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Obamacare Is a Market. Markets Aren’t Perfect.

by KatrinaSxn Posted on October 7, 2016

Mother Jones

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The withdrawal of Aetna from many of its Obamacare markets has unleashed a torrent of commentary about how Obamacare is now well and truly doomed. From Republicans, this is the usual hot air. From Democrats, it’s a little different. It’s also way overblown, and I’m happy to see Jonathan Chait make the case for Obamacare’s basic solvency here. Go read it.

For myself, I just want to focus on one of Chait’s points: The reason Aetna withdrew is that they weren’t making money. The reason they weren’t making money is because their premiums were too low. The reason their premiums were too low is because they were competing with other insurers for business. In other words, competing on a level playing field, they couldn’t succeed. That’s life in a free market.

So what happened? For some reason, insurers underpriced their policies substantially when Obamacare was introduced. It’s possible that their actuaries all badly miscalculated the makeup of the market. Or it’s possible that they were underpricing deliberately as a way of building market share. Or maybe a combination of both.

My own guess is that the underpricing was mostly deliberate. After all, even the Congressional Budget Office had a pretty good idea of what average premiums ought to be, and it’s hard to believe that a bunch of experienced insurance companies couldn’t do the same math as the CBO. Either way, though, this is, once again, life in a free market. Some vendors make mistakes and fail. Some can’t compete and fail. Some just decide to focus on other markets.

The flip side of this is that free markets usually stabilize eventually. In the case of Obamacare, this means premiums have to go up. Sorry. However, as that happens, new insurers are likely to enter. Eventually supply will more or less equal demand, and the market will find an equilibrium. This is why I’m much less panicked over Obamacare’s immediate problems than most people.

Obamacare is an artificial market in many ways, but that’s true of health care in general, which is highly regulated and has well-known eccentricities. Nonetheless, Obamacare is a market, and right now it’s operating like one. Prices are looking for an equilibrium, consumers are deciding whether to participate, and vendors are jockeying for position. That’s not painless, but then, nobody ever said capitalism was painless.

Of course, if you do want painless, we know how to do that too: true national health care funded through taxes. Dozens of countries do this, and it works fine.

Short of that, we could still reduce the pain considerably. Is Obamacare too expensive for many people? Yes. That could be fixed by increasing subsidies. Are insurers losing money in the early years? Yes. That could be largely fixed by funding the risk corridors. Are the poor still underserved? Yes. That could be addressed by adopting the Medicaid expansion in all states. Are there plenty of details here and there that ought to be cleaned up? Yes. That could be fixed via legislation.

If Republicans actually cared about providing health care to people, all of this would be trivial. But they don’t. To the extent that Obamacare has problems, this is why. There’s nothing inherent in the design that prevents it from operating successfully. In fact, as the chart on the right shows, even now, with all its problems, Obamacare is operating more successfully than anybody thought it would when it was first passed. 20 million newly insured people is nothing to sniff at.

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Obamacare Is a Market. Markets Aren’t Perfect.

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A Closer Look Behind the "Obamacare Surprise"

by MaricruCorona Posted on June 28, 2016

Mother Jones

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Helaine Olen writes in Slate that Democrats might be in for a nasty surprise just before the election:

A few weeks ago Politico warned of “Obamacare’s November surprise”: Many consumers enrolling in the health care marketplace on Nov. 1, just one week before the election, can expect increased rates.

Given the current disparity in the polls, it’s unlikely that alone could change the outcome of the election. But it is quite possible it will cause a bit of turmoil in the last week of the campaign. It’s beginning to look likely than many shoppers aren’t going to like what they find.

A report from the Kaiser Family Foundation released earlier this month estimated that the average weighted premium increase for the benchmark second lowest cost silver plan will come in at 10 percent. Last year? It was 5 percent.

This is quite possible. As the Obamacare market shakes out and insurers get a better handle on their actual costs, premiums were always bound to go up. But it’s worth pointing out what’s really happening here: insurers lowballed their premiums at first in order to win market share, coming in at rates far below the CBO’s initial estimates. So even if we do see a 10 percent increase in 2017, premiums will still be well under CBO’s initial projections1:

I’m under no illusion that this will change the politics of a premium increase, of course. Someone, somewhere, will have a 30 percent increase, and that’s undoubtedly what Donald Trump will blather on about. Nonetheless, it’s nice to at least be prepared with the truth. And the truth is that even if there’s a sizeable increase next year, premiums will still be about 15 percent less than CBO projected back when Obamacare was first passed.

1It was surprisingly hard to collect these numbers. You’d think CBO would have them all collected in one place somewhere, but if they do, I couldn’t find them. If anyone can point me to something better, let me know. In the meantime, here are my sources:

Projections:

2014: https://aspe.hhs.gov/sites/default/files/pdf/76701/ib_premiums_update.pdf, p.6.
2015: Interpolation of 2014 and 2016 numbers.
2016: http://cbo.gov/sites/default/files/cbofiles/ftpdocs/107xx/doc10781/11-30-premiums.pdf, p. 7.
2017: Projection based on CBO projection of 8 percent increases between 2016-18. https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/51130-Health_Insurance_Premiums_OneCol.pdf, p. 12.

Actual:

2014: http://cbo.gov/sites/default/files/cbofiles/attachments/45231-ACA_Estimates.pdf, p. 6.
2015: https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/49892/49892-breakout-AppendixB.pdf, p. 120.
2016: https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/51130-Health_Insurance_Premiums_OneCol.pdf, p. 12.
2017: Estimate based on 10 percent increase from 2016.

