A new report provides a state-by-state projection that concludes how the number of people without health insurance will increase, spending on Medicaid and children's healthcare programs will balloon, and out-of-pocket health costs for individuals and families will jump. The report was commissioned by the Robert Wood Johnson Foundation and written by the Urban Institute, and makes 10-year projections.
Clinical trial guidelines from the drug industry trade group PhRMA, go into effect Oct. 1. They include guidelines that basically ban ghostwriting of reports and stipulate that a doctor who has an ownership stake in a drug cannot be a clinical investigator in a trial of that drug. The guidelines are purely voluntary, however.
In Switzerland, private insurers are required to offer coverage to all citizens, regardless of age or medical history. And those people, in turn, are obligated to buy health insurance. That is why many academics who have studied the Swiss healthcare system have pointed to this nation of about 7.5 million as a model that delivers much of what U.S. legislators are aiming to accomplish, without the contentious option of a government-run health insurance plan, reports the New York Times.
While social media can do a lot to humanize a brand, increase the effectiveness of customer service, and create brand evangelists, it also can cause damage, says blogger and social media strategy consultant B.L. Ochman. Here, Ochman outlines the ways companies damage their brand by using social media.
Congress attempted to achieve a social objective—higher homeownership rates—on the cheap by using Fannie Mae to acquire mortgages. The subsidy, in the form of an implicit guarantee of Fannie Mae's capital, meant that Fannie did not need to hold the levels of capital required to support the explosion in mortgage lending that resulted. The results are plain for all to see.
Fast forward to the healthcare debate: Congress is now proposing to repeat the trick with health insurance cooperatives. Health insurers are regulated by state insurance departments, who, over time, have built up a wealth of experience of the levels of capital needed to support an insurance enterprise. After all, if a health insurer should default, it is the state insurance department that is left to protect policyholders. This has led to what is called risk-based capital (RBC) requirements for health insurers.
The minimum level of free capital (also called surplus) that an insurer needs to hold is somewhere between 8% and 11% of premiums in most states (New York is an exception, and its rule is 25%). If an insurer's capital falls below this level, the state insurance department can step in and take action that could ultimately lead to winding-up the insurer.
Prudent insurance companies—for example, members of the Blue Cross Blue Shield Association, which has its own (higher) guidelines for its members' capital—hold considerably more than the minimum required by the state. Typically, well capitalized insurers hold anywhere between 15% and 40% of premium income in the form of free capital.
Capital, of course, is not free. An insurer with 100,000 members could well have $500 million in premiums, and require the backing of between $50 million and $200 million in capital. Assuming a 10 % return on capital pre-tax, this requires between $5 million and $20 million in profits, pre-tax, to service the insurer's existing capital, or an additional charge to the monthly member premium of between $4 and $17.
Because of healthcare inflation, an insurer has to constantly increase this capital. The additional capital can be provided by investors (in which case the return on capital scenario above applies) or, more likely in the case of insurance co-ops, it will have to be provided by insured members. A 10% increase in premiums ($500 per year) could require an additional charge (to increase its capital) to the member's premium of between $50 and $200 per year. These additional charges are offset somewhat by earnings on an insurer's capital, but the rules for what counts as admissible assets for RBC purposes tend to result in conservative investments and (relatively) low yields.
Bills in front of Congress imply that the co-ops will have to meet some sort of solvency standard, although it is not clear that they will have to meet the same state standards as existing insurers. Given that the cost of capital can add as much as $8 to $35 per month to the premium, the more likely course is that co-ops will receive either an implicit guarantee (as did Fannie Mae) or will operate at the minimum state standard.
In the latter case, they will initiate a "race to the bottom" in terms of capitalization, forcing existing prudent insurers to reduce their capital standards to compete. In the former case, co-ops run the risk of becoming the next Fannie Mae, as either the states (or the US Treasury) are forced to bail out failing co-operative insurers.
Policymakers would do well to review the history of cheap mortgages as they contemplate their plans for cheaper health insurance.
Ian Duncan, FSA, FIA, FCIA, MAAA, is president and founder of Solucia Consulting, a SCIOinspire company. Solucia, based in Hartford, CT, provides analytical and consulting services to the healthcare financing industry. An actuary by training, he has 30 years of experience in healthcare and insurance product design, management, financing, pricing, and delivery. He is active in public policy and healthcare reform, and serves on the boards of directors of the Commonwealth of Massachusetts Healthcare Connector Authority and SynCare LLC (an MBE Care Management Co.).
After an intense debate, the Senate Finance Committee rejected two Democratic proposals to create a government insurance plan to compete with private insurers. The votes underscored divisions among Democrats and were a setback for President Obama, who has endorsed the public plan as a way to "keep insurance companies honest."