by Bruce Webb
CBO Director's Blog Manager’s Amendment to the Patient Protection and Affordable Care Act
CBO Analysis/Score Senate Health Care bill Manager's Amendment
Also I would like some links to current and historical numbers on Medical Loss Ratios. I found some claims from a commenter at Dean Baker's Meet the Press (and past commenter here) that CMS (Medicare) numbers showed a MLR ratio for private insurance right at 88% and holding over the last few years. A little work on my own showed that MLR for for-profit private insurance ranged between 76% and 84% at around the same time. The difference can not be accounted for by profit alone, that would only explain about half of the difference. Unless of course those who were claiming 'average' 3% profit margins were also including non-profits in the calculations. So lets have links aplenty in comments, with some commentary making clear whether those figures include non-profits in the calculation.
Best links & commentary will be lifted and put under the fold. Plus when I find one a link to the current bill text (or commenters can help there as well).
TBD
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Health reform is not worth doing. Incentive reform is worth doing, and that will reform many things out of balance in our economy, not just healthcare.
The tax exemption of healthcare benefits is the single greatest reason for spiraling healthcare costs. Because of the tax exemption, the Healthcare Benefit portion of a workers income CANNOT be spent on anything else; zip zero nada nothing. On average, that's pushing $700 a month per household. Healthcare does not have to compete with anything else in the economy for that $700; not boats, bread, hookers, gas... nothing.
Basic principles/laws of economics reveal that we all charge as much for our products and services as our customers can/will pay.
If $700 a month is available for healthcare, how much do you think healthcare is going cost? $200?
How about $700 plus 10% of what you've got for boats, bread, and hookers. The healthcare industry has no incentive to charge less than $700 a month for it's products and services. Only an idiot would do that.
Yet the tax exemption is not actually the cause. It is a mechanism. The cause is the set-aside nature of healthcare benefits, which in our current situation is created by the tax exemption. Healthcare savings accounts would do the same thing. They would set aside an amount of money that can ONLY be spent on healthcare, and healthcare will cost whatever that average household amount happens to be, whether $700 a month or $2000 a month.
Healthcare costs will only come down when healthcare has to compete with everything else in the economy for the money it earns. This is always instantly verified any time someone shows up at a medical facility with no "insurance" and pays cash.
Cheers
David Williams
In the immortal words of the late Michael Jackson, "Beat it" as in "Dean Baker's Beat the Press."
Was your research of Medicare beneficiaries with for-profit private insurance or of non-Medicare beneficiaries who may have lower per beneficiary payouts and therefore are more expensive to administer per dollar of payout?
Current bill is here: http://democrats.senate.gov/reform/patient-protection-affordable-care-act.pdf
Manager's amendment is here: http://democrats.senate.gov/reform/managers-amendment.pdf
(it won't get added to the current bill until it passes the Senate at 1 am)
Great point!
The other crazy (incentive wise) tax deductions are retirement accounts, mortgage interest , state and local taxes and gains on sale of primary residences.................
Tje serf class is the source of all wealth.
I can tell this since I am in knight class along with buff pilot. Great pension. health care for life and I lived through it all.
"This is always instantly verified any time someone shows up at a medical facility with no 'insurance" and pays cash.'"
Not true. There is no negotiation for price even if you show up with cash. They do not know the cost of your treatment or tests and you can ask until blue in the face and die from waiting for those prices before getting the price. At best, you will receive an office visit price and wait for the test prices. If you go to the emergency room, you will wait for those prices also.
Prices remain the same what they are if you do not have insurance. If you have insurance, you get the negotiated price and you discover it later. I tried it while battling pneumonia and never got the price even though willing to pay cash. The system doesn't operate the way you suggest. After 2 days, a billing clerk finally admitted prices were cheaper at a private lab rather than U of M hospital which was attached to the doctor. The Imaging revealed pneumonia.
Again, I will say; the system is not set up in the manner you suggest. Furthermore the is not negotiation as a relief to cost. It is the proliferation of tests and procedures with minimal results or a dimmed return.
