Obama Administration Lied About Insurance Company Bailouts

A Damning Report

By: Dan McLaughlin (Diary)  |  August 5th, 2014 at 02:00 PM – RedState

It can be difficult to keep track of all the untruths the Obama Administration has told in the process of selling Obamacare to a disbelieving public, and it is tempting to write these all off as history, more than four years later. But the untruths have never stopped coming. A House oversight report released last week reveals that the Administration has been misleading the public about the likelihood that it will have to bail out insurance companies that sold policies under Obamacare. I highly recommend you read both the report and Jeffrey Anderson’s excellent story in the Weekly Standard summarizing it, as well as Phil Kerpen’s blow-by-blow of the emails over at The Federalist. The upshot is that, even after the Administration’s hard sell and coercive mandates forced millions of Americans to buy policies from the big health insurance companies, we should expect a billion-dollar bailout of those companies because the mix of people buying them is older and sicker than projected (unexpectedly!), and we should expect going forward to face a choice between premium increases and even bigger bailouts.

The Oversight Report covers a variety of close contacts between the Administration and the insurance companies, which in and of themselves are an eye-opening up-close look at corporatism in action and the sheer hypocrisy of an Administration that loves to bash insurers publicly while working hand in glove with them and catering to their needs behind the scenes – an Administration where, by President Obama’s own account, he commonly asks CEOs why they aren’t spending more of their shareholders’ money lobbying for his policies on immigration, the environment and education. The quid pro quo in that arrangement is that Administration carrot-and-stick control over the big insurers has kept many of them publicly on the reservation, parroting pro-Obamacare talking points and shying away from public criticism, all so that the Administration can tout their silence as proof the program’s critics are all wet. There’s only so much you can blame the insurers, who after all are for-profit companies that by now have no real choice but to do business with Leviathan. But we’ve come a long way from the idealistic “new politics” rhetoric of 2008 to the grubby details of bailing out big corporations from a mess entirely of this President’s own making.

 

The bailouts are at the heart of this web of deceit. Pre-Obamacare, insurers had to price their policies mainly by reference to market forces (albeit in an already heavily-regulated market): charge enough to cover the actuarial cost expected for each enrollee, but not too much to lose business. Guess wrong and you lost money. But under Obamacare, consumers no longer have the choice whether or not to buy policies, and insurance companies no longer face any risk of losing money, because they’ve been promised a bailout. Money will still be lost, but it will be taxpayer money, and you never run out of that, do you?

Obamacare Enrollees Older and Sicker Than Projected

Obamacare has three separate programs (the “3Rs”) that make up this bailout: Reinsurance, which pays companies to subsidize particular policies; the Risk Corridor program, which taxes companies that end up with less-expensive mixes of policyholders and subsidizes those that have more-expensive mixes; and the Risk Adjustment program, which does the same at the insurance plan level. The mechanics of these are all more complex than that (but trust them, they have top men working on all these details), but the general idea is that, if Obamacare works as projected, the Reinsurance program will provide a subsidy of up to $20 billion over the next three years, but the other two programs will be budget-neutral. In other words, there will be an equal balance of winners and losers subsidizing their fellow comrades in glorious workers’ paradise without pestering the taxpayers.

But the data provided by the insurers – insurance companies and co-ops covering about 80% of the market, from which the overall numbers are extrapolated* – makes clear that the Administration’s public stance of no-net-bailouts is at odds with what those insurers expect and have been telling the White House:

As of May 2014, twelve of the 15 traditional health insurers expect to receive payments from the Risk Corridor program, one of the insurers expects to make payments into the Risk Corridor program, and two insurers expect no net payments. These 15 insurers project they will receive approximately $640 million in net payments through the Risk Corridor program for the 2014 plan year.

As of May 2014, of the 23 co-ops, seven expect to receive payments from the Risk Corridor program, two expect to make payments into the Risk Corridor program, and 14 expect no net payments. These 23 co-ops expect to receive approximately $86 million in net payments through the Risk Corridor program for the 2014 plan year.

…Although the Risk Adjustment program is required to be budget neutral, many more insurers expect to receive payments than make payments. As of May 2014, the companies surveyed by the Committee expect net payments through the Risk Adjustment program of about $346 million. Moreover, insurers expect to receive nearly twice as much in net Risk Adjustment payments than they did on October 1, 2013. This provides additional evidence that insurers expect enrollees in ObamaCare-compliant plans to be less healthy than originally anticipated. In fact, enrollment information provided by insurers show that insurers enrolled a much older risk pool, on average, in their ObamaCare-compliant plans than they anticipated.

