Maggie's Farm

ObamaCare’s regulation of medical loss ratios is crafted to come within a hair-width of the CBO considering  the health insurance industry as formally nationalized.  Actually, it is nationalized, at huge costs, hidden by the false cuts to providers, to the states' bearing mandated budget costs, and by those covered paying significantly higher premiums, all while the government dictates who and what is covered, how, and by whom.

One of the ways in which the insurance industry is nationalized is via an imposed medical loss ratio, at the expense of choice and quality of care.

In December, the Congressional Budget Office, tasked with costing the federal budget impact of  ObamaCare, said that imposing a medical loss ratio of 90% on insurance companies would,

Taken together with the significant increase in the federal government’s role in the insurance market under the PPACA, such a substantial loss in flexibility would lead CBO to conclude that the affected segments of the health insurance market should be considered part of the federal budget….CBO has determined that setting minimum MLRs under the PPACA at 80 percent or lower for the individual and small-group markets or at 85 percent or lower for the large-group market would not cause CBO to consider transactions in those markets as part of the federal budget.

The medical loss ratio is the percentage of premiums paid out for medical care benefits.

The 90% was the suggestion of Senator Rockefeller (D-WV).  So, the final version of ObamaCare imposed a 5% lower medical loss ratio on each plan offered by insurers, and the Democrats slimly avoided including the nationalization of the health insurance industry in the CBO costing of ObamaCare.

The federal budget cost of nationalization is not revealed by the CBO, which said it has estimates, but the costs to choice and benefits is more apparent. ObamaCare supporters simplistically assert that the portion of premiums not spent directly on benefits, administrative costs, is either wasteful or undue profits.  The profit margin of the health insurance industry, about 3%, is well below that of other industries.  Let’s, then, look at whether they are wasteful.

The CBO looked at medical loss ratios in its Key Issues in Analyzing Major Health Insurance Proposals in December 2008.

But a loss ratio is not always indicative of a plan’s efficiency or value. For example, a health plan that devotes more resources to managing the use of health care services might have a rel­atively low loss ratio but also a lower overall premium. In contrast, a more lightly managed plan might have a high loss ratio but a correspondingly higher overall premium and might be covering more services that provide limited health benefits.

According to that CBO report, the portion of administrative costs devoted to benefit enhancement and more effective delivery of services is about a third, for customer service, care management, creating and monitoring performance of provider networks, claims processing, regulatory compliance, and information technology.  In addition, one should add a portion of management overhead.

The American Academy of Actuaries analyzed the issue of medical loss ratios in February, concluding:

Minimum loss ratios do not help contain health care spending growth, en­sure that health care services are appropriate and accurately billed, or address directly the quality and efficiency of health care services.

ObamaCare supporters are accusing insurers of gaming ObamaCare by their reclassifying some of these costs to increase their medical loss ratio. In fact, insurers are more properly classifying expenses of better delivering and managing medical benefits.  The CBO report says that increased economies of scale, as may be seen in ObamaCare’s exchanges, may reduce administrative costs by up to 3%.  On the other hand, the increased regulatory compliance may eat up some or much of that.  Other elements of administrative costs that improve care may be reduced by insurers required to post an artificial statistic imposed by ObamaCare.

Another portion of administrative costs is probable to impact choice, lowered commissions to and increased duties by insurance agents.  The CBO reports (page 65):

In particular, plans that are sold to individuals and small groups are more likely to incur fees for insur­ance agents and brokers to handle the responsibilities that larger firms generally delegate to their human resources departments—such as finding plans and negotiating pre­miums, providing information about the selected plans, and processing enrollees.

Large groups also depend upon extensively trained, knowledgeable agents and brokers.  As someone with extensive earned credentials and experience as an independent broker, I wrote about the value of such agents and brokers, including beyond that directly related to the medical plan.

This delivers wide-ranging values to my clients and of the interactions of their health insurance with their broader business, regulatory and financial affairs.Does anyone expect the staff hired or created by the [government] to have this independence, experience or training? If so, get real!

Some assert that the increased number of formerly uninsured will offset lower commissions.  But most of those now to be covered will be in state Medicaid programs or other government programs.  And, lowered commissions, already low, and higher operating costs will not be offset by higher volume for most of the several hundred thousand independent agents and brokers. I’m near retirement, but many thousands of others will be forced out of their livelihood.

As the CBO said in December 2009, it’s a very slim margin in it considering health insurance nationalized.  At minimum, experts now consider the health insurance industry transformed into a public, government-run utility.  In reality, together with all the other intrusions and controls in ObamaCare, the health insurance industry is nationalized.  Some may be net beneficiaries due to, most prominently, taxpayer subsidies, those responsible having to pay for others who wait to obtain coverage until they are ill or injured, or increased government bureaucracy jobs. 

