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As part of the “Working Paper Series” published by the Congressional Budget Office (CBO), the CBO just released their latest work entitled, “How CBO Estimates the Effects of the Affordable Care Act on the Labor Market.” Essentially, the CBO projects that the labor force will be about 2 million full-time-equivalent workers smaller ten years from now, in 2025, than it would have been without the implementation of the Affordable Care Act (ACA).
“The Affordable Care Act (ACA) will make the labor supply, measured as the total compensation paid to workers, 0.86 percent smaller in 2025 than it would have been in the absence of that law, the Congressional Budget Office estimates. Three-quarters of that decline will occur because of health insurance expansions, which raise effective tax rates on earnings from labor — for instance, by phasing out health insurance subsidies as people’s income rises—and thus reduce the amount of labor that workers choose to supply. The labor force is projected to be about 2 million full-time-equivalent workers smaller in 2025 under the ACA than it would have been otherwise. Those estimates were based mainly on CBO’s calculations of the effects of the law’s major components on marginal and average tax rates and on the agency’s analysis of research about the change in the labor supply resulting from a change in tax rates. For components of the law that were difficult to express in terms of changes in tax rates, CBO based its estimates on a review of the available literature about similar policy changes.”
“All told, CBO estimates that in 2025, the ACA’s reduction in the labor supply, measured as total compensation, would range from 0.4 percent to 1.3 percent. The agency’s central estimate is 0.86 percent. In other words, the effect could be about 50 percent smaller or 50 percent larger than the agency’s central estimate because of potential variations in labor supply responses to the ACA’s provisions. Accounting for potential variations in other aspects of the estimates would widen that range.”
You can read the entire paper, about 20 pages long, here.
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The Wall Street Journal put together an excellent editorial yesterday on the intersection of Obamacare and immigration.
First, starting in 2016, employers with 50 or more full time employees are required to offer health insurance for each of their workers, or else pay a penalty of $3,000 per each person who fails to receive proper Obamacare coverage.
So what happens with the undocumented immigrants allowed to stay under President Obama’s Executive Action? The numbers are estimated to be upwards of 5 million people.
“The government’s petition says that the executive action intended to provide ‘work authorizations’ so that undocumented immigrants could find jobs in the U.S. without working illegally for less than market wages, which might harm American workers. But wait: Employers aren’t required to offer ObamaCare coverage or subsidies to these immigrants. The statutory language in the Affordable Care Act says that only ‘lawful residents’ are eligible, and the government’s petition specifically notes that the immigration action does not ‘confer any form of legal status in this country.'”
Therefore, the immigrants (with deferred deportation), are exempt from Obamacare. While that may be good for the taxpayer, it is not necessarily good news for the worker. From a purely financial perspective, companies could easily save the $3000 penalty cost per worker if they hire and employ an Obamacare-exempt immigrant instead of a citizen/resident subject to the Obamacare rules.
The Wall Street Journal sums up the scenario nicely:
“Suppose businesses subject to ObamaCare employ only 40%, or two million, of the up to five million immigrants covered by the president’s executive action. At $3,000 an employee, businesses would save about $6 billion a year. Companies already dealing with the added expense of operating in the Obama economy — burdened by regulations, high taxes and other barnacles — would find those savings hard to pass up.”
Exempting employers who hire these immigrants from the law’s penalties gives the immigrants a distinct market advantage over U.S. citizens. That flies in the face of the president’s statement that his executive action would not “stick it to the middle class” by allowing these individuals to “take our jobs.” It is also contrary to the government’s statement that the executive action would make it less likely that these undocumented immigrants hurt American workers by “illegally” working “for below market rates.” They could still work at below-market rates, only it would be legal.
All of this was inevitable. The root problem with ObamaCare is that one party rammed it through Congress without a single Republican vote, while the law’s supporters didn’t even read it, let alone vet it through congressional committees. As a result, ObamaCare as written was unworkable, and the administration has had to repeatedly amend it by constitutionally dubious executive fiat.
Now this flawed law is clashing with yet another constitutionally dubious executive action that the administration couldn’t be bothered to pass through the legislature.”
The Obama Administration may yet decide to grant Obamacare to these immigrants currently exempted. But for the time being, since their status presents a situation may wreak havoc in the business world, leaving the current court injunction against the immigration order in place is the only suitable solution until the Obamacare-immigration situation is sorted out. Otherwise, expect the economy to continue to weaken from this latest threat.