While the exchange plans were always susceptible to adverse selection because of how expensive the law made insurance for younger and healthier individuals, several delays and modifications to the law by the Obama Administration worsened the adverse selection problem….Insurers directly lobbied the White House for the Administration to make the 3R programs more generous to insurers, and the Administration obliged. Insurers and co-ops now expect a third more from the Risk Corridor taxpayer bailout than they did on October 1, 2013. It is impossible to know how much of the increase in the industries’ expectation for the size of the bailouts is the result of a less healthy exchange population than originally anticipated and how much of the increase is from the Administration’s rule changes to make the bailouts more generous…

This is, as the Oversight Report notes, dramatically different from the February 2014 CBO analysis that Democrats uniformly trumpeted as evidence that there would be no net bailout; the House went straight to the insurers because “the CBO estimates were inconsistent with widespread sentiment among actuaries and health policy experts”. The actual insurance company data paints a picture quite different from the CBO’s report, in part because (as set forth in the graph at the top of this post), the mix of enrollees has turned out to be older and likely sicker than projected, mainly due to a drastic shortfall in the enrollment of families with children (always a demographic overlooked by this Administration). In other words, as usual, reality has failed to conform to the assumptions provided to the CBO. As the report notes:

The large increase in insurers’ expectations for Risk Corridor payments and Risk Adjustment payments between October 1, 2013, and the present are consistent with recent media reports about a high degree of adverse selection in exchange plans. An April report from Express Scripts, a pharmacy benefits manager, showed that early exchange plan enrollees were spending much more money on drugs than individuals in group plans. On June 24, 2014, the Wall Street Journal reported that exchange enrollees are about 70 percent more likely to have significant health issues than people enrolled in the individual market in 2013. According to an analysis of the early claims data, healthy individuals largely chose to keep their existing non-ObamaCare-compliant plans while those with greater health concerns have opted for exchange coverage. Patrick Getzen, chief actuary for Blue Cross Blue Shield North Carolina, told the Wall Street Journal, “[i]t’s even worse than what we thought. … We’re seeing more chronic conditions than we would have expected.”

The Committee has obtained two pieces of information that further demonstrate that people enrolled in exchange plans are significantly older and less healthy than initially expected by insurers. The first is that insurers anticipate much larger payments through ObamaCare’s Risk Adjustment program than they did on October 1, 2013. The second is that insurers have reported to the Committee that they have enrolled a substantially older population in their exchange plans than they projected prior to October 1, 2013.

Obama White House Is Warned But Downplays The Risk

The Oversight Report details the communications between insurance company executives concerned about potential mounting losses and Valerie Jarrett and other White House officials who were eager to keep them singing from their script, and who eventually agreed to a more generous bailout package in order to tamp down pressure to raise rates even further than planned. Anderson summarizes a key exchange:

[T]he administration declared that the risk-corridor program would be budget-neutral. In reply, according to the Oversight report, CareFirst Blue Cross Blue Shield CEO Chet Burrell emailed Jarrett and then talked on the phone with her later that same day. The next day, he emailed her again, attaching a memo that said, “Until very recently, the position of the Administration had been that the law requires the Federal government to fully fund the Risk Corridor payments if amounts paid in by the ‘winners’ turn out to be inadequate — as they likely will.’” Otherwise, he added, “carriers will have to increase rates substantially (i.e., as much as 20% or more beyond what they would otherwise file) to make sure that premiums adequately reflect expected costs.” In other words, the administration had a choice: provide a bailout, or face the unpleasant prospect of having insurers price their products honestly.

…Soon thereafter, the Obama administration abandoned the claim of budget-neutrality, writing in a release from Health and Human Services (HHS), “In the unlikely event of a shortfall for the 2015 program year, HHS recognizes that the [Patient Protection and] Affordable Care Act requires the Secretary to make full payments to issuers. In that event, HHS will use other sources of funding for the risk corridors payments, subject to the availability of appropriations.”

So, the Administration was continuing to call a bailout “unlikely” as insurance company CEOs were warning the White House that the industry believed it was in fact “likely,” and were pressuring the White House to guarantee a bailout precisely for that reason. As the Oversight Report details, the expected bailout has increased significantly since the October 2013 launch of Obamacare, and now tops $1 billion. And as Anderson details, there is no way Congress will appropriate money for such a bailout, and the Administration’s basis for claiming it can be funded without an appropriation is exceptionally shaky. But then, this White House won’t be stopped by such minutuae as Article I, Section 9 of the Constitution.

Rate Hikes A-Comin’

All of this matters because rate hikes are on their way, and the bailout appears to be the only thing holding them back from getting even worse. We just saw the Florida insurance regulators project a 13% increase in premiums for 2015, some of which will hit policyholders and the rest of which will – like the bailout – be absorbed by taxpayers. This is in line with other states as well:

According to officials in the State of California, insurance premium increases in the first year of the Affordable Care Act (ACA), also known as Obamacare, ranged from 22 percent to 88 percent….According to press reports, they will rise by an average of 15 percent in Indiana, 12 percent in New York, 11 percent or more in Arizona, 11 percent in Iowa, 5 percent in Delaware…by double digits in Tennessee and Louisiana, and as much as 15 percent in Virginia. More and more states are likely to announce rate increases in the weeks ahead.

The Administration’s fear of unpopular rate hikes seems to have motivated the bailout, as the insurers were pointedly warning Jarrett that she needed to move to reassure them on bailouts before the next set of deadlines for publicly filing their next year’s rates. There’s an election coming, after all.

As the Oversight Report notes, even with all of this governmental support, a number of the co-ops and at least a few insurance companies seem to be underpricing policies in a way that will be unsustainable and lead to ever-growing demands for bigger bailouts down the road, creating a fiscal death spiral for the program:

[T]axpayers appear to be on the hook for bailing out co-ops that significantly underpriced their plans in 2014. Moreover, policyholders with coverage through these co-ops should expect large premium increases in future years when the co-ops can no longer rely on taxpayers to heavily subsidize their revenues.

