ObamaCare Rollout: Punts on Income Verification and Employer Insurance Checks, Setting Stage for Insurers to Call Mistakes “Fraud” and Rescind Policies

By lambert strether of Corrente.

Obama’s career transition from selling hope and change to selling insurance seems to be, at least so far, a wee bit rocky. Kudos to WaPo’s Sarah Kliff and Sandhya Somashekhar for breaking the story of the newest #FAIL, which required them to process 600 pages of dense HHS prose on July 5; a classic Friday document dump, with bonus points for the holiday weekend, and super double bonus sparkle pony points for following hard on the heels of another huge #FAIL, Obama’s triage of the employer reporting mandate (chirped White House apparatchick Valerie Jarrett: “We are full steam ahead for the Marketplaces [exchanges] opening on October 1.” Right onto the rocks, Val!). Kliff and Somashekhar write:

After encountering “legislative and operational barriers,” [nice…] the federal government will not require the District and the 16 states that are running their own marketplaces to verify a consumer’s statement that they do not receive health insurance from their employer. …

“The exchange may accept the applicant’s attestation regarding enrollment in eligible employer-sponsored plan . . . without further verification,” according to the final rule. …

While initial regulations had proposed an audit of each consumer who reported an income significantly lower than what federal records indicated, the final rule scaled that back to an audit of a statistically significant sample of such cases.

For individuals who are not part of that sample, “the Exchange may accept the attestation of projected annual household income without further verification,” it said.

This really is an epic #FAIL, technically, politically, and morally. Let’s take a look at how ObamaCare was supposed to work:

Simplifying drastically — really! — ObamaCare is designed to toss citizens consumers into buckets depending on their (projected) income (MAGI) and whether they get insurance from their employer. There’s a big bucket labeled “Medicaid” that ObamaCare forces citizens consumers into if they’re too poor, and there are several other buckets labeled “Exchange” (sometimes “Marketplace”) that have different subsidies attached, depending again on income, and what percentage of their income employer insurance (if any) represents. The ObamaCare Exchanges (“marketplaces”) were supposed to be implemented online, and even though comparisons to Expedia or Travelocity were beyond absurd, there was and may even still be some remaining hope that we’ll end up with something like TurboTax. And the exchanges were going to do all this figuring in real time: Log on, fill out a form, get tossed in a bucket, sign up.

So first, let’s talk about the technical #FAIL: You can see right away from that description that the Exchange system (I’m going to stop calling them marketplaces even though that’s what the HHS PR people want) presents a massive systems integration problem. You as a citizen consumer must (1) prove your identity (integrate credit reporting agencies), (2) your citizenship (integrate DHS), (3) your income (integrate IRS), (4) state Medicaid eligibility requirements (integrate each state), and (5) the insurance, if any, your employer offers you (integrate employer reporting); ObamaCare needs all that to throw you into the right bucket. Even leaving aside the fact that all this data is going to be dirty, as we know from the NSA scandals, it’s all kept in databases whose schemas differ and must be mapped to each other, and which need to be connected together with complicated and expensive Intertubal plumbing. Not easy.

So, when a project gets out of control, you see managers triage requirements to get something, anything, out the door, and remember: Obama’s committed to the October 1 date (“We will implement it”), and so something, anything, will go out the door. (My favorite quote, from ObamaCare’s wrangler at HHS: “Let’s just make sure it’s not a third world experience.”). We’ve seen triage in the Colorado and Connecticut exchanges already. We’ve already seen Obama triage the small business SHOP exchanges. Last Tuesday, we saw Obama triage the employer reporting requirement (point (5) above). And last Friday we saw Obama triage the income verification requirement (point (3) above). You enter both the cost of your employer insurance and your income on “the honor system, ” as Kliff and Somashekhar put it. You throw yourself into your own bucket!

It’s hard to know exactly why the ObamaCare exchange system is turning into such a technical disaster, besides just being hard. I might speculate that 600-page rules take a great deal of time to write, and you can’t deliver the software until you’ve got the rules. That would explain why the RFPs were a nightmare:

I saw the RFP to be the company to develop and maintain the NYS Exchange. What a train wreck! The company I was consulting for decided not to even pursue it in the end because it was a textbook lose-lose RFP. If you lose, you lose. If you win, you lose. Most of the requirements were “TBD” and they were essentially asking for a cost commitment to an ill-define / under-defined / NOT defined scope.

In addition, when Obama changed the Exchange application form as a PR exercise back in May, that required the states to rewrite their software:

The [Connecticut] state agency spent weeks reprogramming its Web site after the federal government shrank the insurance application from 21 pages to three.

Weeks, as it turned out, they did not have (which is remarkable, since ObamaCare was passed in 2010).

Second, let’s talk about the political #FAIL. To begin with, the Obama camp has acquired and strenuously burnished a reputation for technical competence, based on their tech-savvy campaigns. Here’s a pleasingly ripe slab of triumphalism (bolding and all caps most definitely not mine):

Reported as early as Feb, 2012 in a Slate article titled “Obama’s White Whale”, project Narwhal, Obama’s top-secret campaign project until then, featuring high tech data integration and data mining techniques, promised to change the ways in which campaigns are fought and won. … Project Narwahl relied on a real time full data integration technology that allowed the campaign to target voters in ways previously only imagined. … As for project Dreamcatcher, the Obama campaign was particularly secretive about this one … Unfortunately for Romney, as we learned just a few days ago, his attempt at anything similar to Narwhal and  Dreamcatcher, project ORCA, was a COMPLETE FAILURE.

