Why Healthcare Premiums are increasing Faster than Healthcare Costs
In the first three years of the PPACA, a Risk Corridor Program was established to help insurers get past the initial loss phases. This is typical of startups and was used with Republican President George Bush’s Part D Drug insurance program. The PPACA had built-in protections for insurers who enrolled many abnormally sick people, provided backup payments for very high-cost cases, and protected against big losses and gains during the first three years.
Due to eliminating all “pre-existing conditions” with the implementation of the PPACA, this was the protection for companies and the incentive to take on the people with health issues. Not only did it help Insurers cover their losses; but, it was an incentive for insurers not to increase premiums. Much of the funding for the program comes from the Federal Government and profitable Insurance companies paying into the Risk Corridor fund which unprofitable companies use to recoup losses. However in the first three years losses exceeded funding from profitable companies due to a Republican Congress passing laws forcing the Risk Corridor Program to be budget neutral leaving 12.6% of the necessary funds available to make insurance companies whole. As many probably know, the shortfall of funding already forced many CO-OPs to go bankrupt and resulted in Healthcare Insurance companies pulling out of the Exchanges.
Those Healthcare Companies still a part of the PPACA have gone to Federal Court to sue the administration for sustained losses. Moda Health sued the administration for $191 million due to losses in implementing the PPACA supposedly covered by the Risk Corridor Program. Moda has dropped its program in Alaska as a result of its losses and has only received ~$14 million. The Risk Corridor Program ended in 2016 and companies now face the issue of never recouping losses beyond just this.
Interesting how the Republicans have been the proverbial slugs in the process and took advantage of the crisis they created by forcing the PPACA to be budget neutral when the Part D Drug Program had no restrictions. They limited how the PPACA can fund the same Risk Corridor Program used for George Bush’s Part D Program. In September of this year, “ five Republican Senators sent HHS Secretary Burwell a letter demanding how HHS is handling a much-maligned insurance provision within the Affordable Care Act. Earlier this month, the CMS had sent a memo to health insurance companies that said the agency would not be making risk-corridor payments for 2015 because any collections would be used to cover the $2.5 billion shortfall from 2014.”
Under the PPACA Budget Neutral Act passed by the Republicans, the administration (DOJ) must now defend the law claiming they were not guaranteed the massive payouts in the first place. In November Republicans introduced the “HHS Slush Fund Elimination Act,” which restricts the Administration from using any Federal funds for the Risk Corridor Program to settle with the healthcare companies owed money.
“We are going to repeal and replace Obamacare but, in the meantime, the last thing Americans need is for the Obama Administration to sneak in one last bailout on its way out the door,” Sen. Ben Sasse (R-Neb.)”
You can see;
– Why United Healthcare pulled out of the PPACA Exchange early as it did when a Republican controlled Congress reneged on the funding for the Risk Corridor Program to cover losses in the startup of the PPACA.
– Why Healthcare Insurance companies losing money would resort to increased premiums to compensate for the lack of Risk Corridor Program funds to cover the startup and losses.
– Why the Part D Drug companies have become successful and competitive amongst each other due to their successful startup with the availability of Risk Corridor Program funds.
All of this was an effort to deny the PPACA an opportunity to be successful by a Republican Congress who would deny its constituents healthcare just to get even with a President they did not like and deny him a legacy. Risk Corridors and associated programs still exist and will continue to exist for Medicare Part D; but then, this was pre-Obama and occurred under Republican President George Bush. No one called it a bailout then.
Furthermore, do you think any healthcare insurance company would ever want to be a part of a Government Healthcare plan for the public as implemented by Republicans after they have been repeatedly screwed by Congressional Republicans?
As somebody put it, the Republicans are like the dog who caught a bus and has no idea what to do with it.
Great post.
I love this last part:
” Furthermore, do you think any healthcare insurance company would ever want to be a part of a Government Healthcare plan for the public implemented by Republicans after they have been repeatedly screwed by Congressional Republicans?”
