Tuesday, July 18, 2017

The Post-Republican Obamacare Market Will Be "Stable" and Very Profitable for Health Insurers

Predictions that the individual health insurance market will now implode are misplaced.

First, in the wake of the Republican collapse of efforts to replace Obamacare, Medicaid will continue on unaffected. The Obama Medicaid expansion is fully funded for years to come. The nineteen states that did not take the expansion will continue to be on the outside looking in as their taxpayers continue to fund the expansion in the 31 states that did expand. And, health insurers will continue to enjoy that growth in their business as states continue to benefit from the open-ended federal funding.

The individual health insurance market will not collapse.

With about 3,000 counties in the U.S., I can't give you an absolute guarantee that there won't be a few that will not have an insurance carrier serving the Obamacare market in 2018. But generally, the vast majority of people eligible for subsidies will have at least one carrier to buy from.

The Kaiser Family Foundation is out with a recent study looking at medical loss ratios in the first quarter of 2017. They concluded that "individual market insurers on average are on a path toward regaining profitability in 2017."

I wouldn't go so far as to say that participating health plans will generally make money in 2017––the first quarter medical loss ratio is always better early on as consumers satisfy their ever-growing Obamacare deductibles.

But I do think 2018 could be a decent bottom line year for most Obamacare exchange insurers. And, 2019 should be just fine.

Does this mean the Obamacare insurance exchanges are working well?

No.

If the stability and success of Obamacare is measured by insurance company profitability things are improving.

But if stability and success is measured by how the Obamacare insurance exchanges are impacting the people who have no other place to go for their health insurance, this program remains a disaster for at least the 40% of the market that are not eligible for subsidies.

First, Obamacare is a tale of two cities.
  1. The lower-income people who are eligible for Medicaid as well as the people who make less than 400% of the federal poverty level and are therefore capped in how much they will pay for health insurance––these people are doing fine. 
  2. The 40% of the U.S. population that live in households that make more than 400% of the federal poverty level and get no premiums subsidies and pay the full cost of premiums, out-of-pocket costs and any big rate increases––these people are getting clobbered.
This is why in a bizarre way we can have stability in the Obamacare insurance exchanges: If health plans increase their rates by 50% or charge premiums into the thousands of dollars a month, there is virtually no impact on those who get a subsidy. True, those making over 250% of the federal poverty level will bear the impact of the ever-larger deductibles, but none of the premium increase.

Health plans have all but given up on getting a healthy risk pool under Obamacare. After four successive open enrollments run by the Obama administration, the program never got close to the percentage of the eligible pool needed to be successful.

The carriers looked at this landscape and concluded the only viable strategy was to just keep boosting the rates until they reach profitability. And, that is what they have been doing and that is why their medical loss ratios are starting to improve.

But that has meant huge premiums and deductibles. It is now not uncommon to see the lowest cost unsubsidized plan in a market for a family cost at least $1,000 a month, $12,000 a year, with an individual deductible in the $6,000 to $7,000 range. I have seen many areas where the lowest premium is already at $1,500 a month, $18,000 a year. Even for upper income families this is intolerable with premiums well over 10% of their gross income and deductibles making the plans useless to all but the sickest.

This is what the Kaiser Family Foundation would call stable: "The individual insurance market has been stabilizing in most of the country and could continue just fine."

The big political irony is that it is not the traditional Democratic constituency––lower income people in Medicaid or eligible for exchange subsidies––that are getting hurt. It is the upper income people not eligible for any benefits that more often voted for Trump and this Republican Congress that are getting left out as the health plans raise their rates toward profitability.

Even if Trump kills the $7 billion in annual payments to the health plans for the lower-income cost sharing subsidies it will not alter this trajectory. The carriers will simply respond by increasing their rates as of January 2018 to be able to fund the low-income cost sharing subsidies they are required to give people under the Obamacare law.

Obamacare is not healthy. Premiums and deductibles will continue to rise because the pool is out of balance with too many sick people for the number of healthy that have signed up. That will only get worse as the unsubsidized get priced out of the market.

But health insurers will focus their business on what will be for them the ideal market––people immune to what they, or the taxpayer, have to pay for the product.

The people who are and will be getting hurt badly will be the higher income ones who more often vote Republican.

But, Obamacare is well on its way to "stability."

