There were two tweets that I want to highlight this morning. The first is a case that is awarding an insurance company $200+ million dollars. The second is the former head of Center for Medicare and Medicaid Services (CMS) summarizing some of his off the record discussions with C-level leaders at a variety of insurers. There is a common thread. But let’s look at the tweets first.
Moda wins big: judge rules government owes Moda $214 million https://t.co/62VUr0crTz
— Insurance Today (@2day_Insurance) February 10, 2017
Moda believes it is owed $214 million dollars from 2014 and 2015 risk corridor payments. The Federal government disagreed saying that there was neither a contractual promise to pay the full value of the claim nor was the suit ripe for adjudication yet. Moda lost a lot of money on the Exchanges in 2014 and 2015 and had to pull out of several states because its balance sheet was blowing up when the risk corridor money did not arrive as anticipated. Quite a few other insurers (mainly co-ops) were in the same situation in 2015 and 2016. Eventually, my belief is that the Feds will have to pay.
Well capitalized insurers can wait years to get $100 million dollar payments while using other cash reserves to cover the degradation of the risk corridor account receivable on the balance sheet. However, waiting several years and using other reserves is not feasible for co-ops and other smaller start-ups and new entries to the insurance market. As I explained in October, the co-ops counted on quick payment in full to meet cash reserve requirements…..
In the short run, the insurance markets got significantly less competitive as a dozen insurers folded and several more pulled products because they could not float the federal government another couple of years. This will cost the federal government more money in the short and long term.
In the short term, the effect is directly about the benchmark plan. Anywhere where a closed insurer was the issuer of the second least expensive Silver (the benchmark plan) or the cheapest silver, the Federal government will pay more in Advanced Premium Tax Credits…
So the Rubio rider causes a lot of chaos, does not actually solve the problem it is superficially intended to solve, costs the government more money in the short term as the benchmarks are recalculated upwards, and costs the government more money in the long term as there are fewer insurers and thus less competition. The big winners are Rubio (as he gets to fundraise and preen off of it) and incumbent insurers that have large cash reserves.
Now let’s look at Andy Slavitt’s tweet on what insurers are thinking about for 2018.
It sounds like the plans will submit #ACA rates for 2018 high to hold place in line. Big increases all from repeal & mandate uncertainty. 9
— Andy Slavitt (@ASlavitt) February 9, 2017
I was never senior enough to be invited on the right floor for these meetings much less actually be in those meetings at my former employer. But if I was a decision maker at a carrier that was thinking about going on Exchange, I would be telling my actuaries to assume the following:
- No individual mandate being effectively enforced
- Active and passive enrollment sabotage efforts such as no advertising, no public officials speaking positively of the law etc.
- Cost Sharing Reduction subsidies may not be available
If those were the assumptions that actuaries are told to project their error bands go up massively. We go from having three years of decent to good data experience for 2017 to effectively repricing a brand new product where current claims data is far less illuminating than it should be. And that means very large price increases. If they are smart and Silver Gap the carriers should be able to choose a fairly healthy on-Exchange subsidized risk pool but the off-Exchange risk pool will death spiral.
If I have actuarial slack in the organization, I would want two sets of rate submissions but the worst case scenario needs to be prepared. And that scenario could be thirty or forty percent rate increases.
So what is the commonality?
Perverted incentives rule. Chaos causing has effects, costs and benefits. Clear and coherent incentives would ideally inflict costs on the chaos agents and benefits or at least non-costs on the people who have to clean up the mess. That is not what we get. Chaos causing agents think they will benefit from causing chaos in the risk corridor limitations through the means of two stretches of bad headlines for the Exchanges as the co-ops exited the market and rates increased due to lower competition. Chaos causing agents think they will get one more round of good for them headlines early this summer as scary rate increases are filed.
I would really like to share this on FB, but I’m afraid that without the whole backstory the “chaos causing agents” will be an inscrutable reference to people who need to understand this.
So the obamacare disaster gets dramatically worse forcing the good republicans to rescue the world by repealing the failure known as obamacare and enacting common sense market reforms like tort reform, inner state sales, high risk pools and block grants? Is that the Trumpcare action plan?
@Clem: That could be a plausible read
The Republicans are manufacturing a crisis so they can kill the ACA in order to give big tax breaks to the very wealthy.
It’s disgraceful. This is no way to run a superpower.
So the repeal gives high income households a big tax reduction potentially compensated for with new taxes on employer provided policies. New taxes on employee planss drive people out of employer group markets into Trumpcare. I forget how that is supposed to work.
@Clem: certainly plausible, but there is also the possibility that Trump and the GOP get held responsible because they are in charge now.
Major Major Major Major
I’ve actually had a refreshing few friend-of-a-friend discussions on Facebook with conservatives. They posted comments on a friend’s post lamenting redistribution, welfare, state dependency, etc. I asked them whether it was the whole idea of redistribution (aka taxes and spending) and state dependency encouragement (aka spending) that was the problem, or if perhaps their rhetoric needed updating and they could specify which forms of this they were OK with. Yes, yes, aren’t I the clever one. Well, they turned out to actually know how to string together more than a coherent sentence or two and were willing to say that, indeed, it’s okay for people to die easily preventible deaths in order to ensure that we continue to live in free market jesusland, because avoiding social transfer payments whenever possible is an inherent good.
