Wonkbook: As Obamacare starts, health insurers are just guessing

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(Photo by Adam Cairns/AP Photo/The Columbus Dispatch)
(Photo by Adam Cairns/AP Photo/The Columbus Dispatch)

We're in a bit of a whack-a-mole period with the Affordable Care Act's insurance exchanges. Each week brings new data from a new state on the premiums insurers intend to charge on the exchanges. Some weeks bring revised data from old states. But it's worth stepping back and keeping two things in mind.

The first is that all these numbers are simply guesses. Really. That's it. California's numbers are guesses. Maryland's numbers are guesses. Oregon's numbers are guesses. Vermont's numbers are just guesses. Everyone is just guessing.

Insurers have to decide now how much they'll charge next year. Once they've settled on a price and the exchanges open, that's the end of it. They can change the price in the second year. But they can't change it in, say, February of 2014.

The problem is that insurers don't know what their costs will be next year. So they're guessing. They're guessing who will enter the exchanges. They're guessing who will choose to buy their coverage. They're guessing whether healthy, young people will obey the individual mandate or pay the penalty. They're guessing what price they'll need to be competitive against other insurers, given differences in the networks, benefits, etc. But as they'll admit to you with a bit of anxiety, they really are just guessing. If they get it wrong by being too expensive, they'll lose customers. If they get it wrong by being too cheap, they'll lose money.

We're covering those guesses in the press. When they come in low, we say it's good news for Obamacare. When they come in high, we say it's bad news for Obamacare. But we don't really know whether the guesses are right or wrong either.

Even more interesting is what happens in year two. By then, insurers will know who signed up and how much their care actually cost. But at that point, their pricing won't really be up to them. The law's medical loss ratio rules require insurers in the exchanges to spend at least 80 percent of premiums on actual health care. If the care costs less than that, insurers have to send consumers a rebate -- something many have already had to do.

Perhaps that rule can be gamed a bit. But insurers I've spoken to don't think it can be gamed all that much. The pricing, in their view, will become much more mechanical. They can't simply set premiums at what they think the market will bear. And they can't manipulate their risk pool by looking only for the healthy or the young -- at least not to the degree they've been able to before now. Instead, their premiums will be pegged to the cost of the care they actually delivered. If it proves more expensive than expected, premiums will rise. If it proves less expensive than expected, they'll fall. And so very quickly we'll actually know whether the guesses were too high or too low.

Wonkbook's Number of the Day: $115 billion. That's the cumulative surplus in the Medicare trust fund produced by immigrants between 2002 and 2009, according to a new study in Health Affairs.

Wonkbook's Quotation of the Day: “The banks are back,” Moody’s Analytics chief economist Mark Zandi said. “Only four years after the banking system was literally looking into the abyss, it is highly profitable again.” They made a record $40.3 billion in profits this quarter.

Wonkblog's Graphs of the Day: "The Distribution of Major Tax Expenditures in the Individual Income Tax System."

Wonkbook's Top 5 Stories: 1) rich benefit most from tax breaks; 2) feeling sequestration; 3) the rise of the female breadwinner; 4) scandalwatch continues; and 5) how immigrants help Medicare's sustainability.

1) Top story: Who benefits from tax expenditures? The rich.

Richest quintile see half of all benefit from tax breaks, CBO finds. "The 10 largest breaks in the U.S. tax code will save taxpayers more than $900 billion this year, with just over half the benefits flowing to the richest 20 percent of households, congressional budget analysts said Wednesday. And the richest 1 percent of households, those with at least $327,000 in annual income, get an especially big haul — about 17 percent of the total savings." Lori Montgomery in The Washington Post.

Read: The CBO report, "The Distribution of Major Tax Expenditures in the Individual Income Tax System."

Congress wants to go small on tax reform. Here's how they could go big. "[A] forthcoming proposal from Rep. Devin Nunes (R-Calif.) promises to make the topic, if not exciting per se, at least somewhat intriguing. Nunes is preparing legislation to replace the corporate income tax with one that lets businesses deduct all their investments. If it works, it’ll encourage a huge surge in business investment, boosting growth and growing household incomes. If it fails, it’ll be a corporate tax break without much economic benefit. Either way, it’ll totally change how we tax businesses." Dylan Matthews in The Washington Post.

@MichaelSLinden: New CBO report on tax expenditures shows why Ryan tax plan can't add up. TEs are skewed to the rich, but not as skewed as Ryan's rate cuts.

MATTHEW C. KLEIN: In tax reform, cut subsidies progressively. "The nonpartisan Congressional Budget Office has released a new report making clear what many have long suspected: The U.S. tax code is rigged in ways that end up rewarding the rich at the expense of the middle class...Those in the top 1 percent actually get a bigger boost to their income from subsidies than those in the bottom quintile." Matthew C. Klein in Bloomberg.

