There’s been so much misinformation swirling about plan cancellations and rate hikes (along with a lot of these that are real and affecting certain people adversely) that it is kind of hard to keep up. But TPM Reader JP focuses our attention on something that I think he is correct is getting very little attention …
With all of the political noise associated with the pricing of insurance pricing, it amazes me how silent the press has been about the calculation and long term credibility of the pricing. Keep the following points in mind:
* The insurance companies have very little history regarding the claims of the new pool of insured’s to actually calculate pricing.
* The insurance companies have every incentive to maximize pricing in the short run because of the regulatory lag in getting pricing changed to reflect actual utilization. If they underprice, it will take a significant period of time to get rates changed.
* I suspect that the insurance companies want to price the plans to be able to sell them, but a primary focus will still be to protect their bottom line.
* While the federal government dictates the law, it is up to the local states to approve insurance company pricing. Red state opposition to HCR can be reflected in the ultimate pricing that the states approved for plans available on the exchanges. More expensive plans means more likely that the plans will be a failure.
*The interplay of the 80% MLR to the plan mix the population enrolling selects and the ultimate claims experience.
At the end of the day, Obamacare has a price correcting mechanism, that NONE of the defenders of the law are even mentioning. If the rates charged for plans as of 1/1/2014 are indeed too high and the plans are not being used at that level, then all of the insureds will get a nice fat check in the mail come 2015. Given the incentives that insurance companies have to overprice today (little actual experience with the projected people insured under the new plans), this may very well mean a much larger check when they are calculated and distributed. Alternatively, if indeed the plans do incur 80% or more of their premiums being used to pay claims, then the plans have done what they were intended to do….provide insurance protection.