By Lambert Strether of Corrente.
As ObamaCare’s death spiral intensifies, with more and more edge cases demanding special treatment, the whole process reminds me of one of those black-and-white silent film comedies on airplane #FAILs, with bits of machinery flying through the air after the crash or explosion:
The only thing missing is the piano soundtrack, but of course we have the 2016 election. So there’s that.
For anybody who came in late, I’ll review the concept of a death spiral. Then I’ll briefly look at (and dismiss) the headline story, which is price rises. Then I’ll look the edge cases where a county has zero insurance carriers, or one, as well as the differing approaches to avoid getting sucked into the black hole of the death spiral taken by Minnesota, and the Federal government. Spoiler alert: I’m going to be using the word “insane” a lot. I think for good reason, and not Bill Clinton’s reasons, either. Oh, and “open enrollment” begins on November 1, just a week before Election Day! (It ends on January 31, 2017).
The ObamaCare Death Spiral
Let’s review. As we wrote earlier this year:
Economist Robert Frank explains how an unregulated health insurance market with such asymmetries would play out in the New York Times (2013):
The crux of the matter is what economists call the adverse-selection problem. Uninsured people with pre-existing conditions often face tens or even hundreds of thousands of dollars in out-of-pocket medical costs annually. If insurers charged everyone the same rate, buying coverage would be far more attractive financially for people with chronic illnesses than for healthy people. And as healthy policyholders began dropping out of the insured pool, it would become increasingly composed of sick people, forcing insurers to raise their rates. …. But higher rates make insurance even less attractive for healthy people, causing even more of them to drop out. Before long, coverage would become too expensive for almost everyone.
We then gave evidence that what Frank described was happening. And the evidence for a death spiral has continued to mount all this year:
Insurers are pulling out, premiums are rising, and many customers are being left with little or no choice of insurance plans. When it was passed in 2010, President Obama and congressional Democrats hoped the Affordable Care Act would provide uninsured Americans with private health-care coverage similar to employer-sponsored plans, with federal subsidies making premiums affordable for nearly everyone. But many of the biggest providers — including Aetna, UnitedHealth, and Humana — started out with low premiums to attract customers, and have lost so much money on the program that they’re pulling out of most of the state health-care exchanges.
And as carriers pull out, we see all sorts of effects in the health insurance markets, to which we now turn.
Random Prices, Churning Markets, and More Shopping
The usual and easy narrative is that ObamaCare prices are rising dramatically; here’s a typical headline: “Obamacare premiums skyrocketing in Minnesota.” While this is true in some jurisdictions, it’s not true uniformly. The Urban Institute did a recent study seeking the average ObamaCare price increase, and concluded that was a foolish quest:
Increases in 2016 Marketplace Nongroup Premiums: There is No Meaningful National Average
With data available for all states, we find that the average change in premiums for the lowest-cost silver plan across all rating areas in all states increased a weighted average of 8.3 percent between 2015 and 2016. However, further exploration reveals that the rates of increase vary tremendously across states and across rating areas within states, with statewide averages as high as 41.8 percent in Oklahoma and as low as -12.1 percent in Indiana. We conclude that a national average rate of premium increase is a fairly meaningless statistic since different markets are having very different experiences.
In other words, our consistent contention (in “ObamaCare’s Relentless Creation of Second Class Citizens here, here, here, here, here, and here) that your ObamaCare coverage was random with respect to jurisdiction has been proven correct, empirically. If you live in County A, you go to HappyVille with a low price. If you live in County B, you go to Pain City with a high one. Allow me to deploy, for the first time, the word “insane.”
So prices are varying wildly all over the place. So are policies. And as we have seen, carriers are leaving (and sometimes being replaced by others). So we expect considerable churn. In other words, just because you found a plan you could like or at least accept last year, doesn’t mean that a rational actor would choose the same plan this year. McKinsey (“2017 exchange market: Emerging pricing trends”) provides the following table:
In other words, your chance of having to do last year’s research all over again is a little bit better or worse than a coin toss. But that’s OK, because that means you can go shopping, and according to neoliberal ideology — did I mention the word “insane”? — more shopping is always good! From Time:
Even if you enrolled in 2016, you should shop around for a better program, as many are expected to change. According to an analysis by the McKinsey Center for U.S. Health System Reform, plans in the popular “silver” category that were least expensive this year will not be the most cost-effective in 2017.
