How Badly Obamacare Beat Up On the Health Insurers, and What Does It Mean for the Individual Market

D.C. deals with health insurers

As Disease Management Care Blog readers are aware (for example, here and here), Obamacare forces health insurers to spend at least 80% (small group) to 85% (large group) of their premium income on health care, leaving only 15% for "other," including administrative overhead and profits. If that 80%-85% "medical loss ratio" (MLR) threshold is not met, insurers have to rebate the difference to their customers.

 While the White House has been happy to extoll the millions of dollars that were repaid to consumers (even though the individual checks were hardly eye-popping and then there is the risk that they're taxable), the DMCB is interested in what actually happened to the commercial insurers.  Did they game the system and garner even higher profits?  Or, have they gotten their comeuppance, are now losing money and have to pursue other lines of business, like covering zombie attacks?

This article in the latest Health Affairs looked at that impact of the law when it went into effect on January 1, 2011.  The authors used NAIC data to examine the impact on the individual (N=1,219), small group (N=804) and large group market (N=750) insurers.

Individual, small group and large group numbers are broken out below. If there is a *, the change is statistically significant.

In the individual market, from 2010 to 2011:

Median medical expenses, as a percent of premium, increased      by 5.5%*.
Administrative expenses, as a percent of premium, decreased            by 2.6%*.
Profit (otherwise known as "operating margin" or the bottom line) decreased by 1.3%*. "For profit" insurers fared even worse, with a decline in operating margin of 2.2%* vs. their nonprofit competition with a decline in 0.8%.

2011 operating margins were overall negative:

Individual overall -0.1%.
Nonprofits:  -3.5%.
For profits:  0.4%.

In the small group market:

Median medical expenses increased by 0.7%.
Median administrative expenses declined by 1%*.
The bottom line increased by .5%. Nonprofits saw an increase of 1.2%* vs. the for profits having a small decline of .3%.

2011 operating margins were positive, ranging from 2.8% to 3.8%  across the non and for profits, respectively.

In the large group market:
Median medical expenses declined by 0.7%.
Median administrative expenses declined by 0.9%%*.
Profit increased by .7%*. Nonprofits saw an increase of 0.1%* vs. the for profits having a increase of 1.2%.

2011 operating margins were positive, ranging from .7% to 2.6%  across the non and for profits, respectively.

The DMCB's take:

Obamacare had a single digit impact on health insurers.  More was spent on health care and less was spent on administrative costs.  While the shifts were relatively small, those changes represent swings of hundreds of millions of dollars to the bottom line in an already thin margin business. If the purpose of Affordable Care Act was to beat up on the health insurers, it was more of a push than a shove.

Small and large group profitability increased and operating margins were positive, while the individual market struggled. As readers may recall, the inability of individuals to obtain coverage at any price was a big factor in the eventual passage of the Affordable care Act. While the future individual market may eventually benefit from an influx of healthy young "invincibles" armed with an accompanying bolus of insurance subsidies, Obamacare ironically hurt the individual market in 2011. If health care utilization didn't go down in 2011 as a result of the economy, it could have been a lot worse.

That tells the DMCB that, contrary to the insurers' reports of doom and gloom, the 80%-85% MLR rule hasn't been a catastrophe.  On the other hand, it hasn't been good news for the individual market.  If the young invincibles don't 1) respond to the individual mandate, 2) use functioning insurance exchanges and 3) sign up, it could portend further stress on that sector of the health care economy.  No wonder the Obama Administration is pushing that so hard.

Real News Headline: Improved U.S. Health Care System Saves 28,000 Lives in 2010, Avoidable Death Rate is Decreasing

Health reporters at work

When the major news media organizations (for example, here and here) proclaimed that 200,000 cardiovascular deaths in the U.S. could be avoided every year, the Disease Management Care Blog decided to learn more.

The information reported in the media was taken from the Centers for Disease Control and Prevention's Sept. 3 Morbidity and Mortality Weekly Report. As the DMCB understands it, the CDC authors pulled 2001-2010 mortality data from the National Vital Statistics System. Once that was done, they counted up the number of persons aged less than 75 years who died of "ischemic heart disease," "cerebrovascular disease," hypertensive disease" or "chronic rheumatic heart disease."

So what did MMWR really say?

The total of "less-than-75" deaths in 2001 was 227,961.  For 2010, it was lower at 200,070. Since the population in the U.S. has changed over the last decade, the totals for each of the two comparison years were then expressed as a "per 100,000" statistic.

Since 2001, the "less-than-75" death rate per 100,000 declined by 29%.  The decline averaged 3.8% a year.* Persons age 65-74 years had an average decline of 5.1% vs. 3.3% persons between the ages of 55-64. 

The good news is that Black (3.9%) and Hispanic (4.5%) persons had greater declines than whites (3.6%). The bad news is that they started and ended with a higher death rate.

Here's a visual display of the data:

 The DMCB's take

1. "Avoidable?" The CDC definition implies that perfect control of all cardiac risk factors (for example, cholesterol and weight) for everyone under the age of 75 will result in a 0 per 100,000 cardiovascular death rate. Not so, because those risk classic factors capture some, but not all, persons who succumb to heart attack and stroke.

2. So, this is bad news?  "200,000" deaths is an impressive number, but, on an unadjusted basis, that's about 28,000 fewer compared to 10 years ago. Some additional good news is that the U.S. rate of non-fatal heart attack and stroke appears to have dropped significantly also.  We are making significant headway in the battle against heart disease.

3. The real story? Persons of color have had the greatest relative benefit but still have the greatest absolute need.  That lingering health care disparity went shamefully unmentioned by CNN and was only briefly mentioned by USAToday.

4. Something for everyone: In their "Conclusions and Comments," the authors of the MMWR paper speculated on the benefits of the (still unproven) Million Hearts Initiative (a Berwick-era idea) as well as "health information technology" and various "community prevention strategies" The DMCB's colleagues in the care management service industry will really like the authors' nods toward "team based care" and how "individuals can work toward reducing their own heart disease and stroke risk."  If the CDC says so, it must be true - assuming there's a good business model.

5. Speaking of speculation, the authors wondered if the greater decline in the Medicare age group (65-74 years) versus the younger age group (55-64) was because of the presence of health insurance. Maybe, but maybe not.  The DMCB also wonders if heart disease is more lethal and less amenable to intervention among younger persons, but can't find any literature to back that up.

6. Politics intrude:  Naturally, the scientists who write MMWR are too classy than to curry favor with the appointees that populate the upper echelons of the federal bureaucracy, but that didn't stop the CDC Vital Signs from shamefully putting in a "making it easier for Americans to afford regular preventive health care through the Affordable Care Act" plug.  The ACA was not mentioned in the MMWR report because the declines mentioned above occurred in the absence of the ACA. 

The DMCB predicts that when the "avoidable" death rate continues to decline by 3.8% in the coming years, Obamacare advocates will take the credit.


*The DMCB isn't sure how 3.8% for 10 years makes for 29% either, but that's statistics for you.

Image from Wikipedia