By Denny Weinberg
Tuesday, November 12, 2013
The Health Insurance industry has long understood that
the realities of a stable insurance market would never make us the most popular
industry in the nation. On the other hand, turning the overhaul of a business
as complex as the Individual Insurance market to politicians with no insurance
experience coupled with the need from politicians to "please" their
constituents was destined to blow up badly. It most certainly will.
I read the entire 2,000 pages of minutia that is
Obamacare. It is a complex array of vaguely related mechanisms, assumptions
about motivations and consequences of both harsh and subtle incentives and
penalties. Many details are dependent on unknown decisions and solutions that
would be determined in future months and years. Every part of the act is
dependent upon the perfectly performing assumptions of every other part of the
act. There has likely never been a law with so many interdependencies and
unproven dynamics. The bottom line: The media/public have no idea how bad the
Affordable Care Act (ACA) will be once is it fully digested (or regurgitated)
by the American public. Thus far, we have just seen the tip of the iceberg.
Here is what I believe is coming:
1. The website problems will probably get fixed pretty
quickly. If our massive federal bureaucracy throws enough resources at it, they
will eventually get this done.
2. Unfortunately, all who experienced the private
individual insurance market dynamics over the years know that in a guaranteed
enrollment structure, the first year individual purchasers will be vastly more
health-care-needy than can be managed (not so much young enrollees relative to
old, but sick enrollees relative to healthy).
3. Young people likely will not buy in this new market.
Why? Because prices of policies for their ages have been radically increased
due to the 3:1 rating-by-age limitation (This means that an older individual
will pay no more than three times the rate of a younger individual-a radical
and overnight change in the way policy pricing works). The young were already
very difficult to motivate when the private market targeted them with very low
cost policies designed specifically for them-with their needs and their resources
in mind. Forget that now. This program assumes each and every young person to
be a perfect fit for the new, one-size-fits-all plan-regardless of exact age or
life stage. On the other hand, people over age 50 will see this offer as a
bargain, as they benefit from the 3:1 rating-by-age structure. They get a huge
rate reduction along with enhanced coverages. Longer term, this resulting set
of age-mix dynamics is a road-map to disaster.
4. Most who enroll in the exchange marketplace will be
lower income, either taking full advantage of the subsidies in the limited
individual market or opting into the radically expanded Medicaid program where
there are no premiums and practically no out of pocket costs.
5. The overall ACA financial model will be proven wrong.
The long term financial outcome will be a mess. It will require dramatic
changes/adjustments in rates year-to-year-or significant new subsidies from the
government.
6. Small employers (where there is no mandate to provide
group coverage), especially those that have lower-income-employees will drop
previous group coverage in huge numbers. Their employees will be sent to the
individual exchanges to get their own share of subsidies. In the subsidized
exchanges, the federal government is essentially taking over what was
previously employer provided subsidies, willingly paid by those employers all
these years. This will further increase the adverse financial outcome for
taxpayers.
7. Many of the employers who choose to keep group
coverage will renew for 2014 by December (rather than January), a trick to
maintain their pre-ACA structures for another year. Once again, this will
contribute further to the adverse financial outcome for taxpayers.
8. Brokers and agents will suffer overwhelming business
losses. Many of these will lose their careers over the shift in funding by
exchanges to inexperienced Obamacare "navigators." These navigators
will be at the center of controversy, errors, omissions and abuses.
9. The over-$10 billion reserved for risk-adjustment provisions
(to help subsidize insurer's losses due to adverse selection) will be
controversial and highly debated. Look for this to become the center of
accusations and industry-bashing in light of the other failures of the program
10. There will be little real progress on restructuring
of the Hospital/Physician relationships into the new the Accountable Care
Organizations and the Medical Homes-which the new law hoped would emerge to
unify Hospitals and Physicians for more effective care. The will also be little
movement from the "fee for service" toward paying for outcomes (which
is hoped to help control costs). Such changes in the care delivery structure
are key to "bend the cost curve"-a promised value of the ACA.
11. Reality check. As we move into the second half of the
year next year, insurers will start to get the first glimpse of who they are
covering and their relative health needs vs. the assumptions made when 2014
prices were set (their financial model for business viability). They will all
observe vast inaccuracies in their assumptions and will have to radically
change their strategies and pricing for 2015 or even whether they can continue
another year.
Remember: This is all just year one. January 15, 2015
will prove to be an even more messy open enrollment than year one, with vastly
higher prices and fewer participants. What a mess.
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