Quotes of the day

posted at 10:41 pm on January 16, 2014 by Allahpundit

Health and Human Services Secretary Kathleen Sebelius is in Tampa today, Monday, January 13, for an ObamaCare outreach event, and she owes Floridians an answer. Why should taxpayers have to bail out health insurance companies in the increasingly likely event that ObamaCare leaves them with financial losses?…

This is government favoritism and corporate cronyism at its worst, and it’s taxpayers that will pay the price unless we stop it…

Unfortunately, we can’t just take the administration’s word that it won’t happen. Congress has to act, and it should approve legislation I’ve introduced to repeal ObamaCare’s risk corridor provision and stop any bailout. At just a page long, my bill is simple but would instantly wipe away the taxpayer’s exposure to millions – and potentially billions – of dollars’ worth of a bailout for insurance companies.

If the only way ObamaCare works is with a taxpayer-funded bailout of insurers, it’s yet another clear sign that the law can’t survive and isn’t worth saving.

***

As Philip Klein notes, a recent article by Larry Levitt, Gary Claxton, and Anthony Damico of the Kaiser Family Foundation described an enrollment of 25 percent among 18-34 year olds as a “worst-case scenario,” estimating that insurers would lose money on these plans, because “overall costs…would be about 2.4% higher than premium revenues.”

2.4 percent may seem like a small number, but given that the average insurer has profit margins of 4 to 6 percent, a 2.4 percent loss on premiums—before we even count overhead costs—is a serious problem…

The national skew, now 49 percent, may come down to 35 or 40 percent, by the time we get to the end of the open enrollment period in March. But the bottom line is that insurers will still lose money on these plans. And there are other aspects of adverse selection. For example: are we seeing sicker participants within a given age group, regardless of age? Are the healthy people in the exchanges skewing towards high-deductible bronze plans, while sicker people buy more generous silver and gold plans?

Taxpayers will be on the hook for any increased costs.

***

Conservatives used to say Obamacare is socialized medicine. Now they say it is a “government bailout” of insurers.

The new claim is just as misleading and cynical as the old one

The bailout analogy is potent. And it’s certainly accurate to say that, under Obamacare, some insurers may collect payments from the government to help offset losses. But the analogy breaks down after that…

The payouts from risk corridors … come directly from government funds and have no actual limit. But the risk corridors also build up government funds—in effect, by claiming some of the profits from insurers who reap unexpected windfalls. The Congressional Budget Office, in its overall cost estimates for the Affordable Care Act, assumed that the inflow and outlfow would be roughly the same, so that the risk corridor program as a whole would be budget neutral. Even if CBO’s prediction is wrong, and the government ends up spending more than it raises, the difference is likely to be modest. The formula for payouts calls merely for government to share in high losses or gains, not to take them on completely. It’s enough to protect the insurers, the thinking goes, but not enough to cause a massive outlay. Meanwhile, lower-than-expected premiums are likely to save the government much more money than the risk corridors would ever pay out.

***

Cohn is correct that the CBO estimated that the cost of the program to taxpayers would be zero because it figured that some insurance companies would over estimate patient expenses and others would under estimate them, and these over and under estimations would cancel each other out. Sort of like how banks who bought tons of mortgage backed securities estimated that some mortgages would go bad, others would be just fine, but as long as there was a normal mix the underlying assets would be fine.

But just as banks made a “grievous management error” by never considering what would happen if large percentages of the mortgages in mortgage back securities all went bad, the designers of Obamacare never considered what would happen if every insurer under estimated how much it would cost to pay for insurance claims. And if the current mix of Obamacare enrollees looks anything like the final mix, that is exactly what is likely to happen: all the insurance companies will qualify for payments from the risk corridor program and no one will be paying in.

At that point, under current law, taxpayers would be on the hook to pay off those all of those insurance company losses. If that isn’t a bailout, I don’t know what is.

***

The risk of a “death spiral” is over. The Kaiser Family Foundation estimates that if the market’s age distribution freezes at its current level — an extremely unlikely scenario — “overall costs in individual market plans would be about 2.4% higher than premium revenues.” So, in theory, premiums costs might rise by a few percentage points. That’s a problem, but it’s nothing even in the neighborhood of a death spiral.

That calculation, however, omits the transitional policies in Obamacare that help insurers keep premiums low as the risk pool sorts itself out over the first three years. Add those in, and it’s unlikely that 2015 will see any premium increase at all. Robert Laszewski, a consultant for the insurance industry, agrees. “I think the 2015 rates will be the rates you’re looking at today, more or less,” he says.

***

[M]y sense is that health plans, because they are so insulated from big losses, will generally stand pat with their 2014 rate structures for 2015––no matter how bad the early claims experience looks. I expect that the health insurance industry will be content to give the Obama administration one more chance to reboot Obamacare in the fall of 2014, when the 2015 open enrollment takes place.

