Category: Health Insurance

On the Wrong Side of Wall Street?

It looks like I am zigging when the smart money is zagging. I’ve written that Obamacare will struggle to reach the Administration’s target of 9 million in 2015. At last week’s “Wall Street Comes to Washington” roundtable, sell-side analysts Carl McDonald of Citi and Ralph Giacobbe of Credit Suisse predicted that 2015 enrollment in Obamacare exchanges will reach 11 million:

But the analysts noted continuing challenges for insurers, from improving what McDonald called a “pretty poor” first-year effort to inform consumers about which doctors and hospitals are in their networks, to controlling spending as high-priced drugs hit the market.

Insurers are also projecting that this year’s enrollees will be younger and healthier than those who signed on in 2014, when the average age was 41, McDonald said.  That was a problem for insurers who based this year’s premium rates on the expectation they would see younger customers, he said.

“Unprecedented”: 3 in 4 Insurance Brokers Saw Clients Drop Group Coverage

In yesterday’s Health Alert, I noted that employers which offer health benefits are not yet rushing to the exits. That might change quickly, according to a new survey of brokers:

An unprecedented number of employers stopped offering group health benefits this year, according to a recent survey of over 1,000 insurance brokers conducted by Benefitter. In 2014 alone, more than 3 out of 4 brokers had employer clients who dropped health coverage and instructed their employees to purchase their own insurance on the public exchange. Early signs indicate this trend may only accelerate in 2015, as 17% of brokers expect at least 25% of their clients to drop coverage in the coming year.

“As we enter open enrollment for the public market, it’s becoming more apparent that individual rates are often much more affordable than group rates. It’s no surprise that many business owners are responding to continued group rate increases with their feet,” says Benefitter CEO, Brian Poger.

Health Insurance without an Expiration Date

Hangsheng Liu and Soeren Mattke have written a useful short article at Health Affairs, promoting “health insurance without an expiration date,” criticizing the one-year term of most U.S. health insurance, which features open enrollment at the end of each calendar year:

Moreover, when consumers know they can change plans if their health worsens, they lose at least one incentive to adopt healthy lifestyles. Insurers, too, have few incentives to invest in their enrollees’ health through wellness and disease management programs because those investments, studies show, may not pay off for up to three years. By then, enrollees may have moved on to another insurer. Thus, a greater role for exchange plans and price competition might inadvertently counteract current efforts to shift the payment system toward one that rewards providers for providing long-term health care management for their patients.

HSA-Eligible Plans are Widely Available in Obamacare Exchanges

(Nota Bene! HSA plans are not necessarily consumer-driven!)

Paul Howard and Yevgeniy Feyman of the Manhattan Institute have conducted a thorough examination of plans available on Obamacare’s exchanges:

The report finds that, far from becoming obsolete under the ACA, high-deductible plans are widely available — 98 percent of uninsured Americans have access to at least one HSA-eligible plan. Moreover, these plans also make up about 25 percent of total offerings on Obamacare exchanges. We also found that they remain significantly less expensive than traditional plan designs, offering savings of about 14 percent, on average.

Nonetheless, our analysis indicates that it remains difficult for consumers to identify HSA-eligible plans and that much more could be done to simplify their administration and educate exchange consumers on their advantages and limitations.

Top Wall Street Analyst: Health Insurers’ Bailout Assumptions “Make Us Nervous”

Citibank’s Carl McDonald, one of Wall Street’s top sell-side analysts covering health insurers, suspects that the firms which he covers are being too optimistic about the money they’ll receive from Obamacare’s risk corridors:

The sizeable risk corridor receivable assumptions by the plans make us nervous — with no change in assumptions, we estimate the full year liability to HHS could exceed $1 billion. There won’t be nearly enough plan contributions to fund these requests (just one plan in our sample recorded a risk corridor payable, and it was for only $2 million), and what could soon be a Republican controlled Congress isn’t likely to appropriate additional funds. HHS intends to use 2015 risk corridor collections to fund any 2014 shortfalls, but it isn’t clear to us why health plans will suddenly start earning excess individual profits in 2015.

