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