But don’t worry. Shopping for health insurance takes hardly any time at all! Time (2015):
How to Pick a Health Plan in 15 Minutes or Less
And beneath the cheery headline, the following helpful advice:
Choosing a plan that your doctor accepts is a must. From there, if you’re relatively healthy and you have enough savings to cover a health care emergency, a high-deductible plan often makes sense, especially if your employer adds cash to your HSA. But if you tend to have high health care costs, you’re short on savings, or your employer isn’t adding to your HSA as an incentive, take a careful look at your potential outlay—it may be worth paying more upfront for better coverage later.
Of course, that’s insane. It shows a Versailles-level disconnect. It’s a steaming load of crap. Of course, readers know this, but for the record, Health Affairs:
Taxpayers who are on the fence about enrolling in health insurance face a complex calculation. They must weigh the cost of paying premiums to enroll in a plan against the tax they would pay for going uninsured, plus the risk that someone in their family might need medical treatment for which they could be fully liable.
The decision for those with very low incomes is likely to be easy. They are eligible for generous federal subsidies, substantially reducing the premium — in some cases, the net premium could be zero. Cost-sharing subsidies further reduce the cost of health care. That explains why most of the enrollment in insurance plans offered on the exchanges is concentrated among those with incomes just above the level of eligibility for Medicaid.
For those with higher incomes, however, it is a more difficult choice. They are often eligible for some subsidies but are still required to pay substantial premiums themselves. According to Bob Laszewski, a family of four living in Roanoke, Virginia with an income of $60,000 in 2016 would have a premium payment of $4,980 for the year for the second lowest-cost silver plan. That plan has a $5,000 deductible. That means the family could spend almost one-sixth of their pre-tax income on health costs before they received any insurance payment.
In contrast, the tax for going uninsured would be about $725. Of course, an uninsured household would face the risk of paying entirely for major medical expenses out of pocket. But that risk is limited. The ACA allows individuals to purchase insurance at least once a year without paying a premium penalty—even if they have incurred very expensive medical bills and regardless of whether they had previous coverage.
(And for those of us in System D, or who work as contractors or consultants, there’s the added stress of predicting a year’s income in advance, as well as whether we expect to be well, or sick. Insane or what?)
As carriers increasingly attempt to escape unprofitable markets, it’s only natural that some jurisdictions (for example, Pain City) will be left with one, or zero carriers. Now let’s look at those two edge cases.
The Case of Zero Carriers
Earlier this year, we heard about the case of Pinal County AZ (population 375,770 as of 2010), where earlier in the year zero (0) carriers had agreed to offer plans (here is a good review of the history). Apparently after some jawboning by the administration, Blue Cross/Blue Shield agreed to enter the Pinal County Market. However, zero carriers is an interesting edge case, and here’s why. From (conservative) Michael Cannon of King v. Burwell fame writing in Forbes:
[T]he ACA penalizes people if they fail to purchase insurance, unless they qualify for an exemption. The unaffordability exemption applies only if “the annual premium for the lowest cost bronze plan available in the individual market through the Exchange” in Pinal County, minus “the amount of the credit allowable under section 36B,” whether the individual enrolls in Exchange coverage or not, exceeds 8.13 percent of the individual’s household income.
You can’t do that calculation in Pinal County. The premium for the lowest-cost bronze plan in Pinal County is not $0.00. It’s not even a number. It’s the empty set.
Everybody remembers from math class that the empty set is not a number?
