What is that Light at the End of The Obamacare Tunnel? That’s the Risk Pool Freight Train Coming Your Way......

The Scheme
Imagine government G, through a series of highly regulated insurers of the same government G, heavily advertises a new taxpayer subsidized insurance plan, independent of underwriting criteria (all comers), and such plan receives only a tepid response attracting less than 400,000 applicants. (1) (2) (3)

The plan is very difficult to apply for and application for such plan does not guarantee the plan was issued. Hence one must spend hours, if not days, applying for coverage and once what appears to be a successful application is finally submitted one must follow up by correspondence and phone calls to assure the application was accepted. Even then many applications can not be found or where transmitted with errors.

Meanwhile, government G, through a series of third party administrators has been maintaining a high risk plan of 101,000 insured‘s. Government G's published intention (known-known) is to end the high risk plan with an inordinately high loss ratio and dump the high risk plan into the aforementioned heavily advertised, taxpayer subsidized, independent of underwriting criteria plan that is difficult to apply for and determine issued-bound coverage. (4) (5)

Since the plan is very difficult to apply for yet has no underwriting criteria, the vast majority of those applying, those that would take enormous amounts of time to apply and follow up to make sure coverage adhered, are likely those that would benefit from the non-underwriting criteria plan. Stated alternatively, the subject of the insurance at hand, given the non-underwriting aspect, strongly attracts those wanting the insurance subject at hand, due to the non-underwriting aspect.

Does the above sound familiar? Please note that the above description is not of insurance, rather it is a description of a scheme known as Obamacare. As Thomas Sowell has noted many times: Not everything called insurance is insurance.


Nicolaus Copernicus, They Are Not

　
If one examines Obamacare’s latest enrollment figures one finds about 1.2 million applicants with 800,000 going into Medicaid and 400,000 going into subsidized private insurance (note that 1.2 million applicants does not indicate 1.2 million insured as no one appears to be able determine coverage adhesion). The 400,000 subsidized private insured’s are very likely made up of, in large portion, of those desperate for coverage and the despair leading to a grand incentive to take advantage of non-underwriting criteria and hence spending hours if not days applying for coverage and doing all the follow up to make sure coverage is effective. (6)

Rewinding a few years one finds that the Affordable Care Act (ACA) authorized a “Risk Pool” that covered applicants with pre-existing conditions. Approximately 101,000 remain in this pool. Further, state run risk pools that have existed longer than ACA have approximately 235,000 members. Meaning the 336,000 risk pool members will be added to the 400,000 non-underwritten applicants described above on or before 01/31/2014. (7) (8)

Hence the scheme has 400,000 members who’s make-up is likely an inordinate amount of chronically ill which in turn is combined with 336,000 chronically ill to produce a 736,000 anti-selection case that likely rivals or even surpasses anti-selection in another non-insurance insurance scheme known as Flood Insurance.


Upon Further Review

Consider for a moment that the ACA risk pool had to begin turning away applicants the first week in March, 2013 as the plan was going bankrupt as the $5 billion of taxpayer money (subsidy) used to initiate the pool and the premiums paid by members of the pool were not enough money to offset the claims of the pool. Hence any new applicants could not be accepted as current premiums paid by members plus the $5 billion of taxpayer money was calculated to exhaust by 01/01/2014 which met the criteria for dumping the pool into Obamacare. (9)


Insurance (Scheme) Death Spiral

The premiums paid, including taxpayer subsidy, will not sustain a 736,000 member plan that is likely made up of the chronically ill to a very large degree. Historical insurance plan results predict that losses will easily exceed premium causing a major premium adjustment upward. The upward premium adjustment will cause many healthy insured’s to find the plan too costly and they will drop out. As the healthy drop out one ends with an ever increasing concentration of the chronically ill. Round after round of premium increases occur until, theoretically, premium paid equals benefit derived. However, the premium equals benefit point is never reached as the plan implodes prior to that point as even the chronically ill find the plan too costly. (10)

But The Group Will Become Larger and That Will Solve the Problem


Nay, nay! The law of large numbers is only one criteria within legal reserve insurance. The oft mentioned mantra of “pooling the risk”, and all problems are solved, is a misnomer.

A pool of homogeneous exposure units spread across a wide geographic area, subject to underwriting criteria, with risks priced according to potential loss, with future losses fully reserved, is a totally different concept than some fuzzy panacea of: “pooling the risk”.

Furthermore, the accumulation of the group into the future, if indeed it does accumulate; each and every new applicant, healthy or chronic, is faced with the original price driver as mentioned above, as well as, the future price driver of risks not subject to underwriting criteria, with risks not priced according to potential loss. Stated alternatively, cross subsidy exits in that each applicant is either a subsidizer or a subsidized.

It becomes a fiction that at price subsidized (Ps), that all can insure off one another at price Ps. Price does not function as a signal nor rationing agent, price merely becomes a political price (a price based upon politics, not economics).