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Last week, UnitedHealth, one of the biggest insurers in the United States, announced that it would cease a good amount of healthcare marketing in 2016 as it ponders whether or not to stay in the exchanges for 2017 and beyond. Now, the CEO has come out and stated that UnitedHealth should have waited longer before joining Obamacare.
From Bloomberg:
UnitedHealth Group Inc. should have stayed out of Obamacare’s new individual markets longer, the chief executive officer of the biggest U.S. health insurer said Tuesday, after announcing last month that it will take hundreds of millions of dollars in losses related to the business.
While the company’s other lines of business are growing, instead of expanding into Obamacare next year, the company should have kept waiting, UnitedHealth CEO Stephen Hemsley said at an investor meeting in New York.
“It was for us a bad decision,” Hemsley said. “I take accountability for sitting out the exchange market in year one so we could in theory observe, learn and see how the market experience would develop. This was a prudent going-in position. In retrospect, we should have stayed out longer.”
UnitedHealth said on Nov. 19 that it may quit selling coverage in the Affordable Care Act’s individual markets in 2017. The markets are a key element of the law’s goal to cover about 10 million Americans next year, and UnitedHealth had expanded its offerings for 2016, after initially holding off when the markets started covering people in 2014.
Losses from the plans this year and next will total more than half a billion dollars, the company has said, and UnitedHealth will scale back efforts to market coverage to millions of people shopping for 2016 insurance on the Affordable Care Act’s new marketplaces.
UnitedHealth is not alone in its Obamacare struggles. Other insurers, including competitors Anthem Inc. and Aetna Inc., have also either suffered losses in the markets or said they haven’t seen the margins they expected. Next year will be the law’s third of providing coverage.
“It will take more than a season or two for this market to develop,” Hemsley said. “We did not believe it would form this slowly, be this porous, or become this severe.”
Hemsley said today that the rest of UnitedHealth’s businesses are faring better than its comparatively small exchange operation, which it has said covers about 540,000 people. The company said it expects operating earnings of $13.1 billion to $13.5 billion next year, on revenue of $180 billion to $181 billion.
UnitedHealth advanced 1.7 percent to $114.59 at 10:01 a.m. in New York. The stock has gained 11 percent this year, as of Monday’s close.
Enrollment at the company’s insurance businesses will climb to 47.4 million to 48.2 million people next year, from 46.2 million at the end of 2015. The company is projecting more enrollees in line of business including Medicare Advantage and Medicaid. Separately, UnitedHealth said its drug-coverage business for the elderly, Medicare Part D, may lose as many as 650,000 customers.
Across all of its insurance businesses, UnitedHealth said it expects to spend about 81.5 cents of every dollar it takes in from premiums on medical expenses.
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A few days ago, UnitedHealthcare announced that the possibility of withdrawing from the Obamacare health insurance exchanges. This is a significant announcement, as UnitedHealthcare is one of the biggest insurers in the country. The impact of withdrawl would affect hundreds of thousands of people with regard to their healthplans; the timing — right before 2016 elections — would be critical.
HHS is predicting 10 million enrollees in 2016, which is half of what was originally projected when Obamacare was passed. It’s unlikely that enrollment will suddenly surge this year, which means that the financial instability of the entire model will continue.
If UnitedHealthcare decides to discontinue next year, those with their coverage will have to — yet again — choose another plan, but this time from a smaller list of coverage providers. Since Open Enrollment begins in the fall, right around Election time, such a move could wreak havoc on the final stretch.
One economist suggests that prices will increase even more.
“The year 2017 is significant for insurers, because that’s the year when several programs designed to mitigate risk for insurers through federal backstops go away. The hope was that those programs would act as training wheels for Obamacare in its first few years of implementation, but after that, the insurers were supposed to be able to thrive on their own. UnitedHealth’s statement suggests otherwise.
If UnitedHealth and other insurers decide to exit, remaining insurers will be forced to take on even more high-risk enrollees, prompting them to either raise rates further or exit themselves. That in turn would deprive individuals of choices and remove competition, a key purpose of the exchanges.”
So don’t expect United to suddenly see a reason to get back into the 2017 market, not without hefty risk-corridor subsidies — which under any other circumstances would be called “corporate welfare.” Given that Congress isn’t likely to reverse course and underwrite ObamaCare losses, the path to the exit remains the likely course for United, and perhaps some of its competitors, too.
United says it will remain committed to its Medicaid and Medicare businesses, and of course it will stick with its employer-based group coverage, where the issues of ObamaCare regulation have less impact.”
