Death spirals all around

We’re going to see how the Republican Party can create a death spiral in the individual market in sixty days or less. They have a few choices:

US Individual Market Policies

First Philip Klein in the Washington Examiner wants to create one the old fashion way:

In contrast, Republicans could immediately freeze enrollment — allowing those who already have insurance through Obamacare to continue receiving subsidies, but preventing new enrollees from receiving any (though they’d still be free to purchase insurance on their own if they aren’t seeking subsidies). The current open enrollment period for privately-administered insurance ends on Jan. 31, so that would be a natural cutoff point.

Do you know who is extremely likely to buy community rated, guaranteed issue insurance with a subsidy? People who are very sick.
Do you know who is extremely unlikely to buy community rated, guaranteed issue insurance without a subsidy? People who have reason to believe they are very healthy.

This proposal will get the individual insurance market to look like the individual markets from the mid-90s in the non-subsidized, non-mandated guarantee issue states. Super high premiums and very sick risk pools. And since insurers set their 2017 rates with the assumption that subsidies are available for Special Enrollment Members, they will lose a lot of money.

Means #2 is just pulling the Cost Sharing Reduction subsidies. Insurers will flee the market. The American Academy of Actuaries have their hair on fire as they look at the impact of Congress not funding Cost Sharing Reduction subsidies after January 20th.

Eliminating CSR reimbursements could also cause insurers to withdraw from the market Premiums for 2017 have been finalized, and they assume that CSR reimbursements will be made. Without those reimbursements, premiums would have been higher for all individual market enrollees. Regardless of whether CSR reimbursements are made to insurers, the ACA requires insurers to provide cost-sharing subsidies. If those reimbursements are not made, premiums will be too low to cover the costs of care. This creates the potential for insurer losses and solvency concerns. Due to contract provisions, insurers would be permitted to withdraw from the market if CSR reimbursements are not made.

Splitting the a Replacement Bill into discrete and seperate chunks will also death spiral the market:

The issue is the popular stuff (guarantee issue, no pre-existing conditions, community rating etc) will get 85 votes in the Senate and 400 in the House. The unpopular stuff (participation enforcement mechanism, definitions, subsidy attachment formulas) won’t get a majority as no one really wants to vote for either a mandate tax OR continuous enrollment criteria without being able to point to a lot of other good stuff enabled by the bad stuff.

So again we’ll get the mid-90s markets of guarantee issue, community rating for only very sick people.

The Urban Institute models out the impact of Repeal without immediate replacmement and it is ugly:

It is mostly a cost shift with massive extraneous suffering.

And that is where I think we’re heading.

So if you have an Exchange plan, I would try to get any problems that I was putting off on taking care of taken care of by January 31, 2017. After that the insurance markets will most likely be extremely chaotic and volatile with a decent tail risk of all carriers pulling all products in a number of states by early spring.



Open Thread: Happily Engorging the Vampire Squid

…[W]hat’s the best-performing stock in the Dow Jones Industrial Average DJIA, +0.18% since the election?

Goldman Sachs. GS, -0.12%

Yes, really. Shares are up 24%, to $225 from $182 when the market closed on November 8. The next biggest gainer: Wall Street powerhouse JP Morgan Chase JPM, +0.52%

Half of the Dow’s gain since the election, in fact, is due to just those two Wall Street stocks. By contrast, shares of “Main Street” companies Johnson & Johnson JNJ, +0.11% Procter & Gamble PG, -0.10% and Coca-Cola KO, -0.12% are down.

According to company documents, the partners at Goldman own 30.65 million shares. Which means that the partners at Goldman Sachs, in total, are $1.3 billion richer than they were on November 8, thanks to Trump’s election…

Trumpkins are learning the hard way what happens when you buy an investment scheme from a con-artist. I’ve been writing about scam artists for more than 20 years. They always promise you the moon — that is, until your check clears.

When will these voters get it? Maybe never. Author Maria Konnivoka notes in her book The Confidence Game that many victims refuse to admit they’ve been scammed — no matter what the evidence. Indeed, she says, many just keep coming back for more…

***********
Apart from checking out Wall Street history during the Calvin Coolidge era, what’s on the agenda for the evening?



