The Feds, tightening and 2018

Just an interesting thing to note for the 2018 elections.

The Federal Reserve is in a tightening cycle (for what reason, I’m not sure as the data does not support a need to tighten). If the short term interest rates are above neutral, that means the economy will be worse than it otherwise would have been. A bad economy is bad for incumbent parties that hold all responsibility (see 2010 for Democrats).


Catching the falling knife in Iowa

Iowa’s Exchange market is in trouble. Right now there looks to be one insurer, Medica, that will cover most of the state. I think this is a stable equilibrium. But what is going on in Iowa that makes it such a stressed out state. It has some of the typical problems with large transitional, underwritten plans eating up most of the good and profitable individual market, and rural hospitals with pricing power but plenty of other states have those types of problems.

Iowa has an individual who buys an on-Exchange policy who easily runs up a $1,000,0000 a month in claims and does so every month. This is a unique oddity for the Iowa risk pool. We’ve talked about this person before, as a single individual drove 10% points of a 40% rate increase for 2017 for a single carrier. Even with the shock absorbers of risk adjustment and reinsurance, the carrier is eating a massive loss.

Risk adjustment does not help as risk adjustment does a decent job of calculating average costs of conditions. A $12 million dollar a year claim episode is an extreme outlier so a risk adjustment transfer might only move a small fraction of the total claim cost to Wellmark.

Commercial reinsurance works well when the reinsurer is taking on the risk of unknown catastrophic claims. A carrier buys reinsurance to pay for the possibility that a car full of hemophiliacs get in a wreck and start a six month bleed. Private market reinsurance fails miserably when the claims data shows a predictable, recurring catastrophic expense. It can be bought but the reinsurance premium is more than the expected value of the incredible, recurring expense. It could potentially be useful in a crisis. US government reinsurance eats a small chunk of a $12,000,000 claim year as paid 50% of the claims from $90,000 to $250,000. The federal reinsurance kicked in $80,000 and risk adjustment might have kicked in another $100,000 to $150,000.

The carrier that covers this person is on the line to spend a net of $11 million dollars or more for their care after external funding.

This is a problem given the market design. Rates have to be high enough to cover this individual’s costs. In a competitive market where the subsidies are tied to the second least expensive Silver and there is one super-outlier who can not be re-insured against, every carrier lives in fear of being chosen by the one outlier. If they set their rates low enough to be attractive to healthy people, they lose money on the catastrophic expected claims. If they set the rates high enough to cover a $12,000,000 claim, no one buys their product.

No one wants to catch a spinning, falling knife.

So what can be done?

Right now, the market is converging to a rational single carrier solution. The single carrier can raise their rates high enough to cover this catastrophic claim while the post-subsidy price is low enough to actually attract normal risk as well. The off-exchange market can be competitive especially if the single on-Exchange carrier splits their filing IDs so they can use different actuarial assumptions for a more normal market.

There are two other possible solutions. The first is a cynical solution. All of the insurers in Iowa could agree to kick in $300,000 a piece and buy this single individual a very nice house ten feet over the state line and make this person someone else’s problem.

The other solution is that this is the textbook case of where a high cost risk pool or invisible reinsurance or a prospective re-assignment system would make sense. This is fundamentally an uninsurable scenario but the care needs to be paid for, so removing this single individual from the risk pool and paying for this person’s care out from general taxation lowers premiums in the individual market by $10 per member per month and allows them to function as if they mostly normal markets.

Third time’s a harm

The Huffington Post has the outline of yet another Republican healthcare deal:

he deal, brokered between House Freedom Caucus chairman Mark Meadows (R-N.C.) and Tuesday Group co-chairman Tom MacArthur (R-N.J.), would allow states to get waivers eliminating the so-called community rating provision ― the rule that prohibits insurers from charging higher premiums to people with pre-existing conditions. In order to obtain the waiver, states would have to participate in a federal high-risk pool or establish their own, and satisfy some other conditions.

In exchange for that conservative concession, the amendment would reinstate the Essential Health Benefits that were already taken out of the bill ― though, again, states could waive those provisions as well if they were able to show that doing so would lower premiums, increase the number of people insured, or “advance another benefit to the public interest in the state.”

