Why Are Private Health Insurers Losing Money on Obamacare?

Health economist Dr. Uwe Reinhardt writes in a major medical journal that Obamacare seems to have unsolvable contradictions

The report last week (http://wapo.st/2bvbkiQ) that Aetna, one of the major US health insurance companies, would leave most of the health insurance exchanges established under the Affordable Care Act (ACA) of 2010 follows similar accounts the media that Anthem (http://on.wsj.com/2atMJ00), Aetna (http://on.wsj.com/2aP0F2Z), and other large private health insurers are contemplating withdrawing from the so-called ACA marketplace. The companies say the reason behind these actions is they are losing hundreds of millions of dollars on the business coming to them from these exchanges. To make up for the losses, some insurers, though by no means all, have quoted premium increases in excess of 25% for 2017 (http://kaiserf.am/1tubOxk).

This development seems puzzling, as it comes in an era of historically low growth in total national health spending. The latest estimates published by the Centers for Medicare & Medicaid Services (CMS), which provides estimates of current and projected national health spending, indicate that spending growth at only 4.8% in 2016 and project health care spending growth to be only 5.8% per year for the decade 2015-2025 (http://bit.ly/2a0z3Gt).

Furthermore, as a report published by the Urban Institute notes (http://rwjf.ws/1JZlO4E), even in 2010, the year the ACA became law, its impact on total national health spending was estimated to be an increase in annual spending of only 2.5% above what would have been spent anyway. In addition, the report also notes that the CMS now projects that total US national health spending during 2014-2019 will be $2.5 trillion lower than projections made in 2010.

Why, then, in the face of these historically low growth rates, have premiums on the ACA health-insurance exchanges for 2017 increased at such high rates?

The core of the answer to this question can be read in the chart below, showing the highly skewed distribution of per capita health spending across the US population. The phenomenon is known as the “80-20 rule,” indicating that 20% of any large insured populations tends to account for 80% of all health care spending on that population.

Individuals in the high spending categories typically have multiple health problems requiring expensive treatments. A question that has troubled US health policy for decades has been what kind of health care these individuals with multiple conditions should receive and who should pay for it, assuming that only few very well-to-do US residents could afford to purchase their health care with their own resources. Here, it is helpful to remember that the US median disposable family income is only about $54 000, (http://bit.ly/1MEBpsh) not even enough to cover the annual cost of some effective specialty drugs.

The contributions individuals make out of their paychecks toward employer-sponsored health insurance are community rated, which means that they are the same for all employees of the firm, regardless of their health status and even age. With the ACA, the Obama administration sought to provide the same deal for US individuals purchasing health insurance in the individual market.

For health insurers, however, this approach can be called an unnatural act, because it forces them knowingly to issue policies to very ill people at premiums evidently far below these individuals’ likely claims on the insurer’s overall risk pool. Actuaries and health policy analysts understand that this approach can work only if all individuals, healthy and ill, are mandated to purchase coverage for a defined, basic package of benefits, at the community-rated premium—thereby forcing young and healthy individuals to subsidize with their premiums the health care of individuals with medical conditions in the insurer’s risk pool.

However, for purely political reasons, the ACA mandate for all person in the United States to be insured was rather weak, leading many younger or healthier individuals simply to forgo purchasing health insurance and paying the relatively low fines for doing so. Over time, this practice naturally will drive up the community-rated premiums, inducing even greater numbers of young and healthy individuals to forgo insurance coverage, leaving private insurers with ever-more expensive risk pools.

The result of this adverse risk selection (the scenario in which sicker-than-average people purchase insurance while young and healthy people do not) has been that some private health insurers underpriced their policies on the ACA exchanges, perhaps to gain market share early on or because they simply did not anticipate quite the adverse risk selection that occurred.

It is hard to see a way out of this dilemma, given the current political climate. The task is doubly difficult in the United States, because the health care system is structured to yield prices for health care products and services that are twice as high or higher than the prices of identical items in other countries, driving US per capita health spending also to be twice as high as in many other developed countries (http://bit.ly/2bjD9PR). Thus, it is much more expensive in the United States than in other countries to provide health care to all residents, especially those who are ill and poor.

If health care costs in the United States were lower, most people would probably agree that ill, low-income citizens should receive the needed health care that is available to better-off individuals. The problem is that our health system is in danger of pricing kindness out of our souls.

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How Hillary plays the class warfare card

By Stephen Moore

Hillary Clinton keeps bashing the Trump tax plan as “Trumped up trickle down economics.” This class warfare card has become the standard and tired response to every Republican tax plan reform for 30 years. No wonder we haven’t cleaned out the stables of the tax code since the Reagan era. Democrats have no interest.

Hillary’s claim is that the plan will blow a hole in the debt (which is rich coming from someone who worked for an administration that nearly doubled the debt in eight years) and that the benefits all go to the rich. She also says it will cost jobs and could even “cause a recession.”

