Forbes: The Bomb Buried In Obamacare Explodes Today-Hallelujah!

[chipwhich]

Peter already provided a Politifact link that seems to say otherwise.

Well not really. It said that there was arguments to her 1-2% overhead to the contrary.

This reminds me of my parents two interactions with Medicare. One for my grandparents who my dad was overseeing, one to their own Medicare.

With my grandfather, an alzheimer patient, my dad sat on hold for TWO HOURS only to get a recording that said sorry we are busy right now, call again later. And my mom who was trying to find out why she got a bill from Medicare for 1/3rd of a year, and she was trying to figure out why she was being billed for 1/3rd of a year, when she was supposed to be billed quarterly...and the Medicare person said 1/3rd of the year is quarterly

You see Medicare doesn't have to have customer satisfaction. Private businesses can't operate with ZERO customer sat and expect to continue to get customers. Medicare has an audience that has no other option, commercial health care doesn't have that luxury.

[Barney B]

Well not really. It said that there was arguments to her 1-2% overhead to the contrary.

Chip, what does this mean, then? Are we talking about the same thing (If not, could you please explain the difference)?

From Peter's link:

For the private insurance market, we turned to a 2008 study by the Congressional Budget Office, the nonpartisan number-crunching arm of Congress. CBO cited data, compiled by the McKinsey Global Institute, that estimated administrative costs for private insurers at 12 percent. That’s quite a bit lower than the 20 percent to 30 percent Boxer cited.

A different measurement by the Centers for Medicare and Medicaid Services pegged the amount for private insurers at 11.1 percent for 2009 -- in the same ballpark.

However, the administrative burden for private plans get more complicated the deeper you dig. There are large variations between different types of insurance plans. The data cited by CBO found that administrative costs were about 7 percent for employers with at least 1,000 employees, but 26 percent for firms with 25 or fewer employees. Meanwhile, in the individual insurance market -- that is, plans secured by individuals on their own, rather than through an employer -- the rate was nearly 30 percent, CBO said.

A big reason for this variation, CBO and others have concluded, is that bigger plans can spread costs over a larger number of people.

When we asked Boxer’s office for their source for the 20 percent-to-30 percent statistic, spokesman Andy Stone told us that prior to passage of the Democratic health care bill in 2010, health plans in California were only required to spend 70 percent of premiums on medical care, with insurers able to spend up to 30 percent on profits and administrative costs. He also cited some opinion and news articles that cited figures in the 20 percent to 30 percent range, and even higher.

We don’t doubt that there are cases in which overhead reaches or exceeds 30 percent, but those cases are both anecdotal and at the high end of the range. The averages cited by CBO and CMS are significantly lower -- 11 percent to 12 percent -- and many of the bigger plans undercut even that level.

[chipwhich]

Chip, what does this mean, then? Are we talking about the same thing (If not, could you please explain the difference)?

I am saying to imply the government insinuating they have essentially no overhead is ludicrous and it's not even a discussion is laughable.

Govt Medicare provides "service" however they want to provide it. Private health care has to have some standards.

[Larry]

I am saying to imply the government insinuating they have essentially no overhead is ludicrous and it's not even a discussion is laughable.

Despite the fact that people have provided support for that number.

Peter shows support, from a neutral source, that says that the 2% claim is accurate, but that some people claim it might be off by a bit.

So far, what you've provided are about 5 posts claiming that the 2% number is so outrageously untrue that you simply cannot even discuss it, and an anecdote that says you once had a bad experience with a bureaucracy.

[SnyderShrugged]

Yep, as predicted, they have successfully created an environment where private health insurance will have trouble existing as an industry. This was the goal and they won. Now they can live with the consequences.

[PeterMP]

Well not really. It said that there was arguments to her 1-2% overhead to the contrary.

This reminds me of my parents two interactions with Medicare. One for my grandparents who my dad was overseeing, one to their own Medicare.

With my grandfather, an alzheimer patient, my dad sat on hold for TWO HOURS only to get a recording that said sorry we are busy right now, call again later. And my mom who was trying to find out why she got a bill from Medicare for 1/3rd of a year, and she was trying to figure out why she was being billed for 1/3rd of a year, when she was supposed to be billed quarterly...and the Medicare person said 1/3rd of the year is quarterly

You see Medicare doesn't have to have customer satisfaction. Private businesses can't operate with ZERO customer sat and expect to continue to get customers. Medicare has an audience that has no other option, commercial health care doesn't have that luxury.

The fact of that they have awful customer care doesn't really change the fact that can have low overhead.

