Hipsters, arbitrage and convention center bonds

My brother got married last week.  The wedding was great, and I performed my primary function in making sure my brother showed up on time, sober, and wearing pants.  Part of the experience was a massive exercise in regulatory arbitage.  My brother and his wife are not quite coastal hipsters (he works a job with a real title) but they were using AirBnB, Uber, Lyft and half a dozen other web enabled sharing services.

My old public finance training kicked in with fear.  Fundamentally these services are exploitation of regulatory arbitrage. AirBnB is effectively a hotel booking system where they are claiming they are not offering hotel like services.  My brother and his wife had rented a condo where the owner lives three time zones away and rents it out via AirBnB for forty eight weeks a year.  The owner has a system of services to clean the condo and maintain security on it.  It is effectively a hotel room for half the price of an equivilant room three blocks away.  A good portion of the price differential is because the AirBnB room is not paying for half a dozen significant hotel based taxes.  There was no convention center fee, there was no general county tax, there was no ball field bond sinking fund fee.

We used Uber for everything.  Again, Uber claims that they are merely a sharing service and not a taxi company.  This allows them to avoid buying medallions, avoid paying for football stadium construction, avoid paying for some types of insurance.

My public finance nerd came out as I know so many municipalities and counties have depended on levying significant taxation on hotels, taxis and rental cars in order to fund major regional infrastructure and “nice to have” projects such as stadiums.  Locally, there is a significant per-room hotel tax for the convention center, and the convention center bonds are limited obligation bonds for the county where there is no general revenue that the bond holders can claim.  What happens if Uber, AirBnB and other internet enabled services that exist as regulatory and taxation arbitrage  schemes proliferate nationally and take massive market share instead of being the domain of hipsters and quasi-hipsters like my brother?

2nd Silver shift

Charles Gaba is passing along that Oregon has approved their Exchange rates for 2015.  There are two important policy points that leaped out at me.

The first is from the Oregonian:

Insurance rate decisions were issued by the Oregon Insurance Division Thursday and announced today, showing a tighter range of premiums in the individual market for people not covered by employers or Medicare. [emphasis mine]

We should expect clustering of price points, especially on the lower end of the Silver market.

The Exchange and subsidy design create the first segment of the Silver market…. All subsidies on the Exchange are based on allowing an individual to buy the second cheapest Silver plan on the Exchange for a percentage of their income. ….there is a strong incentive for insurers to offer at least a  Silver plan that is either the cheapest two Silvers or very close to the subsidy cut-off.

This segment in a competitive market should see a cluster of plans that are at the subsidy line plus or minus a couple percentage points.

If we take 2014 as fundamentally a beta testing year as well as an information gathering year for insurance companies, we should have expected to see the companies that priced too optimistically or aggressively increase their rates while companies that were too pessimistic decrease their rates as new information about the actual composition of the risk pool became clearer.  It is still messy, but the entrails are now legible as if a fourth grader still learning cursive wrote the details instead of a too busy doctor writing out the last prescription for hillbilly heroin at the end of a forty eight hour shift.

The second interesting note is related to the above point:

Moda’s once market-leading rates have jumped to middle of the pack. For a silver plan, a 40-year old in Portland can find four insurers with lower premiums approved by the state.

Moda subscribers/members will see premium/subsidy shock if they don’t actively change. They are moving from the cheapest and therefore the best subsidized Silver plan to a plan that requires out of pocket premium payments over and above the minimal income charges.  Other companies saw Moda pick up a lot of membership as Moda offered the cheapest plans, so the other companies cut their rates, cut their networks, and attempted to price below Moda.  Four companies seem to have accomplished this.

It almost looks like a managed competition model with clear pricing points and subsidy structures is working to effectively shape a market to reduce premium increases compared to typical history.

Aspirations and acceptability

When we look at insurance company filings and rate requests, we need to make a clear distinction between aspirations and acceptable.

For instance, this weekend, my aspirational fitness goal in a non-constrained universe would be a really good lift this evening, an eight mile run tomorrow morning and then a really good sprint series on Sunday morning. However, I have kids who want to do things when I’m home, and my wife has been on kid duty for the past couple of nights as I had work and social obligations in the evenings this week. This means my acceptable goal set is very different from my aspirational goals. I’ll be happy if I can get a home workout consisting of push-ups, reverse push-ups, toddler curls, piggy back stair climbs, big girl shoulder presses and double kid squats this evening, three or four miles tomorrow morning before I take the kids to the dentist, and a water sprint work-out when we go to the pool on Sunday. If I can get that in this weekend, I will have fit my minimal fitness improvement goals this weekend.

There is a big difference between what I would aspire to in a non-constrained universe and what I think is acceptable.