They did not catch a bus, they caught a 3 mile freight train.
I’m not following the logic. If health care costs are NOT going up more than premiums, why would Congress’s not funding the Risk Corridor Program matter?
The only reason I can see is that the premiums were too low to start with, so they SHOULD go up so that there are not losses that the taxpayers are expected to cover.
Warren:
Your response warrants and answer.
Small issue of the mandate of covering everyone regardless of pre – existing condition. Some companies also ended up with more sick or costly people than others and incurred more expense.
1) The Obama Administration itself argued that there were no promises to compensate any shortfalls an insurance company or co-op realized fully. It even goes so far as to say that any funds distributed do not have to be made in the timely manner sought by the insurance companies.
2) The PPACA must be budget neutral as it was passed thru reconciliation. The Part D insurance program was not. Huge difference. If Congress did not ensure that it did not add to the deficit, it would be failing its fiduciary responsibilities.
3) The Risk Corridor Program MUST be budget neutral or the entire PPACA would fail its reconciliation requirements. This is one of the main reasons Obama’s DOJ itself has fought lawsuits from insurance organizations.
Whatever argument the article’s author is trying to make is entirely moot since both the Obama administration and the GOP have taken the same position. Seriously, we should use our time on a more constructive topic.
Sebastion:
1) The Obama Administration itself argued that there were no promises to compensate any shortfalls an insurance company or co-op realized fully. It even goes so far as to say that any funds distributed do not have to be made in the timely manner sought by the insurance companies. The DOJ started to argue in favor of Rubio’s bill as they had no choice but to enforce the law.
2) The PPACA must be budget neutral as it was passed thru reconciliation. The Part D insurance program was not. Huge difference. If Congress did not ensure that it did not add to the deficit, it would be failing its fiduciary responsibilities. No, the major portion of the PPACA was not passed under budget reconciliation. It did pass on a 60 to 39 vote.
http://www.motherjones.com/kevin-drum/2017/01/obamacare-was-not-passed-reconciliation Washington Post and other sources say the same.
3) The Risk Corridor Program MUST be budget neutral or the entire PPACA would fail its reconciliation requirements. This is one of the main reasons Obama’s DOJ itself has fought lawsuits from insurance organizations. The Risk Corridor Program was made budget neutral after that date and in 2015. Rubio of the small hands Risk Corridor Change did not pass till later. Rubio Introduces “Bill Preventing Taxpayer-Funded Bailouts Of Insurance Companies Under ObamaCare.” http://www.rubio.senate.gov/public/index.cfm/press-releases?ID=fc464be2-7d88-4157-b6c1-aad18595e81c They also made it impossible to use other funding to make up the difference.
Whatever argument the article’s author is trying to make is entirely moot since both the Obama administration and the GOP have taken the same position. Seriously, we should use our time on a more constructive topic.
This is not a moot point and my response is the Republicans from the beginning have been undermining the PPACA in what ever wahen they could Cutting the funding in 2015 using reconciliation was the only way they could do it. Guess what? and as Vox has pointed out, by removing the tax on incomes over $250,000; the Republicals have put in jeopardy Medicare.
I have been writing on the PPACA (was editing Maggie Mahar’s work) since 2009. I think I know it pretty well having read the Manager’s Amendment which went to the House and was sent back to the Senate with changes. I appreciate your comments; but understand where I am coming from as this is an ordinary on a man for which the results will be all of us being hurt by the Republican’s arrogance.
One more point which I forgot to add. Part D was put in place by Pres. Bush and has a Risk Corridor in its function also. It is profitable and returns money to the Gov. There is not reason the PPACA would not have been profitable also. Furthermore, I hear not clamoring about the subsidies to corporations for ESI. Of course the former was put in place by a Republican and the latter if removed would cause an uproar not eaven Trump could lie his way out of today.
Sebastion: “The Risk Corridor Program MUST be budget neutral or the entire PPACA would fail its reconciliation requirements.”