In fact, the fact that they can have poor customer care in an indication that they SHOULD have low overhead.

They also have the ability to use other agencies to collect funds (though they "pay" for that, but I don' think anybody believes they are really paying the true costs), and they actually decline less coverage (that's a shift of costs from overhead (denying coverage requries "work" and so increases non-medical expenditures) from medical expendiatures (that is Medicare paid the money out)).

Even the people that thing the 1-2% are WRONG is putting the number at somewhere around 3%, which is still much lower than private insurance.

Now, we can argue if these are GOOD things or not or worth paying for (how much value do we put on customer care, how much money is "wasted" by unnecessariy medical procedures that Medicare simply pays for that REALLY should be declined).

I'll also point out the numbers are similar in Canada (I don't remember the real numbers, but overhead in Canada is much less than here and has grown much more slowly than here over the last 2 decades. There are threads here where this has been discussed with links).

[Larry]

Yep, as predicted, they have successfully created an environment where private health insurance will have trouble existing as an industry. This was the goal and they won. Now they can live with the consequences.

Again, the article from Politifact seems to say otherwise.

According to that article, there are a few outliers that spend more than 20% on overhead, but the average overhead for the entire industry is closer to 11-12%.

---------- Post added December-6th-2011 at 09:29 AM ----------

Now, we can argue if these are GOOD things or not or worth paying for (how much value do we put on customer care, how much money is "wasted" by unnecessariy medical procedures that Medicare simply pays for that REALLY should be declined).

The article you posted mentioned that. Pointing out that it's certainly possible that if Medicare spent more money on checking whether a claim really should be paid, then maybe the total amount of money spent would be less. (That maybe a million dollars spent on double-checking claims would save more than a million dollars worth of claims being paid.)

[PeterMP]

The article you posted mentioned that. Pointing out that it's certainly possible that if Medicare spent more money on checking whether a claim really should be paid, then maybe the total amount of money spent would be less. (That maybe a million dollars spent on double-checking claims would save more than a million dollars worth of claims being paid.)

From what I've read, most people seem to believe that the processes that private insurance companies carry out in terms of rejecting claims due to unnecessary healthcare procedueres and catching fraud AT LEAST pays for itself.

But it does affect the ratio of overhead vs. healthcare pay out.

[chipwhich]

The fact of that they have awful customer care doesn't really change the fact that can have low overhead.

I'm not defending health care companies, I agree they can reduce their overhead.

I am just pointing out that to imply a piece of our government, who is trillions of dollars in debt, somehow runs lean and mean is laughable. The article did NOT say 3% either. They estimated upwards of 5%.

Regardless, unlike commercial companies, Medicaire doesn't have to worry about collecting most of their receipts, they arrive in a nice gift wrapped little deposit courtesy of the govt. They don't even account for any costs, like the fact they are paying all of their former employees retirement incomes, free services they get tagging on their government daddy, heck they even get a free piece of real estate to house their low overhead freight train.

[PeterMP]

I'm not defending health care companies, I agree they can reduce their overhead.

I am just pointing out that to imply a piece of our government, who is trillions of dollars in debt, somehow runs lean and mean is laughable. The article did NOT say 3% either. They estimated upwards of 5%.

Regardless, unlike commercial companies, Medicaire doesn't have to worry about collecting most of their receipts, they arrive in a nice gift wrapped little deposit courtesy of the govt. They don't even account for any costs, like the fact they are paying all of their former employees retirement incomes, free services they get tagging on their government daddy, heck they even get a free piece of real estate to house their low overhead freight train.

Well, 5% is the upper end. I think most people agree somewere around 3% is probably right.

And the 5% number is trying to take all of those things into account.

[chipwhich]

Well, 5% is the upper end. I think most people agree somewere around 3% is probably right.

And the 5% number is trying to take all of those things into account.

You'd think since they do such a good job, with the health care companies getting rich, medicare would be getting us out of debt, heck saving us so much money in overhead

[Larry]

I am just pointing out that to imply a piece of our government, who is trillions of dollars in debt, somehow runs lean and mean is laughable.

Despite the fact that it's true, and that you have not even attempted to demonstrate otherwise.

The article did NOT say 3% either. They estimated upwards of 5%.

The article quoted one person who made that claim, (and pointed out that the claim might well not be true), and even if it's true, it would still be less than half of the rate run by the oh-so-efficient for-profit corporations.

Regardless, unlike commercial companies, Medicaire doesn't have to worry about collecting most of their receipts, they arrive in a nice gift wrapped little deposit courtesy of the govt.