“But UnitedHealth and other insurers need more Americans to come into the public exchanges because the patients that are signing up for coverage are sicker, making a “higher overall risk pool,” insurance executives say. It’s a key reason many Americans are seeing rate increases of 10 percent or more across the country on public exchanges.
United has discovered that the trade-offs in mandates and forced coverage don’t pay off. It’s a bait-and-switch for insurers by the Obama administration, but it’s even worse of a bait-and-switch for consumers.
Subsidies do not mitigate the fact that consumers have to pay both the premium and then thousands of dollars for care out of their own pocket before insurance takes effect, except in rare and catastrophic circumstances.
Consumers used to have an option for that kind of health insurance – catastrophic coverage, used to indemnify against unforeseen major health events. Those policies featured low premiums and left routine care for consumers to negotiate directly with providers on a cash basis. Combined with health-savings accounts (HSAs), those plans offered a rational approach to balancing health and economic requirements, especially for younger consumers who rarely need more than one or two clinic visits a year, which would cost far less than either comprehensive-coverage premiums or deductibles even in the pre-ACA era.
Instead of “affordable care” promised by President Obama and Democrats, consumers have instead discovered they have effectively been forced to pay for catastrophic health insurance at comprehensive-plan prices. They have become victims of a bait-and-switch scheme that the government would vigorously prosecute – if it wasn’t masterminding the scheme itself.”
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A must read from the Washington Examiner today on the subject of Obamacare, insurance companies, and bailouts. I republished the article in full.
The Department of Health and Human Services attempted to reassure private insurers on Thursday that they’ll be able to recover losses from participating in Obamacare by claiming it was an “obligation” of the U.S. government to bail them out.
At issue is a provision within the law known as the risk corridors program. Under the program, which runs from 2014 through 2016, the federal government is to collect money from health insurers doing better than expected and use those funds to provide a federal backstop to other insurers who incur larger than expected losses from rising medical claims. The idea was to provide training wheels to insurers in the first years of Obamacare’s implementation, and to take away any incentive for insurers to cherry pick only the healthiest customers.
Republicans, fearing that this could turn into an open-ended government bailout in the event of industry-wide losses, included a provision in last year’s spending bill that limited the program, requiring HHS to pay out only from the pool of money collected, rather than supplementing it with other sources of government funding. President Obama signed that bill.
Now that insurers have been able to look at medical claims, what they’ve found is that enrollees in Obamacare are disproportionately sicker, and losses are piling up. For the 2014 benefit year, insurers losing more than expected asked for $2.87 billion in government payments through the risk corridors program, but HHS only collected $362 million from insurers performing better than expected. Thus, the funds available to the federal government only amounts to 12.6 percent of what insurers argue that they’re owed.
So insurers are not happy. And now the industry lobbying group America’s Health Insurance Plans — which happens to be helmed by Marilyn Tavenner, who previously oversaw the implementation of Obamacare as head of the Centers for Medicare and Medicaid Services — is aggressively fighting for more money.
In a statement issued Thursday, the same day that the nation’s largest insurer, UnitedHealth announced it may exit Obamacare due to mounting losses, Tavenner said, “We’ve been very clear with the administration about the serious challenges facing consumers and health plans in this Exchange market. Most recently, nearly 800,000 Americans have faced coverage disruptions as a result of the significant and unexpected shortfall with the risk corridors program. When health plans cannot rely on the government to meet its obligations, individuals and families are harmed as a result. The administration must act to ensure this program works as intended and consumers are protected.”
In an effort to reassure the industry, CMS, the HHS agency Tavenner previously led, issued guidance reiterating that HHS would use money collected from insurers in 2015 and possibly 2016 to make up the $2.5 billion shortfall that exists in 2014.
But what happens if there still isn’t enough money, and after 2016, the program is taking in less than the money sought by insurers?
HHS said it, would “explore other sources of funding for risk corridors payments, subject to the availability of appropriations. This includes working with Congress on the necessary funding for outstanding risk corridors payments.”
The agency further added: “HHS recognizes that the Affordable Care Act requires the Secretary to make full payments to issuers, and HHS is recording those amounts that remain unpaid following our 12.6 percent payment this winter as fiscal year 2015 obligation of the United States government for which full payment is required.”
In reality, this doesn’t mean much at all. Risk corridor payments for 2016 won’t be due until mid-2017, and by that point, it will be an issue for a future Congress and future president. Nothing that a previous administration’s HHS said in 2015 will really matter.
