Tuesday, July 23, 2013

The Death Spiral

I used to be a hero. At one point we had quite a few nanny placement services in Greater Cleveland and many of the young women were hired to work in New York. Most of these agencies referred their clients, the potential employers, to me for the health insurance needs of the caregivers. The ones who called were very happy. One of my health insurance companies would allow an Ohio policyholder to retain her coverage even if she moved to New York City. Otherwise, she or her employer would have had to purchase a policy there.

The Ohio policy was hundreds of dollars less per month.

Hundreds. Fifteen years ago. The spread is much higher now.

Two important questions:
  1. Why are Ohio policies so much less?
  2. Why are there 2.6 million uninsured in New York?
It has been said that the road to Hell is paved with good intentions. It is hot, really hot, in New York. Years ago it was decided that all adults under age 65 should pay the same premium. Twenty-two or sixty-two, the price is the same. That sounds great if you are in your sixties, but it only works if you can drag the twenty-somethings to the table. In the beginning your average participant age is in the mid-forties. As the young drop out, the average age, and the price, increases.

But age wasn’t the only pricing determinant abandoned in the interest of fairness. New York insurers were forbidden to underwrite the risks. The sicker you are the better that deal. An insulin dependent diabetic with AIDS pays the same premium as someone who is perfectly healthy. The system, in essence, welcomed pre-existing conditions and penalized the young and healthy.

And of course, the cost of living is higher in New York, especially in NYC.

As we have noted previously, Ohioans, on average, pay a lot less for health insurance for all of the reasons that New Yorkers pay more. I have lots of clients, male and female, under the age of 30. Some of these young adults shopped for this coverage and pay for it themselves. The rest of these cases have some degree of parental involvement. It is much easier for a parent to come up with $70 to $120 a month in Ohio than hundreds more in New York.

Why are there millions of uninsured New Yorkers? The 2.6 million number is actually from six years ago. That number hasn’t gone down. New Yorkers weren’t required to purchase insurance. There was no Individual Mandate. Penalized for their health and youth, many New Yorkers simply chose to not participate. Making insurance affordable might get them back into the market. Making insurance mandatory will have more impact.

It has been announced that the New York rates will be plummeting under the Patient Protection and Affordable Care Act (PPACA). Governor Cuomo is ecstatic. The President is pointing to New York as a model for the future. And it is true, at least for the moment, that New York rates are coming down. A lot. But if you consider $1,000 per month normal, your great bargain may still sound awful to consumers in Ohio. This link is to an article that dreams of young people paying only $190 for a basic policy, one that a guy living in Cleveland might buy today for $70!

Will the New York rates stay cheap? There are two major speed bumps ahead. The first is the PPACA. The 2014 New York rates are certainly much less than the current pricing, but are they cheap enough? Will the subsidies be enough to spur sales when the penalty (tax or fee depending on your political persuasion) is only $95 or about 1% of income? With the penalty so low, enforcement challenging, and the entire process confusing, the prediction is that many of the currently healthy uninsured will sit out a year or two. Lose the young and healthy and New York is right back where it was.

The second speed bump facing New York is the U S House of Representatives. The Republicans sensed weakness in the Obama administration’s decision to shelve the employer mandate for a year. (See previous blog) Last week the Republicans attempted to put the individual mandate on hold, too. Of course the bill passed the House. And you might think that the bill will never see the light of day in the Senate, but don’t be so sure. Punting the individual mandate might seem like a good idea to a group of people who are used to putting off important decisions and deflecting responsibility.

Both the Democrats and the Republicans have a reason to kill the individual mandate. As New York already proved, if we create super health policies that do everything but drive you to the doctor, don’t factor in the health conditions of the insureds, and don’t weigh the premiums properly for the ages of the participants, the rates will go through the roof if you can’t corral the young and healthy into the insurance pool. Without an individual mandate forcing participation, you create a death spiral. As the rates increase to reflect the claims, the young and healthy leave. First the twenty somethings jump out. Eventually the average age of the participants will be over 50. Prices will be out of control and there will be only one answer – Single Payer.