But that is all the patience I see the industry having. While they will continue to be protected from losses in 2016, two years will be enough patience for them and they will be eager to at least begin to transition their rates to the proper level in 2016 rather than face a huge adjustment in 2017 when the reinsurance program ends.

***

[U]nless the demographics of the exchanges improve pretty quickly, the three temporary risk-adjustment programs are probably set to transfer a large hunk of cash to the insurance companies. That’s what the administration, and the insurers, want to happen; it’s how they are going to keep the insurers on board for 2015. Phil Klein at the Washington Examiner points out that Humana Inc.’s latest filing with the Securities and Exchange Commission warns of a “more adverse than previously expected” mix of customers enrolling through the exchange — but it doesn’t change its earnings forecast for 2014. So either it thinks its losses will be trivial relative to overall earnings or Humana thinks the chances of a bailout from the administration are basically 100 percent.

But while the business logic is obvious, the political logic is considerably more dubious. I was initially skeptical that a repeal of the risk corridors had any chance of getting through a Democratic-controlled Senate, but I’ve heard a persuasive argument that this is just so politically toxic that Senate Democrats, and even the White House, may well go along. The optics of funneling money to the insurers through these programs is absolutely terrible. And now they are asking the administration for more money — the insurers want the extra expenses that the exchange debacle has imposed excluded from calculating their “medical loss ratio” requirements, which mandate that at least 80 percent of their expenses go toward treatment, not administrative overhead. I think the requirements are pretty silly, as a policy, but they are extremely popular. Asking the administration for a break on this is almost begging members of both parties to beat the snot out of them. White House attempts to explain that it isn’t a bailout will be complicated by the fact that it obviously kind of is.

***

The GOP House should pass [an anti-bailout bill] and send it to Harry Reid’s Democratic Senate. Democrats know it could be fatal for Obamacare. The only alternative would be single-payer. And try selling that to the country after the spectacularly incompetent launch of — and subsequent widespread disaffection with — mere semi-nationalization.

Do you really think vulnerable Democrats up for reelection will vote for a bailout? And who better to slay Obamacare than a Democratic Senate — liberalism repudiating its most important creation of the last 50 years.

Want to be even bolder? Attach the anti-bailout bill to the debt ceiling. That and nothing else. Dare the president to stand up and say: “I’m willing to let the country default in order to preserve a massive bailout for insurance companies.”…

Who can argue with no bailout? Let the Senate Democrats decide: Support the bailout and lose the Senate. Or oppose the bailout and bury Obamacare.

***

***



Related Posts:

Breaking on Hot Air

Blowback

Note from Hot Air management: This section is for comments from Hot Air's community of registered readers. Please don't assume that Hot Air management agrees with or otherwise endorses any particular comment just because we let it stand. A reminder: Anyone who fails to comply with our terms of use may lose their posting privilege.

Trackbacks/Pings

Trackback URL

Comments

Comment pages: 1 2 3 4

….maaan……..you gotta…….sheesh!

williamg on January 17, 2014 at 1:49 AM

.
He is obviously a student of the “Axe method for wooing wimmins”

PolAgnostic on January 17, 2014 at 2:05 AM

Let me interject – Yes, Scrumpy, it does … that had to take a lot of determination and busted knuckles.

PolAgnostic on January 17, 2014 at 2:00 AM

An odd sized Chevy Small Block out of a Monza 2+2. A 262 4.3 liter with a 350 turbo automatic transmission. It took three radiators and more thermostats than I can remember to try to figure out how to keep the engine temp not too hot and not too cool.

I probably put 2K into it in 79-80 hawkbucks and sold it to a Sergeant for 650. I was a genius.

hawkdriver on January 17, 2014 at 2:07 AM

Pax and good night all!

I have to go see the dentist tomorrow …

C’est la vie.

A bientot

PolAgnostic on January 17, 2014 at 2:07 AM

An odd sized Chevy Small Block out of a Monza 2+2. A 262 4.3 liter with a 350 turbo automatic transmission. It took three radiators and more thermostats than I can remember to try to figure out how to keep the engine temp not too hot and not too cool.

I probably put 2K into it in 79-80 hawkbucks and sold it to a Sergeant for 650. I was a genius.

hawkdriver on January 17, 2014 at 2:07 AM

.
Just shows how much you loved the car.

Remind me to tell you about my son-in-law’s dream of dropping a Corvette engine in my RX-8 sometime.

G’night, hawk!

PolAgnostic on January 17, 2014 at 2:09 AM

G’night, hawk!

PolAgnostic on January 17, 2014 at 2:09 AM

OOH too.

Ramblin Man is a good pick.

hawkdriver on January 17, 2014 at 2:10 AM

Eric Clapton & Duane Allman – Jam 5

Slowhand and Skydog

kcewa on January 17, 2014 at 2:14 AM

Thank goodness MG is OK.

Now Ken can finally give Axe a Miley Cyrus wedgie as a sacrificial gift to the gods.

