Tuesday, November 23, 2010

Trickle Down Effect of Obamacare

Hurricane Obamacare is a category 5 storm that will make landfall in January, 2014 but already we are feeling the effects of the feeder bands buffeting the country. On Monday HHS confirmed that the MLR (medical loss ratio's) as defined in Obamacrap would go into effect in 2011 without modification. We explored some of the impact of this MLR in yesterday's post.

But the MLR is much more insidious than just limiting the amount health insurance companies can spend on overhead. It is a jobs killer. 

Already several smaller health insurance companies have either exited the market or have announce they will soon leave. More will follow.

Giants like Aetna, Humana and others have already slimmed down by laying off hundreds of workers that service their health insurance block. Many of those are still unemployed and more will follow over the next few months.

These layoffs affect their ability to service prospective and existing clients. Already those of us on the front line have seen a noticeable impact on the ability to secure answers to service issues or have problems handled in a timely fashion.

Agent commissions are due to be cut drastically in January of 2011. Some say this is a good thing, but all that glitters is not gold.

Agents are 1099 employees and as such, cost the health insurance company nothing until a service is performed. The carriers do not pay our rent, or insurance or salaries. We pay all of that from our revenue.

Already it is anticipated that half the agents who are working the health insurance market will leave. That number may be low. The rest have already decided they can no longer afford to provide a high level of client service due to the fact our compensation will be cut in half and in many cases even more than that.

This lack of "free" service will shift the burden back to the home offices who are already trying to do more with less staff. If you think customer service is bad now, just wait.

It will also lead to increased complaints about the responsiveness of the health insurance companies. Complaints that will filter to state agencies who have also cut staff due to lack of state funds.

Health insurance will become a self service commodity. Some think that is a good thing. Some believe insurance companies should not profit from health care. They point to executive compensation packages, total profits and stockholders and blame them for the high cost of health insurance.

But in doing so they ignore the facts.

Executive compensation will be mostly unchanged although some will inevitably lose their job as departments are cut or eliminated. If profits suffer too much those carriers that remain in the business will withdraw, leaving less competition and higher premiums.

For what it is worth, the profit margin on health insurance averages 3%. If you look at what is commonly quoted as an average health insurance premium of $350 per month per individual then if there were $0 profits premiums would decline by about $10.

And how will stockholders be impacted?

Well, it depends.

You need to realize that stockholders are mostly retirement plans. Roughly 80% of all publicly traded stocks are held by employee retirement plans. In spite of all the media attention on Wall Street "fat cats" and their massive stock holdings, most stock is held by Joe and Mary Lunchpail. When stocks take a hit the little people suffer.

We touched on some of the issues of the MLR in yesterday's post but the impact on businesses, both large and small, is quite far reaching.

Starting in 2011 health insurance companies will have to track premiums, claims, and administrative fee's and provide a year end accounting on how much was spent on each item. This report will go to HHS but most likely also to the IRS.

If the health insurance company failed to meet the mandated MLR they must issue refund checks, and 1099's, to all covered participants. That cost will be factored into their overhead which means even less for customer service.

The checks that go out to businesses are quite complicated. Starting in 2012 business owners will start to receive refund checks for premium overcharges if things go as planned. The money received by the business means a possible amended business tax return, but it also means each business must pro-rate the refund over each individual that was a plan participant during the year and issue refund checks to those individuals.

If the premium was deducted by the employee on a pre-tax basis that means an amended return for them, and even more work for the IRS.

So far it seems as if the only winners in this deal is the IRS.

These checks and the headache that goes with this grand scheme will hit in 2012. How many businesses, both large and small, will decide to terminate health insurance plans rather than continue doing battle with the government?

All of this hits in 2012, which coincidentally happens to be an election year . . .

I wonder how many voters, already disenchanted with what they have seen of Obamacrap and who voiced their opinion at the polls a few weeks ago will return in November of 2012 and throw the bums out?

Hurricane Obamacrap has not yet made landfall but already the disruptive forces of this category 5 storm are being felt.

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