![A dozen health insurance co-ops established by Obamacare have so far failed, leaving behind headaches for consumers, providers and taxpayers. Now one of them is suing for more government handouts. [Credit: Manhattan Institute]](https://i0.wp.com/www.dougsbriefcase.com/blog/wp-content/uploads/2016/03/Credit-Manhattan-Institute.jpg)
A dozen health insurance co-ops established by Obamacare have so far failed, leaving behind headaches for consumers, providers and taxpayers. Now one of them is suing for more government handouts. [Credit: Manhattan Institute]
But with an audacity that would make even Donald Trump blush, Health Republic of Oregon wants more taxpayer money. Its executives are suing the federal government to demand more government handouts. Read more on Inside Sources or RealClearPolicy.
Notwithstanding some similarities, there is a fundamental divide between mainline insurers (Aetna, Humana, et al.) and Co-Ops (Health Republic of Oregon, et al.). To be fair, Doug’s timely and insightful article addresses the distinction, but it needed to do so with much more emphasis. The two species cannot be Mixed ‘n Matched; they are not interchangeable. One is Cro-Magnon; the other is Neanderthal.
The main differences are money and competence. Mainline Insurers put their own money on the line to operate their businesses and have to answer to Boards, shareholders and the marketplace if they want more; Co-Ops took Obama (i.e., taxpayer money) for start-up and follow-up purposes and just went back to government to ask for more. Haven’t we learned by now that throwing government money at a problem more often than not doesn’t work out. The recipients of the largesse need to know what to do with the money and have the competence and experience to do so. “Good intentions” won’t cut it. Doctor-owned and ‑run Medical Malpractice insurers had “good intentions” back in the 80s/90s, but they came up short in their promise to significantly reduce premiums. Good intentions and government money are no substitute for good actuaries and a real track record of managing risk, better known as experience.
To Doug’s main point (the $5 Billion lawsuit), there is a similarity that does deserve some attention. Both mainline insurers and Co-Ops are technically beneficiaries of the “Risk Coridor” program set up under Obamacare ostensibly to take money from “successful” insurers (presumably, with better actuaries and experience and reserves, etc.) and give it to those insurers and Co-Ops not doing as well. Would there be fewer losses with fewer inexperienced insurers in the game? With no Co-Ops? Probably. But if we stop the analysis here, we are all missing the larger point.
Armed with a recently passed (last two years in a row) statutory ban on spending taxpayer money on a Risk Corridor obligation, politicians and pundits are patting themselves on the back for halting the insurer “bailout.” They believe that only insurers will be hurt by the ban. How short-sighted. They fail to recognize that the law of actuarial numbers is immutable: If you are forced to cover (or are duped into covering) fewer and fewer healthy and young and are left with more and more sicker and older, you will lose. They also fail to acknowledge (a) that without a risk corridor, small and even large mainline insurers (i.e., not just Co-Ops) will leave the Exchanges which is in the end very bad for people seeking coverage and (b) that fewer insurers out there to manage risk translates into ever more skiddish actuaries willing to take that risk resulting in higher premiums, higher deductibles, etc.
So what’s the larger point? This whole mess is proof positive of the grave harm that results from a government controlling the content, parameters, price and use of a private product, namely insurance. Insurance Companies are being asked: to stop selling something their customers wanted; to sell instead something crafted by someone else (not by an actuary but by politicians who admitted they didn’t even read the bill); and to shove it on to an unsuspecting public left holding unfulfilled promises (“keep what you have,” “reduce your premiums by $2,500.…,” etc.).
If the present described above is not pretty, the future is downright ugly. Playing the hand they have been dealt, it would appear that Mainline Insurers have two choices: (1) Stay in the game as long as they can make their “numbers” work and as long as they believe the government has their Risk Coridor back; or (2) get out and let millions of their newly uninsured former customers fend for themselves.
Insurers live and die by the numbers, which makes them somewhat predictable. They will do what’s in their private entity, shareholder, capitalistic best interests. As Zorba said, “clever people and grocers, they weigh everything.…” Insurers are doing the same thing. We all lose if they can’t figure out how to halt this actuarial death spiral lest there is no one left to turn off the lights.
Thanks for an intelligent post, Jonathan.
Let me phrase the problem in another way.
For the individual, non-Medicaid market, the ACA tried to use private insurers to accomplish a social-insurance goal.
The goal was universal coverage with no underwriting. We achieve this for seniors, but it took a very massive government program to do this, i.e. Medicare.
The left wing of the Democratic party has the more logical goal of extending Medicare to all ages.
But centrist Democrats designed the ACA to use private insurers, basically forcing them to cover the sick but promising them millions of new young people drawn in by the mandate.
It has not worked. At last count over 27 per cent of exchange buyers are over age 55. Private insurers will gradually or suddenly desert the project.