Aren’t we happy we did not get THAT president?

Happily or sadly, alas, however, campaigning is not the same as governing, and the ObamaCare Exchanges are looking a lot like Romney’s Orca. Except that it’s one thing to screw up on election night, but quite another to screw up your “signature domestic initiative,” as well as screwing up the lives of the poor schlubs who are going to get caught up in this mess.

Next, who’s most injured by ObamaCare’s latest debacle? That’s right: The states who actually trusted Obama and invested their time and treasure in his program. I hate to quote the National Review, but when they’re right, they’re right:

As with the employer-mandate delay (to which it is the natural follow-up), this decision appears to have come as a surprise to the people most immediately affected by it—in this case the administrators of the state exchanges. The statement quoted above from the spokeswoman of the California exchange suggests [“currently evaluating”] the administrators of that exchange did not know about this new rule the day before it was released. It must come as both a great relief to them and something of a slap in the face, since they and their colleagues in other states have after all spent huge amounts of time and money trying to prepare the technological [sic] architecture for verification requirements from which they have now been released. After this eventful week, they must wonder what other “delays” are coming in low-key announcements late on Friday afternoons.

Yes, yes, schadenfreude, but Obama’s sure making the governors of the states who opted for the Federal exchange — say, how’s that coming? — look awfully smart, isn’t he? And with Rick Perry, that’s not easy. But yes we can!

Even worse, Obama ends up reinforcing the narrative that he’s really a Republican Trojan horse, sent to destroy all faith in the idea that government can ever do anything positive. Here’s the heart-tugging TV ad Americans for Prosperity are going to run starting tomorrow in VA and OH:

The 30-second ad titled “Questions” begins with Julie, a mother of two, who says, “Two years ago, my son Caleb began having seizures. The medical care he received meant the world to me. Now, I’m paying more attention and I have some questions about Obamacare.”

“If we can’t pick our own doctor, how do I know my family is going to get the care they need? And what am I getting in exchange for higher premiums and a smaller paycheck? Can I really trust the folks in Washington with my family’s health care? I think we all deserve some answers,” she says in the spot.

Well, yes, if you’ve got Medicare. But no, since if Obama were able to build a system you could trust, he wouldn’t keep triaging more and more bits of it. The health care policy space is starting to look like SFO’s runway 28L near the seawall.

Finally, I’d like to talk about the moral #FAIL. (The moral hazards of an “honor system” are a topic for another post.) Rather, I’d like to talk about a promise that Obama made, and how triaging the income verification and employer insurance checks could jeopardize it. From Obama’s “train wreck” presser of April 30, although he’s used same talking point over and over again:

[OBAMA:] And for the 85 to 90 percent of Americans who already have health insurance, they’re already experiencing most of the benefits1 of the Affordable Care Act even if they don’t know it. Their insurance is more secure. Insurance companies can’t drop them for bad reasons. Their kids are able to stay on their health insurance until they’re 26 years old. They’re getting free preventive care.

What Obama is referring too, although in childish language — “drop them for bad reasons” — is the practice known as rescission. Ending rescission was supposed to be one of ObamaCare’s great triumphs:

The health insurance industry has decided to end its practice of cancelling claims once a patient gets sick next month, well before the new health care law would have required it, the industry’s chief spokesman said Wednesday. …

The decision to end rescission, as the practice is known, was made during a Tuesday afternoon conference call of chief executives organized by their trade group, America’s Health Insurance Plans, and represents the industry’s latest attempt to build political good will after the bruising health care fight.


ObamaCare will end the practice of rescission where insurers drop ill customers to avoid their mounting bills. This actually fits right in with the conservative critique of health insurance and with policies enacted by George W. Bush.

Of course, insurance companies have every incentive for rescission, since they profit by denying care. ObamaCare hasn’t changed those incentives, and back in the day the insurance companies “rescissed” a lot of people. If you got sick, these were the odds. Via Taunter Media (hat tip SW):

Half of the insured population uses virtually no health care at all. The 80th percentile uses only $3,000 (2002 dollars, adjust a bit up for today). You have to hit the 95th percentile to get anywhere interesting, and even there you have only $11,487 in costs. It’s the 99th percentile, the people with over $35,000 of medical costs, who represent fully 22% of the entire nation’s medical costs. These people have chronic, expensive conditions. They are, to use a technical term, sick.

It should be fairly clear that the people who do not file insurance claims do not face rescission. The insurance companies will happily deposit their checks. …

If the top 5% is the absolute largest population for whom rescission would make sense, the probability of having your policy cancelled given that you have filed a claim is fully 10% (0.5% rescission/5.0% of the population). If you take the LA Times estimate that $300mm was saved by abrogating 20,000 policies in California ($15,000/policy), you are somewhere in the 15% zone, depending on the convexity of the top section of population. If, as I suspect, rescission is targeted toward the truly bankrupting cases – the top 1%, the folks with over $35,000 of annual claims who could never be profitable for the carrier – then the probability of having your policy torn up given a massively expensive condition is pushing 50%. One in two. You have three times better odds playing Russian Roulette.