You seem to be quite confused. There is no single piece of the PPACA that must be budget neutral. How could it be because it includes both spending and taxing portions? Altogether the PPACA saves over $125 billion in the first 10 years, according the Congressional Budget Office so it is decidedly revenue positive.
It was years later, in 2014 and 2015 that Republicans added riders that required budget neutrality to a single piece of the PPACA separate from the overall budget surplus of the whole thing.
The legal dispute is whether Congress can refuse to fund an obligation that it previously passed in the original PPACA without repealing that obligation.
The question you should be asking is how the Republicans can repeal the PPACA through reconciliation since the CBO says that repeal will increase the debt.
Bill :
You are correct the PPACA in its entirety passed by itself 60-39. A change was made in 2015 with a bill sponsored by Rubio of the small hands impacting the Risk Corridor and making it budget neutral.
Republicans are vindictive.
Let’s see if I understand how this works out.
1. Republicans vote to retire Obamacare at some point “soon” — January 1, 2019 and January 1, 2021 are possibilities. This will not be immediate, as a concession to those currently using the PPACA, but will be carefully timed to allow a “sensible progression” from the evial Democratic scheme to something all Republicans can love.
2. Congress may also pass a law or two forbidding any federal bailouts for insurance companies or healthcare providers claiming to be in difficulty because of the PPACA.
3. Insurance companies drop out of the state exchanges right and left, causing premium costs to skyrocket in the next year or so.
4. Ordinary citizens moan and groan, and sometimes complain to Congress. Republican Congressmen steadfastly explain that they are helpless to alter matters; that the insurance companies are leaving the exchanges simply as a matter of business, with which Congress cannot possibly interfere, and that all of the problems with Obamacare have been inherent in the healthcare bill all along.
5. As a concession to distressed citizens, Congress will graciously remove the legal requirement that they purchase health insurance.
6. More insurance companies bail out of the system, rates go through the roof once more, etc.
7 Repeat steps 4-6 one or two times.
8. In the 2018 and 2020 elections, the Republicans will point out that all the ills of the American health system can all be attributed to Obamacare, which despite the screams of Democrats has not been harmed and is still officially in place. Americans who want Real Change in their healthcare are urged to vote for Republicans, who will soon offer something much better as a replacement.
9. Republicans win landslide victories in 2018 and 2020. No one as the will or stamina to protest in 2021 or whenever Obamacare is officially killed. Congress passes a resolution urging the states to provide medicare care for low-income and indigent people in their Medicaid spending “as was previously done” but doesn’t offer to help pay the cost.
10, Introductory economic textbooks eventually summarize the story as “a classic confrontation, showing the superiority of the free market over socialized medicine.”
Mike:
Senator Rubio already spearheaded a law in 2015 which made it illegal for the administration to pay for losses during the first three years (this was the limit of the PPACA Risk Corridor as compared to Part D). Never mind the fact, the Gov. already funds ESI to the tune of $250 billion yearly besides Part D.
The market is already risky due to Senator Rubio and Republican’s actions. If they go further and repeal the PPACA in 2,3 or 5 years, the impact will be even greater as their is no hope of recouping earlier losses much less going forward. Companies will just drop out, the PPACA will fail, and we will be back to square one.
Run, don’t know if you saw this. It’s not ACA specific, but a part of the puzzle.
https://www.eurekalert.org/pub_releases/2017-01/uomh-sme010417.php
Sandi:
I read this, this morning. I am sure the news of this made “I am sick to my stomach with the Medicaid Expansion” State Senator Joe Hune really sick to his stomach. If Michigan had banked some of the federal funding also, they would be solvent with the Medicaid Expansion till 2027. Bet they did not and spent the funds on other things rather than raises taxes on the rich in income.
This is an interesting post. There are some technical differences in the Part D Risk Corridor plan and the ACA Risk Corridor/Reinsurance scheme but it’s not important for this comment. It really relates back to something Dale and Bruce always mention is regard to lifting the cap on OASDI contributions.
