Megan McArdle’s post on why Healthcare.gov needs a “drop dead date” is useful if only for this succinct description of why time is of the essence for the PPACA:
The administration estimates that it needs 2.7 million young healthy people on the exchange, out of the 7 million total expected to apply in the first year. If the pool is too skewed — if it’s mostly old and sick people on the exchanges — then insurers will lose money, and next year, they’ll sharply increase premiums. The healthiest people will drop out, because insurance is no longer such a good deal for them. Rinse and repeat and you have effectively destroyed the market for individual insurance policies. It’s called the “death spiral,†and the exchanges, like the mandate, were designed to keep it from happening.
The open enrollment period for the exchanges is over on April 1—there are 182 days from October 1, 2013 through March 31, 2014. To enroll 7 million people over that period you’ve got to enroll more than 38,000 every single day. Heck, to enroll 2.7 million you’ve got to enroll almost 15,000 people per day every single day. By no account is that happening.
I understand what you are saying and I don’t do actuarial science. Say you’re right–the numbers aren’t what the CBO estimated, and the breakdown of healthy and sick leans toward sick. Rates rise the following year. I don’t see how that makes it a ‘death spiral’. Are there actual studies that show how locked in a market would be after a disappointing first year? Or is this someone (McCardle) who loathes the plan trying to spin bad news into worse news?
It’s a death spiral for private insurance companies. That could happen very suddenly and we’re not prepared for it.
Is this a bug or a feature? If single payer is the goal, this seems desirable.
In any case, it will require more government intervention to fix the problems caused by government intervention.
As I understand the way the law is written, the open enrollment period ends on April 1. After that, no changes or new enrollments could be made until October 1, 2014 and then ending December 7, 2014.
I think that I may need to explain how insurance works. The PPACA has no provision for a public insurer or underwriter. It works solely through private insurers and underwriters.
If private healthcare insurance were suddenly to vanish, the only people with insurance would be Medicare beneficiaries and Medicaid beneficiaries. Unless you think that a public insurance plan is likely to be enacted into law under the present political circumstances.
From a certain standpoint, who cares what happens to private insurance companies? They are part of the reason the situation is so bad; and had a single-payer plan been tried, they would have been standing completely in its way.
Also, we are also only two weeks into the roll-out. The projections are not being met, and maybe in the end they won’t be met. But there’s a desperation to the doomsday talk. Seriously–one year, a few too many sick and a few too many healthy, and private insurance companies can’t cover their bets?
Or am I being way too flip?
Er–too few healthy.
The only redeeming aspect of the PPACA was that it scared people enough to engage in serious HC cost dialogues. Other than that it is an horrendous mish mash of complexity, that is punitively enforced, unclear, is discriminatory in who pays more and who pays less, eroding business expansion and confidence around the country. It is also ideologically driven, with hardly a shred of pragmatic fair-minded morsels included in it’s many thousands of pages of law attached to the rules and regulations which followed. Or, put into logistical terms: 11,588,500 words: Obama’s Regs Are 30X As Long As The Law..
Plain and simple, the PPACA is a legislative Frankenstein creating a current day nightmare for this country.
@Dave Schuler
I believe that many of the single payer proponents view a collapse of private insurance as an opportunity to create a single payer system similar to Medicare. I am guessing that they think the pain caused would propel the politics forward. I doubt that they have considered the policy implications, but is that surprising?
Also, there are two insurance models. One is a straight approach where the premiums pay the payouts plus profit. The other is the investment model. The premiums are used for investing, and the return on those investments is used for payouts plus profits.
In a bull market environment, the insurance company can survive with more payouts, but if the market collapses, the AIG disaster is the result.
I have assumed our rates are going up, but I hadn’t thought about how quickly the systemic effects might bring about a collapse.
So then the question is, what will happen next? Will the insurance companies be “too big to fail” ? It’s inconcievable that the proponents of single payer would be able to get a system on line that quickly, so what happens in the interim?
The “investment model” has been on the ropes for a decade. Where previously most insurers had operated using both models simultaneously they’re now almost entirely operating based on the actuarial model you’ve described as the first one.
One thing I suspect that people haven’t considered is how much the lengthy (as in from 1982 to 1999) favorable investment environment made insurance look cheaper than it actually is.
Yeah, that’s the point I’m making. Good policy would be to phase in the transition slowly. That’s sort of my line of thinking when I say “I’ve favored a single payer system for thirty years”. Now I’m concerned that the transition would be impossibly disruptive.
“I am guessing that they think the pain caused would propel the politics forward. I doubt that they have considered the policy implications, but is that surprising?”