In addition to the co-ops, many other insurers also appear to have underpriced exchange plans for the 2014 plan year, likely due to their expectation of receiving a taxpayer bailout. The Committee has learned that, as of October 1, 2013, many large insurers expected to receive payments through the Risk Corridor program. Of the 15 insurers, six expected payments through the Risk Corridor program prior to the start of open enrollment while none expected to make payments into the Risk Corridor program.

Obamacare is the gift that keeps on giving – from you to a big industry that President Obama only pretends to hate.

* – The Oversight Report’s estimates are based on the White House’s frequently touted figure of seven million Obamacare enrollees, although it expresses skepticism about that as well, see page 15 of the Report.

Ezekial Emanuel Is Really Looking Forward To The Demise of Insurance Companies

The Reaper Curve: Ezekiel Emanuel used the above chart in a Lancet article to illustrate the ages on which health spending should be focused. "Principles for Allocation of Scarce Medical Interventions" The Lancet, January 31, 2009 making way for death panels as part of his system and part of the ObamaCare plan!

PJ Tatler: Ezekial Emanuel, the brother of Rahm Emanuel and former health care adviser to President Obama, is just salivating at the thought of the demise of health insurance companies. Why, he’s downright gleeful.

Ezekial Emanuel, brother of Chicago mayor and former Obama staffer Rahm Emanuel, is cheerily predicting that Obamacare will bring about the death of the private insurance companies in the US. Ezekiel makes the provocative prediction in the New Republic.

Emanuel writes that Obamacare is already causing insurance companies to either die or evolve into something else. “The good news is you won’t have insurance companies to kick around much longer,” he writes.

Obamacare was not sold to the American people as a means of destroying private health insurance companies or even forcing them into turning into a different type of company. It was sold as a means of bringing insurance costs down while increasing access. It has turned out to cause about 6.2 million Americans to lose their insurance while forcing some Americans to buy insurance or pay a fine to the IRS. “If you like your healthcare, you can keep your healthcare,” President Barack Obama repeatedly promised. Emanuel’s article provides more evidence that the president was knowingly lying, and that people like Emanuel, who were close advisers while Obamacare was being written, knew that it would cause chaos for millions of Americans and their insurance.

Emanuel writes that Obamacare is already causing some medical services providers to seek exclusive contracts with employers, cutting insurance plans out but also limiting the choices available to customers.

Ezekiel has consistently predicted, after Obamacare became law, that it would kill insurance companies. While Obamacare was being debated, Democrats denied that its purpose was to destroy private health insurance companies. Emanuel claims, without providing any evidence, that Americans will be happier in the new employer-based health provider networks.

“So be prepared to kiss your insurance company good-bye forever,” Emanuel concludes at the end of the article.

About 85% of Americans were happy with their healthcare before Obamacare.

It’s really no secret that the Democrats’ plan all along was single payer. Some just aren’t willing to admit it.

Update: Emanuel appeared on Morning Joe talking about how great Obamacare is doing. He didn’t, however, mention his glee at the coming demise of the insurance companies. 

He also did not mention his creepy ‘Complete Lives System’. In 2009 Betsy McCaughey warned about Obama’s Health Rationer-in-Chief and now we are standing at the door…

Cross-Posted at AskMarion

Technorati Tags: ObamaCare,The Plan,Ezekial Emanuel,Single-Payer,Wake-Up,Big Brother,Evil,Insurance Exchanges,Health Insurance Companies,ObamaCare Surprises,IRS,Complete Lives System,Czars,Obamaland

Moody's Downgrades Health Insurers, Cites ObamaCare Uncertainty

New American: In announcing credit rating firm Moody’s downgrade of all health insurers, Senior Vice President Stephen Zaharuk placed the blame firmly and directly on the Obamacare rollout and implementation:

The ongoing and unstable and evolving environment is a key factor for our outlook change. The past few months have seen new regulations and announcements that impose operational changes well after product and pricing decisions were finalized.

Translation: Health insurers could lose their shirts if the assumptions they made in their premium calculations prove false. So far, it doesn’t look good. Zaharuk cited some of those uncertainties, including the demographics of those enrolling for coverage. The insurers assumed that the Obama administration was right when it estimated that at least 2.7 million young and healthy individuals aged 18 to 34 would sign up by the end of March. Only 24 percent of the 2.2 million enrolled by the end of the year fall into that category. Put another way, so far just 528,000 of the 2.7 million needed to make the math, and the economics, work out are in that category.

That’s why, in its report, Moody’s cut its earnings estimate for all insurers by a full third, while expecting enrollments will fall short by two-thirds.

There are other uncertainties, including the decision by the administration to allow insurers to continue to offer “bare bones” (read: low profit margin) coverages in response to pressure from those previously insured who had their present insurance plans terminated. The administration delayed the premium payments deadline (delaying expected cash flows to the insurers), delayed the sign-up date, pushed back the second-year enrollment period until after the November elections, and extended the enrollment deadline for those with pre-existing conditions.