Cruel, cruel, evil, brainwashed, greedy people, but at least they were honest.
@Fake Irishman: People will prolly not understand how the market sabotage works. The charge of sabotage will work for ACA supporters but will go straight by republican voters. IMHO
@David Anderson: Thanks for the reprised link. I needed that.
What is a closed insurer?
Moda wins it’s risk corridor payments.
@Major Major Major Major:
Do they know about the tax benefits they receive from employer provided health insurance.
If they don’t want ACA customers to get tax subsidies are they willing to give up theirs?
thanks for the information
@Fake Irishman: Not if DEMs don’t learn to work the press as assiduously as the GOP does.
Dr. Ronnie James, D.O.
“Eventually, my belief is that the Feds will have to pay.”
Although if you read the Bagley post from TIE that Clem mentions above, actually getting the award is doubtful. It’s highly plausible Congress can just pass a law refusing to appropriate. Politically, its seems an easy action to counter, e.g. “Americans’ premiums are going up because Trump’s a sore loser…”
@Dr. Ronnie James, D.O.: Bagley makes a very good point elsewhere — if the goal of the GOP is to privatize everything possible, that relies on the private sector wanting to work with the Feds. Screwing Fortune 500 companies out of payment like they are Donnies’ subcontractors is not a viable grifting model much less a business model
Jerking payment from suppliers is a hell of a way to maintain the full faith and credit. Wouldn’t providers want to avoid future promises from congress? Heck of a way for Trumpcare to get started.
@Clem: I dunno. Remember Harris Wofford’s upset victory in the Pennsylvania Senate election in 1991, beating favorite Dick Thornburgh? That was the canary in the coal mine that healthcare was a significant issue for voters.
If we finally get healthcare reform almost twenty years later, and it gets fucked up, there’s a significant chance the GOP will end up holding the bag. I know their plan is to blame Trump (who they will remove under Article 25 when it suits them) but I’d say they’re playing with fire (not to mention thousands of lives).
Villago Delenda Est
@OzarkHillbilly: The media is wired to be Rethug now. The primary reason for my nym.
Wipe them out. All of them.
@Clem: Closed insurer = Insurer that shut down due to not receiving their risk corridor funds on time. Mostly these are the co-ops
@Taylor: Depends who gets left holding the bag. The republican reps in WA State have been pounding the drum relentlessly, Obamacare failure, devastating, prices out of control, on and on. Not one citation to back up their claims just a demand that everyone accept their claims as true. They double down and never retreat. Who will people believe? The easy explanation from the republicans that everything wrong with health care is the fault of Obamacare, or an epically complicated explaination of what needs to be fixed and why. The big problem is when the bids come in May, and rates sky rocket, the republicans will say we told you so and roll out their litany of Obamacare disaster. They are going to repeal. Would be very happy to be wrong. I live in a very red district.
“Taxing workers and employers for health benefits could raise billions to pay for a replacement plan.” It could happen here if people are not engaged to stop the republicans.
@MomSense: The most honest right-wingers I know have pointed to deductibility of employer-provided health insurance as the point where everything went wrong. Oh, that and the evil fascist FDR’s wartime price controls that drove many employers to start offering health benefits in the first place. If we still had a free market like in the ’20s healthcare would still be cheap today. So they argue.
@Clem: for the hard core, sure, but we don’t need all, just some. And there is evidence that the president’s party is held responsible when things go wrong, even when it’s not the presidents fault. We shall see.
@Fake Irishman: Yes, I hope you are right. We need to repeal and replace the republican house and senate and remove the shit gibbon cock wobble.
Probably not. I certainly didn’t back when I worked for various corporations with great health care bennies and I’ve always been a news following lefty.
Villago Delenda Est
I’m probably going to be too generous with this characterization, but they are fuckheads if they actually believe this.
Villago Delenda Est
@Clem: With sharp, pointy votes, as they say over at Wonkette.
West of the Cascades
Now that Moda won a multi-million dollar award from the feds, my Moda Health insurance premiums will go down, right?
@West of the Cascades: They can’t. Moda has to budget for more Republican screw-ups.
I don’t love the the health insurance companies, but this one is the fault of the Republican leadership, which believes that a promise is a promise, a contract is a contract, and a debt is a debt, except when they feel like not paying.
Rather like Donald Trump, come to think of it.
Great post, Dave, thanks.
Repug-nican generals have steadily treated average Americans like cannon fodder in their war against Obama and the welfare states If people suffer from high premiums and/or lost coverage, that is acceptable in the ‘greater scheme of things.’
So here is my question today. If we have a total meltdown of the individual markets, where the Blues flee the market and other insurers follow, (in part to be sure they are not stuck with the Blues’ sicker insureds), then will the Republicans be able to restore the market at all?
I assume they will have to offer a return to medical underwriting. Can someone like Trump pull that off?