There is a amazing piece in Forbes that Tim Worstall (also at Forbes) notes reporting on scary news that is misleading:
I’m very confused by this piece from fellow Forbes contributor Rick Ungar. He tells us that there’s a bomb buried in Obamacare (or more formally, the Patient Protection and Affordable Care Act) and that it’s just gone off. Further, that it will mean the end of private, for profit, health care insurance on any large scale: whatever remains will be just a luxury item for those who like to beat the queues as such insurance is in the UK where we have the NHS.
Angry Bear’s Bruce Webb noted the MLR in the legislation on July 28, 2009 (and here and here), among the first to offer analysis, but hardly a surprise now.
Tim [edited for clarity] quotes Ungar and then refutes:
That would be the provision of the law, called the medical loss ratio, that requires health insurance companies to spend 80% of the consumers’ premium dollars they collect—85% for large group insurers—on actual medical care rather than overhead, marketing expenses and profit. Failure on the part of insurers to meet this requirement will result in the insurers having to send their customers a rebate check representing the amount in which they underspend on actual medical care.
This is the true ‘bomb’ contained in Obamacare and the one item that will have more impact on the future of how medical care is paid for in this country than anything we’ve seen in quite some time. Indeed, it is this aspect of the law that represents the true ‘death panel’ found in Obamacare—but not one that is going to lead to the death of American consumers. Rather, the medical loss ratio will, ultimately, lead to the death of large parts of the private, for-profit health insurance industry.
Why? Because there is absolutely no way for-profit health insurers are going to be able to learn how to get by and still make a profit while being forced to spend at least 80 percent of their receipts providing their customers with the coverage for which they paid.
What confuses me here is that in a competitive market it’s entirely normal for an insurer to have a loss ratio higher than 80%. There are plenty of entirely profitable and growing insurance companies that have loss ratios over 100%. So I cannot really understand why the law insisting on an MLR of 80% (or 85% in the large group market) is going to cause all for profit insurance companies to fall over.
Now of course one wonders what is important in addition to this scarey announcement of a medical cost bomb? Issues of accounting for expenses, a more recent mlr formula that is more permissive, enforcement issues. And even why the ratios may be central as a part of the legislation. Another post of course.
It could well depend on the definition of “overhead,” depending on the treatment of claims processing costs this percentage could swing quite a ways.
It is a bit of an unprecedented regulatory effort, it moves private health insurance closer to a “regulated utility” model.
You might like this piece where I try and explain why I think Ungar is wrong.
Most companies already meet the MLR standards anyway. And the fall in MLRs in recent years is almost certainly (at least in part) a result of lower investment returns on the float.
Social unrest is on the rise. Who does still taping his eyes and does not want to see the direcction we are heading. It is just a matter of time till the whole thing collapses. We will have a Western Spring soon when people will rioting in Berlin, New York and London.
Post edited to make clear what part is Rick Ungar writing and what part is Tim Worstall parrying.
Market, what market?
It is the medicine insurance cabal, socialized through Medicare/aid and regulated only to keep the profit level at 12% of “revenues”.
Capitalism, I am all in favor of it, however, it is not evident in the US.
i would hope that “claims processing costs” would be included in overhead. where else are the insurance companies going to find those “efficiencies” the free market is so proud of?
meanwhile limiting profits as a percent of costs is no burden. easy enough to have your friends the providers raise costs so your profits can go up in absolute terms while staying the same as percent of costs.
What social unrest in the west? Seriously?
OWS? You got to be kidding me. They, in total, don’t even get to a small percentage of the one anti-Bush protests in the ’00s. And they basically want people to pay them money for their own stupidity.
A riot in London? Barely registered.
Greece rioting – you know they are rioting becuase their government owes the EU more money than they can possibly pay back and the gravy train is finally be cut off. Don’t you?
Western Spring? To replace democratically elected governments? With what exactly? What government are you going to put in place of the one we have and who is going to ollow you in destroying what we have?
Good luck getting the left to riot against Obama in the US. Heck they can’t even get an anti-war demonstration going even though Obama escalated the wars. Not going to happen.
The people who want change can do just like the Tea Party did – get organized, get involved, and get their candidates elected. Lots of hard work and if your message gets rejected at the polls you get to live with that also.
Otherwise you are just a mob.
