Category Archives: markets

“Pass the Bill…”

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“…in order to see what’s in it….”

Here’s another of those tidbits that’s in it that Pelosi and her gang chose not to know about before passing Obamacare:

Tucked deep in the Affordable Care Act is language requiring all restaurants with at least 20 locations to list nutritional information alongside each and every item on their menu.

Sit-down restaurant chains, with their menus now required to be cluttered with “nutrition” information instead of letting their patrons see a readable menu—because Big Government knows better—are also faced, unfortunately, with a rapid-fire alteration of their menus as this “nutrition” information gets frequently “updated:” recall how rapidly the USDA’s food pyramid has been changing over the last several years.

Those places have it easy, though.  Consider the walk-/drive-in places, like hamburger joints and pizza houses, where the customer gets to mix and match from among “each and every item” to form a custom meal to buy.  As Peter Doocy put it at the above link:

Take Domino’s.  There are 34 million different pizza combinations available at the chain, when all crusts and cheeses and toppings are factored in.

Now imagine walking into a Domino’s and navigating a menu board with 34 million different options on it.

And in Domino’s case (and most pizza houses, come to that),

90% of their business comes in over the phone or online.  And none of those people ever set foot in the store, where the menu board would be.

Think about the advertising brochures Domino’s might have to send out to potential callers that included this information.  Think about how many pages on their Web site would be needed to carry this information.

Think about an utterly mendacious law that needs to be repealed, even if its replacement is the status quo ante.

Another Obamacare Health Plan

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Senators Mark Begich (D, AK), whose reelection race this fall is in real trouble, and Mark Warner (D, VA), whose reelection race is much tighter than it should be, are pushing a new Health Plan for Obamacare.

…individuals and small businesses can buy so-called copper plans.  The plans likely would have lower premiums, but purchasers would pay more of their ordinary health costs upfront.

Copper plans would cover, on average, 50% of medical costs, and while consumers’ out-of-pocket expenses would still be capped, that limit likely would be higher than the $6,350 maximum for individuals and $12,700 for families currently set by the law.

What’s the value of a health plan that requires extensive costs to be paid up front by the sick person before the plan starts covering—just a part of—those costs?

Even the CMS is having trouble seeing the sense of this.

A spokesperson for the Centers for Medicare and Medicaid Services says there is not much more to say beyond what Jay Angoff, head of the Department of Health and Human Services office, told the WSJ about the plan: “I’m not sure that requiring people who have insurance to nevertheless pay for 50% of their costs themselves can reasonably be defined as decent coverage.”

I’m not sure, either.

Here Come the Insurance Company Bailouts

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Humana is taking point on this one.  This from Dr Scott Gottlieb at AEIdeas:

Humana announced that it expects to tap the three risk adjustment mechanisms in Obamacare for between $250 and $450 million in 2014.  This amounts to about 25% of the insurer’s expected exchange revenue.  This money is needed to offset losses that the insurer will take as a result of slower enrollment in its Obamacare plans, and a skewed risk pool that weighs more heavily toward older and less healthy members than it originally budgeted.

And

More than half of the money will come from the $25 billion reinsurance pool that Obamacare provides (collected through a tax on employer-sponsored health plans). The other half will come mostly from the risk corridors.

Of course, President Barack Obama was counting on the “migration” of folks in the private health insurance market to the plans pushed through ObamaMart.  However, as Humana is experiencing, and as other health plan providers (I hesitate to call them insurers, anymore) are discovering, that “migration” isn’t happening, and those that are buying have the wrong demographics for the law’s operation.

We know, though, that the “migration” was intended to be a forced migration, because during the 2010 Obamacare summit which our President hosted in the run-up to its party-line passage, he told [especially the first 30 seconds] then-Minority Whip Eric Cantor (R, VA) that “8 to 9 million people…might have to change their coverage….”

And those that are “changing” still aren’t responding in the Obamacare-required demographic breakdown.

Hence bailouts.  Unless we get serious in the upcoming primaries and the fall elections.