Part D is used by rich and poor alike. Medicare generally has a politically active demographic and recipients think, rightly so, that they have payed into the system, and are currently paying for the system. Kind of like OASDI.
The ACA on the other hand is really a type of welfare program. The vast majority of new sign-ups are either new Medicaid enrollees or buyers in the individual market receiving significant premium subsidies. It’s not a real active political demographic. As Dale and Bruce always say welfare programs are pretty easy to, “repeal and replace.”
lj:
I kind of thought you would be interested in this. I forget what triggered me on this topic. Just had to keep digging. I added more in my comments to Sebastion. This was a movement to defund and reciprocate with higher prices to the insured to cover cost. You do know Part D the Risk Corridor makes a profit which goes to the Gov.?
And yes, Group always does better than Individual which is mostly Medicaid and the subsidized up to 250% FPL (in a sense). I kind of expect Medicaid to be up in arms as well as subsidized.
I was also nosey about why individual was so bad and Senator Rubio of the small hands led me to the answer of budget neutral in his act.
Yeah, I recently read and article in an actuarial magazine about the ACA and Part D reinsurance/risk corridor programs. It’s weird that the Part D program is prospective while the ACA program is retrospective. Anyway I was familiar with Rubio’s bill but had chalked it up to presidential primary politics. Of course he didn’t seem to pay much of a price in Florida. Oh well…still an interesting post.
I am not convinced that the health care industry will care much which side they cozy up to…as long as they make money. Kinda like Hollywood. They would have a three-way with Hitler and Pol Pot if they thought it would create a hit movie!
Run —
“Senator Rubio already spearheaded ….”
So my second bullet has already been fired; I kind of thought that might have happened, I sort of had a memory … although, it would have been a damned funny piece of legislation, it’s not often you see a government urge a group of citizens or companies into a course of action, then immediately shout out that all the dire consequences which might follow will be their own responsibility. We’d never recruit anyone for the Marine Corps if that were common practice! Anyhow …
“The market is already risky due … the PPACA will fail, and we will be back to square one.” Sort of my point, but I was suggesting that we could wind up well backwards of square one, at some point where insurance companies and ordinary citizens turned green and started puking at the very thought of national healthcare schemes because the ending of Obamacare had been so calamitous, I have dire forebodings now and then that Republicans might even attempt to engineer such an ending, but surely this is paranoia.
Mike:
I am very tired and I need to sleep. I will look at this tomorrow and give you a positive answer.
Mike:
I think you are correct. More in my reply to Eric.
I have had this discussion with many Republicans in the past who somehow believed that Republicans in Congress were wildly ineffective at undermining the Obama administration. Gruber has been pretty much vindicated twice: he was correct – if wildly impolitic – to suggest that complex obscurity help the act be passed, but it also applied to efforts to undermine the act. Rubio aimed a dagger at at least the liver of ACA (if not the heart) but most of the Republican electorate couldn’t figure out how badly his initiative damaged Obamacare. He was a guy that really put the screws to the system but for the Republican primary electorate it was just a buzzing noise.
Here is the way it boils down:
1. Anyone < 138% FPL gets Medicaid. Unless your state did not accept the PPACA Medicaid provision. 2. Anyone < 250% FPL and not on Medicaid gets subsidies. Individual Coverage. 3. Anyone between 250% and 400% FPL has their premiums restricted to 9% of income. Individual Coverage. 4. Anyone > 400% FPL pays 100% premium with a maximum out of pocket of ~$6500 for an individual and ~12500 for a family. Individual Coverage.
It is the individual coverage people in #4 who are faced with rising premiums and are a minority of the total numbers covered by the PPACA. There is no reason why the Risk Corridor program could not have ended up similar to the Part D Risk Corridor program in bringing a profit back to the government in time and using it to subsidize more people. Insurance companies never had time to adjust to the cliental they took in from the exchanges; hence, Co-ops went out of business and insurance companies dropped out.