There’s also the industry’s new tax on medical devices that insurers somehow had to factor into their calculations. Said Zaharuk: “While some insurers built this tax into their premium calculations, the amounts [they receive] may still be insufficient to cover their share of the assessment.”

Also, many ObamaCare enrollees are actually pouring into the states’ Medicaid programs, and insurers have no direct way to offset those increased expenses and will have to eat any losses, perhaps for years. Zaharuk explained: “The Medicaid business is particularly vulnerable to this disconnect as insurers cannot pass on additional costs to consumers, and it remains to be seen whether states will permit insurers to factor in the assessment costs in determining Medicaid reimbursement rates.”

Health insurers are vulnerable on other fronts as well. Gallup just published its latest “Well-Being Index,” which shows the uninsured rate to be virtually the same as it was two years ago, despite the enormous marketing efforts by the administration touting the wonders of ObamaCare, and actually significantly higher than it was in January 2008, long before the federally mandated law was birthed in the hothouse of central planning. In addition the Congressional Budget Office (CBO) estimated that, even under the most favorable circumstances, by 2016, when Obamacare was assumed to be fully functioning, 31 million citizens will remain uninsured. This means insurers can’t count on that huge block of customers to enhance their revenue streams.

Moody’s was not optimistic:

In 2015, insurers will need to deal with the implications of the employer mandate and the second year of the individual mandate. Both require substantial lead time with respect to product development and pricing. Ad hoc changes to these provisions, as experienced at the end of 2013 … add additional risks and financial uncertainty.

When asked by Kate Rogers of Fox News what it would take for Moody’s to reverse its downgrade, Zaharuk said:

We would need [to see] some positive enrollment numbers, the back-end problems with the exchanges fixed, and the regulatory environment … stabilized.

Positive news would help the situation.

How likely is that? Responded Zaharuk:

The first test comes in March when we will see what enrollment looks like, if the back-end issues are fixed, if people are getting access to health care, and what the costs … are.

If these things don’t work, it may have a longer and more detrimental effect on the industry as they struggle under the new law. 

Whether intended or not, this disruption in the healthcare marketplace is having its consequences, nearly all of them negative. First experienced by the consumers, they are now spilling over, inevitably, to the insurers. 

A graduate of Cornell University and a former investment advisor, Bob is a regular contributor to The New American magazine and blogs frequently at www.LightFromTheRight.com, primarily on economics and politics. He can be reached at badelmann@thenewamerican.com.

Here comes Obama’s solution to the disastrous Affordable Care Act: National Health Care a.k.a. the Single Payer System

Betsy McCaughey: Obamacare designed to vastly expand single payer Medicaid by eviscerating Medicare 

Bailing Out Health Insurers and Helping Obamacare

Technorati Tags: ObamaCare,Health Insurers,Moody's,Economics,Bailouts,Downgrades,Single-Payer,The Plan,Socialized Medicine,Watch the Other Hand,Wake-Up

Pray For Jim Hoft Over At Gateway Pundit

JoshuaPundit: One of the long time fixtures of the blogosphere is Jim Hoft over at the renowned site Gateway Pundit. He also, as an aside, is a pretty nice and decent human being...and now, a victim of ObamaCare:

In August 2013 I became very sick with what I thought was a cold. After a few days I lost vision in my left eye and I checked into the hospital. I soon found out that what I thought was a summer cold was actually Strep bacteria poisoning my blood stream. The bacteria blinded my left eye, ate a hole through my heart, caused five strokes on both sides of my brain and forced the removal of my prosthetic left knee.

Dr. Lee was the surgeon assigned to perform open heart surgery. What was originally scheduled to last four hours ended up lasting twelve. My heart was severely damaged. Dr. Lee later told me the surgery was one of the most difficult of his career. He also said I only had a few days to live without the surgery.

Thanks to the excellent insurance I carried I was able to receive life-saving medical treatment at St. Louis University.

This week I found out I am going to lose my insurance. The company that carried me is leaving the Missouri market. I will have to find something else.

I am one of the millions who will be looking for new insurance. God willing, I will be able to keep my doctors at St. Louis University. I trust them. They saved my life. Please pray for me and the millions of working Americans who are going through this same ordeal.

Why is our government doing this to us?

Well Jim, it's because they feel they can..and because they don't feel they're our government, but that we're their cash cow.

Simply disgraceful.

Rest assured Jim that prayers for a refuah shlemiah, a complete a total recovery addressed to the Maker of us all are a given...and I'll see what I can do to add to the prayer circle, because there are lots of us who care about you and wish you the best.

UPDATE: Jim Hoft is holding a Wheel-In Obamacare protest this Saturday between 11 AM CT to Noon at Senator Claire McCaskill’s St. Louis office, located at 5850 Delmar Blvd, Ste. A, St. Louis, Missouri 63112. Jim will be leading the protest in his wheel chair, with the theme, Why is Our Government Punishing the American People-Give Us Back Our Healthcare!”.

More info here. 

Doctor Retires due to ObamaCare 

James Carville: Don’t Blame Republicans; Blame Obama 

Cancer and Obamacare Survivor, plus His Hero Audited – Interview

New Obamacare Bombshell - Rpt: No System Yet For Exchange Payment - The Kelly File 

Attention Main Stream Media. Regarding Obamacare… I Told You So!