Islam will change
Thank you Ken
This is no bomb. The bomb will come when people have to face what I am now facing: Buying health Insurance.
In my case, I am insured only the company is no longer writing policy to meet the new requirements. Thus, my plan that is currently $1800/quarter (not the best obviously) is looking like $1200 to $1600/ month. That is $7200 per year going to $14,400 to $19,200.00.
I don’t have an extra $7200 to $12,000.00. It’s just not there. No, we are in that position where we won’t be getting help paying for it either.
At this point, I honestly do not know what to do. Let’s add $7800 is needed currently to fix my sweetie’s bridge that went bad.
Just wait until people start seeing these expenses. That’s the real time bomb. This is what make me suspicious of all the claims coming out of Mass regarding the “success” of their program.
easy enough to have your friends the providers raise costs so your profits can go up in absolute terms while staying the same as percent of costs.
MA was about first in the nation for price of medical insurance premiums before any ‘programs’ and continues medical costr inflation to date. Of course cost control measures were postponed for consideration for the two years after theoriginal legislation 2007 nor addressed much to date…global payments schedules is the big deal now,
So the bomb is as you suggest Dan, but would have happened even if there were no public program…just fewer people insured.
I am in agreement with you. I do beieve the greatest impact will be on individual’s insurance. Those companies not in full alignment with have to soon get there and many are doing such today.
rates have been going up.
you might want to talk to Robert Waldmann about the Greek rioting and the gravy train.
I mean I don’t know, but your sources on this subject are suspect.
Rates are going up due to increased coverage
Why isn’t single payer being discussed? Without an expanded Medicare system open to all, there will be no competition for private medical insurance, and rates will continue to rise until, 20 or so years from now, only rich Americans will be able to afford decent health insurance. This is a national disgrace. At least half or even a little more than half of Americans have consistently indicated that they want public health insurance, and yet our politicians have refused to respond to this desire. Most of the economically advanced nations have public health insurance systems and decisively lower medical costs per capita than the US. The lack of a public health insurance system in the US is lowering the quality of coverage while inflating the cost. It is also driving down the competitiveness of American business. “Obamacare” is not a solution. Please include Medicare for All in further discussions on this topic.
Why isn’t single payer being discussed as an alternative here? Medicare for All is the only way to give coverage to all yet control medical cost inflation, and it has shown its effectiveness in nations around the world. “Obamacare” cannot control medical cost inflation, which in 20 years will deprive most Americans of decent coverage. The only sane and economically effective way of controlling medical cost inflation is a public health insurance system for the US. It deserves to be included in future discussions of this subject.
Yes, but you’re missing the most important issue by far: how would single payer help the banks? If it doesn’t, then it’s a non-starter in our government By, For and Of the .01%.
Yes it does. We have done comparisons between countries in a macro approach because there are a variety of what we call ‘single payer’ models with certain’outcomes’.
We also have posts on how medicare in the aggragate is not increasing nearly as fast. But any big changes would produce profound consequences on people’s lives in the current system. How would you change medicare to fit the bill??
coberly and you denial on this subject is legendary.
Islam will change
Uwe E. Reinhardt is one man to follow on some of this structural change.
miedicare costs per capita
OK, buffy has offered up the standard “don’t have facts for rebuttal, so I’ll just sneer” response. The assertion he sneers at is that social unrest is on the rise. His answer, once the dismissive tone is peeled away, is that the rise in social unrest (from the left) is not sufficient to meet buffy’s personal standard, so it doesn’t count. Meanwhile, buffy lists a number of instances of social unrest which, unless we’ve been ignoring a great deal of social unrest, actually demonstrate an increase.
Then, he slips into pretending he’s responding to an assertion about left-wing social unrest, even though johnbutterfly didn’t make that distinction. You see, the baggers ARE successful at social unrest (declares buffy) but the left are a bunch of wimps. In other words “my daddy can beat up your daddy” as a line of argumentation. We don’t actually know whose daddy would win the fight, but that’s not the point. Buffy CLAIMS to know, and you are meant to be impressed by his claim. But baggers and occupiers are both engaged in demonstrations of civil dissatisfaction, so if the baggers are as effective as buffy claims, then even by buffy’s own assessmen, johnbutterfly is right about a rise in social unrest.