Everyone else suffers at the hands of ObamaCare.

In the rush to enact ObamaCare, the uproar from Democrats should not be surprising over the few announcements so far by major corporations of billions of dollars of charges for the elimination of part of the Medicare Part D prescription drug coverage subsidy to employers.

Indeed, the Senate Republicans had not featured this explosion in employer costs before the corporations began announcing the charges, nor had the corporations (except Caterpillar).

The Democrats’ motivation to be quiet is evident.  The Republicans had a hard enough time exposing the many real direct federal budget impacts. Major corporations are not, despite liberal assertions, conservative nor brave, probably avoiding the pillorying of them that is now happening from Democrats, heads in the sand when it may have helped avoid the ill consequences to them and their retirees by ObamaCare.

Now, corporations, already under severe pressure from retiree medical plan costs, have to face the music and have further justification and impetus to reduce or abandon their retiree Rx programs. They are imploring Congress to repeal this portion of ObamaCare, but receiving back Obama administration opposition to repeal.

Prescription benefits to employer plan retirees is broader than from Part D. The Part D subsidy to corporations is to encourage corporations to continue their benefits, at a savings to the federal budget and to retirees.

The subsidy will continue.  However, after 2012 corporations will no longer be able to deduct against income that portion of their Rx plans that are subsidized. The Congressional Joint Committee On Taxation’s (JCT) March 20 calculation (page 2) estimates that $4.5 billion higher federal taxes will be paid by corporations between 2013-2019, rising from $400 million to $1 billion a year over that period.

Let’s look deeper into the numbers.

According to the 2009 Medicare Trustees Report, about 19% of those covered by Part D are in the plans of former private employers (excludes TRICARE, VA and FEHB for military and former federal employees), or 6.3 million out of 33.2 million beneficiaries. (page 160)  The employer subsidy amounts to an average $594.54 per enrollee. (page 163)  The subsidy is about 28% of employer retiree plan drug expenses.  So, the total 2009 employer retiree Rx cost in 2009 is about $2123.36 per covered retiree, or $13.4 billion.

Congressionally mandated accounting rules require employers to take current charges for the future actuarial costs of their retirement programs. Depending on the employer’s present and forecast tax bracket, each employer offering a retiree Rx program must add up to 35% or more to their tax liability for the program for the future years.  Hence the charge that employers must now take and fund is cumulatively many multiples of the $4.5 billion initial eight year increased taxes that proponents of passing ObamaCare depended  upon.  The exact amount will not emerge until all companies finish their calculations, but the $1 billion charge to AT&T alone gives us some idea of the cumulative effect.

Now, let’s look at the impact on the federal budget if all the corporations now offering retiree Rx coverage abandon their program. They should be expected to be looking at that, even more favorably now than before ObamaCare.

According to the 2009 Medicare Trustees Report, total benefit payments, including the employer subsidy, was $50 billion in 2008 (expected to increase to $140 billion in 2018).  Subtracting the entire $3.7 billion subsidy, that leaves $46.3 billion. Divide that by the 26.9 million Part D beneficiaries not covered by a subsidized employer retiree Rx plan, and you get $1721.19 budget cost per enrollee.  Let’s subtract 10% from that as a guesstimate that retirees from employers may be healthier than the other average Part D beneficiaries, and that Medicare Part D benefits are lower (though increased by ObamaCare in future years to nearer parity), and you get $1549.07.  That is $954.53 higher than the subsidy, or would have meant $6 billion increased federal budget expense in 2008, an increase of 12% if private employers had abandoned their retiree Rx programs in 2008.

Multiply that $6 billion and increase it for an average annual 7% increase in prescription costs, 7% being the Medicare estimate, and you have literally hundreds of billions of dollars of increased federal expenses, further deepening the already intolerable projected budget deficits.

The CBO estimate of ObamaCare depended upon the JCT estimate for the initial costs of ObamaCare, and did not take into account employers consequently being motivated to cease their retiree Rx programs.

Corporate, Medicare and other actuaries will be working and reworking the actual figures as this debacle unfolds.  Actual impacts may well be less than the above worst case, but the dimensions are clear.

As we can see with regards to Part D as well as most other portions of ObamaCare, to believe in the incomplete CBO forecasts or the Democrats’ thinly veiled promises deserves a big Part D for Dummy.

P.S.: Democrats charge a "CEO Conspiracy". Actually, it's the Democrats' conspiracy to keep you poor and stupid.  Doesn't seem to be working.