All I Want for Christmas

Blue Cross, Aetna, United, Humana Flee Obamacare Exchanges

CBSNews: Major health insurance companies – Blue Cross, Aetna, United, Humana – have fled the Obamacare health care exchanges in various states, which are scheduled to start on Oct. 1st, 2014.

Insurance companies like Aetna and United have said, “thanks, but no thanks” to the public health insurance marketplace set up under the Affordable Care Act (ACA), or Obamacare, which will facilitate government subsidies to individuals and small businesses to buy approved health plans to comply with the law.

The ACA requires every American to have health insurance, or pay a penalty.  Individuals who are not covered by their employer can enroll in the state or federal government-run health care “marketplace,” which will provide subsidies to individuals between 100 and 400 percent of the poverty line.

Aetna, a fortune 100 company with $34.2 billion in revenue, has pulled out of public exchanges in three states, and will not be part of the individual health insurance exchange in its home base, Connecticut.

Founded in Hartford, Conn., in 1850, Aetna withdrew its application to participate in the state on Monday, due to high rates proposed by state regulators, the Hartford Courant reported.

“We have spent considerable time identifying those states in which we can be competitive and add the most value to the market,” Aetna said in a statement.  “As a result of our analysis, we have reluctantly concluded that we will withdraw certain Individual Exchange filings for 2014, including filings in Connecticut, Georgia and Maryland.”

“This is not a step taken lightly, and was made as part of a national review of our Exchange strategy,” the company said.  “Unfortunately, we believe the modifications to the rates filed by Aetna will not allow us to collect enough premiums to cover the cost of the plans and meet the service expectations of our customers.”

California

Aetna will also not participate in California’s exchange, and a spokesperson told CNSNews.com that the company never intended to do so.

(AP Photo)

“We did not withdraw exchange plans in California, as we never planned participation nor filed [Qualified Health Plans] QHPs to participate in the California exchange,” a spokesperson said.

Anthem Blue Cross has withdrawn from its bid to participate in the state’s small business exchange, as well.

United Health Group, the largest health insurer in the United States, has also taken a pass on the Golden State’s individual insurance market under Obamacare.

As a result, roughly 8,000 policyholders will be left searching for new insurance.

Aetna will stop selling individual insurance policies in California all together, leaving nearly 50,000 existing policyholders to find new coverage by January.

‘If You Like Your Doctor,’ Hope Your Insurer Is Participating in the Exchange

“No matter how we reform health care, we will keep this promise: If you like your doctor, you will be able to keep your doctor, period,” Obama said on June 15, 2009.

“If you like your health care plan, you will be able to keep your health care plan. Period," he said.  "No one will take it away. No matter what.”

That promise, however, has been revised by the Department of Health and Human Services (HHS), which now says, “you may be able to keep your current doctor” in the health insurance marketplace.

“Most health insurance plans offered in the Marketplace have networks of hospitals, doctors, specialists, pharmacies, and other health care providers,” HHS said on its website for the health reform law.  “Networks include health care providers that the plan contracts with to take care of the plan’s members.”

“Depending on the type of policy you buy, care may be covered only when you get it from a network provider,” they said.

President Barack Obama signs the Affordable Care Act (Obamacare) into law on Mar. 23, 2010. (AP)

With insurers opting out of state-run health exchanges, individuals are left with less options.

Only three companies remain in Connecticut’s “Access Health CT” exchange, following Aetna’s departure.

Similarly, only five plans are participating in the exchange in Georgia, after Aetna and Coventry Health Insurance dropped out last week.

The Savannah Morning News noted that this will “leave residents of some parts of the state with limited choice.”

Two of the three largest health insurers in Wisconsin will also not participate in the state’s online marketplace under Obamacare, it was announced on Wednesday.

Though they will not participate in at least four state-run exchanges, Aetna said they “appreciate” the opportunity to work with state regulators on complying with the ACA.

“We have appreciated the chance to work with the regulators in each state for the past months on a variety of key issues regarding ACA implementation,” Aetna said in a statement.  “We will continue to work with them, and various Exchange leadership teams, as we evaluate exchange participation in future years.”

CNSNews.com is not funded by the government like NPR. CNSNews.com is not funded by the government like PBS.

**More and more politicians, unions, insurance companies and people who have read the bill are calling ObamaCare a ‘trainwreck’.

Technorati Tags: ObamaCare,Defund ObamaCare,Blue Cross,Aetna,United,Humana NPR,PBS,ObamaCare Exchanges,trainwreck,insurance exchanges,healthcare exchanges,ACA,Affordable Care Act

Even the AP Thinks This Finding Will Result in a ‘Big Headache for the Obama Administration’

NATIONAL HARBOR, MD – MARCH 15: U.S. Senate Minority Leader Sen. Mitch McConnell (R-KY) delivers remarks next to a tall stack of Obamacare regulations during the second day of the 40th annual Conservative Political Action Conference (CPAC) March 15, 2013 in National Harbor, Maryland. The American conservative Union held its annual conference in the suburb of Washington, DC, to rally conservatives and generate ideas. Credit: Getty Images

The following story is from the Associated Press, cross-posted at The Blaze:

WASHINGTON (AP) — Insurance companies will have to pay out an average of 32 percent more for medical claims on individual health policies under President Barack Obama’s overhaul, the nation’s leading group of financial risk analysts has estimated.

