The Senate health care bill no longer contains an explicit “public option,” but it does include heavy regulation of private health plans, including minimum amount they must spend on medical claims, and taxes that will not count toward those limits, limits on deductibles and co-payments, and authority for federal regulators to define what services plans must cover. It’s entirely possible – in fact, even likely – that a combination of three particular regulations could combine to make it impossible for private health plans to legally operate, by making it impossible to meet all the requirements at the same time. By forcing private health insurers out of business, it would appear to “prove” that the public option is “necessary.”
There is an implicit maximum legal premium in the Senate bill. It results from the combination of the 40% excise tax on “excessive” premiums (over $8,500 for a single plan) and the 85% medical loss ratio (the percent of premiums that must be spent paying claims). A little algebra shows that if the premium exceeds 1.6 times the threshold, then it’s impossible to both required medical loss ratio and pay the excise tax.
This implies a maximum legal premium of $13,600. At that amount, the entire premium would be taken up by claims and the excise tax – leaving nothing for administrative cost – and even nothing to pay the “annual fee” tax on health insurance, let alone profit.
Of course, in the real world it would become impossible at a much lower premium, since (a) there are always some administrative costs, and (b) there is the “annual fee” tax on health insurers based on market share that is in addition to the high-premium tax, not to mention state premium taxes and other non-avoidable expenses.
Suppose, for the sake of the argument, that the “annual fee” tax based on market share works out to $50 per person ($10bil after 2016, for about 200 million people) and administrative costs are $500 per person (similar to the current values for both Medicare and private plans), and the “high cost” premium threshold is $8500 for a single-person policy. Also, assume there are no state premium taxes, no other taxes or required expenses, and no profits.
In that case, the premium minus the excise tax minus $500 minus $50 has to be no more than 85% of the premium. This implies a maximum attainable premium of $11,400, of which $9690 would be spent on claims.
If you add in a fairly typical 2% state premium tax to the above assumptions about admin costs and “annual fee” tax, and still assume no other cost, the maximum premium drops to $10,555.55 – and the maximum possible amount for medical claims is $8972
Every increase in taxes or administrative expenses DECREASES the amount legally “left over” to pay medical claims. Each increase of $1 in taxes or other expenses requires a reduction of $6.67 in medical claims.
It should be obvious that it would be very easy for regulators to design a plan with a minimum benefit package that is high enough (say, above $8972 in average claims) that makes it literally impossible for health plans to break even, let alone make a profit.
And if adding benefits doesn’t to the trick, they could add “exchange participation fees” or something similar, to “cover their costs” that would burden private insurers even more “efficiently” — because every dollar of fees would bring plans $6.67 closer to insolvency.
That, of course, would appear to “prove” that the public option is “necessary” – because the apparently “greedy” health insurance companies would refuse to do business deprived of their “unconscionable profits” (which is to say, profits that are equal to or greater than zero).
The American taxpayer owned General Motors recently announced that its 2011 Chevrolet Volt will get 230 miles per gallon. While the Obama administration has repeatedly claimed it has “no interest” in running GM, from literally its first day as majority owner of the car maker the White House has been bragging about its ability to direct GM to make smaller cars in idled union factories.
But now along comes Consumer Reports to throw some cold water on GM’s latest eco-friendly claims:
In the end, 230 mpg might be the exaggeration of the “century.” If you are a cyclist like I am, you may have heard about doing a “century,” riding 100 miles. But imagine that after you rode that distance, you found out that some agency has devised a way to calculate your ride as 230 miles based on the ratio of your front sprocket to wheel diameter, wind resistance, and the solar load on your front forks. Would you tell everyone that you rode 100 miles? Or would you say that you rode 230 miles based on a “draft” measurement that you can’t really talk about?
New Geography’s Wendell Cox adds:
Now there is nothing to be ashamed about 60 miles per gallon, unless, that is, you have claimed 230 miles per gallon. Regrettably, General Motors, which could have claimed a great environmental advance, has diminished it by failing to “level” with the public. This kind of public relations will not help a company whose performance has cost it market share for well over a generation.