Tag Archives: adverse selection

ObumbleCare & The Adverse Selectors

11 Wednesday Nov 2015

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Risk Pool

“… out in the real world, the bad news keeps coming, drop by drop, drip by drip, until we are seeing a virtual flood of Obamacare awfulness.“

That’s from Michael D. Tanner in “What’s Wrong With Obamacare?” Tonight, I offer  you a list of some of the drippings:

  • Flat enrollment, expected to be less than half of the original projection for 2016;
  • Almost all (97%) newly insureds under Obamacare are enrolled under expanded Medicaid, unaided by the many complexities introduced by Obamacare;
  • 12 of 23 federal health care insurance coops have failed as of Nov. 3;
  • High medical loss ratios are threatening the viability of insurers in 27 states, a result of adverse selection by relatively sick enrollees;
  • With unfavorable risk pools, premiums for all 2016 exchange-based plans are rising 20.3%, well above the 7.5% figure quoted by HHS for “Silver” plans;
  • Health insurance does not guarantee health care, and many of the newly insured are finding that providers are scarce, given reimbursement rates;
  • Emergency rooms utilization is up, as patients know they can get care there;
  • Rationing of care is increasingly a matter of waiting time, as it is in other countries that rely on non-market solutions to health care;
  • As many as 700,000 low-income enrollees are at risk of losing their coverage because they did not file tax returns;
  • For many, the penalty for not having coverage ($695 next year) is lower than the premium they would pay for coverage;
  • More than 5 million individuals lost their coverage under Obamacare, generally policies that were preferred over the new alternatives;
  • Poor incentives and burdensome provider requirements are pushing costs up.
  • Employers are attempting to minimize the cost of Obamacare. The law makes hiring more expensive and leads to substitution of part-time for full-time workers;

The “death spiral” might not be far-off for Obamacare. Here is Tanner’s assessment:

“The young and healthy simply haven’t signed up for Obamacare in the same numbers as those who are older and sicker. The only way for insurers to offset their skyrocketing [Medical Loss Ratios] is to hike premiums still further. … premiums in the worst states could have to rise by an average of 34 percent, and possibly as much as 52 percent. But premium hikes of that magnitude would almost certainly further discourage younger and healthier Americans from buying insurance.“

There is no question that Obamacare will have to be replaced or changed substantially.  Unfortunately, Obamacare apologists simply can’t come to grips with the reality of the law’s failure. They would do well to start focusing on new solutions to the problems that Obamacare was intended to solve. To that end, the Mercatus Center commissioned a collection of seven essays on how best to deal with the problem of pre-existing conditions, now published on the Mercatus web site. Market-based solutions are needed to encourage competition among insurers, incentivize innovation and cost control, and reestablish the primacy of the patient-provider relationship.

More Unpleasant Obamacare Arithmetic

15 Monday Jun 2015

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How-the-ACA-Works

States with expanded Medicaid eligibility may be more vulnerable to adverse selection, hastening the death spiral of their Obamacare insurance exchanges relative to states without expanded Medicaid. This is because 1) the expanded, eligible Medicaid population is young, and 2) pricing (net of subsidies) and benefits on the exchanges encourage sicker individuals to purchase plans with richer benefits. The Political Calculations blog presents this case in “How Medicaid’s Expansion Tips the Scales Against Obamacare“:

“… we observe that the states that did not expand their Medicaid programs have a much larger share of their ACA-enrollment occurring in the lower-tier metal plans that would tend to be favored by healthier individuals. Meanwhile, in the states that expanded the enrollment of their Medicaid programs under the law, we find that a significantly larger portion of their ACA enrollments were in the plans that would be favored by less healthy individuals.

In fact, we see that in Medicaid expansion states, 13.2% of their ACA enrollment occurred in the highest-tier Gold and Platinum level plans, while non-Medicaid expansion states saw 7.7% of their enrollment for these highest tiers of health insurance coverage.

The seemingly small 5.5% difference between these two figures becomes exceptionally significant when you consider how extremely concentrated health care expenditures are in the United States, where just 5% of U.S. patients are responsible for generating 50% of all health care spending in the nation.“

It will be difficult to confirm this hypothesis using data on premium increases, or actual exchange failure, until the temporary risk corridors and transitional reinsurance program expire. However, this year, several of the states in which proposed premium increases are the largest have expanded Medicaid eligibility. Robert Laszewski has a good discussion about some the reasons for the large premium increases in Forbes. It’s early and there are signs that it will get worse.

As noted last week on this blog, Medicaid itself does not stack up well in terms of how highly it is valued by recipients and the moral hazard inherent in the program. Here we see an additional bug: expanded Medicaid appears to siphoning away younger potential enrollees from the exchanges in those states, worsening the problem of adverse selection, which will negatively affect their claims experience.

