CBO says specifying MLR makes the budget go boom
by divorced one like Bush
I just listened to the conference call with Gov. Dean and Wendall Potter.
Toward the very end of the call, the issue of medical loss ratio regulation came up. Seems like a reasonable thing to regulate especially if we are going to get Chicago School of Economics style health care reform implemented via the Shock Doctrine method. (Yes, I’ve finally started that book and I’ve got to say, what is happening here with health care reform reads all too familiar.)
Unfortunately, according to Gov. Dean, the CBO keeps scoring MLR regulation as a hit (as in mafia take down) to the budget. Seem from CBO’s perspective, if you regulate that the MLR can be no less than somewhere around 90%, such a number placed on profit ability makes all of the nation’s health care a government budget item. Thus, something like $2.5 trillion gets added to the budget numbers.
Funny thing this CBO view. Basically this means that I (We the People) can mandate that I buy insurance, that I can only buy it from the private market, that I can write the rules of the market that I buy into, but I can’t tell a corporation that is granted a privilege by me to spend it’s money on the product it has been granted a privilege to provide?
Maybe the CBO figures because I decided to help some people in buying the mandated insurance, that by regulating the MLR, I’m making that money a greater expense on the budget because now 90% is going to health care services and not 70%? I really can’t figure this one. Is the CBO really saying that I (and you) the government, can not assure that I’m going to get my money’s worth? How come this issue does not come up when the government negotiates drug prices for the VA?
I really think, after watching our congress deal with health care, finance reform, military, that we have a bigger problem in this nation regarding economics and who is the boss here than we are willing to admit. Hint: It’s We the People who is the government. It just seems that we have definitely, completely entered the realm of reality where “the market” is the purpose and not the means. We have been turned to existing to serve “the market”. We have put “the market” before all our needs and desires for us as people. This is primitive idolizing behavior. This is sick.
I have to go plow now.
Looks like CBO backed down on this.
It was a bogus argument, why some arbitrary level of MLR flips the health care system from private to public makes no sense unless you are looking for a big score. Someone or something made Elmendorf back off and not drift over the line from neutral scorekeeper to operative.
Bruce, do you have a link for this? It should be in the main post to counter what Gov. Dean stated.
Well I am not sure what part I need to link to. The final CBO score as reported by TPM and others is within $20 billion over ten years or so from the initial score and that attributed to the lack of a PO.!f the MLR of 90% or 85% had been reported as government spending that total would have been in the trillions. I was hoping to sort this out
tomorrow and still will try to.
This is a very good interview with Howard Dean. He lays it on the line.
I’m putting up this group of links via DOLB’s main post for those who want to save them or forward to others.
Howard Dean, Wendell Potter, Mike Lux health-care blogger call: Fighting for the public option
By John Amato Saturday Dec 19, 2009 2:30pm
Health-care bill wouldn’t bring real reform
By Howard Dean
Thursday, December 17, 2009
Patient Protection and Affordable Care Act, Incorporating the Manager’s Amendment
December 19, 2009
(1) Manager’s Amendment to the Patient Protection and Affordable Care Act
Dec 19, 2009
(2) Senate Amendment 2786 analysis
Dec 19, 2009
This is what CBO has had to say about budgetary treatment.
The Budgetary Treatment of Proposals to Change the Nation’s Health Insurance System
MAY 27, 2009
Budgetary Treatment of Proposals to Regulate Medical Loss Ratios
Dec 13, 2009
The republcans, blue dog dems and the whole of the US senate have confirmed beyond refute that the US G is concerned only with the status quo in health delivery (military industrial complex, transportation, space….) where the medicine cabal (MIC….) demands 2 (X) or so percent of out GDP as rent for their time, (our) money and dysmal results.
The US is a feudal empire with it vague suzereigns in corporate boardrooms.
Edward I would be comfortable here.
Funny thing this CBO view. Basically this means that I (We the People) can mandate that I buy insurance, that I can only buy it from the private market, that I can write the rules of the market that I buy into, but I can’t tell a corporation that is granted a privilege by me to spend it’s money on the product it has been granted a privilege to provide
This is a great argument to junk the entire bill.
The Congressional Budget Office has put out a memo in which it states very clearly that mandated private health plans will be included in the federal budget. This memo gives two conditions that would make the CBO consider private “health insurance an essentially governmental program”.
The two conditions are government mandated health insurance and a specified high “actuarial value”. If the current bill mandates most everyone to have private health insurance and also requires all private insurance plans to have an actuarial value of say 90%, then the CBO will include this private health insurance in the Federal budget.
“In CBO’s view, a combination of the two—a mandate and tight federal control over how that mandate can be met—is necessary and sufficient to justify recording the affected private-sector transactions in the federal budget.”
This CBO decision is based on the most basic rule of insurance. In politics, the rule is “follow the money”. In insurance, the rule is “follow the risk”.
The CBO considers that these two conditions put the Federal Government as the ultimate bearer of risk.
“In CBO’s view, the budgetary treatment of a public plan would depend critically on who bore the financial risk. If the federal government stood behind the plan financially”, then the private health insurance plan is public.