That’s likely to increase premiums for at least some Americans buying individual plans.

The report by the Society of Actuaries could turn into a big headache for the Obama administration at a time when many parts of the country remain skeptical about the Affordable Care Act.

While some states will see medical claims costs per person decline, the report concluded the overwhelming majority will see double-digit increases in their individual health insurance markets, where people purchase coverage directly from insurers.

The disparities are striking. By 2017, the estimated increase would be 62 percent for California, about 80 percent for Ohio, more than 20 percent for Florida and 67 percent for Maryland. Much of the reason for the higher claims costs is that sicker people are expected to join the pool, the report said.

The report did not make similar estimates for employer plans, the mainstay for workers and their families. That’s because the primary impact of Obama’s law is on people who don’t have coverage through their jobs.

The administration questions the design of the study, saying it focused only on one piece of the puzzle and ignored cost relief strategies in the law such as tax credits to help people afford premiums and special payments to insurers who attract an outsize share of the sick. The study also doesn’t take into account the potential price-cutting effect of competition in new state insurance markets that will go live on Oct. 1, administration officials said.

At a White House briefing on Tuesday, Health and Human Services Secretary Kathleen Sebelius said some of what passes for health insurance today is so skimpy it can’t be compared to the comprehensive coverage available under the law. “Some of these folks have very high catastrophic plans that don’t pay for anything unless you get hit by a bus,” she said. “They’re really mortgage protection, not health insurance.”

A prominent national expert, recently retired Medicare chief actuary Rick Foster, said the report does “a credible job” of estimating potential enrollment and costs under the law, “without trying to tilt the answers in any particular direction.”

“Having said that,” Foster added, “actuaries tend to be financially conservative, so the various assumptions might be more inclined to consider what might go wrong than to anticipate that everything will work beautifully.” Actuaries use statistics and economic theory to make long-range cost projections for insurance and pension programs sponsored by businesses and government. The society is headquartered near Chicago.

Kristi Bohn, an actuary who worked on the study, acknowledged it did not attempt to estimate the effect of subsidies, insurer competition and other factors that could mitigate cost increases. She said the goal was to look at the underlying cost of medical care.

“Claims cost is the most important driver of health care premiums,” she said.

“We don’t see ourselves as a political organization,” Bohn added. “We are trying to figure out what the situation at hand is.”

On the plus side, the report found the law will cover more than 32 million currently uninsured Americans when fully phased in. And some states – including New York and Massachusetts – will see double-digit declines in costs for claims in the individual market.

Uncertainty over costs has been a major issue since the law passed three years ago, and remains so just months before a big push to cover the uninsured gets rolling Oct. 1. Middle-class households will be able to purchase subsidized private insurance in new marketplaces, while low-income people will be steered to Medicaid and other safety net programs. States are free to accept or reject a Medicaid expansion also offered under the law.

Obama has promised that the new law will bring costs down. That seems a stretch now. While the nation has been enjoying a lull in health care inflation the past few years, even some former administration advisers say a new round of cost-curbing legislation will be needed.

Bohn said the study overall presents a mixed picture.

Millions of now-uninsured people will be covered as the market for directly purchased insurance more than doubles with the help of government subsidies. The study found that market will grow to more than 25 million people. But costs will rise because spending on sicker people and other high-cost groups will overwhelm an influx of younger, healthier people into the program.

Some of the higher-cost cases will come from existing state high-risk insurance pools. Those people will now be able to get coverage in the individual insurance market, since insurance companies will no longer be able to turn them down. Other people will end up buying their own plans because their employers cancel coverage. While some of these individuals might save money for themselves, they will end up raising costs for others.

Part the reason for the wide disparities in the study is that states have different populations and insurance rules. In the relatively small number of states where insurers were already restricted from charging higher rates to older, sicker people, the cost impact is less.

“States are starting from different starting points, and they are all getting closer to one another,” said Bohn.

The study also did not model the likely patchwork results from some states accepting the law’s Medicaid expansion while others reject it. It presented estimates for two hypothetical scenarios in which all states either accept or reject the expansion.

Larry Levitt, an insurance expert with the nonpartisan Kaiser Family Foundation, reviewed the report and said the actuaries need to answer more questions.

“I’d generally characterize it as providing useful background information, but I don’t think it’s complete enough to be treated as a projection,” Levitt said. The conclusion that employers with sicker workers would drop coverage is “speculative,” he said.

Another caveat: The Society of Actuaries contracted Optum, a subsidiary of UnitedHealth Group, to do the number-crunching that drives the report. United also owns the nation’s largest health insurance company. Bohn said the study reflects the professional conclusions of the society, not Optum or its parent company.