Your friends in New York and California are celebrating the health insurance rates they expect to see in 2014. It would be tacky to point out that their new rates will still be significantly more than the rates we pay today. And it is just sad to think that our new rates and their new rates are going to be about the same.



Friday, July 5, 2013

Get Ready. Get Set. STOP!

T.S. Eliot famously wrote that the world would end “not with a bang but a whimper”. The Obama administration must be Mr. Eliot’s biggest fans.

The Patient Protection and Affordable Care Act (PPACA) was signed into law, amid great fanfare, on March 23, 2010. Major rules and edicts are released by Kathleen Sebelius, Secretary of Health and Human Services, almost every Friday. The entire process, if neither practical nor well thought out, has at least been well choreographed. So imagine the universal surprise everyone experienced with last Tuesday’s whispered announcement.

Mark Mazur, Assistant Secretary for Tax Policy at the Treasury Department, posted in an official blog that the enforcement of the employer mandate would be postponed for one year. The provision that medium and large employers (50+ employees) would be required to provide adequate and affordable health insurance to their workers has been put on hold.

In a blog!

Rules and regulations will be released next week. One of the most complicated portions of the PPACA, a series of requirements that have caused businesses and insurers uncounted headaches since the day the law was passed, is kicked back a year and the information is released through a blog, during a holiday week, while the President is on a plane thousands of miles from the U.S.

Now don’t get me wrong, this blog has asserted as recently as last week that the PPACA needed significant revisions and that it was a shame that the Democrats in Congress seemed incapable of fixing even the largest of problems. They still aren’t. The Administration should be commended for doing something, anything, to avert what has been called a “train wreck”.

Style Points – 0

We are waiting for the details to award points on substance.

Before we get to what this means, let’s first hear from the usual suspects. Fans of the PPACA were swift to point out that they never really liked the employer mandate.

Ezra Klein noted in Wonkblog, his excellent online work for the Washington Post, that the employer mandate is a “bad bit of policy” and that it was initially pushed by business groups.

Steve Benen wrote in MaddowBlog, the official blog of MSNBC’s Rachel Maddow, that this wasn’t really that big a deal since “the delay won’t affect the creation of the exchanges, which should help bridge the gap—folks working for businesses that don’t offer coverage will still be eligible for subsidies they can use to buy insurance in their state marketplace.” (Different site, same picture)Striking a conciliatory tone, E. Neil Trautwein, a vice-president of the National Retail Federation, said that is was a ‘wise move” and that it “will provide employers and businesses more time to update their health care coverage without the threat of arbitrary punishment.”

The Republican Leader of the Senate, Mitch McConnell (R-Ky) released a statement that “the fact remains that Obamacare needs to be repealed and replaced with common-sense reforms that actually lower costs for Americans.” Translation – I got nothin’

What does it mean?

According to our friends at Anthem Blue Cross, the immediate results of this decision by the Obama Administration are that certain parts of the PPACA will go into effect on 2015 instead of 2014:
  • Employers will not have to report certain information to the IRS. This has been referred to as “employer reporting requirements”.

  • The rule that says large employers have to offer coverage to full-time workers or pay a penalty. “Large employer” in this case is a business that has 50 or more full-time or full-time equivalent employees (that work an average of 30 hours a week).

  • The rule that says coverage offered by large employers cannot be more than 9.5% of a worker’s pay for self-only coverage.

  • I would add a fourth. If employers aren’t required to offer coverage, then group health policies (employer sponsored) are not required to comply with the PPACA’s laundry list of Essential Health Benefits. Large employers will still be able to determine whether they choose to offer Birth Control, IUD’s, and the Morning After Pill as well as other controversial elements of the President’s plan.

    This last issue has been a huge point of contention. The federal government now has an additional twelve months to resolve these issues. Unfortunately, only Congress can repair the major flaws of the PPACA, and that is unlikely to happen. Even if the Democrats were capable of drafting the legislation necessary to make the PPACA effective, the Republicans are too dug in, too invested in the law’s failure at any cost, to throw it a lifesaver.

    So we have been set adrift. Our only hope will be more regulatory fixes, engineered by the Administration, released by underlings in blogs or buried deep within reports. All the while employers work and rework their business plans to comply with rules that may change at any time.   Dave   www.bcandb.com