That said, this is another demonstration that for all of Obama’s sanctimonious rhetoric about taking on insurance companies. In reality, his signature legislative achievement was to put government in bed with private insurers. And now that his pet project backfired, he wants taxpayers to take care of those very insurance companies he spent years railing against.
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In an effort to encourage people to sign up for the Affordable Care Act, the Obama Administration has boosted the low cost of premiums — the part that is subsidized. What they aren’t mentioning is that in exchange for low monthly costs, enrollees face high deductible costs.
“Most Americans will find an option that costs less than $75 a month,” President Obama said. Additionally, Sylvia Mathews Burwell, the Secretary of Health and Human Services, issued a report analyzing premiums in the 38 states that use HealthCare.gov. “Eight out of 10 returning consumers will be able to buy a plan with premiums less than $100 a month after tax credits,” she said.”
The trade-off for low-ish premiums means that many Obamacare plans have high deductibles. “The Internal Revenue Service defines a high-deductible health plan as one with an annual deductible of at least $1,300 for individual coverage or $2,600 for family coverage.”
But in many states, deductibles are even higher than that. According to Hot Air, “in many states, more than half the plans offered for sale through HealthCare.gov, the federal online marketplace, have a deductible of $3,000 or more. Once you add in several hundred dollars per month for your plan premium, a rate that may or may not be lower than it used to be and add in a $3,000 or more deductible, the average individual could be paying over $5,000 out of pocket in a year before their ‘affordable’ insurance kicks in. This is true for employer sponsored plans as well.”
These costs are exorbitant for working class families. If they are already needing to seek health insurance and subsidies through the Obamacare exchanges, how can they possibly have the capability to find several extra thousand dollars in their budgets in order to pay out-of-pocket costs to meet their deductibles before their insurance really kicks in. With unemployment high and wages flat, these rising deductibles (and also premiums in many cases) hit Americans hard.
And don’t forget, plans purchased are for 2016. The Obamacare penalty fee continues to ramp up for those who decide to forgo health insurance coverage entirely for this coming year. Those considering opting should be reminded of what the financial costs will be to do so.
Your penalty tax is the greater of either 1) a flat-dollar amount based on the number of uninsured people in your household; or 2) a percentage of your income. If you are able to go by the flat-dollar amount, the fee increases to $695 in 2016 plus half that amount for each uninsured child under age 18. Your total household penalty is capped at three times the adult rate. If you qualify for the percentage of your income, it is 2.5% for this coming year.
It is increasingly clear as we continue along the path of the Affordable Care Act that this legislation truly is not affordable.
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Rich Lowry over at National Review pointed out some hard realities of Obamacare as we enter in a new enrollment season.
“Yes, ObamaCare has covered more people and has especially benefited those with pre-existing conditions (to be credible, Republican replacement plans have to do these things, as well), but the program is so poorly designed that, surely, even a new Democratic president will want to revisit it to try to make it more workable.
Enrollment is falling short. The Obama administration projects that it will have roughly 10 million people on the state and federal exchanges by the end of next year, a staggering climb-down from prior expectations. The Congressional Budget Office had predicted that there would be roughly 20 million enrollees. If the administration is to be believed, enrollment will only increase about another million next year from its current 9 million and only sign up about a quarter of the eligible uninsured.
Premiums are rising. Not everywhere, but steeply in some states. Indiana is down 12 percent, but Minnesota is up 50 percent. Health care expert Robert Laszewski points out that it’s the insurers with the highest enrollment and therefore the best information about actual enrollees that have tended to request the biggest increases — a sign that they don’t like what they’re seeing in their data.
Relatedly, the economics are shaky. According to a McKinsey Co. analysis, last year health insurers lost $2.5 billion in the individual market that ObamaCare remade. ObamaCare co-ops that were supposed to enhance choice and lower costs have been failing and almost all of them are losing money, a victim of the absurd rules (no industry executives on their boards, no raising capital in public markets, etc.) imposed on them by the law.
The problem with ObamaCare in a nutshell is that on one hand, by imposing motley regulations and mandates, it increases the price of health insurance, and on the other hand, by providing subsidies, it tries to hide the cost — but not enough.
According to an analysis by the health consultancy Avalere, the poor or near-poor have been signing up, but enrollment steeply drops off further up the income scale as the subsidies fall away. It found that three-fourths of uninsured people earning less than 150 percent of the federal poverty level got coverage through Medicaid or the exchanges, while almost none of uninsured making more than 250 percent of the federal poverty level have enrolled.