An article (h/t Mankiw) suggesting the Reid bill is unconstitutional.
http://www.medicalprogresstoday.com/spotlight/spotlight.php
I'd add the following excerpt, relevant to Bruce's current and previous statements re: MLRs.
Since it is necessary to compete for capital across the entire range of activities, the constitutional protection afforded under both the Takings and the Due Process Clauses provides that the rate of return cannot fall below that which the investors in the firm could obtain in a competitive market. That calculation has to take into account the level of risk associated with the business, which in general is low with respect to public utilities that have at least de facto protection against new entry.
The hard question, therefore, is what kinds of systems of rate regulation will pass constitutional muster. Within the traditional ratemaking system, the first issue concerns what goes into the rate base. One view is to allow the firm only to include those investments that remain used and usable in the business, which means that the firm has to take the risk of investments that go to waste. For taking this risk, it receives a higher risk-adjusted rate of return. See Smyth v. Ames, 169 U.S. 466 (1899). The alternative is to permit the use of a broader rate base, and to allow therefore a lower rate of return because the risk of poor investments falls on the ratepayers. See Federal Power Commission v. Hope Natural Gas, 320 U.S. 591 (1944). In other instances, it is possible to avoid the cumbrous ratemaking proceedings by instituting a system of rate caps, which in effect tell a firm in an industry like telecommunications that its rate increases will be capped because the increased efficiencies in doing business mean that the unit costs of supplying services will always be on the decline.
What is striking is how far the ratemaking system for health insurance is from all the above. There is no natural monopoly in health insurance, and there is a powerful way to open up health-insurance markets by knocking down the state barriers to entry that have been in effect since 1945 under the McCarran-Ferguson Act.
Thanks so much.
I ran across that and in reading it realized it didn't include the Manager's Amendment. I'll put up both links tomorow.
Baker's blog is Beat the Press not Meet the Press.
ilsm,
Yep, I'm in the KNight class. All those great bennies! Of course there is a downside - I just learned of another old classmate that died during a training accident. (Everyone I have ever known who died wearing the unifrom all died during normal peacetime training. Not one by enemy action of any type). On a slightly more cheering note I buried an uncle in law last week. He was a WWII vet, in his 90s, and had celebrated his 70th wedding anniversary just this summer. Great guy and someone I hope I can aspire too.
On a more on-topic comment. I am very glad I have TRICARE right now since every indication is that insurance costs are going up next year big-time. On the downside my HSA will probably be outlawed. So my costs will go up anyway.
Islam will change
<span>Thanks so much. </span> 8-)
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The Constitution: (noun) 1. a set of rules that limit the power of politicians with opposing ideological views from forcing their government on the unwilling serfs.
2. a set of rules that impede your ideology from forcing its government (which knows what is better for individuals than said individual) on unwilling serfs.
Thanks. Just a brain fart.
Good luck to you and your business endeavors but Angry Bear does not put purely commercial blogs in our blog roll, particularly ones that have no non-ad content. :-$ :-D
_______________________
For anybody else this seems to be non-malicious comment span from a blogger in Indonesia. I am not sure why anyone would try to obtain car insurance or donate a car via Jakarta, but if you want to meet new people almost half-way around the world I suppose you have your chance.
Mark A.R. Kleiman over at the Reality Based Community found this link :
http://www.pnhp.org/news/2006/march/medicalloss_ratios_.php
http://www.rogersarkansasattorneys.com/
I am a patriot and I love my country and my flag. I have one on my house, which I properly replace whenever it's worn out. I am proud of the Medal of Honor recipient and his fighting for my country. I hate neighborhood covenants (and don't live in a neighborhood with one for that reason).
Thanks Joel.
Really what inspired this post was a comment from a regular claiming that typical MLRs for private insurers were holding steady at 88% and supplied a Table from CMS (Medicare). And sure enough it checked out. But a little Googling revealed the same figures as that PHNP post with MLRs about 8-10 points lower. What explained the inconsistency?