The Federal government currently bears the risk of investment banking. Soon it will bear the risk of health insurance.
since I am inclined to agree with you, let me say why I don’t.
Freud once said that to make a difficult decision, flip a coin. And then see how you feel about which way it came up. When I heard that the Dems got their sixtieth vote, I was surprised that I felt “good” about it.
Here’s the reason. The folks against health care reform are mostly evil and tell damned lies. The current “reform” is a mess. But once the principle is established that the government has a role in assuring health care for all, AND the government has it’s money at risk, we may hope… unfortunately we have to hope… that future steps will be taken to rationally control costs.
The government has for a very, very long time has been the ultimate bearer of risk for consumer banking including S&L’s and credit unions. Through SBA it takes on a lot of the risk for small business, through the Pension Guarantee Board for that aspect of major corporations, and through its sponsorship of Chapter 13 for the survival of major corporations overall. And via disaster insurance/loans backstops a bunch of risk everywhere. If “bearing the risk” becomes the test of government spending/private spending we are already deep into communism.
CBO might as well be arguing that the General Welfare clause in the Constitution makes us a Maoist society.
“It just seems that we have definitely, completely entered the realm of reality where “the market” is the purpose and not the means.”
Wow! Another one released from the Matrix. Welcome home, Neo.
“Freud once said that to make a difficult decision, flip a coin. And then see how you feel about which way it came up.”
Actually, it was Piet Hein. 🙂 He said that when the coin is in the air, you will know how you want it to come down.
OK, if we follow this line of argument, that some magic number shifts the risk of insurance to the Federal government, it still remains unclear why the magic number magically turned out to be so close to the number that was considered in legislation. It remains unclear why the CBO chose to treat this as a yes/no question – at 90%, the answer is yes but at 75%, the answer is no. Risk doesn’t work lke that in most cases. Why is the government’s hit for health insurance not proportional to the MLR?
In addition, the CBO argument that money which does not flow through the government’s books can be imputed as a government expenditure if there is a risk the government may end up paying the cost should be examined against some of the arguments against various forms that universal coverage might have taken. Why, again, do we not have a robust public option that might hold down the rate of growth in health care costs? Well not because of the expense, I guess, since the expense “falls to” the government under certain arbitrarily determined conditions in any case. If this is a “government expense” anyway, why not make it a real one, to limit the growth of health care costs? Oh, yeah, because none of this was every about what would deliver the best universal care at the lowest price. Whatever the debate seemed about on the surface, it was always really about profit and power.
Both conditions must exist.
The CBO viewpoints outlined in its 27 May and 13 December papers are reasonably clear if both documents are read and understood as a package.
The issue regarding federal budgetary treatment of the insurance premiums rests on consideration of mandates and tight federal controls over the health insurance industry and consumers. If a mandate exists, and tight federal controls exist, then federal budgetary treatment should apply. It is CBO’s view that both conditions must exist.
Mandates and tight regulatory control
1. “A mandate on all (or most) individuals to have health insurance coverage providing some specified minimum level of benefits.”
2. “A “play-or-pay” requirement, whereby some or all firms would have to either offer health insurance to their employees or make a payment to the federal government.” *I treat this as a mandate.
3. Is the government mandated MLR higher than normally experienced in the industry, and will it affect plan offerings? In other words, will lower cost plans be eliminated as a result of a mandated higher MLR?
4. “Is the consumer likely to be able to choose among a number of insurance plans with differing degrees of comprehensiveness?”
5. “If there are plans with different levels of coverage, will they cover a broad enough range to offer consumers a meaningful choice?”
6. “Is the consumer likely to be able to choose among several different insurance companies competing on price?”
“In CBO’s view, a combination of the two — a mandate and tight federal control over how that mandate can be met — is necessary and sufficient to justify recording the affected private-sector transactions in the federal budget.”
“In CBO’s view, a requirement that individuals purchase health insurance combined with tight federal constraints on the market for such insurance or a dominant role for a public plan would constitute a fundamentally governmental system, reflecting the exercise of the government’s sovereign power. In those situations, premiums appearing in the budget—for a public plan or for insurance purchased through exchanges or in the private market – should be recorded as federal revenues. That determination could apply either to the health insurance market as a whole or to just a portion of it (for example, the market for individual or small-group insurance).”
“Premium income — for a public plan (or plans) and for insurance purchased through exchanges or in the private market — should be classified as federal revenues if there is an individual mandate and tight government control of the insurance market. The corresponding expenditures should also be recorded as outlays in the budget. Similarly, if there is an individual mandate and a dominant public plan available to some segments of the insurance market, premiums and outlays for those segments of the market should appear in the budget, and the premium income should be classified as revenues.”
“Setting a very high minimum actuarial value (termed the “minimum creditable coverage” ) would limit the range of consumers’ choices, as would setting a narrow range for actuarial values––if, for example, plans had to have an actuarial value of at least 85 percent but not more than 90 percent. CBO will deem proposals that set minimum creditable coverage at more than 80 percent to be too constraining to offer consumers substantial choice.”