P.P.S.: The New York Times editorializes that the eliminated Part D tax break is "double dipping."  The NYTs conveniently, totally ignores that it saves the federal budget many tens of billions of dollars, while helping to continue better retiree Rx benefits.  The NYTs asserts that, after all, " If some retirees do lose their company drug benefits, they can buy government-subsidized coverage in Medicare..." and the added cost to taxpayers is irrelevant to the NYTs.

The major media has neglected to examine one of the major sections of ObamaCare, its long term care program CLASS, the Community Living Assistance Services and Supports Act.

The New York Times’ chosen "New Old Age" guru, wrote on March 24 that,

I’ve read so little about the Class Act in recent weeks that when President Obama signed the health care bill yesterday, surrounded by a gaggle of happy Democrats, I had to call the National Council on Aging to reassure myself that yes, this often overlooked but potentially transformational program remained part of the package.

Of course, the Wall Street Journal did manage an op-ed, last December, “Congress’s Long Term Care Bomb,” written by a professor of health-care management and insurance and risk management at the University of Pennsylvania's Wharton School.

But CBO and the Centers for Medicare & Medicaid Services (CMS) have identified parts of the program that will subject it to considerable financial risk.

First, those who enroll would likely be more apt to need care and will be more expensive to cover than those who buy private insurance. To cover its costs, the program would have to charge more than private insurers.

The best objective and factual summary and analysis of CLASS I’ve found is that by one of the preeminent global consulting firms on benefits, Towers Perrin.

The Senate version is projected to bring in $72 billion, with an average monthly premium of $123. The initial positive cash flows come, of course, from the five-year period before participants vest, when premiums are paid but benefits are not. Tens of billions are foreseen to flow into the trust fund during those five years. In later decades, however, the flows would turn negative and increase the federal deficit.

(Note that $72-billion is over half of the highly doubtful supposed first 10-year federal budget deficit reduction of ObamaCare, which itself ignores the tens of $billions of mandates in Medicaid imposed on the states from the majority of ObamaCare’s increased coverage of the uninsured and the tens of $billions of extra costs imposed on private firms that continue retiree prescription benefits.)

Let’s look closer at that estimated 2011 average premium of $123 per month, or $1476 per year.

I checked the standard risk premiums charged in most states by one of the largest top-rated long term care insurers for an individual to have a lifetime benefit period, as in CLASS.

Insurers cover working and non-working applicants. CLASS will only enroll working participants, who are more likely to be of reasonable health if working.  As the CBO points out, non-working spouses are more likely to have impaired health and are more likely to enroll than are workers, which increases the actuarially required premiums. Insurers will cover seriously impaired risks at about a 50% higher premium than standard risks, and only for a 6-year benefit period versus the lifetime benefit period in CLASS (average benefits actually needed by all insurer claimants is about 3-years), while insurers reject some applicants with severely impaired health. The CBO did not reveal the details of its analysis, but one may expect that these factors and others were considered.

To get at an apples-to apples comparison of a $50 dollar a day benefit, I further adjusted the insurer rates downward by 30%, as would be charged for a joint policy with spouse from that insurer, to estimate efficiencies of marketing and administration to a larger pool mostly garnered via the workplace in CLASS. Further, CLASS will not be paying commissions to agents as does insurers, so I subtract another 5% from the adjusted insurer premiums below, for a total reduction of 35%. The elimination period, or time to have the qualifying inabilities to manage activities of daily living, by the insurer is 30-days. In parentheses I include the insurer’s annual premium for a preferred risk. CLASS has substantially more liberal reinstatement provisions for non-payment of premiums than this or any insurer, for example, along with other provisions which increase the cost of the program. CLASS subsidizes those of low income, but claws back part of their benefit if qualified for Medicaid, which private insurers don’t.

CBO estimate of average premium for CLASS in the Senate version enacted: $1476

Adjusted Insurer Premium: Age 25 $373.93 ($317.84); Age 40 $483.91 ($411.33); Age 60 $978.82 ($832.00).

Unadjusted Insurer Premium: Age 25 $575.28 ($488.99); Age 40 $744.48 (632.81); Age 60 $1505.88 ($1280)

An $80/day benefit insurer premium is higher, but still below the CLASS initial estimated premium, which includes a $75/day benefit for nursing home care which is much less preferred or used by claimants than the $50/day for home health care.

The House version of CLASS included non-working spouses, according to the CBO more likely to have impaired health and more likely to enroll than are workers, at the following estimated annual premiums: Age 18-39 $1632, Age 40-49 $1728, Age 50-59 $1824, Age 60-69 $2772. The actuaries estimate anticipates that those older are much more likely to enroll than those younger.  One may expect political pressure in coming years to open CLASS to non-working spouses.