Featured image via AFP/Getty. Carousel photo by Olivier Douliery/ABACAUSA.com

Related:

The ObamaCare Document Stack Photo: Obamacare’s Regulations in One Giant Stack - 20,000 Pages Already

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Real Danger of “Obamacare”: Insurance Company Takeover of Health Care

Militant Libertarian - by Nomi Prins:

Election rhetoric shuns the big picture in favor of the bigger platitude. Now that The Show is over, we are left with the equivalent of a Sunday morning hangover following a binge of promises and lies. We leave the theatre of political spectacle on steroids for the real world of unstable economy, a globally and publicly subsidized financial sector, and increased costs of living on everything from food to education to health-care; outpacing declining median incomes. The average cost for health insurance for a family is $15,745 per year vs. a median income of $50,502, or about half post-tax take-home pay.

“Obamacare” is the name commonly used for the Patient Protection and Affordable Care Act (PPACA) of 2010. The very moniker is indicative of how name-and-image-centric our world has become; Medicare was never called “Johnsoncare” when President Johnson signed it into law in 1965 and Johnson was not exactly a man of small-personality. At any rate, Obamacare or the PPACA ranks as one of the most misrepresented issues from the campaign, by both sides of the ever-slimming aisle.

The Tea-Party Conservative types get it embarrassingly wrong when they call it a “government takeover of health care.” Likewise, Progressive Obama-supporters are deluded in accepting it as the most sweeping healthcare reform since Medicare. (Side note: I wish the word ‘sweeping’ could be retired from politics until it actually means -sweeping.)

Here’s why. The PPACA does nothing to restructure the health insurance industry, anymore than the Dodd-Frank Act restructures the banking industry. This means everything else it attempts to do, positive or negative, will be vastly overshadowed by an industry accelerating to morph itself into a acquisition machine in order to circumvent anything that even smells like a restriction, including laws that exist and ones to come.

How? By doing the same thing energy and telecom companies did after they were deregulated in 1996, and that banks did after they were summarily deregulated (after moving that way for decades) in 1999. They are merging, consolidating, eliminating competitors, and controlling their domain. They are manufacturing power.

Investment bankers are roaming the world to exploit this hot new opportunity. That’s one reason insurance companies don’t even call themselves that anymore. Now, they are ‘managed health care’ companies. Call yourself a managed health care company, and you can buy everything from other insurance companies to hospitals to clinics to doctors. The more consolidation, the more fees bankers rake in, and the more premiums and medical reimbursements and health care procedures, each company can control.

The result of 1996 energy deregulation was a glut of crime-spawned bankruptcies like Enron. Likewise WorldCom led a pack of telecom degenerates in the production of tens of billions of dollars worth of accounting fraud. The final repeal of Glass-Steagall ignited a merge-fest of investment and commercial banks, their linkages ensuring that taxpayers, whose deposits have been protected since the New Deal, provide a safety-net upon which they can mint toxic assets loosely based on over-leveraged home mortgages, and engage in risky, speculative activity; big banks don’t go bankrupt when they fabricate values or lose big on stupid bets, they get federally subsidized in all sorts of ways.

You know who else is similarly too big to fail? The insurance industry. UnitedHealth Group, the nation’s largest health insurer covers 50% of the insurable population in over 30 states. Blue Cross-Blue Shield, covers 100 million people through a constellation of 38 sub-companies. They, and other insurance companies are growing in breadth. When companies consolidate, the result is less transparency, less competition, and more possibility for fraud and shady behavior. Every. Single. Time.

Obamacare and Accounting Fraud

By January 2014, the PPACA will require insurance companies to list their prices on competitive exchanges. In Obama-theory, this is supposed to reduce premiums via competition. But what if, say, only three companies control nearly all of the premiums? Consider the fact that it costs the same $3 to extract your money from a Chase, Bank of America or Citigroup ATM (if you don’t get it directly from the firm you bank at.) They constitute a monopoly that defies anti-trust inspection (thank you, Department of Justice.) What incentive would any of them have to charge less? None. That’s why they don’t.

Managed Health Care companies don’t just administer private, but government health insurance policies as well. The http://www.healthcare.gov website says that under the PPACA, the life of the Medicare Trust Fund will be extended to 2024 as a result of reducing waste, fraud, abuse, and slowing cost growth. President Obama promised to reduce Medicare fraud 50% by 2012 according to the site – but if he did, he forgot to mention it during the campaign period.

To supposedly combat price hikes, the PPACA calls for a new Rate Review program, wherein insurance companies must justify premium hikes of more than 10% to a state or federal review program. Given that banks aren’t supposed to hold more than 10% of the nation’s deposits in any one institution, and three do, this isn’t a comforting constraint.

While it is positive that the PPACA requires coverage of people with pre-existing conditions and prohibits lifetime caps, it can’t control what people pay for insurance, because it doesn’t limit actual premiums, which have risen 13% on average since the Act was passed.

The medical cost ratio limitation the PPACA instills; that 80% of premiums must be used for medical care in the case of individuals and small groups, and 85% in the case of large groups) to supposedly ensure companies operate on a more efficient premium in vs. premium out basis, is a joke. Its punch line is accounting manipulation. Call everything a medical cost; even buying another company, and the ratio is meaningless.

WellPoint got the Joke

WellPoint got that joke immediately. The largest for-profit “managed health care” company in the Blue Cross and Blue Shield Association, it began trading publicly on December 1, 2004. Depending on the state, it operates under Blue Cross and Blue Shield, Blue Cross or Anthem.