SparkPlug on January 17, 2014 at 2:22 AM

Morning HA

Not one single dime….they wanted this they can suffer the consequences

cmsinaz on January 17, 2014 at 5:14 AM

Coburn retiring….

cmsinaz on January 17, 2014 at 6:06 AM

Isn’t Coburn the one with cancer?

esr1951 on January 17, 2014 at 6:09 AM

esr1951 on January 17, 2014 at 6:09 AM

yup

cmsinaz on January 17, 2014 at 6:14 AM

you run against the nsa in 08
then you get briefed and embraced the nsa and supersize their tactics (from what bush did)
and now you’re going to curb them

-morning joe

cmsinaz on January 17, 2014 at 6:17 AM

Good Morning, Patriots! And, Trolls.

My take: In Defense of “Lone Survivor” and Our Brightest and Best: An Open Letter to Amy Nicholson From an Average American

Some gave all.

kingsjester on January 17, 2014 at 6:53 AM

Coburn retiring….

cmsinaz on January 17, 2014 at 6:06 AM

Yeah, after his attack on Cruz during the shutdown, I wish him well and a full recovery but it is time that he go home. When DC turns an OK Senator into a RINO then he’s been in Washington too long.

Happy Nomad on January 17, 2014 at 6:53 AM

*sigh*
HN

cmsinaz on January 17, 2014 at 6:57 AM

EXCELLENT take KJ

Read it folks

She really is clueless…..made my blood boil reading her tripe..

cmsinaz on January 17, 2014 at 7:02 AM

cmsinaz on January 17, 2014 at 7:02 AM

Thank you, ma’am!

Me, too. Hence, today’s Blog.

kingsjester on January 17, 2014 at 7:05 AM

you run against the nsa in 08
then you get briefed and embraced the nsa and supersize their tactics (from what bush did)
and now you’re going to curb them

-morning joe

cmsinaz on January 17, 2014 at 6:17 AM

Nothing is getting curbed. The rat-eared wonder will be putting lipstick on a pig today but there will be no substantive changes in what NSA is doing.

Happy Nomad on January 17, 2014 at 7:20 AM

So everyone agrees on the mj panel that if w did everything that Obama has done he would have been impeached…..

Wow….no argument from the lefties…. w would’ve been impeached……

Unstinkingbelievable

cmsinaz on January 17, 2014 at 7:25 AM

I believe ya HN

cmsinaz on January 17, 2014 at 7:26 AM

Bail out the insurance companies? H*ll no! But if rumbles out of
dc are even remotely accurate, “The Lords and Masters” TM of establishment GOP are even now doodling and canoodling with Dems to save the un-saveable. Obamacare. They don’t call the GOP “the stupid party” for nothing.

Gebirgsjager on January 17, 2014 at 7:28 AM

EXCELLENT take KJ

Read it folks

She really is clueless…..made my blood boil reading her tripe..

cmsinaz on January 17, 2014 at 7:02 AM

….ditto that!

KOOLAID2 on January 17, 2014 at 7:36 AM

This is making me nervous. All the “fixes” O is proposing only make the death spiral more likely–a lot more likely. So the question is, is O really that stupid or is he a Machiavellian genius who is intentionally trying to crash the private insurance system in order to usher in single-payer? If the latter, then denying the insurance companies a bailout, which is definitely the right thing to do, only helps him destroy the private insurance industry. It would also create the bogus crisis he would need for his “brilliant” rescue plan–single-payer. This not an argument for a bailout; it’s just makes me nervous that we could be watching a major, disastrous domestic policy coup unfold in slow motion under our noses. With Teh Won laughing in the meantime. Talk me down, somebody please.

smellthecoffee on January 17, 2014 at 7:39 AM

Hey KA2

cmsinaz on January 17, 2014 at 7:39 AM

smellthecoffee on January 17, 2014 at 7:39 AM

The goal of the rat-eared coward is to get so many people hooked on Obamacare subsidies that you can’t kill it. They don’t care about the chaos in the short-term so long as their long-term goal of single payer is acheived.

Ironically the biggest argument against single payer is Obamacare itself. Government can’t even successfully launch a website for enrollment. They certainly are not up to the task of socialized medicine.

Happy Nomad on January 17, 2014 at 7:50 AM

OT-

In Congress the parade of critters announcing retirement continues with Coburn and Buck McKeon. If they can get their act together and stop attacking those that are calling for fiscal responsibility then the GOP really could make a dent in the gridlock that the Dems have maintained for years.

Happy Nomad on January 17, 2014 at 8:00 AM

I know insurance companies are in the risk calculating business, but they’re playing with a regime that will change the rules of the game in order to win. What’s the prize the regime is seeking? Why single payer and not one named Humana, United Health or Blue Cross. The first step is those companies starting to depend on a bailout from Uncle Zero. Once he owns their bottom line, ala GM, govt control can be totally imposed. This won’t end well for them or us.

Kissmygrits on January 17, 2014 at 9:44 AM

Comment pages: 1 2 3 4