Friday, October 4, 2013

The twisting path of Obamacare and the Insurance Industry

Nothing ever makes sense in politics until you follow the money...

http://carpenterevert.com/health-care-reform/the-affordable-care-act-will-change-health-care-for-everyone/

"Everyone will benefit from new rights and protections that start January 1, 2014.  These include:

...Insurance company accountability through the 80/20 Rule. The 80/20 Rule requires insurance companies to spend at least 80% of the money they make from premiums on health care instead of administrative costs, salaries, overhead and marketing. If an insurance company doesn’t meet the ratio, you will get a rebate from your premiums."

Is this the real reason for the shutdown?  But why is the 'tea party' conservative core in the House being supported by small businesses against a reduction in costs from such a cap? Instead, why isn't the Insurance industry openly against this?  Actually, it turns out they secretly are...

http://www.huffingtonpost.com/2013/05/15/insurance-industry-obamacare_n_3280405.html
  1. the insurance lobby paid the small business NFIB $850K to protest Obamacare (the very legislation the insurance lobby proposed in order to get the individual mandate passed) and 
  2. the insurance lobby promised to pass on the costs of the rebate to small businesses unless they stopped it.

The ACA never anticipated that the insurance industry would (or could) threaten to take money from small business owners and give it to their employees via rebates and services.  That's ... erm... a very *creative* way of scaring small business owners.

So let's break this down.  If the Affordable Care Act (ACA) forces insurers to spend 80% of their premium on services rather than profit, how exactly is the insurance industry going to pass that cost on to small business?  They'll raise the premiums?  But then they'll have to pay out more rebates or offer more service?!  That doesn't sound like much of a sustainable threat.

The ACA never anticipated that the insurance industry would (or could) threaten to take money from small business owners and give it to their employees via rebates and services.  That's ... erm... a very *creative* way of scaring small business owners.

And why would the insurance lobby pay $850k for this?  Because the anticipated costs of rebates over the next decade are (their estimates): $100 billion.  850k is small change.

So let's do some rough math to put some of these numbers in context...

actual_margin - %20 = $100 billion over 10 years (the amount the insurance industry says they will lose by reducing their margin to %20).

http://biz.yahoo.com/p/431mktu.html

Currently, the Accident and Health Insurance industry has a market cap of $196B.

Now it's hard to know the actual_margin from just the market cap (the market's estimation of value based on rough assets - liabilities disclosure), but we could get in the ballpark by assuming that the market's valuation is close to the actual value, which represents the profit - the costs.  So say the net profit is the margin, i.e. $196B/yr, or $1960B over 10 yrs.

$100b (they amount they say they will lose) / $1960b (the net profit over 10 yrs) = 5.1%

5.1% (percentage loss) + %20 = current percentage margin

So, ballpark, it sounds like the insurance lobby is currently operating at around a %25 margin, which would be reduced to %20 by Jan 2014.

It's hard to know if these estimates are close to truth, and I can understand why the insurance industry doesn't want too much light shed on their practices... maybe this isn't really about the margins, maybe it's more about the regulatory compliance (i.e. who pays the cost of determining whether insurance companies hit the 80% service rate -- if they have to carry this cost, then even more of their margins are being reduced to compensate for compliance checks.)

one last appeal to Washington: let's consider science instead of ideology?

But in the wake of a government shutdown and possible default, I think it's time to shift the conversation in Washington from abstract rhetoric (i.e. "Obamacare will increase costs and ruin the economy") to specific details of how the economy gets wrecked, i.e. where does the money go.

Maybe we don't have time or patience for a detailed candid discussion... in which case, I'll close with one last appeal to Washington: let's consider science instead of ideology?

Both democrats and republicans firmly believe that the other's proposals will wreck the economy at this point.  Non-action will certainly wreck the economy.  Why not let experimental evidence decide instead of ideology? Why don't we stick with the current laws we have that the Supreme Court upheld and see whether or not it damages the economy?

If it does, there should be overwhelming support on all sides for repeal and reform.

If it doesn't, we may have learned a valuable lesson in how to stop special interests from manipulating our ideological differences for their own financial ends.