Tag Archives: Insurance

Obamacare’s ProblemS Are Just Beginning

Doctor

Health Care Problems Ahead

When I have criticized the ACA in the past, I’ve done so for different reasons; none of them being a horrible website roll out.  With such issues as fewer doctors, rising premiums and political exemptions – the law is riddled with problems.

ACA Forcing Premiums To Rise

One of those problems is counter-intuitive.  The ACA is going to  force policies to rise.

In all the discussions regarding the benefits of the new law, including “free” contraceptives, for example, it has never been brought up by the defenders of the law that nothing, of course, is free.  That contraceptive package will have to be paid for by somebody – maybe even you.

And how will that cost be recouped?  Why, by raising the premiums on people, of course:

Based on a Manhattan Institute analysis of the HHS numbers, Obamacare will increase underlying insurance rates for younger men by an average of 97 to 99 percent, and for younger women by an average of 55 to 62 percent.

These prices are only going to continue to rise as Obama’s target market shuns the the law opting for a fine that might not ever be levied – the young and the healthy are fleeing the scene of the crime.  This results in only the older and the sicker enrolling; the most costly of the people covered.  The only result is a rise in policy costs.

No – make no mistake, the problems with Obamacare have nothing inherent to a failed and botched website – that’s only gravy in the pursuit in demonstrating that this administration is dangerously inept at management issues.

 

 

Affordable Care Act – Young People

College Kids

The Affordable Care Act is in the “Open Enrollment” phase.  And for many Americans, it’s the first time that they ‘re shopping for insurance.  And as they go through the process, they’re going to have to make some decisions.  And I get that the whole thing might be overwhelming, I have to shake my head at this analysis:

 Young adults could pay relatively little up front for Obamacare, only to pay a lot later.

They may be more likely to buy cheaper plans on the health care exchanges, but they are often less informed about how high out-of-pocket costs, including deductibles, can erase any savings realized from the lower premiums, potentially leaving them with crippling bills, experts told CNBC.com.

“I think the exposure is pretty high. It’s way higher than most people are used to,” said Karen Pollitz, a senior fellow at the Kaiser Family Foundation, the health policy research group. “There will be some people who will, for whatever reason, end up getting high-deductible health plans, and I think some of them may not like it.”

Forget, for a second, what “could pay relatively little up front” means.  The fact is that most likely these young folks face two facts:

  1. They weren’t buying insurance before and would be exposed to the same crippling bills.
  2. They are highly unlikely to ever encounter such eventualities.

As for point 1, while they would be exposed to the same crippling costs, at least now that cost is limited.  Anyway, the point is, that people all over creation are forgetting that we are talking about insurance – the protection against risk.

When I was young, my dad would implore me to purchase just such a catastrophic plan.  And now, as I manage young college graduate entering the corporate work force for the first time, I coach them the same way.

Buy the least expensive high deductible plan you can find.  Then, fund an HSA to the max up to or exceeding that deductible.  For the young, the benefits are two fold.

  1. You are fully protected in the event of a life changing financial occurrence.
  2. You have time on your side to grow that HSA.

One last thing.  The article mentions the cost of such a plan:

“I was looking at Texas earlier today,” Pollitz said. “They had a bronze Blue Cross plan that was $250 a month … for a 40-year-old. The bronze had a $6,000 deductible

The cost before the ACA?

Now, how expensive in insurance for a 30 year man in the same ZIP?

The plan that offers $5,000 – 0% -No charge after deductible?

$62.24

The plan with the lowest deductible that is the cheapest looks like this:

$2,500 – 30% – $40 office visits:

$99.40 a month.

It will be fun to watch this thing as it moves from enrollment to functional plan.

ObamaCare: The Price Of A Policy

There has been much joy and excitement over the recently released report declaring that policies are coming in lower than projected:

The report also gives an overview of pricing and the number of coverage options across the nation.  It finds that the average premium nationally for the second lowest cost silver plan will be $328 before tax credits, or 16 percent below projections based off of Congressional Budget Office estimates.

Now, to be sure, had the report come out and reported that the premiums were going to be 16 percent above, HHS would be hammered, so a 16 percent below expectation is positive news.  But in truth, this report is only comparing what the policies will cost compared to what people THOUGHT they would cost.  It mentions nothing without being able to compare costs to existing costs.