1) Actually, the article points out that yes, they do pay for that. (It's arguable about whether they actually pay the fair value for it, but they do pay for it.)

2) And do you really want to try to claim that the cost of processing payments is a significant portion of the difference in overhead?

I pay for my own, individual health care. According to the article, that means that I'm probably part of the minority who are actually paying 20% or more in overhead.

My health insurance costs me a bit over $300 a month.

Do you really want to try to claim that it costs Blue Cross $30 to electronically deduct $300 from my checking account?

Must be that damned banking industry and their fees, huh?

[chipwhich]

you have not even attempted to demonstrate otherwise.

Actually I have.

Do you really want to try to claim that it costs Blue Cross $30 to electronically deduct $300 from my checking account?

Must be that damned banking industry and their fees, huh?

Nice try. The point is all activities be it customer service or collections have to be taken seriously in private industry, when running a business. Medicare can get away with not answering their phone, hiring dummies who can't answer a question, offering a product with payouts doctors wont accept. There is a reason overhead is higher, and it's not all about profit.

Sure would be nice if my parent's could get a doctor to make time for them with their medicare health care card in hand Great that they claim they run this great program on low overhead on daddys coattails. Private industry doesn't get that luxury. And at least my blue cross blue shield card gets me a seat in the doctors office.

[Teller]

If there's anyone I want to tell me how to run my business, it's someone that's $15 trillion in debt, for sure.

[TimmySmith]

Let the loophole finding begin.

What I see is this, large companies like United Health are going to start firing people in bunches. Companies like Kaiser are going to start reclassifying employees. Secretary yesterday, Health assistant today. Oh and the cost of healthcare just went up.

As an aside, the government does not know how to run a business, insurance companies are some of the best run businesses in the world. This should give some insight into how all this will turn out.

[Bliz]

The contra column in Forbes is more convincing, imo

The Obamacare Bomb: Explosive or a Damp Squib?

http://www.forbes.com/sites/timworstall/2011/12/06/the-obamacare-bomb-explosive-or-a-damp-squib/

The MLR falls when investment returns fall. Something which my scenario would predict: when investment returns are high in a competitive market then loss ratios are high, as insurers subsidise premiums out of investment income. As investment income falls this becomes less and less possible and so loss ratios rise as a percentage of purely premium income.

All of which brings me to something of a prediction. The MLRs imposed in Obamacare are going to have next to no effect at all on the health care insurance industry. As we’ve already seen, the GAO reports that very much the majority of insurance companies meet the restrictions right now. And yet this is when investment returns are at historically extremely low levels.

Yes, we do indeed expect interest rates to rise at some point in the future, we do expect them to get back to something approaching historical averages. At which point investment income for insurance companies will rise (“soar” might be better there) and thus MLRs rise.

As a final observation, there’s quite possibly something amusing in this. Imagine that HillaryCare had been the same as Obamacare (it wasn’t, but imagine). Further, that HillaryCare had passed back in 1993, with similar MLR provisions. However, with those provisions set at what were the prevailing rates of that time: mid 90%s.

The subsequent decline in interest rates and thus investment returns might well have driven many for profit insurers entirely out of the market. However, by historical happenstance the MLR provisions were set when investment returns were already very low. Artificially low in fact, as a result of Federal Reserve easing, QE and a near zero Fed Funds rate. As a result the MLR has been set at a rate which will have virtually no influence upon anything at all as soon as we return to more normal economic conditions. Interest rates will rise, investment returns will, the subsidy from returns to premiums will rise and thus so will the MLR.

It might just be that health care reform happening in the late oughties rather than the early nineties is what will save the for profit health care insurance business rather than as Rick Unger has it, destroying it.

more at the link

[Larry]

Nice try. The point is all activities be it customer service or collections have to be taken seriously in private industry, when running a business. Medicare can get away with not answering their phone, hiring dummies who can't answer a question, offering a product with payouts doctors wont accept. There is a reason overhead is higher, and it's not all about profit.

Which might go to the point that "less overhead isn't necessarily good".

Unfortunately, you're trying to use it to argue that Medicare doesn't have lower overhead, and trying to support it by pointing out that they have lower overhead.

Your "two hours on hold" story might support an argument that "if Medicare spent more on overhead, it would be better" But it actually disproves your assertion that Medicare's overhead isn't lower.

Sure would be nice if my parent's could get a doctor to make time for them with their medicare health care card in hand Great that they claim they run this great program on low overhead on daddys coattails. Private industry doesn't get that luxury. And at least my blue cross blue shield card gets me a seat in the doctors office.