Music recommendations interlude: London Symphony Orchestra performs "Bohemian Rhapsody."

Top op-eds

KLEIN: One way Obamacare might already be working. "In a new paper, Harvard University scholars David Cutler and Nikhil Sahni calculate that if those numbers hold over the next decade, the government will save up to $770 billion, employers will save up to $430 annually on each covered worker and households will spend up to $290 less on annual health costs. “Slow health care spending growth might thus bring much-needed relief throughout the economy,” they write. Ah, that pesky “might.” Here’s the catch: The curve is bending, but we don’t really know why, and we don’t know if it’ll stay bent." Ezra Klein in Bloomberg.

SUNSTEIN: The biggest Supreme Court ruling you hadn't heard of. "[L]ast week, a divided court decided Arlington v. FCC, an important victory for Barack Obama’s administration that will long define the relationship between federal agencies and federal courts. The underlying question was this: If a law is ambiguous, who gets to interpret it? Federal judges or the agency that carries it out?...In a powerful and convincing opinion by Justice Antonin Scalia, the court’s majority ruled that even when the agency is deciding on the scope of its own authority, it has the power to interpret ambiguities in the law. Scalia was joined by Justices Ruth Bader Ginsburg, Elena Kagan, Sonia Sotomayor and Clarence Thomas." Cass R. Sunstein in Bloomberg.

YGLESIAS: Unconditional cash transfers are the basic, simplest way to fight global poverty. "[T]here’s striking new evidence that helping the truly poor really is as simple as handing them money. Money with no strings attached not only directly raises the living standards of those who receive it, but it also increases hours worked and labor productivity, seemingly laying the groundwork for growth to come. These results come to us from Christopher Blattman of Columbia, Nathan Fiala of the German Institute for Economic Research, and Sebastian Martinez of the Inter-American Development Bank." Matthew Yglesias in Slate.

MOORE: What would Milton say about immigration reform? "Republicans and conservatives might want to coalesce around a position of tight welfare and generous immigration rules. That is something Milton Friedman would no doubt regard as the ideal outcome." Stephen Moore in The Wall Street Journal.

DIONNE: GOP needs more Doles, fewer Bachmanns. "Bachmannism is far from finished. The Minnesota right-winger deserves to be memorialized with an “ism” because she perfected a tactic well-suited to the current media environment: continually toss out outlandish, baseless charges, and, eventually, some of them will enter the mainstream media — if, at first, only in the form of “coverage” of what conservative radio shows, Web sites or Fox News are talking about. You don’t have to bat 1.000 or even .350 in this game. Get just a handful of your accusations and strange takes on reality into the political bloodstream and you’ve won." E.J. Dionne in The Washington Post.

KLEIN: No one really believes in 'equality of opportunity'? "[E]quality of opportunity and equality of outcome aren’t opposites. They’re partners. Companions. Inseparable amigos. You can’t have real equality of opportunity without equality of outcome. A rich parent can purchase test prep a poor parent can’t. A rich parent can usher their children into social networks a poor parent can’t. A rich parent can make donations to Harvard that a poor parent can’t." Ezra Klein in The Washington Post.

Road interlude: This toddler is one drowsy driver.

2) Are you feeling sequestration?

More and more Americans feeling sequester impact. "Whatever happened to the sequester? Is it still a big deal? We decided to check in on what was going on around the country. As it turns out, plenty of people have started to notice — about 37 percent in a May 19 poll said they’d been personally affected. And the sequester is starting to have an impact around the country, although many of the cuts haven’t yet sunk in." Brad Plumer in The Washington Post.

Sequester not biting D.C. yet. "In the months since the automatic federal spending cuts known as the sequester took effect, the Washington area has added 40,000 jobs. Income-tax receipts have surged in Virginia, beating expectations. Few government contractors have laid off workers. It’s too early to be certain, but initial indications are that the damage from the sequester has been modest and slow to develop...[S]ome forecasters are growing more optimistic that the Washington region, so dependent on federal spending to power economic growth, will endure the cuts better than originally expected." Jim Tankersley in The Washington Post.

Pentagon begins notifying workers of their 11 furlough days. "An estimated 652,000 Defense employees, about 85 percent of the department’s civilian force, are receiving the notices, the result of automatic budget cuts mandated by sequestration." Steve Vogel and Lisa Rein in The Washington Post.

EPA cuts projected number of furlough days. "The Environmental Protection Agency has become the latest agency to cut back on its projected furlough days, cutting three days to bring the total to just under seven. Acting administrator Bob Perciasepe announced the reduction in a memo to employees Wednesday afternoon, saying that since initially announcing furlough plans, “we have worked hard to carefully and comprehensively review our resources and our priorities again, with a focus on minimizing furloughs.”" Eric Yoder in The Washington Post.

