Thursday, February 20, 2014
Bailing out Insurers
I’m not a fan of insurance companies. In concept it actually makes a ton of sense – pay a regular amount in (premium), and in the event that something happens, the insurer covers replacement/repair. It's a great way to mitigate risk. The companies do well, accumulating cash, investing it, and there’s a good percentage of people who will never need a payout. I liked the idea so much that as a child I had my own insurance company, charging my parents friends $0.25 a month on the life of their pets. Seems I only insured cats “because they had 9 lives” reads one of my journal entries. I’d write on the bills “Hope kitty will have a long life!” The whole enterprise came crashing down when one of the insured did actually die – and my parents made me pay out from allowance since I had been spending premiums along the way. Too bad I didn't have President Obama set up my plan – that way the government would have bailed me out and I'd still have my allowance.
The Affordable Care Act (unofficially known as Obamacare) bails out insurance companies. Bloomberg’s Ramesh Ponnuru wrote in late January 2014: “The bailout would come from the law’s 'risk corridor' provisions. If insurers pay out more than 108 percent of the premiums they collect from customers in Obamacare’s exchanges, taxpayers are on the hook for about 75 percent of the extra cost. If the insurers make profits that are more than 108 percent of their collections, they have to pay back a similar proportion.”
Cost control is a huge problem in health care. In Massachusetts, which the ACA is largely modeled after, costs have skyrocketed. Wendell Potter wrote in the Huffington Post: “A report released last week by the Massachusetts' Health Policy Commission said health care costs are higher in the Bay State than anywhere else and that more than one-third of what residents spend may be wasteful.” Something to look forward to as Romneycare becomes Obamacare.
There’s no incentive whatsoever to control costs from the insurance company’s perspective. If they go over, sure they’re on the hook for a portion of the overage – but the taxpayer is really footing the bulk of the cost, 75%. And if the insurance company manages the costs well and are actually more profitable, then they’re penalized and have to give back the bulk of the savings.
The Affordable Care Act aims to make insurance customers out of the 41 million Americans who don’t have coverage. You’d think that within this structure the insurance companies might have enough impetus to make it work without having the taxpayer on the hook.
This isn't new. Medicare Part D – the “Prescription Drug Plan” under President George W. Bush (43) has the near identical risk release in it. Bush continued his bailouts bonanza at the end of his tenure, saving banks and insurance companies. President Obama continued the pattern with car companies and more banks. It shouldn’t be surprising, then, that he has enshrined in his signature legislation the promise that health insurance companies don’t have to take the risk.
I am surprised. I am outraged. It’s a terrible policy. It takes a bad law and makes it even worse...which was hard to conjure. The tragedy, though is that this little known provision was only discovered recently by a relatively obscure columnist of a not widely read publication. It hasn’t been ‘picked up’ by the blathering class who are still far more interested in Chris Christie’s traffic woes and whether Hillary was mad at her husband’s mistress than the fact that taxpayers are insuring the insurers. This should be red meat for cable news. If one were cynical one might imagine that the insurance companies themselves might have something to do what the major news organizations and the lack of coverage? Guess everybody’s too busy processing the 41 million new customers.