AEI makes the point very well:

In short, HHS is not saying that people will be paying lower premiums on the exchanges than they’re paying now. HHS is just saying that people will be paying less than HHS thought people would be paying. They’re trying to sell this as good news—people will not have to spend as much as HHS originally thought they would. However, when determining what’s affordable, what really matters is what people think they should be spending.

When we’re trying to figure out if the new premium estimates will be affordable for people, then, we can’t just set a federal standard—which is how the Affordable Care Act defines affordability. We should compare what people (to a large extent, in this case, the uninsured) think they should pay and what HHS says they’ll be paying.

I think that the administration knows that this roll out is going to go very poorly and this report is nothing but an attempt to spin some good news.

Health Care Markets

Healthcare

Health Care.

It’s all the rage these days.  How are we going to implement it?  Will the republicans defund it?  Can Obama legally just change the law as he sees fit?

Fascinating stuff.

But underneath it all is the assumptions that go into it.  For example, take Ezra Klein over at Bloomberg:

Health care and education pose the same basic threat to the economy: How do you keep costs down for a product that consumers must purchase?

Saying “no,” after all, is how consumers typically restrain costs. If Best Buy Co. wants to charge you too much for a television, you can walk out. You might want a television, but you don’t actually need one. That gives you the upper hand. When push comes to shove, producers need to meet the demands of consumers.

But you can’t walk out on medical care for your spouse or education for your child. In the case of medical care, your spouse might die. In the case of college, you’re just throwing away your kid’s future (or so goes the conventional wisdom). Consequently, medical care and higher education are the two purchases that families will mortgage everything to make. They need to find a way to say “yes.” In these markets, when push comes to shove, consumers meet the demands of producers.

So, first off, education is nothing like health care.  You  may or may not purchase it.  Sure, purchasing some of it is a great idea, more of it may be a good idea and too much can be a bad thing – look at all the freakin’ Fine Arts and English Literature students out there.  Sheesh.

Second, Ezra misses a critical parallel – food.  After all, even more basic a need than health care is food.  And we aren’t facing a food cost crisis.  Nor is there a food shortage.  In fact, hunger is defeated here in America and on the ropes globally.

So what gives on medical care?

One answer, beloved on the right, is that government is the problem and less government is the solution. Both medical costs and education costs are highly subsidized. Those subsidies, some contend, are the cause of rising prices. If people were paying full freight, they’d be acting more like typical consumers and demanding a better deal.

That gets causality backward. The subsidies exist because consumers — also known as “voters” — are desperate to get medical care when they need it and secure quality educations for their kids. As prices rise, they appeal to the government for help. They find a way to say “yes.”

Indeed.  Let people pay full freight.  And this should be accomplished in two ways:

  1. Let people purchase insurance on their own outside of the confines of their job.
  2. Create an environment where people shop for their own medical care.

In the first, it’s a perverse system that takes away an individual’s insurance when they loose their job.  In the second, shopping for services reduces costs and can even reduce services that are duplicates or are not needed.

But what of subjecting medical care to the market, how are we to explain emergency care?  Easy, there isn’t much of it:

Health care is a big business in the United States, representing more than 16 percent of U.S. Gross Domestic Product. Yet there are misconceptions about the costs and efficiencies of emergency rooms and “unnecessary” care. According to U.S. government statistics, emergency care represents less than 2 percent (1.9 percent)1 of the $2.4 trillion spent on health care.

Two percent on emergency care.  The rest, fully 98% of the health care spend…that money is spent on procedures and items that, while certainly not discretionary, are able to be planned and most importantly, shopped.

No one feels that food is discretionary – that we can choose to go without food for long.  But when opened up to a freer market, food has become ubiquitous.

Two simple changes to the way we deliver health care would dramatically reduce prices – okay 3, I just thought of another:

  1. Separate health insurance from employment – end the tax break for insurance as compensation.
  2. Buy plans that carry large deductibles and pair them with HSA’s.
  3. End the concept that routine maintenance be covered by insurance – this is not insurance, it is a prepaid medical plan.

Problem solved.

 

Unintended Consequences

Unitended Consequences

I understand and resonate with the noble intentions of the left as they enact legislation that is the entitlement culture we find ourselves in.