Rubio did not save taxpayers any money, he just shifted the cost of the startup to a minority of the PPACA healthcare insured.
Gruber got tied up in his underwear trying to be smart. I got the text of what he said and what they said. He tried to play Mr. Smart.
Responding to Run75441’s comments
“The DOJ started to argue in favor of Rubio’s bill as they had no choice but to enforce the law.”
That is pure BS. The government didn’t even compensate insurers for 2014 fully. In fact, they paid them less that 15% of what was owed. That is WELL BEFORE Rubio’s bill, so your argument hold NO water. In fact, the DOJ’s own argument is that they can set their own timetable of when to pay back the insurers, waiting years and years, if at all. Their argument has NOTHING to do with Rubio’s bill, else insurers wouldn’t be bringing up financial restitution for 2014, years before Rubio offered it.
” No, the major portion of the PPACA was not passed under budget reconciliation. It did pass on a 60 to 39 vote.”
That’s not correct. The House was not willing to pass the bill that the Senate passed on a 60-39 vote. Knowing that they wouldn’t be able to get it thru with the required changes after Ted Kennedy’s death, they told the House to pass the bill and that their requested alterations would be made in a subsequent bill, which was passed thru reconciliation. Without this agreement, the first bill would not have passed thru the House. It’s not semantics and it’s the reason the GOP is not dismantling the PPACA entirely thru the reconciliation process. It’s only going after the parts passed by reconciliation.
There are way too many people uninsured still, tens of millions in the United States, and the PPACA costs way too much. It was a piece of legislation cobbled together in panic, demonstrated by how easily the Republicans are dismantling it, and clinging to the PPACA now is akin to shaking your fist at the sky. Behead this monster!
“The DOJ started to argue in favor of Rubio’s bill as they had no choice but to enforce the law.”
That is pure BS. The government didn’t even compensate insurers for 2014 fully. In fact, they paid them less that 15% of what was owed. That is WELL BEFORE Rubio’s bill, so your argument hold NO water. In fact, the DOJ’s own argument is that they can set their own timetable of when to pay back the insurers, waiting years and years, if at all. Their argument has NOTHING to do with Rubio’s bill, else insurers wouldn’t be bringing up financial restitution for 2014, years before Rubio offered it.
” No, the major portion of the PPACA was not passed under budget reconciliation. It did pass on a 60 to 39 vote.”
That’s not correct. The House was not willing to pass the bill that the Senate passed on a 60-39 vote. Knowing that they wouldn’t be able to get it thru with the required changes after Ted Kennedy’s death, they told the House to pass the bill and that their requested alterations would be made in a subsequent bill, which was passed thru reconciliation. Without this agreement, the first bill would not have passed thru the House. It’s not semantics and it’s the reason the GOP is not dismantling the PPACA entirely thru the reconciliation process. It’s only going after the parts passed by reconciliation.
There are way too many people uninsured still, tens of millions in the United States, and the PPACA costs way too much. It was a piece of legislation cobbled together in panic, demonstrated by how easily the Republicans are dismantling it, and clinging to the PPACA now is akin to shaking your fist at the sky. Behead this monster!
“The DOJ started to argue in favor of Rubio’s bill as they had no choice but to enforce the law.”
That is pure BS. The government didn’t even compensate insurers for 2014 fully. In fact, they paid them less that 15% of what was owed. That is WELL BEFORE Rubio’s bill, so your argument hold NO water. In fact, the DOJ’s own argument is that they can set their own timetable of when to pay back the insurers, waiting years and years, if at all. Their argument has NOTHING to do with Rubio’s bill, else insurers wouldn’t be bringing up financial restitution for 2014, years before Rubio offered it.