For them, it’s just not a good deal. A study of the ObamaCare exchanges by researchers at the Wharton School found that “even under the most optimistic assumptions, close to half of the formerly uninsured (especially those with higher incomes) experience both higher financial burden and lower estimated welfare.”
Even the success that ObamaCare has had enrolling people should come with an asterisk. The Department of Health and Human Services announced earlier this year that nearly 11 million people have signed up for public health insurance — Medicaid or the children’s health program, CHIP — since 2013. If Medicaid is better than nothing (although this is harder to prove than you might think), it is substandard coverage that locks the poor into second-class care with limited access to doctors.
If the goal was to expand this deeply flawed program, it could have been achieved without the expense, disruption and economic irrationality of the rest of ObamaCare.
(emphasis added).
As Laszewski points out, on the individual market, ObamaCare is a monopoly. It gives money to people to buy its product and through the individual mandate punishes those who don’t. And yet it’s still having trouble making the sale.”
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The latest reports on the budget deal show some entitlement changes coming to Social Security Disability Insurance (SSDI) and the Social Security Trust Fund. The text of the bill is here.
According to analysis of the deal, spending would be increased “by $80 billion over two years, not including a $32 billion increase included in an emergency war fund. Those increases would be offset by cuts in spending on Medicare and Social Security disability benefits.”
The deal sought some much needed structural changes to the SSDI program, because it was slated to reach insolvency sometime in 2016 — which, of course, would play right into the Presidential election cycle.
Some of the proposed changes include: “a medical exam now required in 30 states before applicants could qualify for benefits would be required in all 50 states. That change was projected to save the government $5 billion.”
Another reform looks to be restructuring work and benefits reviews, “in which some people who receive disability benefits could earn money from working with less fear of triggering a review that can result in benefits being cut off. Instead, people participating in the projects could see their benefits gradually curtailed as their income rises … ”
While these changes are a start, they come at a price that no one in the media is really talking about in depth. The NYTimes casually mentions that there were be a reallocation of “funds among Social Security program trust funds to ensure solvency of the disability insurance program.” That sounds well and good, until you get to the details.
The reallocation of roughly $150 billion over the next three years comes from the Social Security Trust Fund in order to rescue the nearly bankrupt SSDI Trust Fund; in other words, we are borrowing money from one entitlement program to another!
SSDI was slated to receive across-the-board 20% cuts in 2016 as a way to deal with its nearly-depleted funds. But that is a very messy topic for a very messy election year. This deal papers over the SSDI funding problem — infusing it with cash from Social Security over the next three years, and extending the insolvency question for the disability question until around 2022.
“Congress has been kicking the can down the road on disability insurance reform for decades and 2016 should have been the end of the road—time for meaningful reform. Instead, policymakers want to provide a little more roadway for the disability insurance program by whacking off a portion of Social Security’s roadway.
This isn’t the first time the disability insurance program has run out of money and it isn’t the first time Congress has kicked the can down the road. As recently as 1994, the disability insurance program was about to run out of money and Congress increased the disability insurance payroll tax by 50 percent, from 1.2 percent to 1.8 percent. That increase was coupled with a stark warning that the disability insurance program was in dire need of additional reforms to sustain it over the long run.
What has Congress done to reform the disability insurance program since then? Nothing.
Rather than looking to improve the efficiency and integrity of the program, Congress sat idly by as the percent of the working-age population receiving disability insurance benefits increased from 2.8 percent in 1994 to 5.1 percent today.”
This cash infusion — from Social Security of all places! — merely obfuscates the larger question of true entitlement reform. Using Social Security Trust Fund money was a perfect cover for lawmakers because it can be explained as a routine “reallocation of Social Security funds”, without explaining it is essentially robbing Peter to pay Paul. It is a known fact that both programs are slated to run out of money in the future. This deal just extends the life support for one program, while shortening the life of another.
Though lawmakers made a few minor changes to SSDI, it wasn’t enough. There are major systemic problems with SSDI. Just last month, a report by the Government Accountability Office (GAO) found that for 5 years (FY2009-FY2013), disability payments totaling $371.5 million were overpaid to many individuals — all while the program is running out of money. In this instance, “the SSA’s ‘internal controls’ rely on beneficiaries to self-report overpayments.” Why not fix this problem? Start somewhere. But that would be hard. It’s easier to throw new money at the problem (again) instead of actually tackling tough entitlement reform, thereby kicking the can down the road for future lawmakers to deal with (again). All this deal did was hide the problem so that it did not become an issue for any of the Presidential candidates next year.