(Note: Some commenters think this estimate is low.)

So, how does this relate to the “honor system” where citizens consumers declare their own (projected) income (in terms of MAGI) and describe the cost of their health insurance (if any) that their company offers them? It’s very simple. If the pre-triage ObamaCare Exchanges had worked as designed, the exchange would have validated the income figure, and supplied the insurance cost via the company reporting function. However, under ObamaCare as it now stands, the onus is completely on the individual. That means they’re vulnerable to a charge of fraud by their insurance carrier, and the bar for showing fraud is very low. RoseAnne DeMarco:

[Under ObamaCare,] insurers may continue to rescind policies for “fraud or intentional misrepresentation” – the main pretext insurance companies now use to cancel coverage.

Via Tibbits, “Insurance Companies Interpretation of the New Rescission Rules”:

Below is some information taken from a newsletter for Anthem Blue Cross Blue Shield. It will allow you to better understand how the insurance companies are interpreting the new law regarding rescissions.

The federal health care reform law does not allow the plan or issuer to rescind coverage, except in cases of fraud or intentional misrepresentation of material fact as prohibited by the plan or coverage. Examples of when a group may consider rescinding coverage include intentional misrepresentations of marital status or dependent eligibility.

So, where insurance companies used to rescind your policy after you got cancer because you didn’t tell them about the acne you had when you were 13, now they can rescind your policy if (for example) you use your 1040 figures for income instead of MAGI (an accident totally waiting to happen), or if you say your employer’s insurance policy costs 9.53% of your income when in fact it costs 9.32%.

It’s all very well for Obama to promise Americans that “insurance companies can’t drop them for bad reasons.” But if he really wanted that promise to come true, then he shouldn’t have handed writing the bill over to Max Baucus, whose chief of staff, Liz Fowler, on secondment from her job as a Wellpoint VP, wrote the bill that later became ObamaCare, and wrote a loophole into it that the insurance companies are going to be able to drive a truck through — and Obama just gave them the go-ahead.**

* * *

All the players had three years (2013 – 2010) to implement ObamaCare, “the President’s signature domestic initiative,” which is going to cover a pitiable 7 million of the 40+ million uninsured in its first year. LBJ, let us remember, rolled out Medicare for the entire over-65 population in one year, back in the day of steam-powered mainframes driven by punch cards fed to them by guys in white shirts with ties.

So what’s the difference? The system architecture. Medicare for All has a simple and robust single payer architecture: You determine eligibility in one (1) jurisdiction (the United States) with one (1) eligibility criterion for citizens: Their age (65; should be zero). ObamaCare, by contrast, needs to determine eligibility in 50 (fifty) jurisdictions, with a complex eligibility formula that’s primarily income-based, but involves systems integration from the IRS, DHS, and private credit reporting companies (at least), to throw people into the right subsidy bucket. That’s called a combinatorial explosion, and even the best program and project managers — which ObamaCare’s managers clearly either are not, or have not been given the opportunity to be — have a hard time dealing with them. Let me know how it all works out….

NOTE * There is plenty of scope for disaster, still. We’ve had no user testing worthy of the name on any of the Exchanges.

NOTE ** The eternal question: Stupid and/or evil? On this episode, I’m going with stupid. Because optimism!

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. YankeeFrank

    As a software engineer, I can say that attempting to implement a 600 page requirement with moving targets is simply not going to work unless it can be done in very small, testable stages. For example, first one would build the most necessary integration, say for income verification with the IRS, and for one bucket only, say the medicaid bucket. Put it out and let those whose income falls around that range try and sign up. Then you start to get real feedback on the system, and can begin to tighten up those parts while developing additional buckets and integrations. That ideally would’ve started around two years ago and by now we could have a mostly full system running.

    Given that some states are implementing their own exchanges its basically reinventing the wheel. The feds should’ve developed extensive API’s in conjunction with the relevant bureaucracies and the states prior to the states implementing their exchanges, with an extensible architecture that would allow states to plug in their own specific requirements. If that had been done three years ago, with the state systems begun two years ago, maybe we’d be somewhere now. The hardest part is the IRS integration. There should’ve been a special federal team just for that. I could go on but you get the picture.

    Another thing is you can’t really compare the healthcare exchanges to a “greenfield” project like the Obama campaign software. First of all, there aren’t massively complex legacy systems to tie into like the IRS (!), DHS, whatever. Second, the requirements are not a 1,000 page piece of legislation. I can tell you which system I’d rather work on, and it ain’t Obamacare.

    Its not terribly surprising that the Obama campaign system worked well — Obama had people that actually cared about making it work because they (suckers) actually believed in the candidate and were motivated by more than a paycheck. You can’t put a dollar amount on actually giving a sh_t.