Well, what are those policy implications? You not supposing, are you, that the private insurance market can continue on its present price trajectory indefinitely? I’ve read someone saying that the ACA is an attempt to save the private insurance market. Maybe, maybe not. I’ve come around to the idea that that — the saving of the market — is an illusion. As Dave has pointed out, there are no cost control mechanisms in place, and absent such mechanisms, I think the continuing rise in costs will lead to the collapse of the private health insurance market. All the ACA will do, if successful, is put that day of reckoning off for a while. That thing some folks see at the end of the tunnel is the light reflecting off a wall.
The insurance companies won’t go bankrupt. They’ve committed to a year at the various premium rates, and if at the end of the year they see that the risk pool is more heavily tilted towards the aged and infirm, insurers will either discontinue providing coverage or quintuple their rates. They may not even have many claims during that first year.
@sam
The policy considerations are what @Dave Schuler’s post and comments are about. There would/will need to be a transformation from a collapsed insurance based system to a single payer based system. There is no mechanism, and I doubt that the proponents of this method have considered the implications of it.
A private insurance based system can only exist in a free market environment. Trying to use a private system in-place of a public (government) system is very likely to fail. It is similar to using vouchers to private schools in-place of a public school.
The most viable solution for universal healthcare is a system similar to the public school system. If the public school system collapsed, vouchers would be very unlikely to replace it. The similarities with the school system include the US government pouring money into it. Prices are rising disproportionately.
Universal healthcare will need to be provided through a government run system similar to public education. This is not a single payer system. It is a single provider system.
“Universal healthcare will need to be provided through a government run system similar to public education. This is not a single payer system. It is a single provider system.”
I don’t understand the difference between a single provider system and a single payer system. Can you explain? Thanks.
@sam
A single payer system is usually envisioned as being similar to Medicare. The government pays for healthcare by reimbursing private doctors. This is similar to using vouchers. A single provider would be the government. This would be similar to the VA system.
The public education system has many problems, but I do not believe that universal public education can be provided through a private school system.
If there must be insurance, there will need to be a government provided policy, but the flood insurance program model fails because people who do not purchase flood insurance are still “made whole”. Actually, those without are made more than whole.
US healthcare is a mess, but as @michael reynolds has pointed out, this is a political fight. The policy is only important to the degree it supports the politics.
Ah, OK.
If private insurers start to bail out it won’t be all of them on a single day. Right? So won’t the stronger companies survive and the weaker fail? That consolidation could lead to higher premiums. On the other hand it could lead to a stronger negotiating position with hospitals and doctors. You can be a doctor and blow off 3 of 15 companies. You can’t blow off 1 of 2.
The grass appearing to be greener on the other side, is sometimes even reflected in how one world power views another world power’s CR/debt ceiling stand-offs. In the case of China there seems to be some genuine envy expressed towards the democratic process in place in the U.S., versus the rigid, one-party system in China..
Hence, chalk one for the republicans, according to the Chinese POV, that house members are taking the responsibilities they vowed to address (debt and deficits) seriously, despite the discouraging democratic rhetoric cascading down on them during every filmed interview, saying otherwise.
Such admiring comments, from a government-restrained populace, should serve as healthy reminders to not take for granted the right to dissent, when different opinions regarding governance occur.
Michael, bankrupcy is unlikely. More likely is that most of them will exit the individual insurance market (exchanges). The ones that don’t (if there are any) will survive by charging very high premiums, because they will need to because most of their customers will be the sickly sort, or unusually vulnerable to sickness.
That’s the fear, anyway. It can be avoided if people do start signing up in larger numbers, or if it turns out that a lot of the people who do sign up are doing so because they’re the responsible risk-averse and not because they’re sick or prone to it.
When I wrote “vanish” I didn’t mean go bankrupt. I meant abandon the healthcare insurance business or at least one or more markets.
That could happen from one year to the next. Insurance companies aren’t run based on whim. If the actuaries say they’re going to lose money, that’s the way it is.
You folks take yourselves too seriously…..
“Us, and them
And after all we’re only ordinary men.
Me, and you.
God only knows it’s not what we would choose to do.
Forward he cried from the rear
and the front rank died.
And the general sat and the lines on the map
moved from side to side. ”””
Black and blue
And who knows which is which and who is who.
Up and down.
But in the end it’s only round and round.
Haven’t you heard it’s a battle of words
The poster bearer cried.
Listen son, said the man with the gun
There’s room for you inside.”
“Dow nand out
It can’t be helped but there’s a lot of it about.
With, without.
And who’ll deny it’s what the fighting’s all about?