Last January, I wrote on this topic, reporting a conversation with Charles Blahous, (a Trustee of the Social Security and Medicare Trust Funds,) about the Social Security situation. Blahous described how “the problem is not that disability needs a bigger share of the overall payroll tax than it now has, but that Social Security as a whole faces a financing imbalance that needs to be corrected. The single most irresponsible response to the pending [disability insurance] trust fund depletion would be to do nothing other than paper it over with a reallocation of funds, delaying meaningful corrective action as long as possible.”
Unfortunately,that’s JUST what we did.
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With open enrollment for Obamacare beginning in a week, the Wall Street Journal outlines some of the major failures of this legislation to attract enrollees. Obamacare is severely behind target, which in turn affects costs for premiums for subscribers and costs to the government for subsidies. The Wall Street Journal suggests that within a year, by 2017, the need to overhaul and/or replace Obamacare will be necessary. Read their thoughts below:
ObamaCare’s image of invincibility is increasingly being exposed as a political illusion, at least for those with permission to be honest about the evidence. Witness the heretofore unknown phenomenon of a “free” entitlement that its beneficiaries can’t afford or don’t want.
This month the Health and Human Services Department dramatically discounted its internal estimate of how many people will join the state insurance exchanges in 2016. There are about 9.1 million enrollees today, and the consensus estimate—by the Congressional Budget Office, the Medicare actuary and independent analysts like Rand Corp.—was that participation would surge to some 20 million. But HHS now expects enrollment to grow to between merely 9.4 million and 11.4 million.
Recruitment for 2015 is roughly 70% of the original projection, but ObamaCare will be running at less than half its goal in 2016. HHS believes some 19 million Americans earn too much for Medicaid but qualify for ObamaCare subsidies and haven’t signed up. Some 8.5 million of that 19 million purchase off-exchange private coverage with their own money, while the other 10.5 million are still uninsured. In other words, for every person who’s allowed to join and has, two people haven’t.
Among this population of the uninsured, HHS reports that half are between the ages of 18 and 34 and nearly two-thirds are in excellent or very good health. The exchanges won’t survive actuarially unless they attract this prime demographic: ObamaCare’s individual mandate penalty and social-justice redistribution are supposed to force these low-cost consumers to buy overpriced policies to cross-subsidize everybody else. No wonder HHS Secretary Sylvia Mathews Burwell said meeting even the downgraded target is “probably pretty challenging.”
The HHS survey shows three of four ObamaCare-eligible uninsured people think having coverage is important—but four of five say they couldn’t fit their share of the premiums into their budgets even after the subsidies. They’re not poor; they tend to have jobs in industries like construction, retail and hospitality but feel insecure financially; and they prioritize items like paying down debt, car repairs or saving to buy a home over insurance.
The law’s failure to appeal to the young and rising middle class is already cascading through the insurance markets. Researchers at the Robert Wood Johnson Foundation and Urban Institute recently published a remarkable study of the industry barometer called medical loss ratios, or MLRs, and the pressure is building fast.
MLRs measure the share of premium revenue that flows to reimbursing medical claims. ObamaCare sets an MLR floor of 80% for patient care, with one-fifth left over for overhead like administration and profits, and the pre-ObamaCare 2010-13 historical trend for the individual market ranged from 79% to 86%.
The researchers found that in 2014—the first full year of claims experience in ObamaCare—average MLRs across all health plans sold on 16 state exchanges roamed from 90% to 99%. Average MLRs in 11 states climbed to 100% or more, reaching as high as 121% in Massachusetts. A business can’t stay solvent for long spending $1.21 for every $1 that comes in.
The 2014 MLRs are used to set rates for 2016 premiums, which are still under regulatory review. But the researchers estimate that to rebound to an MLR of 85%, premiums in the 11 money-losing states need to rise by 10% to 36% in the best estimate and 23% to 52% in the worst scenario. The familiar danger is that as rates rise, more people drop out, and thus rates must rise still higher, as the states that attempted ObamaCare-like regulatory schemes in the 1980s and 1990s discovered.
ObamaCare liberals pose as what-works-and-what-doesn’t technocrats. So perhaps they’d care to explain what it says about their creation that so many rational adults are willing to pay a fine of $695 or 2.5% of their earnings, whichever is higher, for the privilege of not buying an ObamaCare-compliant health plan.