Moral: if you want social insurance, be a socialist.
I welcome you to contact me at bob.hertz@frontiernet.net
The problem was not an ideological divide among Democrats. The reason they didn’t go to single payer is that it was unfeasible, even in a circumstance in which they controlled 60 Senate seats and an overwhelming House majority.
First, the cost of such a proposal would have been exorbitant and would have required the imposition of enormous taxes, as Vermont learned last year. Second, the prospect of “government-run health care” remains unpopular, Medicare to the contrary notwithstanding. Third, the bill required the acquiescence, if not the active support, of industry interest groups.
There was no way insurers would have gone along with single payer. Nor would the AMA, the pharmaceutical and device industries, or others. Democrats successfully pressured these groups into accepting a poorly devised scheme. The staffs of powerful committees told industry executives that they had to come to the table and promise to give back some of the profits they would presumably reap as a result of broader coverage. Those who didn’t come to the table, government officials warned, would face additional taxes and other punitive provisions.
The hospital industry conceded Medicare cuts that are so unrealistic that even the CMS actuary and CBO have repeatedly said that they will not be implemented. The device industry got hit with a special tax (for refusing to come to the table). The biologics industry had to concede a regulatory pathway for the approval of follow-on biologics (although they got 12 years of market exclusivity for their products in exchange for this concession). Doctors were promised the elimination of automatic Medicare cuts, but ended up getting screwed when their provision was stripped from the bill because of its cost. In addition to being hogtied into an impossibly complicated and unworkable regulatory scheme, insurers were hit with a number of taxes and spending cuts, some of which they agreed to, some of which were imposed over their objections.
Extortion worked. Unlike the HillaryCare debacle of 1993–94, special interest groups fell in line behind the bill. Reid was able to cut enough deals with recalcitrant Democratic Senators (Louisiana Purchase, Gator Aid, Cornhusker Kickback) to ram the bill through with the support of all 60 Senators.
Everyone knew it was flawed. Everyone assumed it could be fixed in conference with the House. But Scott Brown’s election to succeed Ted Kennedy shrank the Democrat majority below 60. Some in the Administration (including Rahm Emanuel) wanted to negotiate a scaled-back bill with Republicans. The White House and its Congressional allies insisted instead on ramming the bill through.
It became evident early on that the insurance scheme was unworkable and that the corporate welfare provisions would be insufficient to sustain it. In March 2014, the Administration took the position that risk corridors would be budget neutral and that it would follow the law requiring the agency to deposit a portion of its reinsurance assessments in the General Fund of the Treasury.
The insurance industry unleashed an intense lobbying campaign. Within three weeks, the agency announced that it would stiff the Treasury, in defiance of the law’s plain text, and distribute all collections to insurers, should those collections fall short of the statutory target. The White House stood firm on risk corridors — there is a classic email from Valerie Jarrett to an insurance executive telling him that the industry would have to settle for 80 percent of what it requested – then reversed themselves, turning risk corridors into an open-ended entitlement to government subsidies.
Congress ultimately imposed the risk corridor neutrality requirement, inspiring the $5 billion lawsuit that I wrote about. The Administration remains determined to divert $3.5 billion in reinsurance assessments from the Treasury to the insurance industry, although neither the Secretary nor the CMS Administrator has been able to present a legal argument for the agency’s violation of the law’s plain text.
In the meantime, insurers (in the aggregate) aren’t able to function profitably in the law’s regulatory thicket. There are three major groups of enrollees: 1) those with incomes between 100 and 200 percent of poverty (138 – 200 percent in Medicaid expansion states); 2) uninsurable people (those whose medical claims will predictably exceed their premiums); and 3) drive-bys (people who sign up for coverage, then stop paying premiums once they’ve received medical care).
Democrats can’t let this fail, so they will seek other ways – lawful and unlawful – to ply insurers with sufficient money to keep them in this unworkable system. Republicans want to tear the whole thing down (which won’t happen), but can’t agree on what to replace it with.
There are two ways this could go: 1) government compulsion; and 2) major, bipartisan changes to the law. You make a good point when you say that socialism is the only means of achieving socialist ends. Universal coverage is a socialist goal. Socialists assume that government can allocate medical goods and services more efficiently and fairly than can markets. They don’t ask people whether they want to buy insurance; they enroll them in coverage and tax them to pay for it (see Sanders, Bernie).
Those of us who believe that the Obamacare emperor has no clothes continue to favor a consumer-driven system that concedes this undeniable fact: people in reasonably good health don’t want health insurance unless premiums are steeply discounted and cost-sharing requirements are light.
Designing a system around consumer preferences (instead of imposing the preferences of the powerful on consumers) is an uncertain enterprise, not least because of the political challenges. But it is the course I favor.