Who doesn’t wanna help those in need, those who are hungry, homeless and cold.?

The problem is that you cannot change human nature.  And until we as a human race turn a corner, we are going to be faced with the fact that people, in general, look out for their own self interests.  Further, people generally resent having their money spent by someone else.

Which is why we continually see this:

Would you like to have a “skinny” health insurance policy? Probably not. But if you’re employed by a large company, you may get one, thanks to ObamaCare.

That’s the conclusion of Wall Street Journal reporters Christopher Weaver and Anna Wilde Mathews, who report that insurance brokers are pitching and selling “low-benefit” policies across the country.

Wonder what a “skinny” or “low-benefit” insurance plan is? The terms may vary, but the basic idea is that policies would cover preventive care, a limited number of doctor visits and perhaps generic drugs. They wouldn’t cover things such as surgery, hospital stays or prenatal care.

You might ask how ObamaCare could encourage the proliferation of such policies. It was sold as a way to provide more coverage for more people, after all. And people were told they could keep the health insurance they had.

As Weaver and Mathews explain, ObamaCare’s requirement that insurance policies include “essential” benefits such as mental-health services apply only to small businesses with fewer than 50 employees. But larger employers “need only cover preventive service, without a lifetime or annual dollar-value limit, in order to avoid the across-the-workforce penalty.”

Low-benefit plans may cost an employer only $40 to $100 a month per employee. That’s less than the $2,000-per-employee penalty for providing no insurance.

“We wouldn’t have anticipated that there’d be demand for these type of Band-Aid plans in 2014,” the Journal quotes former White House health adviser Robert Kocher. “Our expectation was that employers would offer high-quality insurance.”

Oil Spills – Oil Companies – BP

BP has been issued a bill for the oil spill in the Gulf back in 2010:

NEW ORLEANS — BP said Thursday that it will pay $4.5 billion in a settlement with the U.S. government over the disastrous 2010 oil spill in the Gulf of Mexico and plead guilty to criminal charges related to the deaths of 11 workers and lying to Congress.

The day of reckoning comes more than two years after the nation’s worst offshore oil spill. The figure includes nearly $1.3 billion in criminal fines — the biggest criminal penalty in U.S. history — along with payments to certain government entities.

The settlement, which is subject to approval by a federal judge, includes payments of nearly $2.4 billion to the National Fish and Wildlife Foundation, $350 million to the National Academy of Sciences and about $500 million to the Securities and Exchange Commission. The SEC accused BP of misleading investors by lowballing the amount of crude spewing from the ruptured well.

Now, I’m all for BP having to pay for the cleanup to all agencies that were harmed by the spill.  I think that allowing companies to poison rivers that does nothing to harm the company is a moral hazard that creates problems for everyone.*

And I don’t mind that government sets the amounts of those fines.  What I DO object to is the nature in which these fines are arrived at; politics, deal making and more than likely cronyism.

If we want to protect ourselves from oil spills we have to acknowledge two things:

  1. We can not prevent a spill from ever happening again.  The only thing that we can hope for is to increase the mean time between failure and decrease the meant time to repair.
  2. What we really object to is the damage done by the spill, not that there was a spill per se.  Therefore, if we can quantify the dollar cost to restore the damage, we should be alright with the transfer of that cost.

If we’re able to do this, and codify it so that the rules are clear and understandable, the oil companies will understand this and include it in their business models.  In fact, I suspect that the fines will be significantly high that those companies will have to take out insurance policies to protect them in the event of a spill.  And this is a good thing.

See, if the oil company requires insurance they’ll have to get it from another company that sells insurance.  These insurance companies, being rational, will not issue said policy UNLESS the oil company can demonstrate adequate safety processes.   In short, the insurance will drive increased safety and prevention.  And it will do it in a mostly free market way.  Today prevention agencies are government run and filled with execs from oil companies that are named based on politics.  These agencies aren’t adequate in writing and enforcing the rules.  But if insurance companies are in charge of that, we can be MORE sure that the whole thing is more modern and appropriate.

So, hell yeah BP should pay.  But the fine should have been known and predictable up front.  If it was, I claim that the next oil spill will occur further in the future than it otherwise would and be restored much quicker and wit less overall damage to the environment.