Cynicism confirmed

Balloon Juice in August:

Aetna was profitable in 2015 in the individual market in Pennsylvania. It is projecting to be profitable in 2017. The filing memo was drafted in late May and submitted to the Pennsylvania regulators in early June. Conditions have not changed enough to make Pennsylvania a money loser in under two months.

My wee bit of cynicism bears fruit. Aetna is trying to logroll an anti-competetive merger with on-Exchange political consequences. If it works for Aetna/Humana it burns a bridge to get the merger, and if it fails, it puts Aetna on the shitlist of any Democratic administration. That is a very interesting strategy when it is highly likely that there will be another Democratic administration…

So in all years Aetna’s individual market operations in Pennsylvania were either profitable or projected to be profitable. Something stinks worse than a wrestling team’s locker room after two-a-days.

USA Today on Sunday afternoon:

When Aetna announced in August that it was leaving the exchanges in 11 of the 15 states it sells in for 2017, it said it had a pretax loss of $200 million on its individual insurance plans in the second quarter of this year and total pretax losses of more than $430 million since January 2014 on its individual insurance plans. Nearly all of these policies are sold on the ACA exchanges. At the time, CEO Mark Bertolini said the move would “limit our financial exposure moving forward.”

But Aetna made nearly $12 million on individual ACA plans in Texas and more than $8 million in Pennsylvania, according to financial filings with state regulators, and is exiting the Healthcare.gov exchange in both states anyway. Asked to comment on decisions to leave states where it was making money, Aetna spokesman T.J. Crawford said, “We don’t discuss performance at the state level.”

Nice to know that I am occasionally cynical enough.



Open Thread: Masque of the Red(state) Death

Somewhere Jay Gatsby is going, “Ugh, tacky. ” But not Politico! “Trump attends donor’s ‘Villains and Heroes’ party — as himself”:

President-elect Donald Trump on Saturday night attended a lavish costume party on Long Island hosted by his biggest donors, the Mercer family…

According to a Saturday evening pool report, Trump’s motorcade arrived at the party at 8:35 p.m. As Trump entered, dressed in a dark suit, overcoat and tie, he was asked who he was dressed as. Pointing at himself, the president-elect mouthed the word “Me.” Neither his wife, Melania Trump, nor Trump’s children attended. Top aide Steve Bannon and former campaign manager Kellyanne Conway attended, with Conway dressed as Super Woman, according to the pool report…

Although Trump during the campaign decried the influence of big donors, the Mercer family played a major role in his campaign and has wielded vast influence in his transition.

The family patriarch, hedge fund tycoon Robert Mercer, donated $2 million to a pro-Trump super PAC that came to be run by his daughter Rebekah Mercer, who controls the family’s political operations.

Rebekah Mercer played a pivotal role in persuading Trump to bring on three close allies of hers to run the campaign — incoming White House senior counselor Bannon and top campaign officials Conway and David Bossie…

The Mercers have hosted the party at their estate on Long Island’s North Shore around the holidays in each of the past several years.

It’s become an increasingly hot ticket as the Mercers have become bigger players in conservative politics.

Robert Mercer and his youngest daughter, Heather Sue Mercer, are competitive poker players, and past years’ parties have featured blackjack and poker tables. The Mercers supply chips — free of charge — that can be redeemed at the end of the night for lavish prizes such as gold Rolexes, according to people who have attended.

Staff and security at the event were dressed as Hell’s Angels and retro Salvation Army members, according to the pool report.

So, I guess this was a sort of coming-out party for Rebekah Mercer, as the new generation of bloated plutocrat parasitizing our commonwealth.

Maybe the best outcome the rest of us can hope for is that Ms. “But She’s the Smart One” comes to blows with “Daddy’s Little Princess” before the Trump Kakistocracy can embed itself too deeply in the national hide. Because I suspect those two have as many issues to work out as their more-famous-for-now daddies…



Repeal and Delay with the Norquist problem

Right now, the current Republican plan is Repeal and Delay as the NY Times reports:

Republicans in Congress plan to move almost immediately next month to repeal the Affordable Care Act, as President-elect Donald J. Trump promised. But they also are likely to delay the effective date so that they have several years to phase out President Obama’s signature achievement.

