Thursday, May 30, 2013

Yet more brilliance in government accounting; California "Obamacare" premiums

Much has been made of the apparent fact that California insurance exchange premiums are coming in well below predicted amounts.  Now given that the CBO was given pretty decent starting assumptions, and they're not a bunch of dummies, how indeed did the "real" rates come in at up to 29% lower than predicted?

It should be noted here that the cost structure of insurance is pretty well known, and accessible to most any actuary or other statistically trained person.  You have about 2% overall profit by insurance companies, between 10-20% overhead costs, and the rest goes to the care providers.  So how do you get to costs up to 29% below expectations?

Simple.  Each insurance company has a payment percentage.  If you look at your healthcare bills, you'll see the initial number, an insurance discount, and then the amount you and your insurer finally pay.  So to get to 29% less than the prediction, you simply assume that a certain portion of doctors will need to take a lot less for their services to keep working.

Now in the short term, that works, but in the long term, you get phenomena like the Mayo Clinic telling new associates not to accept Medicare patients.  In short, there is a cost structure in medicine, and you can't simply cut payments ad infinitum and expect that the supply curve will rise to meet the demand.

Translated, this means that a lot of Californians are likely to learn the hard way that having health insurance is not the same as having healthcare.

Update: it turns out that California's overall "reduction" in health insurance premiums actually turns out to be an increase of 64% to 146% when one compares the premiums for their plan with the actual peer group of insurance plans from the individual market instead of highly regulated corporate plans.

Once again, government accounting is not honest accounting.

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