So, as far are we can tell from buffy’s response, social unrest in the West is up, just like john said, buffy disapproves of the left-ish version (big surprise) and sneers at what he dislikes. Impressive.
hard to know even what subject it is i am in denial on. Waldmann wrote a post here a couple of days ago in which he mentions that the banks might have had something to do with European debt crisis.
Being a simple kind of guy myself, I find that a more interesting probability than the idea that simple kind of folk just went out and forced the banks to lend them more than they could afford to pay back.
The idea of a competing public system was raised and rejected (by Obama) during the debate. The idea was that public and private insurance provision would be put in competition, and we could learn from experience which provided better service. The bet was that lower overhead on the public side would mean better care for a given premium. As far as we can tell, it was pressure from private insurers that killed that idea.
If, however, private insurers are forced out of business, there will then be a debate between whether to lower the cap on payment for medical benefits or to create a public option. The notion of settling which is better through competition doesn’t leap right out at me from that debate. Seems more of a political decision, which is arguably what private providers want. It has worked for them so far.
But again, it’s not clear that private providers will drop out of the market at an 80% limit. That’s just PR so far.
not sure what you mean here. it could be true that the insurance companies are now forced to insure worse “risks.” but i saw the rates take a sudden turn upward the day obamacare passed… maybe they were anticipating the new risks.
on the other hand watching health and auto insurance over the years, it seems to me that having a market that can’t say no tends to drive prices up.
it may be a poor analogy… and i hope someone has a better.. but it struck me (no pun) that when you have insurance you are willing to pay a thousand dollars or more to take the dent out of a fender. with no insurance you learn to love the character marks. and that no sane person would park fifty thousand dollars worth of sheet metal sculpture in the Safeway parking lot unless he had insurance. Since the law requires it, and I mostly agree with the idea of the law, I have insurance and happily pay for rich people’s sheet metal work.. telling myself it’s all Caesar’s money.
Now in the case of health insurance, again, if you have insurance you don’t mind paying the doctor a hundred dollars to tell you to “fill this prescription” for another hundred dollars for something you would have got over anyway… or go to another doctor and another until you find one who understands you and orders the thousand dollar tests…
point here is not that we don’t need insurance, it’s that we need someone with clout to keep a lid on it.
i’d have said the only one big enough for that job was the government. but Obama has taught me I can’t rely on liberal ideas and fine speeches.
“not sure what you mean here. it could be true that the insurance companies are now forced to insure worse “risks.” but i saw the rates take a sudden turn upward the day obamacare passed… maybe they were anticipating the new risks.”
You are now categorizing what you meant in this statement:
“rates have been going up.”
To which I answered:
“Rates are going up due to increased coverage“
The rates due to Obamacare are going up because companies now have to provide greater coverage for a variety of things such as children until age 26. There is no indication companies have to provide coverage for higher risk at the same premiums as what a healthier person would have to pay. One key thing many people also seem to forget, healthcare insurance companies invest those premiums in various investments. If there is a downturn in the economy and the funding is portrayed to be less than the risk . . . guess what, your premium is going up.
Since when did you or anyone have a choice when it comes to getting care in many cases? Assuming most people wish to live, you can either accept it at some hidden price or die in many cases. When I had pneumonia, no one could tell me the costs other than the $260 office visit. The total bill was >$1500. So do I accept the bill and live or die when I did not have healthcare insurance (and I have written on this topic several times also).
point here is not that we don’t need insurance, it’s that we need someone with clout to keep a lid on it.”
You adequately state the problem with healthcare today with this statement:
“or go to another doctor and another until you find one who understands you and orders the thousand dollar tests… “
This is the typical “service for fees” model which is bankrupting the economy, the US and us. In your statement, you are advocating keeping such a model. Then you go and state you do not need insurance because you just need someone to keep a lid on it with this statement:
“point here is not that we don’t need insurance, it’s that we need someone with clout to keep a lid on it.”
Coberly, we do need insurance, universal healthcare, single payor, and/or Obamacare. HOWEVER, none of these will control rising costs if the cost model is not change which Obamacare is the first program in place which will make a running start at and to which insurance companies are preparing to meet. As to rising costs, Medicare is growing a < 3% this year and has been holding down the rising costs of commercial insurance in conjunction with Obamacare.