***
ObamaCare will almost inevitably be reopened in 2017, whoever wins the election. The good news is the emerging consensus among Republican candidates about a credible, pragmatic and optimistic alternative. Jeb Bush was the latest to release a plan two weeks ago—and this is a debate that has always deserved to be litigated at the presidential level to create a mandate for reform.
The basic approach is to deregulate insurance and medical practice while replacing ObamaCare’s complex subsidy schedule with a refundable tax credit for individuals who lack job-based coverage. Unchained from benefit and redistribution mandates, insurance products and prices would come to reflect what consumers want. The credit would be sufficient to buy at least coverage for catastrophic expenses if people get sick, and the trade-offs of such skinnier plans might look better to voters priced out of ObamaCare.
GOP reformers also recognize that the Cadillac tax on high-cost employer-sponsored health plans is a heat shield that might let them solve some of the problems of the pre-2010 health finance status quo. Substituting a cap on the tax-code subsidy that helps drive medical inflation is more politically plausible with the Cadillac tax in place than without.
Mr. Bush was shrewd to frame his proposal with the vocabulary of innovation and aspiration. ObamaCare is built on a 20th-century chassis that is ever less relevant to modern medicine and consumer finance. If the law continues to underperform, voters may be open to a new model that puts their choices and needs ahead of the political class’s.
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I have written numerous times in the past few months of the fiscal distress in Puerto Rico. I have discussed how Puerto Rico’s debt crisis is the result of years of government mismanagement, and a major key to getting Puerto Rico back on track is to reduce the size and scope of government.
Now, President Obama is calling on Congress to directly aid Puerto Rico, with a plan that is very near a bailout. I’m reprinting the NYTimes article in full below, so to keep the details about the plan intact. I will write my analysis in a separate article.
_______
“Looking for a way to help debt-ridden Puerto Rico, administration officials on Wednesday proposed an ambitious — if politically perilous — plan that stops short of a direct federal bailout but that its backers hope is sweeping enough to keep the island from becoming America’s Greece.
The plan would create a new territorial bankruptcy regime and impose new fiscal oversight on Puerto Rico, which is mired in the depths of a decade-long recession, running out of cash and struggling to make payments on $72 billion of debt. It represents an urgent bid by President Obama to offer a way forward. But it requires cooperation from a Republican-led Congress bent on imposing spending restraint.
In describing the package on Wednesday, administration officials emphasized that they had exhausted the limits of their own authority to help Puerto Rico, and needed quick action by Congress to avoid a catastrophe.
“Administrative actions cannot solve the crisis,” Jacob J. Lew, the Treasury secretary, said in a joint statement with Jeffrey D. Zients, the National Economic Council director, and Sylvia Mathews Burwell, the health and human services secretary.
“Only Congress has the authority to provide Puerto Rico with the necessary tools to address its near-term challenges and promote long-term growth,” the statement said.
The situation in Puerto Rico “risks turning into a humanitarian crisis as early as this winter,” one senior administration official said, speaking on condition of anonymity because the person was not authorized to speak publicly. Antonio Weiss, Mr. Lew’s counselor, will explain the administration’s plan in Capitol Hill testimony on Thursday.
The Puerto Rican government has already “done a lot” to restore fiscal order, the official added, but “Puerto Rico cannot do it on its own, and the United States government has a responsibility to 3.5 million Americans living in Puerto Rico” to step in with additional help.
The plan was shared late Wednesday with The New York Times and Agencia EFE, a news organization in Puerto Rico. On the same day, the island’s Government Development Bank said it had ended weeks of fruitless negotiations with certain creditors, aimed at persuading them to voluntarily accept lower bond payments. The bank has a bond payment of about $300 million coming due on Dec. 1.
Virtually all of the administration’s proposed plan would have to be refined and approved by Congress. It would create a special territorial bankruptcy regime — something that does not now exist — to give Puerto Rico a place to restructure all of its $72 billion in debt, which it says it cannot hope to repay.
The new regime could ultimately be a new chapter of the bankruptcy code, available only to Puerto Rico and other American territories. A senior administration official said the specifics would be left up to Congress.
In a nod to Republicans in Congress, who have resisted even limited bankruptcy access for Puerto Rico, the administration also proposes to establish an independent body to monitor the island’s fiscal affairs. Its role would be to improve Puerto Rico’s credibility by policing the imposition of structural economic reforms; it would also demand better financial disclosures.
