Tag Archives: regulation

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.

Obamacare Failure

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Some random thoughts on President Barack Obama’s latest…delay…of inconvenient parts of his health welfare law:

House Speaker John Boehner (R, OH):

[O]nce again, the president is rewriting law on a whim.  If the administration doesn’t believe employers can manage the burden of the law, how can struggling families be expected to?

This latest rewrite, now being carried out by the Secretary of the Treasury Jack Lew in President Barack Obama’s name, is as lawless as Obama’s previous rewrites.  No authority to rewrite, or to refuse to enforce parts of, the Obamacare law or any other law exists in the Executive Branch.  Law writing and changing—both!—are the sole prerogative of the people’s elected representatives in the Congress.  What Obama is doing isn’t a rule adjustment in order to better effect the law, it’s a plain and simple refusal to enforce the law (under the guise of rewriting it), as the President and his Treasury Secretary are sworn to do.  And it was done solely for Democratic Party electoral gain; the move has nothing to do with what’s good for American businesses, and not at all with anything related to what’s good for American citizens.

Incidentally, the Treasurer’s oath of office is this (the President’s oath of office is in Art II, Section 1 of the Constitution):

I (name), do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter.  So help me God.

“Support and defend the Constitution of the United States” means, in this context, that the Treasurer is sworn to honor the separation of powers delineated in Articles I and II of the Constitution, which means in turn, he must do his part to enforce the law as it’s written; he cannot (as opposed to may not) rewrite it at convenience of for any other purpose.

I’m unsympathetic toward the insurers here.  Insurance company management wanted Obamacare, and they lobbied hard for it.  Now they’re reaping what they sowed, in terms of unbalanced costs.  The insurance companies’ management has been immoral and cowardly: they wanted to get into bed with government and take advantage of personal relationships with government bureaucrats and politicians so they could freeload off their fellow citizens and their tax money.  Instead, they should have chosen the path of being responsible fellow citizens themselves, taking advantage of their relationships with customers through free market.

As advertised, this…rewrite…is a temporary change, and the law will resume its full force in 2017 (conveniently after the next two elections, by the way).  As a temporary measure, it can have no effect on our economy, on business’ decisions as they operate in our economy, or on hiring (or not hiring).  This just extends the uncertainty, and it continues the drag on our economy and on Americans’ prosperity.  Any high school student of economics understands this, and so do Obama, Lew, and their Progressive fellows in Congress.

Again: this is a move purely for cynical Party gain, and nothing else at all.

Big Brother

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The state of Washington’s Gambling Commission has found a whole new kind of problem for government to worry about.  It seems that the senior citizens of that fine state have developed a nasty habit of getting together and playing…cards.  That’s right.  Poker.

The Gaming Commission, though, has become aware of the caliber of disaster indicated by the presence of a poker table in their State.  There’s trouble, they say.  And that starts with “T,” and that rhymes with “P,” and that stands for Poker.  And all night long those Washington seniors will be frittering—frittering!—their time away.

Yes, they got Trouble with a capital T right there in Washington State.

In fact, those misbehaving seniors in the Snohomish Senior Center have been playing illegally for over four years, ever since the Snohomish city council banned such social card games in 2009.  No more, though.  Ever alert to serious problems, the Gaming Commission sent those miscreants a letter and shut down their games (they also were playing such nasty things as bridge and pinochle—and doing all that for actual pennies).

Never mind that the Center’s Executive Director, Bob Dvorak, has tried to explain that the center provides an important mechanism for getting an often disengaged group of folks together and defeat their aloneness.

It keeps them from being isolated.  They’re in for the nutritious meal, and they have social skills; they see their friends, they see the staff.

We want them in a safe, fun environment where they’re surrounded by their friends and colleagues.

But Dvorak said that if seniors can’t play for pennies, they might not come at all.  Oh, well.

Gaming has been cleaned up, but there’s still Trouble in Washington.  But now it’s a different kind.  It stems from Big Brother Knowing Better.  Because grown, adult human beings of an age need to be told what to do.