Out of the way, it’s a busy day
I’ve got things on my mind.
For the want of the price of tea and a slice
The old man died.”
In a contemplative mood this evening. And it occurs to me that I did a science senior thesis with Reinhardt Schumann, a crusty old German, with patents and a Manhattan Project pedigree.
Took THE basic finance course from Gene the Machine Fama, now a Nobel Laureate.
And I’m debating a guy who lived under a bridge about science and global warming? Or anyone about credit, or finance or investment? I must be crazy.
I’m going to go and watch a new video with Mick, Keith and Ronnie playing with Muddy Watters and other blues greats at a seedy little Chicago venue. I’m damned stupid I didn’t get my ass in there before Muddy died……..I used to frequent those haunts….
Good night all.
I think the doomsday scenario runs more like this:
First it should be recognized that a number of the uninsured were picked up by the earlier provision allowing parents to keep children on their family policies through age 26. A Presidential press release says this 6.6 million young adults have insurance under this law, including 3.1 newly insured. The good news is the number of uninsured decreased. The bad news is that there are fewer young, better-off adults to enroll in the exchanges. Also, in terms of the politics, an important constituency is satisfied with this development alone and won’t be as interested in further sacrifice.
Second, the exchanges will succeed in some places and fail in others. Where they fail, the seed corn will be planted for a lawsuit which will rule that the mandate is unconstitutional as applied. The SCOTUS only considered a facial constitutional challenge to the law, accepting statements of how the program would work from the Administration. If the law doesn’t work as anticipated, particularly in rural, poor or otherwise underserved areas, and it poses an unfair hardship, I would not be surprised if the SCOTUS strikes it down (similar to how the SCOTUS upheld the campaign contribution laws facially, but struck a number of them when the program actually was implemented and strange, unexpected things started happening)
@Drew, oh, that’s right, baseball season is over in the Windy City, isn’t it?
@michael reynolds
If there is money on the table, somebody will figure out a way to get it and make money. The “doom & gloom” crowd never take into account the players will change themselves and the game. The “everything will be alright” crowd never consider that while it is good for them, it sucks for others.
It is unlikely that it will result in either side’s predictions. Walmart makes money where Costco cannot by keeping down wages, keeping down merchandise costs, and getting “razor thin margins”. Walmart serves a market that Costco never will. Without Walmart, Walmart shoppers would do without.
I would expect something similar in healthcare. It may even be Walmart serving the poor. I am certain that whoever is serving the poor will soon make you and your liberal cohorts howl. Your political opponents will suddenly begin to extol the wonderfulness of Obamacare, but it will no longer be “Obamacare”. Hell, they may start calling it “Romneycare”.
What I am certain is that people at the lower end will get screwed, but they will be expected to show gratitude to their betters.
@Tastybits,
In case I get lumped into the doom and gloom crowd, I suspect what will happen is we move towards a four-tier healthcare system, which in descending order of quality will be:
Medicare
Employer group coverage
Exchanges
Medicaid
This paperindicates that the way the exchanges are set up, the “least comprehensive” plans will squeeze out the various alternate tiers as the most immediate reaction to adverse selection problems.
I don’t know enough about the law to understand how this would play out with respect to subsidies and the regulation of the insurance industry. It seems conceivable that insurers could be forced out of some markets because the regulations won’t allow them to offer products that would be actuarially sound and profitable.
Also, if premiums spike, will subsidies also increase? Either way it’s bad.
I think most people want to be insured if they can afford it, so I think the doomsday thing is unlikely. Insurance execs seem to largely get paid based upon the size of their company, so I will be surprised if many leave the exchanges.
Steve
I note some of the sticker shock scare stories that are circulating. They uniformly express dismay at seemingly huge deductibles ($5,000-$12,000) and co-pays (up to 40%). This implies two things to me:
1. The insurance companies have to participate if they want to stay in health but they are hedging to the max. They have a real good historical handle on medical catastrophes – it’s the behavior of the customers for minor problems that is a mystery.
2. This may be salutary in that it addresses what I, and many others, consider to be the major problem in health care – third party payers. People are going to have to ask how much they are willing to pay to treat their sniffles or take out their tonsils. Who knows? You might even get a Consumer Reports on doctors.
Incidentally, most people really suck at arithmetic. What’s better? Paying $12,000 a year (typical for family coverage employer plan) with no deductible or $3,000 a year with a $10,000 deductible? Well, for the group plan you’d have to be a really sickly bunch to benefit – and then only by $1,000. If you don’t have large medical expenses then you are thousands of dollars ahead every year. Put it in the bank, Charley. That’s what Medical Savings Accounts are all about. And they don’t even need tax benefits to make a whole bunch of sense.