Officials said the oversight body might resemble one that Congress established for the District of Columbia in the 1990s.
At the same time, the package would seek to bring Puerto Rico, where unemployment tops 12 percent and 46 percent of citizens qualify for Medicaid, the federal health program for the poor, into parity with the federal health programs and tax credits available in the states.
The proposal calls for a Medicaid overhaul in Puerto Rico that would expand coverage and access to important services in the short term, and eventually remove a cap that currently applies to the island’s Medicaid program. The effect would be more federal dollars for the Medicaid program in Puerto Rico. Administration officials also said they believed Puerto Rico’s health care facilities needed to be brought up to standards on the mainland.
The administration is also proposing to extend the earned-income tax credit, a refundable credit for the working poor that is payable even to people who earn too little to owe income tax. It is not currently available in Puerto Rico.
Officials said that extending that type of tax credit would help increase the labor participation rate on the island, now a paltry 40 percent, the lowest in the United States and its territories. A fact sheet compiled by the administration said it would provide an “added incentive for formal participation in Puerto Rico’s economy.”
The tax credit, invented by conservative economists, already enjoys some degree of bipartisan backing. Administration officials who detailed the proposal offered no estimate of the cost of extending it to Puerto Rico, nor did they have a cost projection for the Medicaid expansion.
The legislative proposal will be presented on Thursday to the Senate Committee on Energy and Natural Resources, which has jurisdiction over all of America’s territories. It is led by Senator Lisa Murkowski, Republican of Alaska, which was itself a territory until 1959, when it became the 49th state.
Puerto Rico is now barred from seeking any form of relief under Chapter 9, the type of bankruptcy that municipal governments use. The administration’s proposal for a territorial bankruptcy regime represents a bolder approach than the bankruptcy bills that Congress has considered since the island’s debt crisis began.
Federal law allows for cities, counties, special districts and the like to seek bankruptcy protection if their states agree, but the states themselves are excluded. There are concerns that if Puerto Rico gains access to bankruptcy, fiscally troubled states like Illinois might try to follow suit.
Puerto Rico’s creditors have been arguing that the island’s government has been portraying its financial situation as beyond repair, hoping to force the administration and Congress to give it access to Chapter 9 bankruptcy. The recent bankruptcies of distressed cities like Detroit showed them that bondholders can emerge with just pennies on the dollar, and they believe the same thing will happen if Puerto Rico is allowed to declare bankruptcy.
The legislation introduced so far would make bankruptcy relief available only to Puerto Rico’s municipalities and its government enterprises, not to the government itself. Even those limited bills have failed to gain support from Republican lawmakers.
There is some willingness, particularly among top Senate Republicans, to work out a compromise on the bankruptcy issue, according to a person briefed on the matter who was not authorized to speak publicly about it. But the Republican leadership appears willing only to grant Puerto Rico limited access to the bankruptcy courts and only with strings attached, like a federal “control board” to oversee the island’s finances.
Control boards have been used in cases of severe municipal distress to take the power to spend public money out of the hands of elected officials. They do not generally have the powers that bankruptcy judges do to abrogate contracts, such as labor contracts and promises to repay debt.
Both Democrats and Republicans are under pressure to respond to the Puerto Rico crisis. Largely because of the island’s economic problems, Puerto Ricans are flooding the mainland United States, particularly central Florida, and are becoming an increasingly important voting bloc in the 2016 presidential race.
In the hearing, Puerto Rico’s governor, Alejandro García Padilla, will offer his first congressional testimony since his announcement in June that Puerto Rico’s debt had become “unpayable” and he would seek a “negotiated moratorium” with its creditors. His most recent appearance was in 2013, when he accused advocates of statehood of skewing a 2011 plebiscite to make it appear that a majority wanted Puerto Rico to become a state.
“That is a great example of how you can lie with numbers,” he told the same Senate panel at the time.
Another scheduled witness is Pedro Pierluisi, Puerto Rico’s nonvoting member of Congress and the statehood advocate who designed the 2011 voting process that the governor disputed. Mr. Pierluisi introduced the House bill to to give very limited bankruptcy access to Puerto Rico. In September, he testified before the Senate Finance Committee, challenging the governor’s handling of the debt crisis and saying that general-obligation bonds “must be paid — period.” The third witness is to be Mr. Weiss, the special adviser to the Treasury Secretary.”