More Obamacare Follies

31 Thursday Jul 2014

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Disconcerting news regarding the administration of the ACA just keeps on coming. The so-called “risk corridors” represent a bailout for health insurers for whom Obamacare premium revenue proves inadequate. Sure enough, but more interesting is how the Obama administration attempted to manipulate several provisions of the law on reimbursement in order to keep insurers happy after other changes with negative implications for their risk pools. In addition, when insurers expressed alarm about the “budget neutrality” of the corridors, the administration backtracked on that position. “… the administration had a choice: provide a bailout, or face the unpleasant prospect of having insurers price their products honestly.” The unfolding of these events is detailed in Emails Show Cozy Government- Insurer Alliance….

Don’t get too excited about the improvement in Medicare’s finances under the ACA. The chief actuary for the Centers for Medicaid and Medicare Services says that the ACA’s Medicare changes aren’t sustainable. Reimbursement rates under the ACA are inadequate barring “an unprecedented change in health care delivery systems and payment mechanisms.” In other words, an unlikely advance in productivity will be necessary in order to make Medicare’s finances work.

A few days ago, I posted about the Halbig vs. Sebelius District Court decision here, highlighting Jonathan Gruber’s one-time defense of the ACA’s rules that premium subsidies could be paid only on policies purchased on state exchanges. More recently, he claimed that the rule was not the intent of the legislation. Here are some further thoughts from Don Boudreaux on Gruber’s memory lapse, in which he links to a piece by Megan McArdle. Boudreaux:

The very claim that such a simple “mistake” infects the ACA calls into question the competence (or the incentives, or both) of elites, both political and intellectual, who seek ever more power for government.

Deductible Concept Sprung On Newly Insured

19 Saturday Jul 2014

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No, the monthly premium on your Obamacare coverage does NOT cover your deductible and copayments. You’re still on the hook for those bills. Apparently, that reality comes as a shock to many of the newly insured. And apparently, that reaction was unexpected by the drafters of the ACA as well as HHS, the state exchanges, and various organizations involved in the implementation of Obamacare. So, many of the previously uninsured, intended as the chief beneficiaries of the ACA, are feeling disillusioned, even jilted, by the terms of their coverage. As if the poor risk profile of enrollees weren’t bad enough, and amid continuing doubts about whether those purchasing coverage under Obamacare are actually paying their premia, the confusion among this constituency is a bad omen for the sustainability of the program.

Aside

Just Insurance? Or Unjust Insurance?

29 Sunday Jun 2014

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Ambulance

Voices from the left keep insisting that universal coverage and a single, all-inclusive risk pool is “just insurance,” and that anyone standing in opposition just “doesn’t understand insurance.” The argument is usually extended to the idea that all individuals must receive and pay for a comprehensive set of benefits, going far beyond any reasonable notion of catastrophic coverage. Proponents of this view advocate an extreme form of socialized health coverage that eliminates private choice and traditional risk-rating.

In a free society, individuals cannot be coerced into cross-subsidizing activities that might violate their religious convictions. It is hoped that this will be affirmed by the Supreme Court’s Hobby Lobby decision, likely to be issued this Monday.

Likewise, in a free society, individuals should not be forced to cross-subsidize private choices made by others. Preserving the right of individuals to purchase the benefits and coverage levels of their choice at reasonable premia (e.g., catastrophic care only or “wellness” features, no pregnancy coverage for senior citizens, risk-based pricing) is crucial. Providing care for high-risk individuals with pre-existing conditions need not involve a dismantling of the private health insurance market.

Of course, Obamacare has fallen short of the socialist “ideal,” either before or after all of the exceptions, delays, and waivers made by the administration and HHS. Its design, nevertheless, has had a destructive impact on the private insurance market, and the program is straining under the effort to provide high-risk coverage. In “Obamacare’s Prognosis Grows Dimmer,” Lanhee Chen discusses how adverse selection is playing out on the Obamacare exchanges. Based on the evidence available thus far, the exchanges appear to be laden with a high percentage of sick individuals. This is likely to lead to more premium shock for enrollees as we head into the mid-term elections.

A path toward providing effective coverage for pre-existing conditions is discussed in this article. It asserts that a solution hinges on the ability for individuals to make seamless transitions between employer-provided coverage and individual coverage, even with pre-existing conditions. Since that ability must apply nationwide, the authors also assert that there must be a role for federal funding of the high-risk pool of individuals making the transition to the individual market.

Drink Deep The Dregs… And Get Used To It

24 Monday Mar 2014

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Attempts by the administration and its cheerleaders to sell Obamacare in the last weeks of the open enrollment period (ending March 31) look increasingly desperate. John C. Goodman in the WSJ describes the law’s spectacular failure to achieve its stated objectives as well as the inherent unworkability caused by the mandates, subsidies, and incentives created by the ACA. No, it is not “just insurance,” unless you think community rating can be sustained in an actuarial black hole of adverse selection. The ACA is a mess.