I worked on devising the Trump tax plan with economists Larry Kudlow, Sam Clovis and others, so I know a little bit about the costs and the benefits. It’s an amazing ideology which says that letting businesses keep more of their own money will cause the economy to capsize and other horrors, but a $1.5 trillion tax hike on businesses and investors will, as Hillary promises, create jobs. Yes, and injecting Elmer’s glue into your veins is a good way to prevent a heart attack.

Let’s start with her claim that the plan will cost $5 trillion. That’s wrong. When taking into account the higher economic growth from the lower tax rates on businesses and workers, the plan’s “cost” is about half that size. The Tax Foundation finds the plan will raise the GDP growth rate by almost one percentage point over a decade, and that means lots of jobs and additional tax revenue for the government. The best way to balance the budget is to put Americans back to work.

The $2.5 trillion “cost” of the tax cut can and will easily be made up by cutting government spending. Over the next decade the government is expected to spend almost $50 trillion. Surely with sound business-like leadership, we can save 5 cents on the dollar.

Next, she says that tax cuts have never worked to revive the economy. We believe that cutting taxes for 26 million small businesses will be a huge incentive for more hiring and expansion by businesses that are now taxed at as high as 40 percent. The American Enterprise Institute finds that the biggest beneficiary of a business tax cut is the American worker, whose wages will go up from more capital spending. If a trucking company goes from 50 trucks to 75, that’s 25 more truckers it will need to hire.

Hillary needs a tax cut history lesson. “Supply side” tax rates were at the heart of the Reagan economic plan in the 1980s. The Reagan expansion with lower taxes was twice as powerful as the anemic Obama recovery with higher taxes and more government spending. The difference in the two recoveries is near $3 trillion in lost output. Similarly, the John F. Kennedy tax cuts got us five and six percent growth. JFK was right: the best way to raise revenues is to “cut tax rates now.” Even Hillary’s husband Bill Clinton agreed to a capital gains tax cut which led to a gusher of new federal revenues.

Next, Hillary claims that only the rich like Donald Trump will benefit from this “Trumped up” tax plan. She obviously hasn’t read the tax plan. By design, the tax rate reductions for the rich are offset almost dollar for dollar by the loss of $250 billion a year in tax deductions for rich people. So the overall tax burden of most millionaires and billionaires is not changed. Almost all of the benefit in dollar terms from the tax plan goes to the middle class (and owners of small businesses). We think they deserve a break a decade that has wiped out financial savings of the middle class. With Obamacare premiums rising by 10 to 30 percent in many states this year, families need the tax cut desperately.

The table shows that the Trump tax plan causes a rise of after-tax income by about $4,000 for the average middle class household, while the Hillary plan shrinks incomes.

What Hillary isn’t telling you is that she and her liberal friends are against tax cuts, because they want to spend the money on free everything. This includes the silliest idea of all time: hundreds of billions for 500 million solar panels. Get ready for a cascade of dozens of new Solyndras. How much money is going to go to Elon Musk from this corporate welfare giveaway. It could be in the tens of billions of dollars.

So just who’s policies benefit the rich and the political class?

Hillary is offering the American people trickle-down government.

When has that ever worked?

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Judicial Watch Targeted for Exposing Corruption

Just how effective is Judicial Watch in extracting information buried by the Obama administration? We need only look at how the White House has tried to quash its efforts for a clue. On Thursday the General Services Administration’s Office of Inspector General published a November 2015 audit on its website, “Letter to Senator Johnson About GSA’s FOIA Process,” that criticizes the agency for, among other things, violating Freedom of Information Act protocols regarding a GSA video enquiry in June 2012.

The report says “GSA had granted Judicial Watch press status in the past,” which should have made it exempt from fees. In this case, however, JW was “denied the fee waiver request.” Moreover, the clearly orchestrated obfuscation is linked directly to the White House. The report says the Office of General Counsel “received an email containing guidance for determining Judicial Watch was not a media requestor. In the email, captioned ‘Judicial Watch Found Not A Media Requester,’ the sender, Elliot Mincberg, advised he had gathered this information at the request of GSA’s White House Liaison, Gregory Mercher.”

Judicial Watch eventually prevailed, though it took nearly a year for the videos to be released and the parties were forced into a settlement. JW president Tom Fitton says, “It’s outrageous but not surprising. Welcome to our world. This is what we put up with all the time from the agencies.”

The Washington Times importantly notes: “President Obama promised an era of transparency when it came to open records requests under the Freedom of Information Act, which is the chief way for Americans to pry loose data from the federal government. Despite the president’s exhortations, the government is increasingly fighting requests, forcing the public to file lawsuits to look at information.” Just image how much worse this administration’s cover-ups would be without JW’s unparalleled work in exposing them. It’s not just the IRS targeting conservative groups.

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For more blog postings from me, see  TONGUE-TIED, EDUCATION WATCH INTERNATIONAL, GREENIE WATCH,  POLITICAL CORRECTNESS WATCH, AUSTRALIAN POLITICS, and Paralipomena (Occasionally updated),  a Coral reef compendium and an IQ compendium. (Both updated as news items come in).  GUN WATCH is now mainly put together by Dean Weingarten. I also put up occasional updates on my Personal blog and each day I gather together my most substantial current writings on A WESTERN HEART.

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