Literary interlude: Lydia Davis wins the Man Booker International Prize 2013, which goes to a British writer.

3) The rise of the female breadwinner

Female breadwinners on the rise. "Four in 10 American households with children under age 18 now include a mother who is either the sole or primary earner for her family, according to a Pew Research Center analysis of Census and polling data released Wednesday. This share, the highest on record, has quadrupled since 1960." Catherine Rampell in The New York Times.

The Fed's been keeping the economy afloat. That's the problem. "The bad news, though, is that these channels through which monetary policy affects the economy tend to offer the most direct benefits to those who already have high incomes and high levels of wealth...Among middle-income people, only 11.7 percent own stocks. In the bottom quintile, only 3.8 percent own stocks. The stock market rally of the last few months is having the most direct benefits for those who already are comfortable; middle- and lower-income people are only benefiting from the second-order effects, such as higher stock prices leading businesses to become more confident and thus invest in expansion, and wealthy people, now wealthier, spending more money and hence creating general demand across the economy." Neil Irwin in The Washington Post.

...It has a tricky messaging problem: Tapering isn't tightening. "[T]he Fed is worried that as soon as it slows down its bond-buying, the markets will act as if the shop is closed for business, negating the benefits of any stimulus the central bank is still providing. Bernanke has tried to dispel that notion by framing a reduction in purchases as simply a slowdown of the rate of Fed stimulus, rather than actually doing less to stimulate the economy. Tapering, Fed leaders want the world to understand, is not tightening." Ylan Q. Mui in The Washington Post.

Can recent economic strengthening last? "So does that mean that our troubles are finally over? That we can be confident pleasantly faster growth and normal levels of unemployment lie just ahead? Unfortunately, no. Forecasters anticipate second- and third-quarter growth will be slower than the 2.5% initially reported for the first quarter." David Wessel in The Wall Street Journal.

Banks report record earnings of $40.3 billion. "Profits at the nation’s banks topped $40.3 billion in the first three months of the year, the largest quarterly total on record and evidence of the industry’s robust recovery, the Federal Deposit Insurance Corp. said Wednesday...“The banks are back,” Zandi said. “Only four years after the banking system was literally looking into the abyss, it is highly profitable again.”" Danielle Douglas in The Washington Post.

Sallie Mae to split into two companies. "The restructuring follows a period of turmoil in education finance sparked by the overhaul of the federal student loan program in 2010. Prominent players in the industry, including Sallie Mae, suffered when Congress eliminated a $60 billion program to support private student loans with federal subsidies. The government captured a majority of the market by choosing to lend directly to students, leaving a limited role for private lenders." Danielle Douglas in The Washington Post.

Today I learned interlude: A singing birthday card has more computing power than the allied forces in 1945

4) Scandalwatch

New IRS boss to face lawmakers this week. "[A] House Appropriations subcommittee on financial services will get the first public update on what the IRS is doing to correct the problems from IRS Acting Commissioner Danny Werfel. He’ll be joined at the witness table by J. Russell George, the Treasury Inspector General for Tax Administration." Ed O'Keefe in The Washington Post.

...And the IRS just named a new 'chief risk officer.' "David Fisher, former chief administrative officer at the Government Accountability Office, will take steps to restore the agency’s integrity in the wake of a scandal that involved inappropriate targeting of conservative groups, according to acting IRS commissioner Daniel Werfel." Josh Hicks in The Washington Post.

The IRS scandal is about targeting conservatives, not scrutinizing 501(c)(4)s. "The Determinations Unit based out of the Cincinnati IRS targeted 501(c)(4) applications that used tea party-related terms for extra scrutiny. Whether the intent was benign, as the IRS swears, or rogue agents were carrying out a political vendetta, the effect was to politicize the IRS’s filtering process. That’s a huge problem." Ezra Klein in The Washington Post.

The IRS role in Obamacare and how Republicans are using it. "A growing number of GOP lawmakers, including Senate Majority Leader Mitch McConnell (Ky.), Sens. Marco Rubio (Fla.) and Dean Heller (Nev.), Rep. Paul Ryan (R-Wis.) and Bachmann, have suggested that the IRS simply cannot be trusted to implement its portion of Obama’s health-care law...GOP campaign strategists are connecting the politically toxic IRS scandal to Obama’s signature first-term legislation. Their goal is to repeal the law and bring down vulnerable House Democrats in the process." Josh Hicks in The Washington Post.

Holder asked to clarify testimony on journalist prosecutions. "The House Judiciary Committee is seeking to determine whether Attorney General Eric H. Holder Jr. lied under oath during recent testimony before the panel when he discussed a Justice Department investigation into the newsgathering efforts of a Fox News reporter. The committee sent a letter to Holder on Wednesday asking that he clarify the department’s policy on obtaining search warrants for the e-mails of journalists and to explain what he knew about the investigation into Fox News Chief Washington Correspondent James Rosen at the time that he testified before the committee May 15." Ed O'Keefe in The Washington Post.