* I do NOT object to the poisoning of rivers that DOES harm the polluter.  In this case “rivers” is the name I’m giving to the general environment.

Basic High School Math Fail

Again, I’m reading a bunch of stuff for an upcoming post and I see this:

Lucia Harkenreader’s check landed in her mailbox last week: a rebate of $456.15 from her health insurance company, with a letter dryly explaining that the money came courtesy of the federal health care law.

For Ms. Harkenreader, 53, who is putting a son through college, the rebate helps soothe the frustration she feels toward her insurer, Golden Rule, which is owned by UnitedHealthcare.

“It seems like the health insurance companies really just don’t have any consideration for the cost out here,” said Ms. Harkenreader, who pays about $480 a month for a high-deductible plan, up from $400 last year. “What costs have gone up to justify that rise in premium? I’d love to know. Did you give your people a raise? I guess your light bill went up?”

How is it possible that she can ask “What costs have gone up?” as she clutches a $456.00 check?  How can she ask “What costs have gone up?” as insurance companies are required to “insure” people who knock on the door with a broken arm?

People wonder why this country is in trouble.

More On The Laws Of Economics

I’m reading an article for an upcoming post when I came across this:

We have a shortage of every kind of doctor, except for plastic surgeons and dermatologists.

It strikes me that plastic surgery and dermatology are both examples of medical “care” not subject to insurance and the accompanying government regulation.

And the prices of plastic surgery?

 

From the report:

Cosmetic surgery is one of the few types of medical care for which consumers pay almost exclusively out of pocket.  Even so, the demand for cosmetic surgery has exploded in recent years.  According to the American Society of Plastic Surgeons, 1.7 million cosmetic surgical procedures were performed in 2008.  That is more than 40 times the number performed two decades ago (for example, 413,208 in 1992).

Despite this huge increase, cosmetic surgeons’ fees have remained relatively stable.  Since 1992, medical care prices have increased an average of 98 percent. The price of physician services rose by 74 percent.  [See the figure.] The increase in the price of all goods, as measured by the consumer price index (CPI), was 53 percent. Yet, an index of cosmetic surgery  prices only rose only about 21 percent. Thus, while the price of medical care  generally rose almost twice as fast as the CPI, the price of cosmetic surgery went up less than half as much. Put another way, while the real price of health care  paid for by third parties rose, the real price of self-pay medicine fell.

When exposed to the free market, commodities and services will respond with cheaper prices and higher quality.

The Nature Of Health Insurance

The nature of health insurance is to protect us against the risk of requiring medical care.  If we get hurt or sick, we have the mechanism of insurance to protect us.  Depending on our individual circumstances, we purchase different kinds of policies.  The very young may choose a simple plan that protects against only the most extreme costs.  Those of us who are more likely to require care may purchase a plan that accommodates those contingencies.

But it’s all about managing risk.

After the supreme court upheld Obamacare, we have moved from insurance protecting us from risk to insurance offering prepaid medical care.  When an “insurance plan” covers office visits, routine tests and other incidentals, we are nt paying someone to take the risk from us, we’re paying someone to give us medical care.

And what happens when that happens?

Raleigh, N.C. — The University of North Carolina system requires all students to have health insurance coverage, but the cost of a plan the system offers has more than doubled in two years.

The insurance requirement started in 2010, and about one-third of students on the system’s 16 university campuses buy their policy through UNC’s provider, New York-based insurer Chartis. The rest of the students have other coverage, usually through their parents.

The average cost of the Chartis policy started at $695 a year, but it rose to $847 last year. Tuition bills that are now arriving in student mailboxes for the 2012-13 school year include a $1,418 health insurance premium.

Why the rise in prices?  Greedy insurance companies?

Bruce Mallette, the UNC system’s vice president for academic and student affairs, blamed the increase on a high number of claims by students on the policy.

“It was a very affordable plan,” Mallette said. “If you look nationally, the pricing we had in the first two years was very, very competitive, and students utilized it and utilized it and utilized it.”

Right.

People demand value.  When they’re forced to buy something they don’t want, they’re gonna use it.  And by using it they raise the price.  The next guy, not wanting to be left behind, uses HIS policy.  It’s a spiral.

