The ObamaCare train wreck is still coming. Don’t take my word for it! Even though my new book, The ObamaCare Train Wreck, uses this same metaphor, I can’t take credit for the idea.
Credit for the original idea goes to Senator Max Baucus, Chairman of the Senate Finance Committee, in a hearing on 4/17/13 when he responded to HHS Secretary Kathleen Sebelius by saying, “I just see a huge train wreck coming.” Sebelius was describing her preparations for the coming implementation of the Affordable Care Act on October 1, 2013. Senator Baucus probably had no idea just how prescient his words would be.
Now comes a similar assessment of the situation nearly 17 months later by insurance expert Robert Laszewski. Laszewski is a highly respected consultant to the health insurance industry who writes a popular healthcare blog. After a quiet summer with little news on ObamaCare, he sees a different autumn with the coming new enrollment period.
Supporters of ObamaCare are trumpeting the modest insurance rate increases being leaked to the public in advance of the November – December enrollment. They believe these are evidence that ObamaCare is working. But Laszewski explains this was predictable – and no reason for optimism.
“The 2015 rate increases have been largely modest. Does that prove ObamaCare is sustainable? No. You might recall that on this blog months ago my 2015 rate increase prediction was for increases of 9.9%.
You might also recall my reason for predicting such a modest increase. With almost no valid claims data yet and the “3Rs” ObamaCare reinsurance program, insurers have little if any useful information yet on which to base 2015 rates and the reinsurance program virtually protects the carrier from losing any money through 2016. I’ve actually had reports of actuarial consultants going around to the plans that failed to gain substantial market share suggesting they lower their rates in order to grab market share because they have nothing to lose with the now unlimited ( the administration took the lid on payments off this summer) ObamaCare reinsurance program covering their losses.”
The “3Rs” refers to the provisions in ObamaCare called “reinsurance, risk adjustment, and risk corridors”. These provisions essentially protect the insurance companies from suffering losses if their rates are too low or their expenses are too high. These provisions are eliminated after 2016. (For a better understanding of the “3Rs”, see earlier post The Insurance Bailout Has Begun)
Nevertheless, the Kaiser Family Foundation reported that average premiums will decline slightly for the Silver baseline plans in 16 markets. Rather than evidence that ObamaCare is bringing down rates, Laszewski says this merely reflects a perverse market where losing money to gain market share is good business.
“The new 2015 Silver baseline plan may have a lower premium than the 2014 Silver baseline plan. But that is almost always because the insurance company that held that slot in 2014, and almost always got the largest share of business, significantly increased their rates for 2015. Then another insurance company, who didn’t write much business and likely now eager to increase market share, decreased their rates and has become the 2015 baseline plan. The second company was able to decrease their rates without much fear because the ObamaCare “3Rs” reinsurance scheme virtually protects them from any material losses.
So, this headline about the baseline plans decreasing their rates in so many markets is more about the carriers who sold the most in the first year increasing their rates while the plans that sold very little business, and able to fall back on the ObamaCare reinsurance scheme, cut their rates in a no lose attempt to gain business.”
He says the real ObamaCare insurance rates won’t be known until we see the 2017 rates – when there will be adequate claims data to do accurate actuarial analysis – and when the reinsurance program will have ended. Until then the premium rates will be artificially supported by the Obama administration – which means the taxpayers.
More Bad News
The news gets worse. Laszewski says the government web site is still not working as needed. The HealthCare.gov backroom is not built yet – a year and counting after it should have been. This means there is still not a government to insurance company accounting system built so accurate numbers of enrollments are still not available. It also means that government verification of eligibility for subsidies is still not possible, either.
The HHS plan is for those currently enrolled to auto-renew their existing ObamaCare policies. They are telling people their policies will automatically renew, without the need to go to the web site to re-enroll. But Laszewski warns this could be disastrous for individuals. Once again he explains:
“The biggest reason is that in most cases the baseline second lowest cost Silver plan, upon which their personal subsidy is based, has changed and with it the subsidy they are eligible for. The only way a participant will know the impact of price changes in their community’s baseline plan on their own net of subsidy premium is to re-enroll. If they do not, they could be surprised by a big jump in their 2015 out-of-pocket premium come January, or a big tax bill a year later. And, if their income data is not up-to-date, they could be getting a much smaller or bigger subsidy than they are entitled to.”
Look for more confusion in advance of the November open enrollment period (and the mid-term elections) as people receive renewal notices and cancellation letters in October for pre-ObamaCare policies no longer available. Add to that the fragility of the HealthCare.gov web site, as well as rising deductibles for 2015 (those go up with cost trend as well as the rates) and you have the conditions once again for a train wreck.