Australia Will Raise $5 Billion by Privatizing its Biggest Health Insurer

Australia’s federal government is about to raise almost $5 billion by privatizing its largest health insurer:

Australia hopes to raise up to Aus$5.51 billion (US$4.82 billion) through the sale of the country’s largest health insurer in an initial public offering, Finance Minister Mathias Cormann said Monday.

Cormann said the sale would remove the current conflict where the government is both the regulator of the private health insurance market and owner of the largest market participant. Medibank provides cover to 3.8 million people.

The government has previously said Medibank is one of 34 competing funds in the private health insurance market in Australia and that a scoping study had found no evidence that premiums would rise as a result of the sale. (AFP via Yahoo! News)

A Business Group Reacts Strangely to the Rise of Private Health Exchanges

This blog has discussed the rise of private exchanges for health benefits, describing them as “getting ready for individual health insurance to be the standard.” A private exchange allows an employer to make a defined contribution to employees’ health benefits, which they can use to choose one of many policies within the exchange.

AON Hewitt has a thriving exchange practice, and it recently announced significant growth:

Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE: AON), today announced that it expects more than 1.2 million employees, retirees and their eligible dependents from more than 100 companies to choose individual and employer-sponsored health benefits through Aon’s suite of private health exchanges. This is up from more than 70 companies and over 750,000 employees, retirees and their eligible dependents.

Crowd-out Effect of CHIP Expansion 44 to 70 Percent

In 2009, Congress reauthorized the Children’s Health Insurance Program (CHIP), providing states added resources and options to insure children. About 15 states expanded CHIP eligibility to families with incomes up to 400 percent of the federal poverty level (an income of $94,000 for a family of four) with a median upper limit for coverage at 250 percent of poverty, the highest since CHIP’s inception in 1997. Federal CHIP funding is up for reauthorization in 2015 and some argue that CHIP is unnecessary because of Obamacare’s subsidies, which kicked in this year.

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Source: “The Impact of Recent CHIP Eligibility Expansions on Children’s Insurance Coverage” from Health Affairs.

Are Insurers Bailing in to Obamacare?

Obamacare’s supporters cheered a report by the U.S. Department of Health & Human Services, which claimed, based on preliminary evidence, that more insurers will participate in Obamacare exchanges next year:

  • In the 44 states for which we have data, 77 issuers will be newly offering coverage in 2015.
  • The Federal Marketplace states alone will have 57 more issuers in 2015; a 30 percent net increase over this year.
  • The eight State-based Marketplaces where data is already available will have a total of six more issuers in 2015, a ten percent net increase over this year.
  • Four of the 36 states in the Federal Marketplace will have at least double the number of issuers they had in 2014.
  • In total, 36 states of the 44 will have at least one new issuer next year. And some of the nation’s largest insurance companies will be offering coverage in more than a dozen new states, joining the hundreds of insurance companies already participating in the Marketplace.

60 Percent of Health Plans that Could Meet Obamacare’s Essential Health Benefits are Illegal

According to Obamacare’s regulations, a health plan must pay at least 60 percent of the actuarial value (AV) of its costs. That means that if the cost of your health care for a year is expected to be $8,000, a plan which pays 60 percent (called a bronze plan in Obamacare), will cover $4,800 of the costs. You’ll be expected to pay $3,200 in deductibles and co-payments.

Our colleague Linda Gorman defines AV as “the average amount a plan with a given set of benefits is likely to pay given a standard population.” I’ve also discussed that because Obamacare’s regulations define AV relative to a “standard population” health insurers can design plans that cause the sick to have extremely high out-of-pocket costs.

Professor Bob Graboyes, in the compelling and entertaining video presented below, explains another big problem with Obamacare’s AV regulations: They outlaw 40 percent of possible AVs above the 60 percent minimum. That is because the AVs defined as floors in the law for the four “metallic” plans (60 percent for bronze, 70 percent for silver, 80 percent for gold, and 90 percent for platinum), are interpreted in regulations as narrow corridors of 4 percentage points.