I meant believe this is the precursor to single payer which too will not control the rising cost of healthcare until the cost model is changed from “service for fees.” No insurance plan can control such a cost model and Obamacare is the first which offers a plan and the impetus for better outcomes for costs.
Color me thick! Are you saying you will pay more under Obamacare?
i don’t know where your hostility is coming from, but it is enough to keep you from understanding what i was trying to say. i won’t bother trying again, although i normally allow quite a bit for my own lack of understanding… and yours.
I’m saying I will pay more simple. I not sure how much is do to the new health care law. I was told that RI is tightening up what a minimum plan must provide and thus my current plan is no longer after February.
I don’t see that the current law has had enough of an effect to cause such an increase. though it may be why the state is tightening it’s minimum requirements.
My current play has a $5000 deductible plus 20%. The best I can do currently is $6000 deductable 7100/family total out of pocket expense. It’s that 20% that I would have picked up that I won’t have to pick up, but instead pay at least double annual premiums.
I have been fearing this moment since Mass did their plan and heralded it as a major accomplishment. They ignored their own research that showed people/family just like me would be in the very position I’m now in.
I am so sorry.
I went through this when I was unemployed for 2 years and caught pneumonia. I do not know where you lle on the income level; but, Obamacare does have subsidies which are far better than MA Healthcare, a means to control healthcare industry cost increases, and other items as well.
How can I help and explain????
I am as adamant as you are about SS, so why the beef??? Understand the problem and then come back and critique my viewpoints. I read the ACA and the Manager’s Amendment. I took the time when Congress did not and you???
I am being a prick . . .
the trouble you are having, though, is that you don’t understand what i wrote, so you are criticizing something i did not say. i’d try to explain what i mean better but it seems to me you are determined to be angry at me, so what’s the point.
you probably don’t have any more time than i have or i would suggest you go back and read a few sentences more carefully. they mean pretty much the opposite of what you understood them to mean. this is a pretty common problem.
you asked upthread how someone would modify Medicare. Here’s mine:
Return it to entirely a dedicated tax to pay as we go for all medical related services after retirement… and gradually extend it to include all medical costs before retirement.
This would result in no net tax raise (your income tax would go down, your Medicare tax would go up, But it would isolate the medical care costs so we could see what we are paying. And yes I’d cap the premium so “the rich” would not be paying an unreasonable cost for their insurance.
“Tax the rich” is just as dangerous, foolish, as “privatize the risk.”
I understood the point of single/universal payer to be that with all participants covered by a single entity and paying a premium (or tax) to that payer there would be a more balanced mix of insured. The problem with Medicare as it currently exists is that it is top heavy with medically needed participants, the aged. If that group were balanced with younger and healthier participants there would be a better balance of premium payments in to benefit payments out to providers. Insurance of all kinds works most efficiently when the pool of insured is optimally diverse. Also, taking the profit margin out of the insurance aspect of health care would then lower the over all cost by a significant degree. That can only be accomplished through government administration, as in Medicare.
no doubt true universal coverage single payer is the best option. but i think you miss the point of Medicare.
because you know even when you are young that you face some risk of very high medical costs when you are old, you can pay the expected value (cost times probability of incurring them) of those costs over an entire working lifetime with reasonably low monthly payments.
this has nothing to do with Medicare costs being high because the pool is high risk. Of course it is, that’s why you pay for it in advance, while you can, over a long period of time.
now if you want to add to that premium the expected cost of incurring high medical expenses while you are young, the premium shouldn’t go up all that much. but that would not mean you ought to only pay the low “youth” premium… because when you get old you won’t be able to afford the high “old” premium, especially when you have to pay for it essentially one year at a time instead of in 480 easy payments.
moreover, if its pay as you go, you get to pay the “now” low costs of the currently old, and get the “then” high cost care paid for by the “then” better paid young.
this is one of the beauties of pay as you go. but the Liars have turned it into paying for someone else’s greedy granny.
or come up with the clever idea of cutting your insurance because costs are going to go up.
Dale under the original design as seen in HR3200 (the House Tri-Committee Bill) and Kennedy-Dodd HELP the insurer/provider collusion was inherently limited by the Public Option, the result would just to be to price compete themselves out of the Exchange.
But even in the absence of either the Strong or Weak Public Option MLR still bites if only in contrast to the VA and Medicare, at some point the market starts forcing some sort of opt-in to the latter kind of a back doors PO.