    The campaign software is basically a massive database with lots of data entry and reporting screens. As long as the system is developed iteratively (in small pieces with core functionality built first) with regular input and feedback from the people actually using the system its not hard. If you have committed people who care about the data entry and keeping the system accurate and improving it that is half your battle right there. The other half is having a development team that LISTENS to the users of the software and is responsive to their needs.

    I can easily imagine why Romney’s system failed: he is a top down douchebag who thinks the local campaign staff are dumb grunts. A team like that will never be responsive to the needs of the people on the ground. They likely just throw money at things and think that will magically make it work. Most software systems (the kinds we are talking about here) are more like symbiotic quasi-living beings. They are cyborg-like in that they simply don’t do ANYTHING without human input and interaction. Think of facebook without the faces — its nothing. These systems need tending and care like living things. I just don’t see Mitt Romney, and the people he surrounds himself with, being good at that.

    1. NotTimothyGeithner

      The Clinton people had the same software. The real issue in 08 primary season was the quality of local boots on the ground and the general laziness of the Clinton campaign, but many Clinton volunteers were people who thought Bill and Hillary were liberals despite their track records. The primary difference is Obama’s people bothered to read the rules about delegate allocation and put their efforts there. Also Obama convinced his supporters who wouldn’t normally caucus to caucus, and Hillary’s show of support among seniors relatively plummeted in caucus states versus primary states. Hillary’s people spent more time trying to change the calendar instead of worrying about getting seniors to stay at caucuses or being ahead of issues. Computers were the “simpler” story stenographers told about the ’08 campaign. Hillary had more votes, and Obama managed to paint her as trying to subvert the democratic process through super delegates which is what her campaign was doing instead of focusing on votes.

      Adding to your point about the complexity of programming, you forgot to add the creation of 50 separate exchanges and systems in a country where people can move across state lines at any time. That alone is staggering.

    2. jrs

      Very sound approach. Having spent over a decade in the field, I can tell you what type of software decision making is intuitively sound (sometimes backed by various theories, but that’s true believer stuff, I take what makes sense and leave the rest). The issue is obviously complexity, and the question becomes how to reduce that complexity. That is IF YOU HAVE TO HAVE COMPLEXITY TO BEGIN WITH (usually it’s inherent in the business – here’s it’s just uh Obamacare).

  2. profoundlogic

    Let’s not discount Dr. Evil just yet. It’s fine to be optimistic, but one should never underestimate the depravity of man. Let us not forget that this system is being devised for the people, not by the people. The folks in charge are feathering a much nicer nest for themselves (i.e. Elysium).

    1. tongorad

      I vote for evil, for the neoliberal worldview is essentially markets uber alles.

      The Obamacare clusterfuck is designed to destroy lives.

  3. Larry

    “Happily or sadly, alas, however, campaigning is not the same as governing”

    This is the common theme with Obama and sadly most modern Democrats. They have become experts in messaging and marketing. They are essentially large ad campaigns selling a brand that can no longer deliver. But the brand still sells because people still need government, they still need leaders. Instead we get largely empty promises and leaders who exhibit the worst tendencies of “left” leaning politicians that right wingers always warn us about (e.g. dictators).

  4. petridish

    Reading your comment, a person who was inclined to think such things could get the idea that this whole program was never meant to work at all.

    The timeline of this fiasco fits very neatly into the timeline of a two term presidency that was intended to accomplish absolutely nothing.

    1. YankeeFrank

      It might be. However, I think I favor the incompetence and arrogance angle. Something like 75% of software projects fail, and of course most of those are on a vastly more modest scale than Obamacare’s exchanges. The most common reason they fail is that those with overall management responsibility don’t really understand what it takes to make a complex project successful — they think its merely a matter of developing a spec and passing it off to some programmers. They refuse to spend the time/money on architecture and design, and so projects spin out of control quickly and fail. They just don’t have respect for the complexity and difficulties involved. The classic example of this was a massive IRS system revamp in the 90’s that cost $4 billion and many years and ultimately had to be scrapped.

      1. NotTimothyGeithner

        To add to your point about arrogance:

        “Well, the big difference here and in ’94 was you’ve got me.” -Barack Obama as claimed by Congressman Marrion Barry when Congressional Democrats expressed skepticism about the Obama strategery.

        In case anyone forgets, 1994 was marked by Republicans winning in districts where Democrats were more or less well past even Congressional retirement age. 2010 didn’t have the same dilemma.

  5. Eureka Springs

    The obvious should be noted specifically and simply. Obamney not care sponsored, I mean bribed by the health financial complex is THE fraud here. None of anything mentioned in this post is about health or care. That is the evil feature. Ponzi looting schemes need stupid complexity in order to justify itself… but clearly evil is the intent.

    1. Carol Sterritt

      Personally I do not feel that your point can be made often enough. So much of what the ACA ended up doing is simply to put money into the pockets of the executives of health insurers, and big hospital executives, sometimes directly. For instance, a full 20 Billion Dollars was allocated by Obama to “help” hospitals get access to software so they can digitize the patient records. But most hospitals are part of a huge francise. So the monetary help is a bonus!