***
I note some of the sticker shock scare stories that are circulating. They uniformly express dismay at seemingly huge deductibles ($5,000-$12,000) and co-pays (up to 40%). This implies two things to me:
1. The insurance companies have to participate if they want to stay in health but they are hedging to the max. They have a real good historical handle on medical catastrophes – it’s the behavior of the customers for minor problems that is a mystery.
2. This may be salutary in that it addresses what I, and many others, consider to be the major problem in health care – third party payers. People are going to have to ask how much they are willing to pay to treat their sniffles or take out their tonsils. Who knows? You might even get a Consumer Reports on doctors.
Incidentally, most people really suck at arithmetic. What’s better? Paying $12,000 a year (typical for family coverage employer plan) with no deductible or $3,000 a year with a $10,000 deductible? Well, for the group plan you’d have to be a really sickly bunch to benefit – and then only by $1,000. If you don’t have large medical expenses then you are thousands of dollars ahead every year. Put it in the bank, Charley. That’s what Medical Savings Accounts are all about. And they don’t even need tax benefits to make a whole bunch of sense.
The sticker shock stories are anecdotes. There are others where people are happy about how much they are saving. I think that there are still a lot of apples to oranges comparisons going on, so I am discounting most of this. The large deductibles are a feature, not a bug, but you can buy plans on the exchanges with small deductibles. They were an attempt to incorporate conservative insistence on using market pressures to reduce costs.
Steve
The sticker shock stories are anecdotes. There are others where people are happy about how much they are saving. I think that there are still a lot of apples to oranges comparisons going on, so I am discounting most of this. The large deductibles are a feature, not a bug, but you can buy plans on the exchanges with small deductibles. They were an attempt to incorporate conservative insistence on using market pressures to reduce costs.
Steve
@PD Shaw
… the doom and gloom crowd …
I should have gone with “end of the world” crowd. I mean the people who think that something is going to totally wreck everything. In this case, Obamacare is going to totally wreck the economy, healthcare, insurance, pony rides, birthdays, etc., etc., etc. Other recent examples are: Obama elected, President Obama re-elected, US sequestration, and US credit rating downgrade. The predicted results never materialized.
Are things going to change? Yes. Will the participants adapt? Yes. Are things going to improve? Yes for some and no for others. The people in the middle are going to be affected the most. Why? Their healthcare standard is going to be lowered. People at the bottom are used to getting screwed. People at the top always win.
The predictions that all the changes will be positive are no less silly. The PPACA is a ManBearPig creation, and many of the parts work against each other. The results will be far less than positive.
With high deductibles, people will go to the doctor less. When revenues decrease, doctors will lower their prices. I expect there will be more vertical integration. Even if all the existing insurance companies pull out, something will replace them. I do know that if there is money on the table somebody will figure out a way to get it.
I think that the first sentence is true but the second false. Market behavior vs. oligopoly behavior. I think that at least as many physicians will further potentialize their remaining patients as will cut prices and possibly more.
I also sincerely doubt that going to the doctor less translates into “less healthcare spending”. I know of no study that has ever found that people who decide to see their physicians less frequently do so prudently, avoiding unnecessary doctor visits but not putting off necessary treatment.
What I think is more likely to happen is that both unnecessary and necessary visits will be trimmed and that delaying care will result in more urgent and expensive care.
I might add that I see no way that increased aggregate spending (private+public) on healthcare insurance results in more growth than would otherwise be the case.
@Dave Schuler
If I understand correctly, insurance purchased through the exchanges will be purchased using “after-tax” income. If so, people previously getting employer based coverage will pay more taxes, and any pay increase to offset the costs will also be taxed.
If I am correct, the limit for medical deductions for US federal income taxes is increasing. Most of the money spent getting to the deductible is taxable.
Increased premiums, increased deductibles, and decreased income will force many people to change their way of thinking. Many things deemed essential today will become optional.
It will take some time for people to work out when to go to the doctor. A $2,000 – 3,000 trip to the ER for a sinus infection gets your attention fast. You quickly learn when to postpone going to the doctor and when to go. There are any number of things that become factors. Generic drugs begin to look attractive. Back surgery may become optional. CAT scans, MRI’s, and other tests may become optional.
Many people do not have an extra $8,000 for emergencies. A lot of people’s quality of life will decrease. Living with the fear that your wife’s back will eventually require surgery is not pleasant. What will happen is that in years where the deductible is met, everybody gets all ailments treated.