This emerging “repeal and delay” strategy, which Speaker Paul D. Ryan discussed this week with Vice President-elect Mike Pence, underscores a growing recognition that replacing the health care law will be technically complicated and could be politically explosive.

The mechanics of the repeal bill are fairly straightforward. A reconciliation bill would be written to sunset subsidies and Medicaid Expansion money after two (or three) years while a Replace bill is cobbled together. The individual mandate tax would be dropped to zero even if it was not technically repealed and all of the taxes that fund the ACA would be dropped immediately. This blows up the insurance market fast. There are discussions and rumblings that some Republican wonks are trying to make this point to Republican leaders. Someway of shoveling a massive amount of cash to insurers would be needed that would perform the same function as risk corridors and reinsurance but called something else is the most likely response.

And then there would be some type of Replace bill that would offer skimpier subsidies and much higher cost sharing than current law.

That Replace bill will cost money. It won’t cost as much money as the ACA but it will cost money.

That is a major problem as the major funding streams from the ACA (Cadillac Tax and high income tax surcharges) are gone. Nicholas Bagley at the Incidental Economist flagged this very early on:

You’ve got to bear in mind that passing the reconciliation bill would represent an immediate $346 billion tax cut over ten years to the wealthy—$123 billion from the Medicare tax surcharge and $223 billion from the tax on investment income. All of that money—every dime—will go to people making more than $200,000 a year.

The other major source of funding for the ACA is the Cadillac tax in the out years and Medicare Advantage payment equalization. The Cadillac tax is popular with health economists who, when they concentrate for an annual convention, might have sufficient political power to elect a county commissioner in an NFL market and no one else. The Republican Replace plans use modified Cadillac plans that usually apply regular income tax rates to health insurance benefits at far lower thresholds than the Cadillac tax. But I digress.

The Replace plan will cost money. And here is where we run into the Norquist problem. It is Republican orthodoxy that once a tax cut is passed it can never be re-enacted. The Replace Bill would not be signed for at least six months (absurdly optimistic case scenario) after the Repeal bill that wiped out the high income taxes that fund the ACA. The Congressional Budget Office (CBO) would score Replace based on current law which means no high income surcharges as offsets. Republicans can’t vote for higher taxes per Norquist even if those are taxes that just got cut.

Assuming Norquist is still a major political enforcer of Republican orthodoxy, my best bet is that any Replace Bill will be like the 2003 Medicare Modernization Act (MMA) in that it is almost completely deficit financed.



Defined Benefits vs. Defined Contribution

I got some push back in comments yesterday for the following line on Medicare:

The delivery mechanism through which that value is transferred is window dressing…. Everything else is window dressing or mechanics to shift blame for large benefit cuts.

I want to explain my thinking on this.

Right now Medicare is effectively a defined benefit program. The defined benefit is the federal government will make ure that a Medicare beneficiary will get 83% or better actuarial value care. Right now that actuarial value is delivered by either the traditional Medicare Fee for Service System, the CMS controlled FFS derived ACO and advanced payment methodology system or privatized Medicare Advantage plans that have to offer at 83% actuarial value. Drug coverage is provided by privatized Medicare Part D plans. Additional actuarial value can be bought via either private Medicare Supplemental plans or buying up in Medicare Advantage.

If between year 1 and year 2 we see a 20% increase in the cost of providing 83% actuarial value coverage to Medicare beneficiaries, the federal government and thus society picks up the vast majority if not all of the price increase. In the second year, the beneficiary will still be able to get 83% AV coverage.

Are there smart ways of doing this? Are there different ways of doing this that optimize different value functions? Are there more and less confusing ways of doing this? Are there more and less expensive ways of doing this? Are there more and less beneficiary friendly ways of doing this?

Yes, yes, yes, yes, oh my god, yes.

And those discussions and arguments are very well worth having.

That is not the argument in the Ryan plan.

Instead the Ryan plan is switching Medicare from a defined benefit guarantee to a defined contribution. The contribution will be a calculated lump sum that in year one will buy 83% Actuarial value insurance. In normal years of health care cost growth, the lump sum will grow slower than healthcare growth. So in year two, the lump sum buys 82% AV, in year five it buys 76% AV. If there is a shock year where the health care cost growth dramatically jumps up from a trend to a 20% spike, the beneficiaries are now left holding the bag as the federal subsidy might only now buy them 65% actuarial value coverage.