We face those trade-offs every day. Insurance company rate requests are similar. There is a number they would love to get, and a number that works well enough for the product to be offered. Most of the time those two numbers are very different during the early stages of the rate request negoatiation cycle.

We have seen insurance companies submit requests for 10%, 19% or 35% rate increases. We’ve seen companies ask for rate drops. We have seen companies ask for rate increases at or less than nominal GDP growth. Rate request changes are all over the place. From a predictive point of view, there is a modest correlation between initial ask and final approval. Insurance companies know this and they’ll ask for as much as they can get in order to anchor their end of the negoatiation in the most favorable position. However, it is extremely rare for the initial request to be the same or lower than final rates. Final rates for Exchange products will be available in late October.

Charles Gaba is showing this at ACASignups.net.


This is the third 2015 rate change update today; I had already reported on the 25% drop on one of the companies operating on Mississippi’s exchange a few weeks ago, but this makes it official, and also reveals that the 2nd provider (there’s only 2 on MS’s exchange) is only requesting to raise their rates by 6.5%…
Add them up and Mississippi’s weighted average appears to be roughly a 2% decrease…which also sounds about right since the article specifically states that the 25% drop & 6.5% increase will “close the gap” between the two anyway.

California: via Covered California

The vast majority of Covered California consumers will see low increases in their health insurance premiums for 2015, and many consumers will see no increase or even a decrease. The statewide weighted average* came in at 4.2 percent, with some plans offering weighted average rates that are 8.5 percent lower than current pricing.


In the case of Anthem Blue Cross and Blue Shield, the department deemed the proposal to raise rates by an average of 12.5 percent to be excessive, and directed the carrier to submit new rate proposals for review.

Similarly, the department asked UnitedHealthcare to submit new proposals for plans it intends to sell in 2015. The company doesn’t sell policies in the state’s individual market this year.

The department turned down the request by ConnectiCare Benefits Inc. to raise rates by an average of 12.8 percent, but approved a rate hike averaging 3.1 percent.

And regulators will allow HealthyCT to lower its rates by 8.5 percent, slightly less than the company initially proposed.

In this case, the regulators thought the rate cuts for HealthyCT were too deep, and ordered a slightly higher rate.

Remember, the pricing that we are seeing for most state run exchanges is still aspirational pricing by insurance companies and not acceptable pricing. All Federal Exchange pricing is still insurance company aspirational pricing, so the hyperventilation about premium shock (let’s forget about subsidy mechanisms for the moment) is about as realistic concerning actual pricing as Shark Week is on the dangers of man-eating sharks.

Shocking news — people able to pay, pay

More shocking news.  Obamacare is gutting another quintessential American industry that is a world leader without peer — medical debt collection.

Via Bloomberg:

HCA Holdings Inc. (HCA), the largest for-profit hospital chain, yesterday raised its forecast and reported a 6.6 percent drop in uninsured patients at its 165 hospitals, a reduction that grows to 48 percent in four states that expanded Medicaid, a top initiative of the Patient Protection and Affordable Care Act….

The law contributed as much as $13 million to LifePoint’s earnings in the second quarter, about 40 percent more than the company had expected, he said. People paying bills themselves, a proxy for the uninsured, represented just 4.8 percent of admissions, down from 7.1 percent a year earlier….

Shocking how making sure people have the ability to pay for medical care leads to them paying for medical care on time and close to the contracted rate.  The old system of haphazard payments stretched out over years leading to medical debt stress had to be superior because it created jobs for credit collection agencies to hound people for ridiculous fees, for hospital financial analysts to figure out how to smooth cash flow from good months to bad months, and for social workers to be busy as a medical emergency led to their clients entering a life emergency as every other thing that depended on decent health and pre-committed cash flows just got blown up.  Predictibability is a bad thing for all of these jobs.  We can’t have that as the extra couple of points of GDP spent on waste and passing the buck in healthcare means JOBS (TM) that will never be replaced by higher and better uses of people’s times.

AIDS, Formularies and Gresham’s Law

Business Week earlier this month reported on the pharmaceutical formularies (the list of drugs available and at what prices) for Florida Exchange plans. The article noted that there is a significant access problem to affordable drugs for individuals with expensive chronic conditions:

Before the Affordable Care Act, insurance companies could refuse to cover people with HIV or other costly conditions. Obamacare was supposed to end that by making insurers sell policies to all comers, regardless of preexisting conditions. Now advocates for HIV patients and others with chronic diseases say some health plans are making them bear a huge cost for life-saving medications—and that the strategy’s a backdoor method of discriminating against sick people.

The nonprofit AIDS Institute filed a formal complaint (pdf) with the federal government May 29 over how four insurance companies structured their drug coverage in Florida’s Obamacare exchange. “We found this pattern where every single [HIV/AIDS] drug for some plans was on the highest tier, including generics…”

Insurance companies are “making the plans for people with HIV absolutely unattractive so they don’t choose them,” he says.