After the PPACA was passed, in March 2010, WellPoint allegedly reclassified certain administrative costs as medical care costs in order to meet the law’s new medical loss ratio requirements (which requires insurers spend at least 80% or 85% of premiums on health care services, depending on the type of plan, individual or group respectively.)

A month earlier, WellPoint announced its Anthem Blue Cross unit would raise insurance rates for some individual policies in California up to 39%. Federal and California regulators are still investigating this, but the premium hikes remained.

WellPoint is also one of Wall Street’s favorite “managed health care” companies; cause it keeps getting bigger through acquisitions that pay hefty fees to the bankers involved. On October 23rd, WellPoint got approval from Amerigroup’s shareholders to acquire Amerigroup, a Medicaid-focused health insurer, in a $4.9 billion cash deal. The deal makes WellPoint the nation’s largest Medicaid insurer, and provides it greater access to Medicaid patients who also qualify for Medicare.

It was the largest cash deal ever, and the largest premium paid for a company in the managed health care realm. As a result, Goldman Sachs (who advised Amerigroup) and Credit Suisse (who advised WellPoint) retained their top positions in the global healthcare deal advisory league table.

The value of Amerigroup, as a company, dropped 34% within two weeks of that agreement, in stark shades of what happened when Bank of America took over Merrill Lynch in the fall of 2008.

This summer, Amerigroup and Goldman Sachs faced a shareholder lawsuit filed by the city of Monroe Employees Retirement System and Louisiana Municipal Police Employees Retirement System. It alleged that Goldman advised Amerigroup to accept WellPoint’s offer quickly, rather than seek other bids, because the bank had structured a complex, and fee-heavy derivatives transaction on the back of the deal. The insurers resolved the suit by tweaking the deal parameters. All parties denied ‘any wrongdoing.’ But where there’s smoke in complex derivatives land, there is fire.

Other Mergers

After the Supreme Court upheld the PPACA, a spate of mergers rippled through the managed health care realm, to ostensibly cope with smaller profit margins and ‘compliance costs.’ But really, it’s because each firm wants to corner as much as possible of the market, in as many states as it can, to garner more premiums and control more disbursements and prices at the upcoming insurance ‘exchanges.’

In late August, the third largest insurance company in the US, Aetna announced it was buying Coventry Health Care for $5.7 billion. Coventry provides Medicare and Medicaid services, thus the takeover expands Aetna’s Medicare and Medicaid business. Being part of Aetna enables Coventry to grab more consumers on more state-run health insurance exchanges, reducing competition in the process. The Department of Justice is examining anti-trust issues surrounding the deal, but it’s still expected to close in mid-2013.

On October 17th, UnitedHealth Group issued $2.5 billion of bonds as part of its $4.9 billion acquisition of Brazil’s Amil Participacoes. Bank of America Merrill Lynch, Goldman Sachs, J.P. Morgan Chase & Co., Morgan Stanley, UBS and Wells Fargo Securities were lead underwriters on the deal.

They are not buying international companies in order to increase accounting transparency. Like other multinationals, they are doing so to move profits around and circumvent restrictions and tax laws. They are using cash, or raising extra debt, to do so, rather than to reduce premiums or increase disbursements to medical professionals.

And if you’re keeping score – billion of dollars are flowing from insurance companies – NOT to reduce premiums to patients and NOT to reimburse doctors and NOT to enhance the quality of care, but to simply expand nationally and globally. Meanwhile, their CEOs are doing quite well from all that non-health care related movement.

Total compensation for the bulk of health care company CEOs rose by 14.7% in 2011 by 14.7%, or $11.1 million, to $87 million. Cigna’s CEO David Cordani made $19.1 million. UnitedHealth Group’s CEO, Stephen J. Hemsley bagged $49 million in salary, stock options, and other compensation last year. The highest-paid CEO made 94 times the average compensation level of primary care physicians. And none of them had to pick up a single scalpel in the process.

Doctors as profit centers

Not just patients, but physicians have been bled steadily from the current state of insurance company controlled health care through diminishing insurance reimbursements, electronic medical records mandates whereby they spend as much time complying with Kafkaesque controls over their decisions on performing surgeries and providing care, and debt. New doctors are graduating with an average of $250,000 in debt, which, combined with diminishing disbursement and soaring costs, will keep many, underwater. Forever.

According to Dr. Michael H. Heggeness, President of the North American Spine Society, a group of 6500 global spinal and orthopedic surgeons (at which I delivered a speech last month), “The last people, that most of the population feels sorry for are doctors, yet they are in an economic crisis of their own. In 2002, 80% were in private practice, now 70% are in hospitals because they can’t afford to make a private practice work.”

Meanwhile the more hospitals are viewed as profit centers, the more their Chairmen will cut costs to maximize returns, and not care quality. They will seeks ways to sell underperforming assets, programs or services and reduce the number of nonessential employees, burdening those that remain. No doubt the private equity community will be getting more into this game, as insurance companies buy more hospitals, doctors, clinics, and perhaps drug companies, or vice versa, and ‘restructuring’ accelerates.

And if insurance companies can manage doctors directly, they can control not just costs, but treatment – our treatment. It’s not an imaginary government takeover anyone should fear; but a very real, here-and-now insurance company takeover, to which no one in Washington is paying attention.

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