Thursday, April 01, 2010

Under the ObamaScope©: An InsureBlog Exclusive [UPDATED]

Many (most?) folks don't know that, although Medicare and Medicaid are enabled at the Federal level, they are funded and implemented at the state level. That's why, for example, Sen Nelson's "CornHustler" deal was so valuable: by insulating his state from increasing Medicaid obligations, he really "brought home the bacon."

And so it is with the majority of ObamaCare©: that which the Feds have wrought, the various States must implement. Because of relationships we've cultivated over the five years of InsureBlog's existence, we have obtained a copy of the directives that Secretary Shecantbeserious, et al has sent out explaining how each state must make ObamaCare© a "reality."

Over the next few weeks, we will be presenting selected initiatives from that directive, and offering our commentary on their efficacy and implications.

Let's start with an easy one:

"Sec. 2711. No lifetime or annual limits. As amended by Section 10101, prohibits plans from establishing lifetime limits, and annual limits beginning in 2014, on the dollar value of benefits. Prior to 2014, plans may only establish restricted annual limits as defined by the Secretary of Health and Human Services (HHS), ensuring access to needed services with minimal impact on premiums."

Now that would seem to be rather innocuous, no? We've discussed the issue of lifetime caps before, and the anxiety that they can cause folks suffering from (for example) a chronic illness.

The problem is that insurance is a risk management tool; that is, once a carrier has assessed the risk and issued a policy, it has essentially given the insured a $2 or $5 or $10 million unsecured line of credit for health care. That's a lot of money. And as we saw with Fannie and Freddie, unrestricted access to credit is not, in fact, a "good thing;" it's a way to quickly bankrupt an institution (or agency). Removing the lifetime cap may not seem like a big deal, but how does a carrier price the risk when the risk itself is a complete unknown?

One way, of course, will be to increase premiums. Substantially. Another is to offer policies with internal caps on specific items. I could find nothing in "the regs" which precluded this. So one could have a plan with "unlimited lifetime benefits," yet annual maximums or limits on specific conditions or types of expenses.

A real "win-win," right?

UPDATED: As Bob notes in the comments, and as I've confirmed with "inside sources," the price increase to "lift the cap" is estimated at about 2%. So it is possible to "price the risk," and it isn't (at first blush) a major increase.

On the other hand, "2% here, and 2% there, and pretty soon you're talking some real dollars." The problem becomes one of "mission creep:" just how many of these 2% "hits" will we pile on policies until they become prohibitively expensive?
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