One of the major challenges for Obamacare is transitioning the health insurance industry from being extremely competent at finding ways to not covering sick people towards finding ways to keep people from getting too sick. The biggest stick in this transition is the massive sea change in underwriting from exclusionary, statistical and experience underwriting to an inclusionary community rating system of underwriting. This change, as we have discussed ad nauseum, allows all people, including those with expensive pre-exisiitng conditions to get insurance. It is why the Exchange risk pools are sicker, on average, than the risk pools of the pre-Exchange underwritten individual insurance markets as those markets kept the sick people who could actually need services out of the market.

Insurers are required to accept and cover HIV patients. They don’t want to.  So they are trying to avoid them by being fugly. 

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Docs, guns and population health payments

Doctors occupy a privileged position in our society. They are among the most trusted professions and they have significant but not absolute legal protections for the advice and conversations that they have with their patients. These two factors make doctors an excellent delivery mechanism for public health advice because people will give their doctor a fair hearing instead of automatically disregarding a message delivered from a less trusted source.

When I was a kid, the major messages that my pediatrician delivered to my parents was to use seatbelts, delead the house and minimize the amount of time us kids spent around lit cigarettes. The goal of these questions were to reduce the probability of harm from easily avoidable vectors. Today, pediatricians and other PCPS will often inquire about gun ownership as guns are one of the leading causes of death for individuals under the age of 25.

Kevin Drum is uneasy about these questions:

That said, should physicians ask about gun ownership? I’m not so sure. Carroll says he only wants to discuss “health risks,” and that’s appropriate. Doctors have expertise in the area of human health: that is, the biology and physiology of the human body. But that’s not the same thing as the safety of the human body.

Maybe in an ideal world where there are public health/enviromental/behavioral safety and risk assessment advisors that are fully trusted by the vast majority of the population and who sees people on a routine basis, this is a relevant beef, but I think in this world Kevin is wrong, and we will see a trend towards medical providers asking more lifestyle choice questions in the future. Right now, doctors are motivated to ask about guns because they are a major cause of preventable injuries and death to a group of people who die due to preventable deaths in large numbers. If there was a safety culture where every bullet is a strict liability of the weapon owner, where every weapon is properly locked up in secure gun safes, where the amount of firepower that is publiclly available is sufficient for hunting and home defense instead of the start of an insurgency, gun questions would be a minor question seldom asked unless the parents of the kids are open carrying with the safety off and a closed chamber.  We don’t live in that world. 

This trend will continue becuase providers are begining to get paid for population health metrics instead of a fee for service system. Fee for service could see added gun violence as a positive for the income of doctors and hospitals because more trauma victims means more procedures which means more billing opportunities.  Reducing preventable serious injuries and death were a social good but under the fee for service payment model, the public health incentives were at long term conflict with provider payments.   Insurance companies always had that motivation in order to reduce claims payout, but savings produced by providers giving good public health advice had not been shared with the providers actually doing the work.  If anything, providers were expected to be altruistic and not get paid or not get paid well for their time. 

 That conflict is changing.

Population health payment systems through strict capitation, Accountable Care Organizations, or global budgets for large groups means providers want to avoid extremely expensive emergency and trauma utilization, they want to avoid six months of rehabilitation for a kid who statistically should be perfectly healthy or merely worried about a fractured tibia due to a shitty slide tackle during soccer practice. The payment systems are moving towards population health management where the doctor needs to know how to perform acute interventions, but their payments and livelihoods are far more dependent on helping people avoid the really easy ways of landing in the hospital.

HHS, default choices and subsidy shocks

The Boston Globe has an interesting piece on the perils of default selection criteria for the 2015 Exchange open enrollment period.I think the piece has a good amount of information in it, but I don’t think it is as clear as it could be.

Here’s the issue, in a nutshell:

To streamline next year’s open enrollment season, the Health and Human Services Department recently proposed offering automatic renewal to 8 million consumers who are already signed up.

But the fine print of the HHS announcement said consumers who auto-enroll will get ‘‘the exact dollar amount’’ of financial aid they are receiving this year.

From my understanding, HHS has a nasty problem. All sorts of behavioral economics research indicate that forcing people to make new choices where the default is to choose nothing leads to no coverage, will lead to quite a few people to drop out of the market even though they would usually want to get back in. Opt-ins are poor choice structures. So HHS has to find an opt-out method. Due to data limitations, they are creating a default that assumes 2015 choices and financial situation will be exactly the same as 2014 family, finances and choices. Is this a good method? Not really. Is it a defensible method to make sure people don’t fall through the cracks? Yes.

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