Now you're changing the topic again.

Yeah, lots of health providers are limiting how much Medicare they accept. But that isn't because Blue Cross spends more on overhead. It's because Blue Cross spends more on coverage

[TheGoodBits]

The contra column in Forbes is more convincing, imo

The Obamacare Bomb: Explosive or a Damp Squib?

http://www.forbes.com/sites/timworstall/2011/12/06/the-obamacare-bomb-explosive-or-a-damp-squib/

more at the link

Also from WP

http://www.washingtonpost.com/blogs/ezra-klein/post/a-bomb-in-obamacare-not-quite/2011/12/04/gIQAxoIyVO_blog.html

Looks like the original article might have been a bit sensationalist.

[Larry]

As an aside, the government does not know how to run a business, insurance companies are some of the best run businesses in the world. This should give some insight into how all this will turn out.

So, you didn't read the article that actually demonstrates that the government runs less than half the overhead that private companies do? Or did you just decide to ignore it and recite your religion, anyway?

[chipwhich]

Which might go to the point that "less overhead isn't necessarily good".

Unfortunately, you're trying to use it to argue that Medicare doesn't have lower overhead, and trying to support it by pointing out that they have lower overhead.

Your "two hours on hold" story might support an argument that "if Medicare spent more on overhead, it would be better" But it actually disproves your assertion that Medicare's overhead isn't lower.

Now you're changing the topic again.

Yeah, lots of health providers are limiting how much Medicare they accept. But that isn't because Blue Cross spends more on overhead. It's because Blue Cross spends more on coverage

I NEVER said Medicares overhead wasn't lower. What I said was 1-2% is absolutely laughable.

And it's not just BC/BS coverage, it's the entire product which is better. If we want to reduce health care companies to the support of medicare, god help us all.

[Larry]

Looks like the original article might have been a bit sensationalist.

Yeah, that's the impression I get, after reading Peter's link.

The OP is predicting The End of Private Insurance, by claiming that this 20% overhead requirement is completely impossible for companies to meet.

But the Politifact article says that they're not only already meeting the 20% requirement, they're running close to half of it.

[December90]

That may be true but if you define profits differently than Uncle Sam, guess who wins... You may have "expenses" to running your business that Uncle Sam does not allow you to consider in the equation, so you may be out the cash , but Uncle Sam wants his take even if you don't have any left.

[Thiebear]

Does medicare take into account the location, building, equipment? Or do they just get that free from the american people?

Posted On: December 5, 2011 by Michael Kraut Why Do We Have Such a Severe Los Angeles Medicare Fraud Problem?

inShare.| Share This blog is not the only blog on the web to voice serious concerns over Los Angeles Medicare fraud investigative practices.

Indeed, it’s common knowledge that both state and federal efforts to identify, track, and thwart Southern California white collar crimes, like Los Angeles’ insurance fraud, credit card fraud, healthcare fraud and the like are stymied by bad processes and systems. It's a fiasco: there are problems with method, investigators who are not incentivized correctly, evidentiary mistakes, etc. Outsiders introduced to the system often blanch at just how out of control things seem to be.

Last week, an AP article crystallized the frustrations many people out there in the Los Angeles criminal defense community have been feeling:

“Contractors pay tens of millions of taxpayer dollars to detect fraudulent Medicare claims using inaccurate and inconsistent data that makes it extremely difficult to catch bogus bills submitted by crooks, according to an Inspector General’s report released Monday.

Medicare's contractor system has morphed into a complicated labyrinth, with one set of contractors paying claims and another combing through those claims in an effort to stop an estimated $60 billion a year in fraud

http://www.losangelescriminaldefenseattorneyblog.com/2011/12/why_do_we_have_such_a_severe_l.html

[Tulane Skins Fan]

Ins is not run as a traditional business, the lack of reserves will kill them

but I do agree that was the goal

as the writer said,they are easier ways to make money if the idiocy is allowed to continue

Its not a traditional business, but it should be treated like one, i.e. no government regulation. Right?

[PeterMP]

Yeah, that's the impression I get, after reading Peter's link.

The OP is predicting The End of Private Insurance, by claiming that this 20% overhead requirement is completely impossible for companies to meet.

But the Politifact article says that they're not only already meeting the 20% requirement, they're running close to half of it.

Thought that includes many large groups.

The insurance industry is going to have problem now though because they have to take in individual people, AND individuals have to buy insurance, which hurts their margins.

I doubt it is enough to actually drive them out of business though.