      For instance, Sutter Hospital in Calif. had a local hospital director propose that the community that Marin General serves be given an extra 350,000 bucks so they could develop the software necessary to make the records into computer records. This director forgot to mention that two other Sutter hospitals in the SF Bay area had already developed the needed software. And anyone who thinks about such things can assume that the already developped software was already in the hands of the Marin general computer techs. But hey, an extra 350,000 bucks to give to the top executives at Marin General is always a good thing, right? After all, no hospital executive can ever be too rich or too thin.

  6. petridish

    “So, how does this relate to the “honor system” where citizens consumers declare their own (projected) income (in terms of MAGI) and describe the cost of their health insurance (if any) that their company offers them?”

    Don’t forget, MAGI is also the basis for the determination of the government premium subsidy. Any overpayment of that subsidy, determined AFTER the fact, must be repaid to the government. And, changes in MAGI throughout the year supposedly change the person’s eligibility for subsidized insurance, possibly shifting them into Medicaid.

    1. Lyle

      So all lying about income does in many respects is to postpone the bill. The IRS will true it up when the 2014 tax forms are filed. It should be noted that if the feds want to lying on the form is likley a federal crime, is the form not filed under penalty of perjury, like a tax form. If one got medicaid and then was not eligible, could they not send a bill also? (At a minimum the tax refund due is absorbed by the government). Is interest charged on any underpayment ala the income tax?

  7. pebird


    I respectfully submit that when it comes to health care and IT, stupid = evil.

  8. Dee

    “Obama’s career transition from selling hope and change to selling insurance … ”

    Absolutely brilliant. The Insurance Salesman in Chief!

    1. R Foreman

      I like Obama (or at least the entertainment value). Some people lose their mind because circumstances force them there. Obama is deranged because he really, really wants to be that way.

    2. Code Name D

      He is like a use car salesmen, when what we really needed was a good mechanic. The AHCAA is looking more like a lemmon all the time.

  9. ep3

    Yves, I think it’s important to point out that by making consumers responsible for accurate numbers, you continue that trend of “personal responsibility”.

    1. MaroonBulldog

      Of course you realize that a substantial segment of the population cannot reasonably be expected to discharge a responsibility for computing and reporting accurate numbers. It’s just not something that comes naturally. Many people understandably get confused.

      But why did you address this to Yves? It’s Lambert’s post.

      1. bluntobj

        If the LINV’s (lo-info non-voter) had to be responsible for the estimation of their own tax, including keeping abreast of all current tax law, and was made to suffer the consequences of failure to report accurately, we would not have that system in the first place. Torches and pitchforks would have settled it long ago.

        However, those who want to govern figured out long ago how to create LINV’s that don’t care, spawning a vast extractive industry in tax accounting and advisory services. I myself am a part of such industry.

        Let the LINV’s suffer the consequences of their abrogation of responsibility. In the end, negative feedback is the only real learning mechanism that works.

        1. lambert strether

          People should die because they can’t perform the useless tasks you set them? What a crock.

          Make single payer the solution, on the grounds of simple humanity and common decency.

        2. MaroonBulldog

          I am not concerned about persons who don’t pay attention and don’t vote. I am concerned about persons who lack some capacity to manage their own affairs. Those who have that capacity now might do well to make some plans against the day when they may not. It’s what durable powers of attorney and advance health care directives are for.

          1. Yves Smith

            It’s not even competence. Who the hell can estimate their income accurately? Hint: let me tell you who can’t:

            1. Anyone self employed

            2. Anyone who gets commissions or annual bonuses or tips

            3. Anyone who works overtime (function of how much your employer will give you and how much you want and are able to take)

            4. Anyone who is working part time involuntarily (you are seeking more hours and might find a way to get them)

            5. Anyone who has hourly work where the boss changes hours and schedule from time to time

            Basically, the only people who can predict their income are people who get only salaries and are dead certain they will get no raise that year.

            1. Code Name D

              It’s worse than that. The system asumes that applicants are liying and can’t be trusted. So any information an applicat supplies is automaticly worthless and has to be varified from some other sorce.

              And these sorces are always privet databases that have long reputations of making lots of mistakes that take years to correct.

              The problem is not that the applicant needs to submit accurate data, but that the applicant’s information will be compared with a flawed database.

              As the old saying goes, if you are not prepared to accept the answer, don’t bother asking the question.

  10. BondsOfSteel

    I just don’t understand the purpose of forcing everyone to go through the exchange. MA has a similar system, and it doesn’t sound nearly as complex.

    I’m assuming most people won’t be subsidized, therefore things like citizenship checks, income checks… ect, really are not necessary.

  11. MaroonBulldog

    “Something like 75% of all software projects fail.” Here, they are failing in setting up the system for initial enrollment. I wonder what it will be like in year 2, when people want to move from one plan to another. Because they move from one state to another. Or family status changes. Or they just don’t like dealing with the insurer they’ve been with and want to move to another? I hope they are ahead of that one. Someone will be very unhappy if they’re not.

  12. Pelham

    The sheer brilliance of Obamacare is contained in the fact that it will take years for all its utterly horrid, inhumane qualities to assert themselves in the public mind. The new rescission situation you mention is a terrific example, but there are many others, including the “loophole” that allows companies offering family coverage to begin dropping spouses.

    By the time the public at large begins to realize what’s up, the Obamas will be long gone, having joined the Clintons on the gold-plated speaking circuit.