The “credit allowable under section 36B” is likewise the empty set. Section 36B “allow[s] as a credit…an amount equal to the premium assistance credit amount for the taxpayer.” To calculate the premium-assistance credit amount, you need to know either the premium for the health plan the taxpayer “enrolled in through an Exchange established by the State under [section] 1311,” or the premium for the “the second lowest cost silver plan” available to the taxpayer “through the same Exchange.” It would be awesome if all those premiums were $0.00. (Free health care!) But it’s not. Instead, no such premiums exist. Since there are no such premiums, there is no “required contribution.” Since there is no “required contribution,” there is no unaffordability exemption in Pinal County. Where there are no Exchange plans, there is no unaffordability exemption from the individual mandate
So, carrying the logic through to its insane conclusion, people could be penalized for not buying insurance where there is no insurance to be bought. It is true that making this argument — zero and the empty set are not both numbers! — looks, well… insane. But I prefer to think of it as insanity brought about by an insane situation (that is, by the The Patient Protection and Affordable Care Act as written. It is what it is and we are where we are).
Now, Cannon got into a beef on this point with ObamaCare supporters. Once they understand that the empty set is not a number, they urged that (a) thousands of individuals in Pinal Count could apply for a hardship exemption using a six-page form (clearly insane) and that (b) what should really happen is that the Secretary of Health and Human Services could issue a blanket exemption. So, instead of thousands of Josef K’s sending in their individual six-page forms to the Castle, the Castle can issue a universal dispensation. At this point, we remember that ObamaCare is sold as a universal program. Franz Kafka would be proud.
The Case of One Carrier
Now let’s turn to the case of counties with one carrier. There are rather a lot of them, and more of them each year. From Kaiser:
We estimate that 2.3 million marketplace enrollees, or 19% of all enrollees, could have a choice of a single insurer in 2017, which is an increase of 2 million people compared to 2016. Going into marketplace open enrollment in 2016, about 303,000 enrollees (2%) had a single insurer option.
Similarly, we estimate that the number of counties with a single marketplace insurer is likely to increase, from 225 (7% of counties) in 2016 to 974 (31% of counties) in 2017.
At this point, we remember that ObamaCare was supposed to be universal (except for the counties with no insurer, but that’s OK, they can get a hardship exemption), and that
neoliberal fairy dust competition was supposed to insure quality coverage at reasonable cost. Of course, when there’s only a single carrier there’s no competition (this is called giving the carrier “pricing flexibility”), so that theory goes by the boards. Here, as it turns out, there is — by which I mean “ought to be, but isn’t” — a solution, which would work for the counties with zero plans, too. From the invaluable Sarah Kliff:
There’s a section in the health care law — Sec. 1334, to be exact — that does look like the exact type of program that could help in this situation.
Sec. 1334 requires the federal government to contract with two multi-state plans, or MSPs. These MSPs would, in theory, provide coverage in all 50 states. And that would mean every Obamacare enrollee would get some choice of plan.
Building a national plan can be difficult. It means contracting with doctors all across the country. So the law intended for the MSPs to scale up over their first four years. They would have to sell in at least 60 percent of all states in their first year, 70 percent in their second year, 85 percent in the third, and 100 percent in the fourth year.
However, the Obama administration butchered its MSP implementation (assuming the MSP to be implementable), and then watered down its requirements to make it not universal:
From the get-go, the federal government only found one insurer willing to participate in the MSP program, Blue Cross Blue Shield.
And BCBS hasn’t been able to scale up its nationwide coverage as quickly as the law envisioned. In 2016, it sold MSP coverage in 32 states — fewer than half of what the law had envisioned at that point in time.
“The experience of the first three years of the program has demonstrated that providing nationwide coverage for any issuer or group of issuers is difficult to achieve,” a January 2016 memo from the Office of Personnel Management observed.
That same memo officially relaxed the rules for the MSP program: It announced that plans would not have to cover all states in 2017, as the law had envisioned. And it encouraged other health plans to apply to join the program, “whether or not they can commit to a four-year schedule for nationwide coverage.”
Insane or no? Now let’s turn to the state level.
The Case of Minnesota
Here’s how the state of Minnesota is coping with the ObamaCare death spiral:
Most of the insurers in Minnesota’s individual market also plan to , to avoid taking on too many customers from Blue Cross and Blue Shield of Minnesota, which is leaving the exchanges after financial losses, the state said. Taking on too many new customers could harm insurers’ finances or overwhelm the doctors and hospitals that they contract with.
Wait, what? Limit enrollment? I thought ObamaCare was supposed to be universal! And worse, who is going to set the limits? Why, the insurance companies! Does anybody really believe they won’t game the system and return to underwriting? What’s that saying: “Doing the same thing and expecting a different result”?