“A proposal to require health insurers to provide rebates to their enrollees to the extent that their medical loss ratios are less than 90 percent would effectively force insurers to achieve a high medical loss ratio. Combining this requirement with the other provisions of the PPACA would greatly restrict flexibility related to the sale and purchase of health insurance. In CBO’s view, this further expansion of the federal government’s role in the health insurance market would make such insurance an essentially governmental program, so that all payments related to health insurance policies should be recorded as cash flows in the federal budget.”
I am expanding on your post below.
“CBO will deem proposals that set minimum creditable coverage at more than 80 percent to be too constraining to offer consumers substantial choice.”
and: “In CBO’s view, this further expansion of the federal government’s role in the health insurance market would make such insurance an essentially governmental program, so that all payments related to health insurance policies should be recorded as cash flows in the federal budget.”
That’s some real strained thinking there by the CBO considering most of the money is going from the citizen/company to the insurer with never the government to meet. Not to mention, letting people make this choice just further segments the market and moves us further away from the idea of reduced risk through the largest risk pool which in this case is the entire citizenry in the pool
Also, this idea of choice is just so whacked. Sure, I want to be able to choose say my car style, options and color, but do I really need a choice as to how much or little I might morbidity I want to gamble on.
Coberly, I know what you’re talking about. I felt some of that, too. And then I thought about the relief one feels when one’s Christmas shopping is done. A few happy breaths and then it’s on to the wrapping, the cooking, the decorations, etc. Even torture feels good when it stops. Even if it’s only momentary – and I think that’s all we felt. Momentary relief.
When they shifted to covering a distinct part of the population with Medicare “buy-in” and extension of Medicaid, and then shifted right back again – absent a public option, all the gauzy curtains and beautiful lighting effects paused just long enough to make things clear. While the impetus maybe have been about us or our loved ones or our neighbors or ordinary people we don’t know, thousands of miles away, that quickly became less important than the demands of the status quo. This is about redistributing the pie among those who get to sit at the table. And that’s not any of us. It’s not even all of our “representatives.” We are the pawns being moved about the board in a game we don’t even get to watch. We are the props. Our “benefit” is pure PR.
As Min points out, when the coin was in the air, I realized it didn’t really matter. The outcome is a reordering, a shifting of the proverbial deck chairs. Some may benefit. Some may not. Some will be considerably worse off. And where, pray tell, is Obama in all of this? He’s saying it meets his criteria.
If you’re right about the future, that will be nice. I’ll be surprised and happy to admit I was mistaken. I don’t think we’re going to live that long, though.
“If this is a “government expense” anyway, why not make it a real one, to limit the growth of health care costs? Oh, yeah, because none of this was every about what would deliver the best universal care at the lowest price. Whatever the debate seemed about on the surface, it was always really about profit and power.“
As was foreshadowed (proven?) when Baucus refused to consider single-payer. I tried to embrace the “public option” alternative. I was evidently wasting my time, as was the government. Given the amount of effort and distortion and modification in the past 6 months, how could it have been worse if it had been over single-payer?
Wow. In reading all of this, one wonders why insurance companies would even be needed. O:-)
Seems like eliminating them and their 20% would save us all money.
Someone needs to explain to me, how is this different from HR 1252 in the 110th congress. It was titled the “Federal Price Gouging Prevention Act” It was designed to keep oil companies, and fuel suppliers from engaging in price gouging.
Thing is, I don’t recall placing the Oil industry on the federal books? How is a minimum MLR different? The CBO doesn’t make sense here.
I was also a little confused that it seems, unless I am reading things incorrectly, that their modeling instrument for measuring the impact of health insurance changes was develop in early 2007. It would seem that the entire economy has changed rather dramatically since then, and therefore, the effects of that particular model would change as well. But perhaps I am mistaken.
There is a difference between an oil trader and an insurer. An oil trader can buy or sell oil at any time on the NYMEX or ICE.
A health insurer is in the opposite situation. The health insurer sets a premium at the beginning of the year. Throughout the year the insurer pays claims. At the end of the year, the insurer knows how much he actually made — or lost. Subtracting the medical loss ratio from one gives the insurer’s cushion against a “bad claims experience”.
When the government specifies premiums and a high loss ratio, the insurer has a small cushion in the current year and diffulty in adjusting for the next year. Looking at this situation, the CBO saw that the Federal government would have to assume this risk. No insurer would take such a chance.
The final Senate bill puts the MLR for large groups at 85% and small group at 80%. Like all legislation since Glass-Steagall, no provision is made for enforcement.
The administrative branch will likely name a czar. Since the czar will come from the insurance industry and likely return to that industry, insurance companies can have him classify adminstrative expenses as medical expenses. This will help meet the MLR.
The bill does not restrict raising premiums so insurers can also increase premiums to apply the MLR to a larger pie.
Although MLR of 85% is on the cusp of when the CBO says private becomes public, the insurance companies may still be able to get the Federal government to bear the risk of claims running over the premiums set by MLR. Just having this backup should jump every insurance company’s rating.