So, first of all, it does seem that CBO and actuaries did a reasonable job of estimating initial CLASS premiums, though the Medicare chief actuary did warn that, as the WSJ op-ed indicates,

[P]remiums would be set so high they would discourage healthier people from buying in. As the healthy stayed on the sidelines, the program would have to charge more to those who did enroll. This in turn would price more people out of the program, risking what the memo called an "insurance death spiral."

An insurance death-spiral occurs as due to adverse selection, when the healthier don’t join or leave the program, and the costs of the remaining less healthy escalate future premiums, leading even more of the healthier to leave or find other alternatives. The death-spiral leads to the program’s costs rising to bankruptcy, otherwise.  Although CLASS says they won’t have to, one may expect a future Congress to bail it out with taxpayer funds rather than abandon this new entitlement.

Private long term care insurers have not opposed CLASS.  Of course, they expect that the added consciousness of the need for long term care insurance prompted by CLASS marketing at workplaces will, together with insurers’ lower premiums, increase their own sales.  Similarly, life and annuity insurers may expect increased sales of their products that contain a long term care component.

That just leaves taxpayers on the future financial hook for CLASS, and disappointed ObamaCare supporters on the hook for letdown.

As Ed Morrissey points out from the latest Washington Post poll on ObamaCare, opposition continues to mount.  Relatively few are aware of the details of the CLASS failure, so more should be expected to become disappointed in the non-classy failure of Democrats to be responsible.

Why believe in a conspiracy when stupidity is explanation enough?  With that at the front of my mind as a major caveat to my and others’ conjecture, aside from not knowing what is going on in the privacy of White House meetings, there may actually be a secret purposeful plan behind President Obama’s public undermining of Israel.

Stupidity isn’t enough of an explanation:

First off, there’s every reason to believe Obama’s pledge to be a “transformative” president.  Nearly every policy, law and appointment from him and his allies have been distinctly left of those from previous Democrat and Republican administrations.

Second, there’s every reason to believe that Obama and his counsels are aware, how can they not be, of the past refusals by Palestinian leaders to accept offerings, to obstruct negotiations, to foment violence, to foster corruption, to be divided between the violently hostile and the very violently hostile, and that repeated and continuous Israeli concessions and withdrawals have encouraged more of the same from the Palestinians.

Third, there’s every reason to believe that Obama and his advisors are aware of Iran’s impending nuclear status (even the IAEA has finally publicly woken up) and that other MidEast nations are accommodating themselves to Iran, they seeing little likelihood that the US will push for severe enough sanctions in the face of Russian and Chinese opposition and European profits or the US striking Iran’s nuclear installations.

Fourth, there’s every reason to believe that the US has more influence upon Israel, given that Israel has heavily depended upon the US as a bulwark of support, than upon the Palestinians, MidEast nations, Russia, China or even Europe.

Fifth, there’s every reason to believe that President Obama and advisors, some of whom are Jewish, depend upon the Democrat’s base supporters, some of whom are Jewish, to at worst weakly react to the Obama administration undermining Israel. (See this post.)

Sixth, there’s a big difference between occasional ignorance or mistakes and a consistent pattern of such, particularly when the facts and errors are so well known.

Secret Plan:

Yesterday, I had a brief conversation with a very liberal, very smart friend who visits Israel several times a year to study.  I shared my conjecture in an email to another very knowledgeable MSM friend:

My theory is that the O master plan, if there is one, is to force Israel to bomb Iran, then disavow Israel and further isolate it, and maybe even let it be overwhelmed.

It very well may not be true, but it does explain a lot.

This morning, Glenn Reynolds similarly conjectured:

WHY HAS BARACK OBAMA TREATED NETANYAHU SO RUDELY? “Obama would never treat the president of Equatorial Guinea that way.”

Possibly Obama just hates Israel and hates Jews. That’s plausible — certainly nothing in his actions suggests otherwise, really.

But it’s also possible — I’d say likely — that there’s something else going on. I think Obama expects Israel to strike Iran, and wants to put distance between the United States and Israel in advance of that happening. (Perhaps he even thinks that treating Israel rudely will provoke such a response, saving him the trouble of doing anything about Iran himself, and avoiding the risk that things might go wrong if he does). On the most optimistic level, maybe this whole thing is a sham, and the U.S. is really helping Israel strike Iran, with this as distraction. The question for readers is which of these — not necessarily mutually exclusive — explanations is most plausible.