The Case of the Federal Government and “Discontinued Consumers”
Finally, let’s look at the Federal level. This story appeared, very briefly, and then promptly dropped off everybody’s radar screen. Here we have a different use case: Customers who have been dropped because their carrier left the marketplace as a result of ObamaCare’s death spiral. And here is the administration’s plan:
Feds to pick new insurance plans for Obamacare customers losing coverage
You read that right: The Feds are going to pick a plan for you. On the bright side, you don’t have to shop (I mean, unless you actually want to know what’s in the plan):
Worried that insurers bailing out of the health law’s markets may prompt their customers to drop out, too, the Obama administration plans to steer affected policyholders to remaining insurance companies. But those if their new government-recommended plan isn’t what they’re used to.
The backstop was outlined in an administration document circulating among insurers and state regulators. It also calls for reaching those “discontinued consumers” with a constant stream of reminders as the health law’s 2017 sign-up season goes into full swing. Open enrollment for HealthCare.gov starts Nov. 1 and ends Jan. 31. A copy of the strategy was provided to The Associated Press.
I love “discontinued
citizens consumers.” So would Franz Kafka, not to mention George Orwell. How many of The Discontinued will there be?
[Unsurprisingly –lambert] the Obama administration said it isn’t able to provide an estimate of the number of people who’ll get the notices, but independent experts say it could range from several hundred thousand to 1 million or more.
Christen Linke Young, a senior administration official overseeing the health care markets, stressed that consumers are under no obligation to accept the new plan.
But this is Cass Sunstein’s “nudge theory” in action. What the administration is doing is replacing a discontinued plan, with a new default plan, and hoping that people simply accept it. The proof of that is that the scheme is opt-out, not opt in:
The federal government will choose health plans for hundreds of thousands of consumers whose insurers have left the Affordable Care Act marketplace of the law’s exchanges or select plans on their own, under a new policy to make sure consumers maintain coverage in 2017.
Now, as the administration struggles to adjust to those changes, .
Ben Wakana, a spokesman for the Department of Health and Human Services, said consumers would not be enrolled in any plans without their consent since they would generally have to pay the first month’s premium to activate coverage.
So violating ObamaCare’s mandate to purchase a plan is the how the administration says people can opt out of the plan that was selected for them? Are they insane?
Recall that ObamaCare is putatively universal and depends for its success on [genuflects] competition. We’ve seen that ObamaCare is not universal for people who, because of ObamaCare’s death spiral, have the misfortune to live in Pain City, with zero carriers (and a resulting insane arithmetical calculation, topped off with an insane bureaucratic process). We’ve seen that it should be possible to create competition through the MSP program — accepting for the sake of the argument that the neoliberal faith in markets is sane — in counties with one carrier, but that the administration butchered the MSP implementation. Meanwhile, in Minnesota, we see one state propose to allow insurers to limit enrollments, which threatens a reversion to pre-ObamaCare underwriting practices, also insane. Finally, we see that the brainiacs in the administration propose to nudge — by which I mean shove — a million or so people into new plans not of their choosing when their old plans are cancelled.
Wouldn’t it make a lot more sense to move to simple, rugged, and proven single payer? I mean, if our elites were sane?
 ObamaCare did provide various
kludges mechanisms to mitigate against a death spiral –reinsurance, risk adjustment, and “risk corridors” — but “while these measures have funneled billions to insurers that have taken on losses to enter the market, risk corridors and reinsurance will be phased out in 2017, and risk corridors have been so far behind on payments that insurers launched a class-action lawsuit in February to seek compensation.
 The Urban Institute also points out, as befits its conservative heritage, that prices are lower were there are more market participants, although “causation cannot be determined.”
 Sarah Kliff points out that similarly complex calculations are required from individuals buying non-subsdized insurance.
 There seems to have been a Twitter war on this as well. So far as I can tell, the state of play is as I have described.
 “Everybody” including the Trump campaign, if indeed they even noticed, proving, if it needed proving, that an upraised middle finger, however ginormous, is not enough to slay.