    1. Mark P.

      Yup. It’s effectively a pure IBG,YBG (I’ll be gone, you’ll be gone) play.

      And it will prop up till maybe 2030 a massively unsustainable system of extraction that, otherwise, on the projected figures and trends — based on rising costs and people excluded from coverage — was due to collapse around 2020.

  13. bluntobj

    I vote evil.

    The breakout by percentile is reason enough. Triple or quadruple the amount of premiums paid by people not using healthcare, then boot out those who are a negative NPV.

    All the looting that has occured so far in the USG has really ben through created money, but it hasn’t generated any real shock yet. This looting is gonna be out of pocket for the lo-info non-voter, and the big purple shaft awaits them.

    I’m opting out, myself.

  14. Collin Higgins

    The Obama administration announced Friday that it would significantly scale back the health law’s requirements that new insurance marketplaces verify consumers’ income and health insurance status.

    1. MaroonBulldog

      Success came too early in life for President Obama, so he never learned to dissimulate as well as his office demands.

  15. Sara Sikes

    “They’re getting free preventive care.” The dirty little secret is that those of us paying big bucks for premiums are not getting this. I’m the HR director for a small business in CT and we’ve been unsured by two large firms here and both continually dodge paying claims (in full)for preventive care. Apparently Obamacare did not penalize insurers for coming up with any excuse under the sun for refusing these claims so this is routine. Wish someone would write about this because it’s a huge problem.

    1. MaroonBulldog

      I suppose the observation always bears repeating, that traditional medical insurance companies make money by collecting premiums and not paying claims. We could update this by adding that hmo insurance companies make money by collecting premiums and not providing services. To think that this was all invented by the life insurance industry, which my probate law professor called “our worst industry,” many years ago.

      Through experience in later life, I came to see that the software development industry may also be one of our worst. When you combine it with medical insurance, you are bound to get something truly awful.

  16. Dr Duh

    I just got my new policy that my union negotiated with my state. While the percent paid by the state has gone down by a few percentage points my overall cost has exploded.

    I am on the cheapest of three family plans.

    Premiums increase 45% to $180/month
    Deductible increases 140% to $1000 per individual
    50-50 Coinsurance increases 200% to $3000 per individual

    When I posted this on FB and ascribed the increased costs to the ACA my Democrat friends were all quick to pooh-pooh it. More partisan denial of reality.

    For laughs I poked around the NYS BCBS healthy people site and then I felt better, if I were forced to buy insurance on my own it would be so much worse.

    Then I diagnosed myself with Stockholm Syndrome.

    1. washunate

      Most Dems blathering about health insurance have no idea how it works. It’s almost comical.

      $180 a month for a family plan with a $1,000 deductible means that the union negotiated a major payment by the state. Without knowing any details, I’d bet the state is paying five figures annually.

      Which both shows the importance of unions and the idiocy of ObamaCare conveniently wrapped into one.

    2. bob

      1,200 a month for BCBS in NY as an individual. They are the only thing even close to “health insurance” in my area. The rest of the options, including “healthy NY” are just debit health insurance policies.

      I don’t qualify for healthy NY because I already have health insurance. But I can’ afford it…

      It’s a monopoly, pure and simple. I asked the AG’s office about this. They agreed, it’s a monopoly. They are exempt from federal anti-trust laws.

      In chronological order- Excellus is the local BCBS.

      “Excellus board voted itself a 37 percent pay raise”


      “Excellus reports $223 million profit for 2011” adding-

      “David Klein, the Rochester-based company’s chief executive officer, took home $5.2 million in 2011, up from $1.9 million in 2010”


      “Excellus reports $106 million profit for 2012”


      Lotsa profit for a non-profit….

      1. bob

        Also adding that the local chamber of commerce, which used to offer Heath Insurance to people was “bought out” by the larger, international conglomerate lobby group. Their largest local employer?

        Excellus BCBS

        I had a older friend who said this was the point of obamma care, to kill off the last bit of local lobby. I doubted it at the time. My mistake.

      2. bob

        I also laugh (while crying inside) about what people think they “pay” for health insurance.

        “I have to pay $100 a month for my HI now!”

        Sure…that’s what it “costs”.

        No one has any clue what they pay for HI if they are employed by a larger group.

        I find that disturbing. They litreally have no idea what they are “earning” every year. They just know that now that have to “pay” $100 a month for health insurance.

        $100 out of $800.

        For a person “earning” $50,000 a year that represents 17% of the 50k a year in “salry”.

        Or, put another way, the person actually “earns” $58,400 a year, their employer, in their great wisdom, spends 17% of their paychack on HI for them.

        “But $100!!!”

        You fucking moron.

        1. jrs

          Yes well actually pretty much most meetings that they have yearly on signing up for benefits do give information on the full costs. It’s actually not some carefully guarded secret, it’s right there in the paperwork.

          The bet I always do is possibility of paying these full cost via Corba should the need arise versus having crappy health insurance all the other years I’m working just to make sure I could be covered in case of unemployment. Lovely, ain’t it all?