The only guarantee is that a calculated contribution which is indexed to shrink in relative buying power will be made. Individuals will be on the hook for an increasing share of actuarial value and they will bear the risk of unexpected spikes in healthcare costs (they also get any upside on unexpected drops in healthcare cost growth below nominal economic growth but that does not happen in the US often).

This is how I view the Medicare fight. And it is why I am not thrilled with the voucherization and privatization framing. A Medicare Advantage only program could credibly be called privatization. A voucher that allows people to have meaningful choice between multiple private plans at the same expected individual contribution that they currently pay now could be added to this program. It might be odd, it might be a hookers and blow looting expedition. As long as there is a guarantee that a minimal of 83% actuarial value is delivered, it would be an defined benefit program delivered by private entities.

The argument is whether or not Medicare (as well as subsidized Exchange and Medicaid) are defined benefit programs or defined contribution programs.

Everything else is a detail. Those details are worth fighting about but they are secondary to the core discussion.



Late Night Open Thread: Trump’s Conned the Banksters, Too

No mark so doomed as the mark who thinks he’s in on the long con. From the Bloomberg article [warning: autoplay]:

Mnuchin, 53, the son of a Goldman Sachs partner, thrived at the institutions Trump mocked during the campaign. He was tapped into the Skull and Bones secret society at Yale, joined the bank and became a top executive, ran a hedge fund and invested in Hollywood blockbusters. When he saw TV news shots of customers lined up outside a branch of California bank IndyMac trying to pull their money in 2008, he spotted an opportunity.

“I’ve seen this game before,” he recalled saying in an interview earlier this year. “This bank is going to end up failing, and we need to figure out how to buy it.”

Mnuchin gathered billionaires including George Soros and John Paulson and assembled a $1.6 billion bid to buy IndyMac. They rebranded it OneWest and sold the bank in August 2015 for $3.4 billion. It carried out more than 36,000 foreclosures during Mnuchin’s reign, according to the nonprofit California Reinvestment Coalition, which accused OneWest of shoddy foreclosure practices and avoiding business in largely black or Latino neighborhoods, claims the bank has denied.

Former Minnesota Governor Tim Pawlenty, a Republican who leads the Financial Services Roundtable, a bank lobbying group, thinks any rage over Mnuchin’s pedigree will fade if he does his job well. “If those results are really good for everyday Americans, it will be ‘mission accomplished,” Pawlenty said. “The public’s focus will soon shift.”…

Another former Goldman Sachs banker, SkyBridge Capital founder Anthony Scaramucci, is said by analysts to be under consideration for a job as a top Treasury deputy. He’s well known for once asking President Barack Obama when he’d stop bashing Wall Street. Stephen Bannon, Trump’s chief strategist, worked at Goldman Sachs, too…

Trump’s throwing open the gates to the worst of the predators, and the Wall Street herd is too busy making fun of ‘blue-collar workers’ to remember that those predators will chew up their tidy little portfolios, too.

At least the guy quoted in the top tweet has the excuse of being a Hillary voter:

… Tilson, who was relieved Trump picked an industry veteran instead of a wildcard, still has concerns, especially because Trump promised to dismantle the Dodd-Frank Act, enacted after the financial crisis almost toppled the global economy.

“I’m a fan of Dodd-Frank, I think banking should be boring,” said Tilson, who voted for Hillary Clinton. “I worry about Wall Street returning to being a casino.”

Because, yeah, TRUMP IS A YUUUGE FAILURE WHEN IT COMES TO RUNNING CASINOS, banksters!

At least my senior Senator didn’t waste the last two years on a crusade to appeal to the Alt-Left purity ponies, so she’s got her place on the barricades prepped…

Massachusetts Senator Elizabeth Warren is worried, too. “Mnuchin is the Forrest Gump of the financial crisis — he managed to participate in all the worst practices on Wall Street,” the Democrat said in a statement. “His selection as Treasury secretary should send shivers down the spine of every American who got hit hard by the financial crisis.”