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A Closer Look Behind the "Obamacare Surprise"

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UBI Continues To Be Wildly Unpopular

by IngeKWKdxrhvg Posted on June 5, 2016

Mother Jones

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The concept of an Unconditional Basic Income has become a hot topic on the interwebs. Conservative Charles Murray started things up in 2006 with the publication of In Our Hands, which created a brief stir and then sank into oblivion because (surprise!) conservatives were distinctly uninterested in cutting unconditional checks to lazy welfare bums.

Then it came out of hibernation a few months ago for reasons that escape me. At the time, I vaguely figured that much of the credit belonged to Vox’s Dylan Matthews for his tireless advocacy of a UBI. It also, of course, had something to do with the explosion of Bernie mania. Bernie doesn’t actually support a UBI, but he’s said that it’s “something that must be explored” and it pretty plainly fits into his general worldview. Nonetheless, after another 15 minutes of fame, it went into hibernation again. But it refused to die, emerging from its lair yet again a few weeks ago. Considering the fact that a UBI has less chance of being enacted than a law guaranteeing everyone a pet unicorn, this is a little odd. What’s going on?

I’m still not sure, but much of it was probably due to an upcoming UBI referendum in Switzerland, engineered by the lefty Swiss community a couple of years ago. Today, after months of anticipation, they finally voted on it—and the results weren’t pretty. Even in the heart of social democratic Europe, the mere concept of a UBI1 ended up with only 23 percent approval. It’s still in pet unicorn territory.

But eventually it will become reality. We just have to wait for the robot revolution to evolve to the point where lots of middle-class white people are permanently put out of work. Then it swiftly will go from pet unicorn to “duh.” I imagine this transformation will take a surprisingly short time and will happen sometime around 2030 or so.

1Despite endless headlines suggesting the Swiss were voting on payouts of $2,500 per month, the actual text of the initiative directs the Swiss parliament only to enact a UBI that “shall enable the whole population to live in human dignity and participate in public life.” The actual level and financing of the UBI are not specified.

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UBI Continues To Be Wildly Unpopular

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Here’s the Best News We’ve Gotten All Year

by AlfonzoIRKZ Posted on June 2, 2016

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No joke. This may be boring as hell, but it really and truly is great news:

Federal Reserve officials strongly signaled they will toughen big-bank capital requirements even more than they have since the 2008 crisis, a move that will add to the pressure on the largest U.S. banks to consider shrinking. Fed governors Daniel Tarullo and Jerome Powell, in separate public comments on Thursday, said the Fed would require eight of the largest U.S. banks to maintain more equity to pass the central bank’s annual “stress tests.”

“Effectively, this will be a significant increase in capital,” Mr. Tarullo said on Bloomberg television….Mr. Powell said at a banking conference that the Fed’s move would make big banks “fully internalize the risk” they pose to the economy.

“I have not reached any conclusion that a particular bank needs to be broken up or anything like that,” he said. The point is to “raise capital requirements to the point at which it becomes a question that banks have to ask themselves.”

Bernie Sanders has campaigned heavily on the idea of breaking up big banks. But that shouldn’t be our goal. Our goal should be to make banks safer and to reduce the likelihood that they need to be bailed out in the future. That’s what higher capital requirements do: they force banks to carry a bigger buffer against losses, which makes them less likely to fail in any future downturn.

As it happens, new regulations put in place since the financial meltdown of 2008 have already increased capital requirements, but big banks still have an unfair advantage in the market: their funding costs are lower because investors figure they’ll be bailed out if they ever implode in the future. To make up for this, big banks should, as Tarullo said, “fully internalize the risk” they pose to the economy. In other words, if big banks have an automatic advantage simply because taxpayers have little choice but to rescue them in case they fail, they should be required to pay higher insurance premiums against failure. That’s essentially what higher capital requirements do.

This is fair. However, higher capital requirements also make big banks less profitable, which in turn gives them a strong incentive to downsize all on their own. And that’s how it should be. There’s no reason for the Fed or anyone else to pick and choose banks to break up. We just need to make sure they’re reasonably safe and are operating on a level playing field. If we do this, we’re providing an organic incentive to downsize. The banks themselves get to decide whether and how to do it.

The only bad news here is that the Fed is unlikely to raise capital requirements enough to suit me. Nonetheless, this is very much another step in the right direction.

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Here’s the Best News We’ve Gotten All Year

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Blueberries, Gold, Inflation, and Professor Krugman

by BradFinsch Posted on July 18, 2014

Mother Jones

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So Paul Krugman writes a column about all the folks who have been hysterically predicting runaway inflation for the past few years, and what does he get? This:

I know it’s just a coincidence. The other 500 comments are quite likely perfectly sane. Nonetheless, this is what we’re up against.

POSTSCRIPT: In case you’re curious, food prices have actually risen 11 percent over the past five year. In other words, 2.2 percent per year.

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Blueberries, Gold, Inflation, and Professor Krugman

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AFP Changes Obamacare Message, Still Gets It Wrong

by 4ko9dra Posted on March 25, 2014

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The Koch-funded AFP has spent millions of dollars running ads that star real Americans who have been hurt by Obamacare. Each one has been systematically debunked. So AFP switched gears. In their latest ad, instead of focusing on a single case, they simply make the broad charge that “millions of people have lost their health insurance, millions of people can’t see their own doctors, and millions are paying more and getting less.” Take that, meddling fact checkers!

So Glenn Kessler took a look. Verdict: when you make broad statements, it is indeed harder to demonstrate that they’re concretely wrong. After all, some people have lost their health insurance, some people can’t see their own doctors, and some people are paying more and getting less. Nonetheless, Kessler concludes that AFP’s broad charges aren’t much more defensible than their bogus real Americans. Two Pinocchios.

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AFP Changes Obamacare Message, Still Gets It Wrong

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