Your world interlude: In cake form, of course.

5) How immigrants help Medicare

Study: Immigrants are net contributors to Medicare. "As Congress mulls changing America’s border and naturalization rules, a study finds that immigrant workers are helping buttress Medicare’s finances, because they contribute tens of billions a year more than immigrant retirees use in medical services. “Immigrants, particularly noncitizens, heavily subsidize Medicare,” the researchers wrote in the journal Health Affairs.  “Policies that reduce immigration would almost certainly weaken Medicare’s financial health, while an increasing flow of immigrants might bolster its sustainability.”" Jordan Rau in Kaiser Health News.

New tack in preventing hospital infections. "[T]he largest prevention study of its kind has shown it is far more effective to treat every patient in the ICU with the regimen, without any prior testing. In the study of nearly 75,000 patients at 74 adult ICUs in 43 Hospital Corp. of America facilities, the protocol, known as universal decolonization, reduced all bloodstream infections, including those caused by other germs, by 44%, and reduced the incidence of MRSA-positive cultures in the ICU by 37%. Patients were washed with cloths containing antimicrobial soap chlorhexidine and received a nasal antibiotic ointment, mupirocin." Laura Landro in The Wall Street Journal.

Explainer: The most embarrassing graph for American drug policyHarold Pollack in The Washington Post.

Conservative think tank adds health care staffers. "The conservative American Action Forum has tapped two former Capitol Hill staffers for its healthcare teams...AAF has hired Christopher Holt as its director of healthcare policy and Mike Danylak as press secretary for healthcare." Sam Baker in The Hill.

How 3 small firms are coping with the Affordable Care Act. "Starting next year, the federal government will impose penalties on any business with 50 or more full-time equivalent employees that doesn't provide adequate health-insurance coverage to workers who clock 30 or more hours a week...Owners with between 50 and 200 full-time employees are in a particularly tough spot. These businesses are big enough to meet the government's threshold for penalties, but they lack the purchasing power to negotiate the best rates with insurers." Emily Maltby and Sarah E. Needleman in The Wall Street Journal.

Debate: Is Obamacare too complex to succeedThe New York Times.

Is Obamacare heading for trouble in N.H.? "If a health insurance marketplace launches in the woods with exactly one insurance carrier, does it count as a marketplace at all? This is not an odd health policy riddle (although that sounds fun as well!). It is actually the situation in New Hampshire, where its increasingly looking like just one health insurer, Anthem BlueCross BlueShield, will compete on the exchange – if that counts as competing at all." Sarah Kliff in The Washington Post.

New rules prevent discrimination through wellness programs. "The Obama administration issued final regulations Wednesday designed to prevent companies from discriminating against sick employees through corporate wellness programs. The programs, which have gained in popularity in recent years, provide incentives for employees to improve their health. Some give medical insurance discounts to workers who meet specific metrics for blood pressure and body-mass index." Sandhya Somashekhar in The Washington Post.

Medicaid managed care ready for new enrollees, states say. "Medicaid managed care programs are ready to take on new enrollees as ObamaCare expands healthcare access for low-income people, according to a new state survey. Eight states reported to the Urban Institute that their Medicaid managed care programs — which tend to function like health maintenance organizations, or HMOs — will flexibly adapt to a greater beneficiary population thanks to past reforms." Elise Viebeck in The Hill.

Reading material interlude: The best sentences Wonkblog read today.

Wonkblog Roundup

Study: TV and movie characters are smoking less but still drinking heavilyDylan Matthews.

Why 1.2 billion people still don't have access to electricity. Brad Plumer.

The IRS scandal is about targeting conservatives, not scrutinizing 501(c)(4)sEzra Klein.

The Fed’s tricky messaging: Tapering is not tighteningYlan Q. Mui.

Trouble for Obamacare in New HampshireSarah Kliff.

The most embarrassing graph in American drug policyHarold Pollack.

The Fed’s been keeping the economy afloat. That’s the problemNeil Irwin.

No one really believes in ‘equality of opportunity’. Ezra Klein.

Congress wants to go small on tax reform. Here’s how they could go bigDylan Matthews.

More and more Americans are feeling the effects of the sequesterBrad Plumer.

Et Cetera

Obama to nominate Comey as FBI directorDevlin Barrett and Evan Perez in The Wall Street Journal.

RI Gov. Chafee to run for second term as a DemocratSean Sullivan in The Washington Post.

Is blocking Gina McCarthy at EPA a pyrrhic victory for Republicans? It just might beJuliet Eilperin in The Washington Post.

Got tips, additions, or comments? E-mail me.

Wonkbook is produced with help from Michelle Williams.

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