Consider a table of 10 people having dinner.  They agree to just “split the bill 10 ways.”  The first guy orders a BLT.  The second a steak, the third wants a bowl of chili but senses that he’s paying for the prior two guy’s high priced meal – so he too orders steak.  And so on.

Prices are going up folks, not down.

 

Building Codes: Free Market vs. Regulation

So many times you hear the right rail against government regulations as being too tight, too restrictive and representing too large a burden.  We complain that over regulation leads to less risk taking and can dampen growth and creating of companies, products and jobs.

On the other hand, the left will jump up and point out that we all love clean water, fresh air and safe cars, medicines and food.  Without regulation, the saying goes, evil greedy corporations will just do whatever they want in the name of profit.

I suspect that there’s validity in  not just one side, but both.

Take, for example, the case of the BP oil spill in the gulf a number of years ago.  The government regulates oil rigs and mandates certain safety equipment in order to eliminate or reduce the chance of spills.  However, the government isn’t in a place to be experts in oil rig or deep water drilling technology.  Further, the government agencies are subject to politics, lobbying efforts and corruption.

We saw that very problem with the agency charged with developing those safety standards.

Next, take California.  California requires that every house constructed have a sprinkler system installed.  The argument, “certainly homes are safer.”  But no one knows by how much and if the cost of building more expensive homes is worth the gain.  If taken far enough, government regulations can rise the cost of housing far above what an average person can afford.  The very real world examples of this are the land use restrictions found in cities around the country.

But, back to regulating safety.  Is it radical to suggest that people should decide how safe they want to be?  Or, put another way, can we trust individuals to conduct their own cost/benefit analysis?

If so, I would suggest that private industry competing for customers and profit, would solve the solution the best way.  And that method?

Insurance:

CHESTER COUNTY, S.C. —

Hurricane-force winds hit 136 miles an hour inside a massive wind tunnel in Chester County.

105 powerful fans were aimed at two masonry buildings set up to look like small businesses, or a strip mall. The two buildings took a tremendous beating Tuesday.

The two cinder block buildings look identical on the outside, except for their color.

One building is built with a better roof, including reinforced flashing and stronger materials. It also has more rebar running down the block walls and tied together in the corners.

The other building is constructed in the common way most similar structures are built.

During the first test, 95 mile an hour winds pound both buildings. The commonly built structure loses the flashing and part of the roof.   A second test pumps the winds to above 130 miles an hour.  Within minutes, the outer wall of the common building buckles and falls outward, sending pieces of concrete block everywhere. At the same time, the roof shifts as well.

The reinforced building has no visible damage except for a broken front picture window where a two-by-four was shot out of a cannon to simulate flying debris in a storm.

Advanced techniques, both in building and then in testing were undertaken to determine how best to design and construct a stronger more tolerant building in the face of severe weather.

And who conducted this test?  Government regulators?  Not at all:

Julie Rochman heads the Insurance Institute for Business and Home Safety.  Funded by a large group of insurance companies, the group runs a test facility unlike any other in the world.

The implications of this test?

A large crowd of reporters, photographers and insurance and building executives were on hand to watch the power-packed artificial storm.

One of them, Mark Pizzi, is president of Nationwide Insurance.  He flew in from Ohio for the event.  Pizzi said twenty-five percent of small businesses destroyed in a disaster never reopen.

He hopes this test can change that down the road.

“I look at it this way. This test today is about business, staying in business,” he said.

And as a result, the industry advanced the methods of construction and did so in a way that makes sense:

Rochman said the better roofing materials on one of the test buildings only cost about $150. The whole building, which survived the powerful winds virtually intact, cost only $3,000 more to build.

And the whole reason is profit.  The endless desire to make more money.  On one hand, insurance companies now have a better way to conduct risk analysis on the buildings they insure.  Those that are unsafe will be charged a higher rate, those that are built to the new suggestions; a cheaper rate.  But more than that, the insurance companies hope to save money directly:

Rochman told Channel 9 that the education coming out of these tests is having a strong influence on the construction and insurance industry.  The goal, she said, is to prevent loss.

It turns out that insurance companies don’t like the buildings they insure to blow away in the wind.

Problem solved.  And Obama didn’t build that.