As to your spat with Run I don’t have time to try to mediate it all. It does seem clear that private insurers started aggressively boosting premiums well in advance of the trigger points of mandatory issue/no post diagnosis rescission/minimum acceptable benefit package actually kicking in hoping to build in a new baseline from which to push back on MLR by just taking 15-20% of the larger pie. But you can only push this so far even in absence of a true PO given the huge market share of “non-profit” health insurance systems like Blue Cross where there are no shareholders per se and yet management can maximize their personal compensation by grabbing market share based on price. That is the interest of every ‘provider’ working under the literal aegis of Blue Shield or Group Health are not aligned perfectly, admins can face off with medical professionals or in some models admins and physicians can face off against nursing, clerical, nd custodial staff to control costs and so maximize market share under an Exchange system.
Hmm your first chart shows a fairly linear drop in MLR from 94 to date that seems to have zero correlation with variations in investment returns over that period. If your thesis is correct shouldn’t there be more coincidence with market ups and downs over that period? Particularly since at least some insurance companies like John Hancock historically are heavily invested in boom and bust Real Estate. Where exactly in that chart is the greater than 100% MLR?
I suspect you are working from a broader definition of “insurance” that includes various forms of life and casualty insurance where the time duration of the float between premium collection and payout is longer than is typical in health insurance coverage. Where your chart doesn’t show any evidence of high MLR at all. I mean selling life insurance to 20 something’s being a litte different than selling Group Health to a typical manufacturing/government/retail workforce where there are generally some middle age people on the plan.
Daniel the simple answer is that subsidies for small employers and/or their employees don’t start until the Exchanges do in 2014 even as a combination of greed (wanting to raise baseline premiums to influence Exchange rates) and necessity in the form of must issue and no rescission drives up cost for private insurers.
The original deign of ACA as seen in HR3200 and Kennedy-Dodd had the new protections and the Exchanges cum subsidies kicking in at the same time, I.e in two weeks on Jan 1, 2012. The various “compromises” ended up with a mismatch in time, where Dingell and Kennedy had a finely balanced system a further 8 months of Baucus, Snowe, Nelson, Obama and AHIP delivered us a kludged together mistimed system.
Personally I think it will sort itself out after the exchanges kick in in 2014 but I don’t envy ‘smaller’ and ‘small’ employers (technical terms under ACA) in the meantime. Doing the right thing by your employees being frankly sucky in the interim.
Wasabi the brutal fact is that advocates of Single Payer never submitted scoreless legislation, the nearest attempt being Conyers-Kucinich HR676. Which never got a hearing in part because the authors identified three sources of funding but refused to establish actual rates.
I got some pretty nasty pushback at FDL for pointing out the deficiencies in the Bill language, to the point that some FirePups call me “that guy”, but the whole thing was ridiculous. For example the very first section, I.e 101 was practically a parody. It went out of its way to promise unlimited medical, dental, vision, and long term care with no co-pays or indeed cost sharing at all, that is coverage vastly better than current Medicare, to all ‘residents’ a term explicitly defined as all persons present on US soil, while prohibiting any proof of legal residence.
The original version was so loosely written that foreign billionaires could fly in and have all medical nd surgical costs covered by the American taxpayer. At which point Anthony Weiner (pre junk photo) stepped in and tightened up the language some, but not enough to make it any less of a parody of what the Fox News/Beck folk insisted was the goal all along-free unlimited care for ‘illegals’.
The whole thing was at best aspirational, at worst a stick in the eye to the Right, what it wasn’t was a remotely achievable piece of legislation. Now there was a realistic piece of Single Payer legislation out there in the form of the 2007 Kennedy-Dingell Medicare for All Bill. But that is not what the 2009 HR676 was about, it was just a sloppy attempt to score points and all concerned in pretending it was anything else should be ashamed of themselves.
In particular I don’t know what John Conyers was thinking when he agreed to be lead sponsor, I suspect he got played by second sponsor Kucinich.
But in short, if a bill can’t be scored, and HR676 couldn’t be, it can’t be considered under existing budget rules. Period.
Medicare was never totally paid for by a dedicated tax. Or maybe there was a time hen it only covered Hospital and not Physician. But as far as I know Part B Physician has from its inception 75% paid from the General Fund and 25% by premiums. Or at least that is how the split has been hardened under current law.