What does this mean?
Read more

Super Ugly Waiver (It’s back)

The AHCA is not yet dead. It was just resting for a bit before joining the choir invisible.

The New York Times reports that the White House and the House Freedom Caucus (the hard right flank of the House GOP) have been talking and thinking they have the contours of a deal.

The terms, described by Representative Mark Meadows, Republican of North Carolina and the head of the Freedom Caucus, are something like this: States would have the option to jettison two major parts of the Affordable Care Act’s insurance regulations. They could decide to opt out of provisions that require insurers to cover a standard, minimum package of benefits, known as the essential health benefits. And they could decide to do away with a rule that requires insurance companies to charge the same price to everyone who is the same age, a provision called community rating…..

In simple terms, a carrier can’t deny a hemophiliac coverage but they can charge an actuarial fair premium of $90,000 per year. A carrier can’t deny a young woman who either is or intends to become pregnant. They just don’t have to cover the prenatal or labor and delivery costs.

It is effectively a slightly modified option 3 of Cassidy-Collins where states can return to the 2009 status quo if they so actively elect to do so. If we combine a single state choosing this route and sell across state lines, it would lead the entire country’s individual market back to 2009.

I may be reading too much into the conditional language but to me this is a SUPER (ugly) WAIVER provision. It modifies Section 1332 guard rails to basically meaninglessness. States could then choose to do whatever the hell that they want without concern for coverage requirements. Currently Section 1332 and other waivers in health policy have an equality clause where the states’ preferred options must be at least as good for beneficiaries. This rule would render that null. And I don’t think many/any states would actually take the Feds up on this option as the localized consequences are too immediate and real but if the goal was to design a bill that could get 12% support instead of 17% support, this would be it.

Update 1 This sounds about right to me:

I have no idea how the Tuesday Group stays on board. They were a sufficient blocking coalition under AHCA V1 once the flood gates were starting to open up. The politics of health reform are nasty in the best bills and this is a devolution of a very bad bill. The marginal members of a majority sitting in opposite party or break even districts are the first ones to get hit in a wave.

Excellent Read: Is There Nothing J-Kush Can’t Do?

Plenty, according to Elizabeth Spiers, in the Washington Post — “I worked for Jared Kushner. He’s the wrong businessman to reinvent government“:

On my first day of work as the editor in chief of the New York Observer, which had been acquired five years earlier by Jared Kushner, now the son-in-law and senior adviser to President Trump, I inherited an office and a desktop computer, both in fine but used condition. The computer was a recent-model Mac, but when I turned it on, it was inexplicably running Windows. I summoned our beleaguered IT guy to explain, and he informed me that it had belonged to Kushner, who liked the design of Apple products but preferred the Windows OS.

“So he was basically using a $2,500 desktop as a monitor?” I said. The IT guy shrugged…

I worked for Kushner for 18 months as he tried to infuse a much smaller institution than the U.S. government with cost-cutting impulses from the commercial real estate world. And my experience doesn’t bode well for the Office of American Innovation. Not everything that works in the private sector is transferrable to the public sector — and even if it were, Kushner isn’t the best person to transfer it…

When the paper had a profitable quarter for what I was told was the first time, Kushner floated the idea of layoffs to increase the margins, seemingly ignoring the fact that staff reductions would also reduce ad inventory by reducing content. A material part of what had been attractive about the job was the promise of expansion and growth. But we submitted business plans over and over again, and Kushner rejected them. He wanted the Observer to be cheaper to run, usually at the expense of growth and evolution, and he could not see the relationship between scale and profit — between risk and reward. (The White House did not answer a request from The Washington Post to provide Kushner’s perspective for this story.)…

When it became clear in 2012 that Kushner was conflating running lean with starvation, I submitted my resignation and left the Observer mostly on good terms with him, but I was disappointed. The company president resigned a few weeks later. Kushner eventually filled our positions with a family friend and his brother-in-law, the latter of whom had no media experience. He wanted outsiders to run the business — but loyal, compliant outsiders.