How the healthcare industry responds to this decreased usage will vary. Some may increase prices or tests, but there are limits to this. Neiman-Marcus can increase prices with little reduction in revenue, but Dollar General cannot.
‘I also sincerely doubt that going to the doctor less translates into “less healthcare spendingâ€. I know of no study that has ever found that people who decide to see their physicians less frequently do so prudently, avoiding unnecessary doctor visits but not putting off necessary treatment.’
This is what I consider the primary obstacle to market based approaches. The vast majority are not and cannot be well-informed enough to make rational decisions regarding their own health care.
Tasty,
I agree…
You bring up many unintended consequences of a highly micro-managed, mandated HC system. It just boggles the mind how people can assume something so complex, manipulated, and controlled by central government-fashioned mentality will ultimately work to their benefit.
I think, though, the PPACA ramifications will run the gauntlet from people abusing the system to those under using it, depending on the personal principles and uneducated expectations they may have of this new HC law. In some cases primary care offices may be booked for long periods of times, leading to a spill-over to ER’s from those too impatient or needy to wait — many who are familiar with and already use the ER for their medical needs. For others, they will cautiously wait out their symptoms, oftentimes with an eye on their deductibles or the ease to get an initial Dr. appointment. This will prove to be more costly all the way around, in terms of quality of life and higher expenses in treating advanced stages of illness.
Hmmm, I’m wondering about self-insured companies and taxes.
If private insurance goes the way of the dodo, that means lots of companies that self-insure will stop doing so. That means the companies will get to keep more of their revenue.
Anyone that thinks money spent on health insurance by the company will go back to employs in the form of higher paychecks are seriously deluding themselves. That will only happen, if at all, for those deemed essential management. Everyone else can get stuffed, with the employment situation as rotten as it is.
Which means that companies will see at least a temporary bump in profits. When Congress figures this out, they will want a bigger slice of that profit. (Easy to see an Alan Grayson thundering away on the topic.) There will be an uncertain point in time when the tax situation is once again in major flux at the same time government is trying to create a new insurance system.
I’m thinking that in this event, corporate taxes will become even more complicated. This will tend to favor the larger companies (GE, for example) even more, as they already have the tax departments (and lobbyists, and politicians) to deal with this. Smaller firms will get hammered even more. New company formation will become even tougher, job growth will be more impacted.
Fiendishly complicated, and it doesn’t look good.
Schuler, how long does that average economic recovery last before the next recession kicks in?
I also saw that Delaware is celebrating the first person to sign up through the exchange. I know Delaware is a small state, but is signing up people at the rate of TWO per month going to get them where they need to be? Seems unlikely.
Average trough to peak is 58.4 months in the post-war period. Median is slightly different.
The recession ended in June 2009 so we’ve had 51.5 months of expansion.
. . .,
I am not sure private insurance would go the way of the dodo. The design of the ACA is to maintain group health insurance, at least for the larger businesses. Large businesses that stop providing healthcare will get taxed. My rough understanding is that employees at companies offering healthcare insurance are probably not going to be eligible for the federal subsidies to buy insurance off the exchanges. For the foreseeable future, I think we will see the status quo.
I am not sure private insurance would go the way of the dodo. The design of the ACA is to maintain group health insurance, at least for the larger businesses. Large businesses that stop providing healthcare will get taxed.
You mean they’ll get taxed according to their inability to suck up to whichever Administration is in power. Kind of like the various other mandates in effect, or not. It’s not like the PPACA has been an exemplary case of rule of law, versus rule of men.
For the foreseeable future, I think we will see the status quo.
Given that wages are continuing to slide and healthcare expenses keep rising quickly (for everyone I know, but then I don’t know any rich people), I don’t think this status quo can last much longer.
Average trough to peak is 58.4 months in the post-war period. Median is slightly different.
The recession ended in June 2009 so we’ve had 51.5 months of expansion.
tick-tock, tick-tock….
@PD
“If the law doesn’t work as anticipated, particularly in rural, poor or otherwise underserved areas, and it poses an unfair hardship, I would not be surprised if the SCOTUS strikes it down”
Well, except for the fact that most of those areas are in states that have refused the Medicaid expansion. The Feds can argue, convincingly I should think, that had the states not blocked the Medicaid expansion — which the Court enabled them to do — the hardships would not have occurred. I can’t see the Court striking down the law for a situation that it enabled.
“You bring up many unintended consequences of a highly micro-managed, mandated HC system.”
Good, because the ACA does not micro-manage. It will not alter anything I do. Same holds true for most docs. It is just a way to pay for insurance.
Steve