Junk Bonds and Preexisting Conditions

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What do these have in common?  First, a caveat.  Junk bonds are so rated because of the very high likelihood that the bond issuer will default on that debt for any of a number of reasons, including bankruptcy.  Preexisting conditions have no such uncertainty; they exist.  Let’s assume the likelihood of bankruptcy on a junk bond is certain.  That certainly would make the junk bonds more expensive in the bond market than they are presently, but they’d still be marketable.

Now, in the case of a preexisting condition, the risk getting coming down with that condition has been realized, there’s nothing left there to transfer to an insurer in return for a fee or premium.

Notice, though, that the timing of a default on any particular junk bond remains uncertain, even though default itself is certain, and so there are buyers—insurers, if you will—who are willing to buy a pool of junk bonds.  These buyers are willing to assume the risk of default for some subset of the bonds in the pool in return for the likelihood of netting a profit on the aggregation of interest payments from the remaining junk bonds.

In the same way, while having a preexisting condition is certain for the afflicted person, the risk of any particular person’s condition flaring and so requiring medical treatment, remains uncertain.  This risk can be pooled and transferred to an insurer: the expectation here is that the insurer, after paying out on the flareups of some subset of the preexisting conditions in the pool, still can net a profit on the aggregation of premium payments from the preexisting conditions.

Without government’s interference in a (restored) health insurance industry marketplace, insurance products could be developed that would pool those with particular preexisting conditions (or a collection of similar preexisting conditions, or…).  Aggregating the risk of preexisting condition flareups (as opposed to attempting to deal with the preexisting condition itself) into large enough pools would bring premiums into the reach of most folks having the condition.  This is the same risk spreading technique used by junk bond mutual funds: these funds spread default risk across a large enough pool that the cost of buying into the fund comes within reach of ordinary investors.

Of course, in this simple analogy, there are a couple of contaminants.  One is the fact that, in reality, default even on a junk bond isn’t certain; it’s just very likely.  Thus, the price of junk bond pools is lower than tacitly assumed in analogy.  This is balanced to some extent, though, by the fact that while a bond, once defaulted, ceases to exist for all practical purposes, this is not the case with a preexisting condition.  In general, a flareup of a preexisting condition subsides, the condition continues to exist, and the premiums on it would continue to be paid against the next flareup (of uncertain timing).

A Thought on the Contraceptive Mandate

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Notre Dame, et al., finally are getting their day in court concerning the Obamacare Contraceptive Mandate.  Notre Dame’s case centers on the premise that the government’s compromise in formulating the mandate still leaves religious organizations required to be agents authorizing contraceptive coverage, which violates Notre Dame’s (et al.) religious beliefs.

Two things about this case disturb me.  One is the Seventh Circuit’s attitude in hearing the case, as illustrated by this exchange:

Matthew Kairis (representing Notre Dame): The government is requiring Notre Dame to play a role.

Judge Richard Posner: But that role seems so trivial.

The role exists, and it forces the school to violate its fundamental religious tenets.  There’s nothing trivial about that.

The other thing is this argument by the government’s attorney, Mark Stern.  It’s a slippery slope, Stern claims, threatening the heart of the contraception mandate.  This goes along with his distortion of Notre Dame’s position:

It’s not enough that Notre Dame is going to get out of it, they don’t want anyone else to get in.

The first is at the center of the problem with the contraceptive mandate: the mandate forces religious entities and secular entities that try to operate according to their owners’ religious tenets (see, for instance, the Hobby Lobby case) to violate those tenets, and so is a violation of the Establishment Clause.  Of course the mandate should be threatened.  It should be eliminated.

As to the latter, surely Notre Dame has an opinion on the morality of other organizations providing contraceptives and abortifacients.  However, Notre Dame is not presuming to speak for them or about their legal right to provide these things, nor is Notre Dame arguing that health plan providers should be barred from offering coverage that provides these things.  Notre Dame and its fellow plaintiffs are merely arguing that they ought not be forced to be parties to the transactions.