Obamacare Now

Having been in the insurance business for a long time (and having specifically also been in the Obamacare business) I still watch the news on American healthcare very closely.  I especially watch it as portrayed on social networking sites.  While a lot of content that is posted is sheer nonsense, in an election year it is interesting to see what kinds of things are capturing people's attention.  There are the usual cherry picked statistics (posted by the Left and the Right) of course.  But what's most popular are the one-off descriptions of some specific person's troubles.  Premiums are going way up.  The choice of doctors and hospitals is going way down. These presentations usually imply if not state that this is going to happen to everyone and therefore we are all going to die (or at least become poor).

As far as main players in the market go, unless someone is telling a tale of woe about their prescription, it's the insurance companies that are usually blamed for everything.  This makes sense, since the insurance companies are the ones paying (a shrinking part of) the bill.  Medical costs on the hospital and physician end are usually not addressed, unless the article or YouTube video is about comparing overall American costs to any other country in the world. This makes sense too, since one of the jobs of insurance companies in the US is to hide true medical prices and costs from the consumer.  Being from the industry, watching and reading this stuff is like getting punched in the face, over and over again.

When it comes to the insurance system in the United States, many people blame Obamacare for whatever is happening now.  I have been surprised that the Republicans have not picked on this more.  (On the other hand, they don't have a plan, should Trump somehow win the election).  Obamacare is weak in many ways.  Of the 23 Obamacare Co-Ops that were originally established only 7 survive, and those 7 are not looking good. The money loaned to them is gone forever. There are some spectacular premium increases coming down in some states in 2017.  Most of the largest private insurers have dropped out of the market and with the demise of smaller ones like the Co-Ops there are some counties where there are no or perhaps only one Obamacare carrier left.

The defenders of Obamacare point out that 20 million people who would not have had insurance now do.  There is evidence that most people either don't seem to be aware of this or don't care.  It is also the case that in the aggregate, the rise in insurance costs has significantly slowed; scant condolence for those people who are going to see a 67 percent increase next year.

I've explained on dotCommonweal (and on Facebook about 200 times) how our crazy system works in some detail and I won't do it again here.  But I would like to talk about the increases in costs and access that we are seeing (at least anecdotally).  Some of this might be a bit wonky, so I will make it as entertaining as I can.  First subject.  What on earth is going on with the cost of insurance and why is Obamacare trying to kill us?

About 80 to 85 percent of all the money that an insurance company takes in goes to the providers of health care.  While it is true that top insurance company execs frequently get hernias when they pick up their pay envelopes (good thing they have good insurance) most of the money goes to doctors and herniated hospital executives.  When premiums go up, it means that medical expenses are going up.  Note I said expenses which are not exactly the same thing as prices.

Big insurers have mostly lost money on Obamacare and we know what happened to the Co-Ops and other start-ups.  They all simply didn't know (and in retrospect couldn't know) how sick people were who had been denied insurance all these years. That at least accounts for Obamacare year one.  But what about years two and three?

The problem with multiple years has to do with how insurance companies set their prices.

The overall prices of premiums (that is, how much they are set at and how much they can be increased) must be approved by the insurance commissioners of each state.  The insurance company makes an estimate of what kind of increase they need to cover their costs (and make the rather modest profit that is allowed), they write up a very quantitative argument to support it, they submit it to the state, and then they wait.

In general, the state regulator looks at the proposal, tries to poke holes in it using his own accountants and actuaries, sticks a wet finger out the window to see which way the political winds are blowing (since the regulators are appointed), and then makes a decision.

When an insurer submits a premium request for 2017 how do they calculate this.  This is the rub.  Insurance is something that we want to buy and not have the price change on us in the middle of the year if costs are higher for the company than expected.  The price of your premium is set for a year when you buy the insurance. To set this price, the insurance companies of course have to look at their historical costs.  The best historical costs for 2017 would be their 2016 costs.  The problem is that insurance companies can't use their 2016 costs to price for 2017.  They can only use their 2015 costs.  If they mispriced 2016 in 2015, they will misprice 2017.  Why?

The premium pricing request has to be submitted to the state the prior spring.  Let's say it has to be submitted around April.  The analyses will have been done using, at best, cost information from the first quarter of the current year for next year.  But there is a lag in how hospitals and doctors send in their bills.  For January services, only about 65 percent of the bills will have arrived to the insurer in February.  Only about 90 percent total will have arrived in March... for January.  Because of how the regulatory system is structured, insurance companies don't really have any data for the current year.  

If it's a huge insurance company with a stable population that they have had for years, this is not much of a problem.  But if it's a new company (like the Co-Ops) or a new population (like the Obamacare population) one is taking immense risks, because one still doesn't have as much data as one needs.  When the CEO of UnitedHealthcare says that UHC won't go back into Obamacare until the "market stabilizes", this is not quite as stupid as it sounds.  What he means is that he is waiting for the Obamacare population to either get better or die off until they look like the population that he is currently insuring so he can price them like he prices everyone else. 

In the meantime, insurance prices were way off in 2015 and almost everyone lost a lot of money.  Being good capitalists, are going to try to make sure that they don't get killed again in 2017 by jacking up their prices as far as they are allowed.  The state does cast an eye on how an insurance company is performing in the current year, but the data itself from the current year is pretty much garbage.

In the shadow cast by the Obamacare Zeppelin as it floats through the sky, employers (with insurance companies) are doing things to reduce their own costs like increasing out-of-pocket expenses knowing that many people will blame it on Obamacare, even though the Obamacare mandates don't actually affect them very much.  One thing they are doing is narrowing networks  This means that they are shrinking the number of hospitals and doctors that are in network and therefore eligible for insurance discounts.

Many people think that narrowing networks is some kind of insurance plot.  It's actually a plot between insurers and hospitals and providers.  All that it is about is steering patients to certain medical providers and away from others.  The lucky recipients of these patients steered away from the provider across the street are willing to pay a premium for this in the form of a steeper price discount to the insurance company.  This discount means lower costs, which is what the employer who is actually buying the insurance for their workers wants.  Narrow networks are not going away.  Having access to every single doctor in your state (or in the country) is rather expensive.  It really is.  And in any case, do you really go to every doctor in the state?  I mean, do you really?

Obamacare will survive.  It will be expensive for a while until the "market normalizes," but it will survive.  A president Hillary will try to expand it in the modest ways she has proposed, but whether she can will depend who owns Congress and how much it will cost.  I believe that, for those who think the US should have a single payer system, the discussion of that system will not get serious until we start discussing Clinton's proposals seriously.  Because good politician she wants to pull the bandage off slowly until she hears whether people scream.

 

unagidon is a contributing editor to Commonweal.

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