on-exchange business. And, the Aetna CEO certainly knew about the medical loss ratio on his off-exchange block when he made his comments.

We won't know if 2017's big off-exchange cancellations are part of a death spiral in this half of Obamacare until we see a few years of data and can look back at the complete picture. But this does have all of the classic characteristics of a spiral––big rate increases pushing the people who don't need heath insurance this year off the jadwal leaving the sick people who do need it in a jadwal where those quitting now can be guaranteed of coming back next January if they get sick.

The Effort to Save Obamacare
Much is being made about all of the voters protesting that they do not want to lose their Obamacare health insurance plans.

The protests are understandable. If one of my kids was dependent upon the jadwal I might be right there with them.

We currently have millions of people who need this insurance and many millions who need the subsidies to keep it.

But here is the fallacy in their protests: Obamacare is failing right now. It is an illusion to think we can keep what we were promised when it launched. How many states will not have a carrier in 2018? How many markets will have only one choice? How many states will see their Blue Cross plan remain––most of the for-profits are already gone––but with another round of big rate increases pushing still more unsubsidized consumers out of the program?

Those that frame this debate as the simple binary choice of either keeping these people covered under the current plan with minor changes or letting the Republicans kill it are doing everyone a disservice.

My own opinion includes two conclusions:

• The Republicans will never have the votes to pass their least conservative version of "replace," much less the hard line proposals coming from the most conservative members, and they will ultimately have to work with Democrats to fix it.
• The Democrats can't just keep defending a failed jadwal by misleading people into thinking that Obamacare is fundamentally sustainable and can be kept––this thing is in the process of self-destructing and they will ultimately have to admit that and work with Republicans to fundamentally fix it.

Obamacare must be fixed in 2017.

Today we have almost 20 million people in the Obamacare compliant individual health insurance market that now depend on a jadwal in self-destruct mode.

At the end of the day, both Democrats and Republicans will have no other alternative but to fix it.


My CNBC op-ed on how Obamacare could be fixed.