Moreover, the younger, who are more healthy and less wealthy, cross subsidize the more wealthy and less healthy in regards to base premium, beyond the non-priced-risk phenomena and price subsidized fiction (Ps). Therefore the more healthy and less wealthy produce an additional subsidy for the benefit of the more wealthy and less healthy, which is directly related to price having become based upon politics, not economics.


　
Notes:

(1) New Enrollment Figures Show Obamacare is Not on Track, breitbart.com, 12/11/2013

http://www.breitbart.com/InstaBlog/2013/12/11/New-Enrollment-Figures-Show-Obamacare-is-Not-on-Track


(2) Obamacare’s Medicaid enrollment crowding out private plans, Daily Caller, 10/29/2013

http://dailycaller.com/2013/10/29/obamacares-medicaid-enrollment-crowding-out-private-plans/


(3) 70% of ObamaCare Enrollees Are In Medicaid, breitbart.com, 12/11/2013

http://www.breitbart.com/Big-Government/2013/12/11/70-of-ObamaCare-Enrollees-Are-For-Medicaid


(4) Health insurance and high-risk pools, health insurance.org, 12/12/2013

http://www.healthinsurance.org/risk_pools/


(5) High Risk Insurance Pool Enrollees Losing Coverage Because of Obamacare, 11/19/2013

http://insurancenewsnet.com/oarticle/2013/11/20/high-risk-insurance-pool-enrollees-losing-coverage-because-of-obamacare-a-424373.html#.UrbiHml3t1s


　

(6) Economist: ‘Triple Whammy' Could Send Obamacare Exchanges Into ‘Death Spiral’ - cnsnews.com, 10/21/2013

http://www.cnsnews.com/news/article/barbara-hollingsworth/economist-triple-whammy-could-send-obamacare-exchanges-death


(7) Funds run low for health insurance in state ‘high-risk pools’, Washington Post, 02/16/2013

http://www.washingtonpost.com/national/health-science/2013/02/15/cb9d56ac-779c-11e2-8f84-3e4b513b1a13_story.html?hpid=z1


(8) Obama administration extends state high-risk pools through January, Washington Post, 12/12/2013

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/12/12/obama-administration-extends-state-high-risk-pools-through-january/


　

(9) Funds run low for health insurance in state ‘high-risk pools’, Washington Post, 02/16/2013

http://www.washingtonpost.com/national/health-science/2013/02/15/cb9d56ac-779c-11e2-8f84-3e4b513b1a13_story.html?hpid=z1


(10) Economist: ‘Triple Whammy' Could Send Obamacare Exchanges Into ‘Death Spiral’ - cnsnews.com, 10/21/2013

http://www.cnsnews.com/news/article/barbara-hollingsworth/economist-triple-whammy-could-send-obamacare-exchanges-death


　

　

　


　

Oops! Capex is Cratering

“New orders for manufactured durable goods in March decreased $13.1 billion or 5.7 percent to $216.3 billion, the U.S. Census Bureau announced today. This decrease, down two of the last three months, followed a 4.3 percent February increase. Excluding transportation, new orders decreased 1.4 percent. Excluding defense, new orders decreased 4.7 percent.” - Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders March 2013, US Department of Commerce, released 04/24/2013

The entire report can be found at the link below:

http://www.census.gov/manufacturing/m3/adv/pdf/durgd.pdf

Obamanomics No-Fly Zone?

“House Speaker John Boehner rolled out the congressional Republican counteroffer to President Obama's American Jobs Act on Thursday. It wasn't a plan for fundamentally changing economic policy in Washington -- the GOP candidates for president will need to do that -- but it does set out the right pre-conditions for jobs and growth. And it establishes a no-fly zone to deter more Obama regulations and taxes that inhibit hiring.

Mr. Boehner emphasized what he called the "triple threat" from government now facing employers: federal regulations, out of control spending and a business-unfriendly tax code.

"Employers will hire if they have the right incentives," Mr. Boehner said, "but the incentives have to outweigh the costs. Businesses are not going to hire someone for a $4,000 tax credit if government mandates impose long-term costs on them that significantly exceed the temporary credit." That's a not-too-subtle shot at the White House, whose plan dangles tax breaks in front of employers in 2012, then snatches them away in January 2013.

The Boehner speech did warn the Democrats that tax increases are not a viable option. The speaker endorsed a regulatory freeze as well. "I would also urge the president," he advised, to "tell every member of his cabinet: 'Until further notice, I don't want anything that gets in the way of private-sector job creation.'" He said he wants to see passage of the REINS Act, which requires congressional review of costly regulations. There was a vague endorsement of tax reform and lower rates on individuals and corporations. And Mr. Boehner expressed high hopes that the congressional "super committee" will come up with the mandated $1.5 trillion in budget savings. One theme of the speech was that deficit reduction is a "jobs program."

This GOP response to the president's jobs proposal was appropriately tough and critical, but the GOP still is missing a concrete and salable economic revival plan. Those who want the Republicans to go big and go radical will be disappointed. Economically anxious independent voters who want to see a fresh jobs agenda from Republicans will have to keep looking. This was a game plan for playing defense, not offense.” - Stephen Moore writing in The Wall Street Journal Political Diary 09/16/2011

　

Obamanomics: An Edward Bellamy Replay.