Rubio’s supposed bill was in place early in 2015. Payments for 2014 were to happen in 2015. Rubio, Sessions from the Senate and Upton of the House found a way to block payments through the Risk Corridor program. Between them and Rep. Kingston they were able to block appropriations by HHS as it was deemed only Congress could appropriate money. This came after the CBO had already stated to Sessions the Risk Corridors would bring in ~$8 billion. Kingston managed to slip in a sentence in section 227 stating no funds could be used in the Spending bill for the Risk Corridor program. Kingston’s maneuver ultimately left a $2.5 billion shortfall in the risk-corridor program in 2015, as the administration only collected $362 million in user fees — and insurers who misjudged the market sought nearly $2.9 billion in payments.”
“ HHS, however, neither collected nor spent money for the risk corridor program during FY 2014. Rather, it intended to collect funds in FY 2015 to distribute in FY 2015 for QHPs that participated in the program in 2014.” Now all of this was being argued in 2014 and Rubio, Sessions, Upton, and Kingston were discussing this in early 2014. The 2015 Appropriation Bill was as of December 2014. There were no payments in 2014 and there was no intention to pay in 2014. The bill to restrict the Risk Corridor Program passed December 2014.
” No, the major portion of the PPACA was not passed under budget reconciliation. It did pass on a 60 to 39 vote.”
That’s not correct. The House was not willing to pass the bill that the Senate passed on a 60-39 vote. Knowing that they wouldn’t be able to get it thru with the required changes after Ted Kennedy’s death, they told the House to pass the bill and that their requested alterations would be made in a subsequent bill, which was passed thru reconciliation. Without this agreement, the first bill would not have passed thru the House. It’s not semantics and it’s the reason the GOP is not dismantling the PPACA entirely thru the reconciliation process. It’s only going after the parts passed by reconciliation.
The major portion of the PPACA was not passed under budget reconciliation. Reconciliation only deals with budgets. There is nothing wrong with what I said.
There are way too many people uninsured still, tens of millions in the United States, and the PPACA costs way too much. It was a piece of legislation cobbled together in panic, demonstrated by how easily the Republicans are dismantling it, and clinging to the PPACA now is akin to shaking your fist at the sky. Behead this monster!
Every time I see people that come in here, some being legitimate bloggers, saying “millions are uninsured” and you have exaggerated it even more with your “tens of millions,” the credibility goes away as they can not recite the make up of the number which I am going to do right now. There are reasons for the uninsured. For example, Republican states which do not allow expansion of Medicaid which accounts for 2.6 million, 5.4 million undocumented citizens, 4.5 million who could have Employer Sponsored Insurance, and 3.0 million who could have unsubsidized insurance. Then there are 6.4 million adults and children eligible for Medicaid and another 5.3 million eligible for Subsidies. These are the Kaiser numbers for 2016 and they total ~27 million for uninsured and why. Your “tens of millions” is a BS numeric when we start accounting for Republicans blocking healthcare insurance, undocumented immigrants, ESI available insurance, 6.4 million eligible for Medicaid, and another 5.3 million eligible for subsidies. These all have access to healthcare insurance in one form or another through the PPACA, much of which exists today due to the PPACA, or Employer Sponsored Insurance if Republicans did not block the PPACA from them and they were citizens. When we account for why they do not have healthcare, the number drops to 3 million uninsured who chose not to be insured.
The Republicans had a chance to participate in the creation of the PPACA. They chose not to even before Obama was in office. It will be interesting to see what they come up with as the PPACA worked as healthcare and could be modified even further with Republican help and if they regulated the commercial healthcare industry. Point me to any Commercial Healthcare policy which is not complex. Most of us only see the summary.
I spend a lot of time researching my articles and read in quite a few of different places. I am not going to go back over this with you as what I have stated here is backed up substantially. Your comments are not supported and I see no reason to address them again. Bottom line, you have been answered.
Run,
You have done enough. Sebastian, for whatever reason, cannot seem to understand actual facts and known history.
“A person who won’t read has no advantage over one who can’t read.”
Mark Twain