A few days after Trump won the election, Kushner folded the now attenuated print newspaper and subsequently announced that the Observer, in its digital incarnation, was for sale. He probably would refer to it as a “lean” operation. I would say in his zeal to trim the fat, he began eliminating muscle and hacked into a few bones. I realize also, in retrospect, that he may never have intended to grow it or improve it. It was for him, in essence, another vanity object — like the beautiful, expensive desktop computer he used as a monitor.

I worry that this new office will be more of the same: a vanity project, one that exists primarily to put Kushner in the same room with people he admires whom he wouldn’t have had access to before, glossing government agencies in the process with a thin veneer of what appears to be capitalism but is really just nihilistic cost-cutting designed to project the optics of efficiency…

Newsworthy Items That Have Slipped Through the Cracks: We’re Doomed

I don’t mean to panic anyone, but the US breached the debt ceiling on March 16th and the current extension on the Fiscal Year 2017 continuing budget resolution runs out on April 28th. Given the dysfunction within the majority caucuses in the House and the Senate, the fact that the new Administration’s skinny budget has been declared DOA upon its arrival in Congress, and the fact that NO ONE ANYWHERE – INCLUDING THE WHITE HOUSE, CONGRESS, MOST OF THE NEWS MEDIA, AND APPARENTLY MOST AMERICANS!!!!!!! – seems to be paying any attention or talking about this, perhaps we should be just a wee bit concerned.

Have a nice evening!

ACHA EHB CBO state of play

Right now there are three primary possibilities for the ACHA tomorrow:

1) No vote is taken as more wrangling and tweaking occurs
2) Vote fails as the combination of Tuesday Morning Group Republicans and the House Freedom Caucus vote against the bill from both ends of the Republican caucus. This is where we were most likely to have been at at 1800 EST on March 22, 2017
3) ACHA advances as the House Freedom Caucus gets a major policy concession, the elimination of Essential Health Benefit requirements.

#3 is what I want to discuss. It would produce a massive cluster. The bill needs to go through the Senate as a reconciliation bill with several significant requirements. One of those requirements is the items are germane to the budget. Since the other parts of the bill have stripped the link between premiums and subsidies, lower premiums are not germane to the budget. It will get stripped.

More importantly, the optics will look ugly. The Congressional Budget Office

If there were no clear definition of what type of insurance product people could use their tax credit to purchase, some of those insurance products would probably not provide enough financial protection against high medical costs to meet the broad definition of coverage that CBO and JCT have typically used in the past—that is, a comprehensive major medical policy that, at a minimum, covers high-cost medical events and various services, including those provided by physicians and hospitals.

IF Essential Health Benefits are dropped from the bill, the CBO will project that insurers will respond by offering very skinny benefit packages (no maternity or substance abuse inpatient services for instance as both qualify as high cost events) that are targeted to be priced at precisely the subsidy value. If there is no regulation as to what a carrier needs to include with a given maximum out of pocket requirement, two things will happen. A lot of people who otherwise would not use their subsidy would use their subsidy. And most people who are buying mostly on price will be buying policies that the CBO does not deem to be insurance.

Jed Graham has been bird-dogging this angle hard:

Because the GOP bill would mostly retain ObamaCare coverage rules, insurance would be unaffordable for lower-income and older adults with the new, smaller tax credits on offer, so some 30 million people wouldn’t claim the GOP tax credit averaging $3,000 in 2020 and rising with inflation. That would add up to more than $600 billion in unclaimed subsidies through 2026, or roughly the same $600 billion amount by which House Speaker Paul Ryan’s plan cuts taxes. Those unspent subsidies go a long way to explaining why CBO found that the American Health Care Act would reduce deficits by $323 billion over a decade.

So the end result if Title 1 is the price of passage is the following:

  • Guarantee failure in the Senate
  • Adds to the deficit immediately
  • Adds millions more people to the ranks of the uninsured as defined by the CBO over and above the 24 million that is the current score

/Dave Anderson +3

Update 1:
And it looks like Option #3 is on the table


Update 2

Dave +3.5