But it is a bizarre form of stability.

And, this will not change until this or another Congress and President change it.




Monday, July 17, 2017

Senate Republican Obamacare "Repeal and Replace" Bill Dead––Good Riddance To An Awful Public Policy Proposal

The Senate Republican Obamacare "repeal and replace" legislation––just like the House version––was an awful bill. Individual health insurance costs wouldn't have gone down they would have gone up and both bills would have screwed a lot of low-income people. The latest Cruz amendment bifurcating the market with the sick in one place and the healthy in another was the most cynical kind of public policy.

With two conservatives withdrawing their support this evening from the current McConnell bill, it is dead.

Somewhat surprisingly, it was not the moderates that killed at least this effort—it was two conservative Republicans—Lee of Utah and Moran of Kansas. My sense is the blistering insurance industry criticism of the Cruz amendment made it impossible for any conservative to argue this bill would reduce insurance costs.

That means there are now four hard no votes. It is also important to note that the Trump administration failed miserably this weekend at the National Governor’s Conference to persuade key Republican governors from Medicaid expansion states to support the Senate bill. That result would have likely meant a number of more moderate Republican Senators would not have supported this bill.

So, in the end, about half of the ultimate Republican opposition would have come from the moderate ranks and the other half from the conservative ranks.

While I can’t say the overall Republican effort to repeal and replace Obamacare is dead, it is hard to see any realistic steps that they could take to revive the effort.

McConnell now says he will bring up a repeal only bill which would be set to take effect in two years.

Trump is also now calling for just repealing and then replacing later.

That was Plan A in January and that idea was dismissed because it would just cause more market calamity without a known replacement. I can’t see many Republicans going for that.

And a repeal only strategy begs a question: How are you going to replace Obamacare in two years when you failed so miserably this time?

Trump apparently also believes in the foolish notion that if Obamacare implodes on his watch Democrats will be desperate to bail him out. I don’t know of any Republican Senators who believe that.

Trump has also previously threatened to kill the low-income cost sharing subsidies if a replacement bill was not passed. These subsidies are worth about $8 million a month for every 100,000 low-income participants an insurance company has on the books. I wouldn’t put it past him.

The Democrats, and some Republican moderates, will now call for a bipartisan effort and we might even begin to see some meetings between those Senators. But the fact is that there is no common ground that could garner more than a handful of Republicans willing to save Obamacare. Such an effort would almost certainly now take 60 votes and would require the cooperation of the Republican leadership in both houses willing to let some of their caucus give the Democrats an enormous victory.

As the individual market continues to spiral out of control could we get some sort of short-term—maybe a year or two—patch? Perhaps. But that would even be a long shot and if that happened it would likely come as part of a must pass bill that had Senate and House Republican leadership permission to proceed. And, if that happened it would really anger both conservative Senators and Representatives, as well as the base. Any Republican Senator or House member that cooperated with Democrats to prop up Obamacare would likely get primaried at their next election. It is also hard to see how either Leader McConnell or Speaker Ryan could survive such an effort.

Or, Republicans could just let things in the individual health insurance market get worse and take that to the 2018 elections!

I have always believed that the market imperative to act is what would finally force Republicans to figure this out.

That said, there is no clear path out of this just as the individual markets continue to spiral downward partly because of the inherent issues in Obamacare’s market architecture and partly because of Republican efforts to make things even worse.

The only wisdom I can give you comes from Laurel and Hardy: “Well, here’s another nice mess you’ve gotten me into.”

And, from this moment forward it is a Republican mess.

Thursday, July 13, 2017

What's Really Behind the Cruz Amendment to the Republican Senate Plan to Replace Obamacare?

A Cunning Strategy to Back Door Risk Pools and Market Segmentation 

 

Ted Cruz has offered an amendment—since included in the latest Republican Senate draft—that would enable health insurance plans to offer stripped down coverage outside the current Obamacare compliant individual market. Anytime spent covered by them would be considered a break in service and subject the consumer to the six-month lockout provision should they want to get into the standard market. Carriers offering these plans could not deny pre-existing conditions but could up-rate sicker people.

Critics, including the health insurance industry trade associations, have come out against the idea because it would bifurcate the market into two separate pools—the healthier “Cruz pool” and the standard individual market subject to all of the current Obamacare consumer protections.
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