  17. John Bohn

    One thing I don’t understand. Rescission of a policy for fraud is legal only if the fraud is “material,” that is, it affected the level of premium or issuance of the policy. For example, if you didn’t tell the insurance company you had previously had chest pains, they would rescind your policy if you filed a big claim. They could say there was material fraud, because if they had known about the chest pains they would have charged you a higher premium, or not insured you at all. Under Obamacare, how would false statements about income affect premiums or issuance? Are insurance companies allowed to reject applicants or charge higher premiums based on their income?

    1. MaroonBulldog

      Lambert explained that premiums are subsidized for persons of based on thier income, so misrepresentations of income could affect premiums.

    2. Yves Smith

      No, you are thinking of common law fraud. The case law for health insurance has a MUCH MUCH lower standard. Go read the 2009 testimony before Congress, or do a lit search. It’s absolutely the case that if your insurer found any minor pre-exsiting condition (and there are documented cases of it being acne that got treated by an MD) that you had failed to report, they’d cancel your policy if they found it when you showed up with something serious, like cancer or HIV. It does not have to be causally related to your costly ailment.

      I just did a fast Google, I’ve seem more directly worded posts on this topic but can’t unearth them readily:

      In the oft-cited case of Wickersham v. John Hancock Mutual Life Insurance Co.,[5] the insured misrepresented his medical history on the policy application and died as a result of a swimming pool accident. No causal connection existed between the misrepresentation and the loss. The state statute provided:

      The falsity of any statement in the application for any disability insurance policy covered by chapter 34 of this code may not bar the right to recovery thereunder unless such false statement materially affected either the acceptance of the risk or the hazard assumed by the insurer.[6]

      The court found that the insurer did not have to prove a causal connection between the misrepresentation and the death of the insured, and therefore it allowed the insurer to rescind the policy….

      In two states, intermediate appellate courts have unsuccessfully attempted to adopt causal connection rules that were rejected by their respective supreme courts. In the case of Massachusetts Mutual Life Insurance Co. v. Manzo,[17] the New Jersey Supreme Court expressly rejected its intermediate court’s requirement that there be a causal connection between the cause of death and the insured’s false statements in the application. In so doing, the supreme court adopted the majority rule that there need not be a nexus between the cause of death and the misrepresentation.


  18. MaroonBulldog

    “Medicare for all”–whether you agree or disagree with it, it’s probably coming, once the ACA has fully revealed itself as the fiasco it is shaping up to be. When that day comes, TINA, as the U.S. won’t be able to revert to the devilish “lose your job, lose your insurance (except for COBRA)” system that it “enjoyed” before.

    Twenty-two years ago, the very large company I worked for got active in the health-care reform debate precisely because its financial management realized it could not bear to sustain the actuarial burden of its employee medical benefit obligations. The impetus was to get private employers out from under these obligations by transferring them to Medicare, just as employers were largely freed from their retirement medical benefit obligations 27 years before that. Shifting these obligations to the government was the logical solution.

    In this light, the best way to understand ACA is to view it as the medical insurance industry’s crony capitalist delaying tactic to extract as much economic rent as it can before the inevitable collapse of this unmanageable system.

    Real capitalists will welcome the relief that single-payer affords their productive business firms, when the burden of this parasatic insurance industry goes away.

    1. Lune


      I wish you were right but I think you’re way too optimistic.

      There is no person in America for whom the current system works EXCEPT for… the insurance industry itself. But when that industry is > $1 trillion in size, it will fight like hell to keep its share, and Americans have proven too lemming-like to realize their lives are literally being sacrificed on the alter of higher profits.

      It’s not even that Americans are just afraid of the unknown, the old “bird in the hand vs two in the bush.” Every American likely has a family member >65 who is happy as a clam in Medicare. Plenty of Americans openly wish they could have as good an insurance plan as their grandparents. We’ve already done the hard work of creating a pretty darned good single payer system that efficiently provides health benefits unheard of in the private system (can see pretty much any doctor in the entire country, no prior authorizations for anything needed, no lifetime limits, policy will never be taken away, and your out-of-pocket costs — after a medigap policy — are peanuts). And yet with such a system staring them in their faces, Americans still fall prey to idiots yapping about socialism.

      So combine a public who can be convinced to disbelieve their very own eyes, with a trillion dollar industry laser-focused on its profits, and I don’t see any change for a long time still…

      If you disagree, I just have to ask, in all curiosity, in what way must this system be *worse* than it already is before the expected public groundswell for Medicare-for-all will materialize? We already have pretty much every dysfunction that could be conjured up for a dystopian insurance system:
      -Massive uninsured population? Check.
      -People living in mortal fear of joining that group at any time? Check.
      -Pay your premium loyally for 30 years, then get “rescinded” the day you have a heart attack? Check.
      -Have insurance and still go bankrupt because of medical bills? Check.
      -Doctors retiring early or dropping networks because they loathe dealing with insurance companies? Check.
      -Nation going bankrupt due to exploding costs despite fewer people getting fewer services being reimbursed at lower rates? Check.

      What “features” are we missing to get this system to finally come crashing down? I literally can’t imagine something our system doesn’t already have…

    2. Code Name D

      Boy, that’s some stuff your smoking there. Where can I get some?

      I disagree.

