Wednesday, May 29, 2013

The Obamacare Shell Game (Part 1)

The word is out, premiums on California’s health exchange will, in 2014, be lower than originally expected.

Rick Ungar at Forbes wrote:
Setting aside the never-ending nonsense peddled by the opponents of healthcare reform, everyone from the Congressional Budget Office to numerous private actuaries have warned that premium shock could be expected to set in once the public began to see the reality of what Obamacare would mean to their pocketbooks. And yet, the only real jolt to the system being felt by these public and private prognosticators today is utter amazement over just how reasonable the California prices have turned out to be
As WaPo put it:
[the] news has gotten lots of positive attention from health law supporters, who have lauded the lower rates as a sign that forecasts of huge premium spikes will never materialize.
Does this mean Obamacare exchanges are working to dive down prices? Is there really some kind of Obamacare magic that can add many to the healthcare roles with pre-existing conditions and result in falling premiums? How can rates be so low, when it is an unknown as to how many young will opt out and choose to pay the penalty instead? The healthy young are needed to keep rates low for those with pre-existing conditions. Only the distortion of the health pool with the healthy young will put any downward pressure on rates. But, in the first year the cost for the young to opt out is small ($65 to $95). Without this pool of young, what is going to be added to the pool are elderly and those with pre-existing conditions. This will put upward pressure on premiums. So why are exchange premiums lower than expected in California?

The short answer is that the government has rigged the system so that exchange premiums won't climb for three years, to sucker everyone to think the exchanges are working. Mainstream media will be falling all over themselves telling us how the actuaries blew it with their original forecasts. Don't believe it for a minute.

 In the same way that the penalty for the youth is low in the first year, and climbs very rapidly to $695 by 2016. It's a sucker's game of bait and switch with the exchanges. Obama through different slights of hand is subsidizing insurance companies in the first couple of years, to keep exchange premium rates low. Then they will explode.

The Department of Health and Human Service lays out the sleight of hand on its own pages:
The Affordable Care Act creates three programs to eliminate incentives for health insurance plans to avoid insuring people with pre-existing conditions or those who are in poor health, and to reduce uncertainty that could increase premiums when Affordable Insurance Exchanges begin.
Programs two and three are most significant in pushing premiums lower in the early years. From HHS:
 The Affordable Care Act establishes a transitional reinsurance program in each state to help stabilize premiums for coverage in the individual market due to individuals with higher cost needs gaining insurance coverage during the first three years of Exchange operation (2014 through 2016).  All health insurance issuers, self-insured group health plans, and third party administrators on their behalf, will make contributions to support reinsurance payments to individual market issuers that cover individuals with high medical costs.
Got that a reinsurance program is being established?  This will protect insurers against certain losses. "Reinsurance," in general insurance commerce, is intended to pay for potential losses above a certain threshold level.  HHS is a bit opaque on exact details of its payments on losses, but does say:
 Payments will be based on a portion of costs per enrollee paid once claims costs reach a certain level (attachment point) and until a payment limit (cap) is reached.
Obviously this payment to insurers has made them happy enough to lower premiums.

The real kicker, though, comes in the third part of the program, known as "Risk Corridors". According to HHS:
The risk corridor program provides additional protection for issuers of qualified health plans in the Exchanges.  Risk corridors protect against uncertainty in rate-setting in the first several years of the Exchanges by creating a mechanism for sharing risk between the federal government and qualified health plan issuers. Qualified health plans with costs that are at least three percent less than the plans’ costs projections will remit charges for a percentage of those savings to HHS, while qualified health plans with costs at least three percent higher than cost projections will receive payments from HHS to offset a percentage of those losses.  The Affordable Care Act directs HHS to administer the risk corridors program from 2014 through 2016
Got that? The federal government (that is you the taxpayer) is going to make payments to insurers on certain health plans. The fun and games stop after 2016, when the exchange subsidies stop. When these support mechanisms are pulled, after MSM spreads the propaganda as to how wonderful the exchanges are, premiums are likely to soar. And coincidentally, the exchange premiums will start to climb when Obama will be out of office.

Tomorrow, in Part 2, of the Obamacare Shell Game, I will discuss what is likely to happen to your health coverage, if it is paid for by your employer. Hint: It isn't pretty.


For more on the Obamacare shell game:

See Part 2: here 
See Part 3: here


  1. I still don't see how that gets them any real benefit to put it off for 2 years. All it does is set up a minefield for both candidates in 2016, while Barry's 'legacy' is still daubed with crap.

  2. There's also "far fewer doctors and hospitals to choose from" according to the L.A. Times (,0,4396720.story).

  3. You're right, Robert. The risk corridors is the biggest carrot for lower pricing by insurance companies the first three years (if they underprice, the government pays). The temporary reinsurance is a transfer payment from employer-sponsored coverage to the individual market that accounts for around a 10% reduction for the individual market the first year, declining the second & third years. The last "R" is risk adjustment: permanent program basically forcing insurance companies with less risky members to subsidize those with more risk. There's your stealth "single payer".

  4. This Risk Corridor Program sounds an awful lot like the FDIC.

    The Fed “put” backstopping banking & finance may be child’s play compared with backstopping the medical industry.

    “Single payer” will take on a whole new meaning when applied to economic activity per se.

  5. This is an awful lot like the FDIC. Which has kept a total collapse in the banking system for decades. It is also something that does not come from taxpayers. Neither does the money in the risk corridor. It comes from the insurance companies. Why do people intentionally miss that little detail? Hmmm.