Obama's socio-economic policy aka Obamanomics seems familiar? Just can't place the exact time and place? Try this one on for size.

The Gilded Age ended in the Panic of 1883 and a severe recession followed lasting until 1887. The Gilded Age was followed by The Progressive Era until 1920. Does the 1883 panic and severe recession until 1887 sound familiar to the demise of Lehman, the ensuing banking crisis, and present day? Keep this point in mind for a moment. (1) (2) (3)



Edward Bellamy and Milton Friedman

In 1887 Edward Bellamy wrote his fictional utopian novel Looking Backwards from 2000 to 1887. The book was a best seller. (4) Now see the following excerpt from Milton and Rose Friedman's book Free to Choose:


'The members of FDR’s brain trust were drawn mainly from the universities—in particular, Columbia University. They reflected the change that had occurred earlier in the intellectual atmosphere on the campuses—from belief in individual responsibility, laissez- faire, and a decentralized and limited government to belief in social responsibility and a centralized and powerful government.


It was the function of government, they believed, to protect individuals from the vicissitudes of fortune and to control the operation of the economy in the “general interest,” even if that involved government ownership and operation of the means of production.


Cradle to Grave. These two strands were already present in a famous novel published in 1887, Looking Backward by Edward Bellamy, a utopian fantasy in which a Rip Van Winkle character who goes to sleep in the year 1887 awakens in the year 2000 to discover a changed world. “Looking backward,” his new companions explain to him how the utopia that astonishes him emerged in the 1930s—a prophetic date—from the hell of the I880s. That utopia involved the promise of security “from cradle to grave”—the first use of that phrase we have come across—as well as detailed government planning, including compulsory national service by all persons over an extended period.’ Coming from this intellectual atmosphere, Roosevelt’s advisers were all too ready to view the depression as a failure of capitalism and to believe that active intervention by government—and especially central government was the appropriate remedy. Benevolent public servants, disinterested experts, should assume the power that narrow-minded, selfish “economic royalists” had ‘ abused. In the words of Roosevelt s first inaugural address, “The moneychangers have fled from the high seats in the temple of our civilization.” In designing programs for Roosevelt to adopt, they could draw not only on the campus, but on the earlier experience of Bismarck's Germany, Fabian England, and middle-way Sweden."


The New Deal, as it emerged during the 1930s, clearly reflected these views. It included programs designed to reform the basic structure of the economy. Some of these had to be abandoned when they were declared unconstitutional by the Supreme Court, notably the NRA (National Recovery Administration) and the AAA (Agricultural Adjustment Administration). Others are still with us, notably the Securities and Exchange Commission, the Na- tional Labor Relations Board, nationwide minimum wages.


The New Deal also included programs to provide security against misfortune, notably Social Security (OASI: Old Age and Survivors Insurance), unemployment insurance, and public assistance. This chapter discusses these measures and their later progeny.


The New Deal also included programs intended to be strictly temporary, designed to deal with the emergency situation created by the Great Depression. Some of the temporary programs became permanent, as is the way with government programs.


The most important temporary programs included “make work” projects under the Works Progress Administration, the use of unemployed youth to improve the national parks and forests under the Civilian Conservation Corps, and direct federal relief to the indigent. At the time, these programs served a useful function. There was distress on a vast scale; it was important to do something about that distress promptly, both to assist the people in distress and to restore hope and confidence to the public. These programs were hastily contrived, and no doubt were imperfect and wasteful, but that was understandable and unavoidable under the circumstances. The Roosevelt administration achieved a considerable measure of success in relieving immediate distress and re- storing confidence.


World War II interrupted the New Deal, while at the same time strengthening greatly its foundations. The war brought massive government budgets and unprecedented control by government over the details of economic life: fixing of prices and wages by edict, rationing of consumer goods, prohibition of the production of some civilian goods, allocation of raw materials and finished products, control of imports and exports.


The elimination of unemployment, the vast production of war materiel that made the United States the “arsenal of democracy,” and unconditional victory over Germany and Japan—all these were widely interpreted as demonstrating the capacity of government to run the economic system more effectively than “unplanned capitalism.” One of the first pieces of major legislation enacted after the war was the Employment Act of 1946, which expressed government’s responsibility for maintaining “maximum employment, production and purchasing power” and, in effect, enacted Keynesian policies into law.' (5)

Summary 

Obama socio-economic policy is no more than a replay of a golden oldie. Somewhere between FDR policies and Edward Bellamy's utopia.

One point that never receives any press time is that in 1516 Sir Thomas More named his ideal social system “Utopia,” which is Greek for “no place”.  (6)

notes

(1) http://www.answers.com/topic/gilded-age

(2) http://www.answers.com/topic/progressive-era

(3) http://thehistorybox.com/ny_city/panics/panics_article10a.htm

(4) http://librivox.org/looking-backward-2000-1887-by-edward-bellamy/

(5) Free to Choose A Personal Statement, Chapter Three, The Anatomy of a Crisis

(6) http://www.answers.com/topic/sir-thomas-more