      It this was simply a mater of looking at the numbers, then why didn’t we go with single payer instead of this AHA nonsense? The data will not become magically more convincing in the future once the AHA is a steaming pile of ruin.

      AHA is born from an ideological belief in the infallibility of markets. Consumers want lower prices at higher quality, and thus the market will magically innovate new solutions. Heck, I almost expected Obama to declare that his insurance exchanges will make health care insurance too cheep to bill. (Hay California, how’s that electric spot market working out for ya?) When AHA fails, they will blame the consumers and expect them to foot the bill, just as they did with banking reform and the housing crises.

  19. washunate

    “Let’s take a look at how ObamaCare was supposed to work”

    I always get a chuckle at that. Of course the lies aren’t working, because they were lies :) But alas, they have to be debunked anyway, because most of the supposedly liberal groups are in on the scam, so Serious People can’t call a spade a spade.

    ObamaCare is working pretty much exactly like it was (actually) supposed to work. 5 years after being elected to provide quality, affordable healthcare to all Americans, such a thing remains non-existent. Exactly what the hospital franchises and drug dealers want.

    1. MaroonBulldog

      If anyone cares, there’s another, very different theory about how Obamacare was supposed to evolve. It involved logrolling between the two chambers. According to the theory, the plan was:
      1. Senate would pass crony-capitalist bill with support from insurance and pharma lobbies, who knew that Democrats’ 60-40 majority would kill a filibuster.
      2. House would pass a progressive bill.
      3. Senate-House conference committee would iron out a compromise bill that eliminated some of the crony-capitalist features of the Senate bill while moderating the progessive features of the House bill.
      4. Both chambers would pass the compromise bill.

      Here’s what actually happened.
      1. Senate passed crony-capital bill.
      2. Scott Brown, a Republican, was elected to fill the vacant Senate seat from Massachusetts, exposing any compromise bill to filibuster.

      1. Lambert Strether Post author

        Actually, ObamaCare was passed as part of a budget reconciliation bill, not subject to filibuster (which, in any case, the Democrats should have abolished in 2009 when they had the chance, had they wished to pass progressive policies, which they did not.

        Nor was the House progressive. Had they been, HR676 would have passed. IIRC, there wasn’t even debate on single payer.

        IMNSHO, the best theory is that the Democrats were in bed with the health insurance companies from the beginning. The career “progressives” successfully concealed this by running interference for Obama in the “left” factions of the political class.

        1. MaroonBulldog

          Whatever they were thinking, when they did what they did, they created a system that cannot be automated in reasonable time. Manual workarounds in the near term will only make the final automation that much more difficult in the long term. So they failed to think about the practicability of what they were doing. Not that anyone should be surprised. Yankee Frank and you have persuaded me: I still vote for “stupid”.

          1. washunate

            You are sorely mistaken if you think this is a technical problem.

            This is what the Obama Administration wanted from the beginning. It’s why during the campaign he wouldn’t release details and why during the Dem convention Obama delegates pushed back against more universal language for the party platform and why single payer wasn’t invited to the table and why Obama supporters in the Senate told constituents in early 2009 that they didn’t have specific policy preferences, they would just support whatever Obama rolled out that summer and…

            Were you paying attention at all? If not, I am sorry, you have fallen hook line and sinker for the Obot line.

            1. Lambert Strether Post author

              Well, I didn’t get the “Stupid” tattoo*. I’m perfectly willing to be argued out of it in favor of “Evil.”

              But if you’re going with Evil, what’s the theory? Presumably, this outcome was gamed out, so what were the moves?

              (I’m suspicious of 11-dimensional chess solutions in general; I think the shoddiness of the political class goes all the way through; what we see is what we get, and there aren’t any wicked smart operators behind the scenes, Wizard of Oz-style.)

              NOTE * No matter what detractors say!

  20. ChrisPacific

    And last Friday we saw Obama triage the income verification requirement (point (3) above). You enter both the cost of your employer insurance and your income on “the honor system, ” as Kliff and Somashekhar put it. You throw yourself into your own bucket!

    So it’s liar loans for healthcare then.

    All that’s missing is a way to securitize them and blow a credit bubble, and I’m sure the FIRE industry is on that one already.

    1. Lambert Strether Post author

      That’s a nasty twist of thought, ChrisPacific, but I’m no finance expert. How big would the bubble be, do you think? And what would be the investment vehicle?

      1. ChrisPacific

        I’m not a finance expert either and I’m just speculating. I was just struck by the similarity. That said, if there’s any way to make it work I’m sure somebody out there is starting on it already.

    2. reslez

      Already here, one variety is known as the dead peasant’s policy. Your employer finds out you have a life threatening illness and takes out a life insurance policy on you. While they pay (or not?) your medical bills. Another variation is to troll medical wards for the terminally ill, buy up their existing life insurance policies and split the proceeds with your investors.

  21. Silver Price

    Healthcare rationing in the United States exists in various forms. Access to private health insurance is rationed based on price and ability to pay. Those not able to afford a health insurance policy are unable to acquire one, and sometimes insurance companies pre-screen applicants for pre-existing medical conditions and either decline to cover the applicant or apply additional price and medical coverage conditions.

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