One word "non-profit". A large segment of private health insurance is provided by various non-profits who by that token should have higher MLRs simply by not having to account for profit. But if another couple of commenters are right in claiming that private insurers typically earn only around 3-5% in profit, what would account for the other 6 points? Well I am wondering if the same thing isn't going on with people reporting average profit for the whole industry and not just that profit for the for-profit segment itself.
Any links confirming or denying this would be welcome.
Bruce,
I believe that MLRs are analagous to Cost of Goods Sold for a retailer. In Property & Casualty insurance, the equivalent is the "Combined Ratio", in Life Insurance it's the "Benefit Ratio". These ratios are divided by premium revenues not total revenues, the latter of which includes net investment income of the company's portfolios.
In far right column, towards the middle of the top/bottom, of the following link:
http://www.google.com/finance?q=unh
shows for United Healthcare:
Key stats and ratios Q3 (Sep '09) 2008 Net profit margin 4.77% 3.67% Operating margin 7.73% 6.48% EBITD margin - 7.69% Return on average assets 7.33% 5.58% Return on average equity 18.68% 14.58%
These margins would be calculated over total revenue. Net Profit Margin would typically be after tax and interest expense. Operating Margin would typically be before interest and tax expense (also typically referred to as "EBIT" = "earnings before interest and taxes", which is the case for United. In 2008, United had a MLR of 82%, and Premiums accounted for 91% of revenues, with "services", "products" and "investment income" making up the rest. "Operating expenses" not included in "medical costs" are SG&A, marketing, overhead, etc.
<span>various non-profits ... should have higher MLRs simply by not having to account for profit. But if ... private insurers typically earn only around 3-5% in profit, what would account for the other 6 points? </span>
I speculate :
Advertising and other marketing
Personnel bloat
Agents' commissions
Excessive executive compensation
"Impressive" headquarters buildings and other real estate
There's a lot of ways for management of a for-profit company
to reward insiders, especially in a stable rigged "market" in
which the major players collude to not compete. ( Hmm; can
you think of an industry that is specifically exempted from
the rigors of competition by an anti-trust exemption?)
Perks such as corporate jets, company cars,sales conferences, etc. are, I imagine, less common among non-profits.
One reason for that missing revenue: Insurance agent commissions are anywhere from 4-15% of the cost of health insurance. Cost of doing business -- not for profits (especially the larger BCBS plans) often don't pay them because they have dedicated sales staff. So sales expenses show up as G&A and don't get monetized in the same way. It's also a way of making MLR look higher than it is.
The anti-trust exemption is a liberal red herring. It's purpose is consumer friendly with the intent of fostering more competition not less. The rationale behind it is information sharing on loss experience. To use auto insurance as an example, on one end of the spectrum you've got State Farm with 20% market share, Allstate with 10-15% share. On the other you've got an entrepreneurial start-up called "Joel Hanes Auto Insurance". Joel Hanes has no history of writing auto insurance, but thinks he can do it more efficiently than State Farm and Allstate. The problem for him is that they've got 30 million policy holders and he's got 100. Their loss experience is going to look a lot more like the "expected" loss experience than his, which means he has to price his business with some cushion. Not only that, but they've got years and years of history of loss experience and you've got none. This is bad for consumers because it discourages new competition. If you can see State Farm and Allstate's historical loss experience, than you can price at the "right" rate, especially if you innovate off of the same experience they've had - and to gain share, you'd have to offer competitve rates.
caught between satisfying analysts and investors and those who pay the premiums and need the care, what does monopoly insurance do wth loss ratios? probably fudges the numbers quitw a bit, mass/menos like earnings manipulation.
http://74.125.155.132/search?q=cache:JzAbeLRJBD4J:commerce.senate.gov/public/_files/HanwayLetterPart1of2.pdf+finance+committee,+medical+loss+ratios&cd=10&hl=en&ct=clnk&gl=us&client=safari
i would not trust the data anymore than i trust a govt captured by financial capital to contradict that which it is captured by.
I understand the rationale.
I'm sure it's great for car and property insurance.
As we all should know by now, some laws produce outcomes that are not strictly in accord with the expectations of the policymakers.