Beware the Ppacasaurus

I keep promising myself that I will not write another column on PPACA, but the near-daily revelations make it the gift that keeps on giving for commentators and pundits alike.

The steady tattoo that proves Mrs. Pelosi had it partially correct is unavoidable. As she prophesized, we did have to read it to learn what was in it. As it rolls over the country like a runaway steamroller, it is looking more apocalyptic with each passing day.

I do not use the word “apocalyptic” lightly, but watching this law and its avalanche of regulations unfold, it seems like the only word that actually fits. According to the Oxford English Dictionary, going back to the word’s ancient Greek roots, apocalyptic means “an uncovering or a disclosure of knowledge hidden from humanity in an era dominated by falsehood and misconception”. To paraphrase Johnnie Cochran during another famous miscarriage of justice, “If the word fits…”

If I ran a health insurance company today, I would be looking out the window of my corner office, watching for the arrival of the locusts. Perhaps the view from the many empty offices that used to comprise the underwriting department would be better. PPACA promised the removal of most of the rational pricing mechanisms would be offset by an influx of participants — many healthy — who would become a de facto price mechanism.

The theory is not dissimilar to community rating, the darling of earlier reformers. How did that strategy work out? A quick look at the seven states with community rating applied to individual and small group (two to 50 lives) policies makes quick work of any delusion of its efficacy. New York, Vermont, Massachusetts, New Jersey, Washington and Oregon tried that scheme, and it resulted in the some of the highest premiums in the nation. As we move toward a national variant of that motif, why are so many surprised that costs are beginning to rise exponentially?

The salient question is how could they not rise? Most of the indignation seems to be coming from PPACA supporters. It would be tempting to indulge in a little gloating and schadenfreude, but that would be like being happy because the leak is in your friend’s end of the canoe. Perhaps there is another — more sinister — explanation. More on that later.

Surprise: Serious conditions are expensive
Amidst what we have seen thus far are nuances that we have not yet even contemplated. Recently, I had a conversation with a friend who works in the structured settlement vertical. For the uninitiated, a structured settlement can be either (or both) a financial or insurance arrangement that is used to provide compensation to a claimant for a personal injury.

When you think about pre-existing conditions, these claimants (clients to my friend) may define the cohort. The very nature of their illnesses and/or injuries has shut them out of the traditional health insurance market. Many have had to seek care via Medicaid or Medicare, but that will all change under PPACA. These unfortunate individuals, generally through no fault of their own, have grievous chronic conditions that are expensive to treat.

When the doors to Insurance Land open for them next year, they will happily pay a community rate to purchase insurance in the same market as the rest of us. There is no risk adjustment mechanism for carriers who end up with these folks on their rolls. They will just have to eat the cost of care and pass them along — at least, to the extent they are permitted to do so.

Remember that PPACA treats insurance carriers as de facto public utilities. What they can offer and what they can charge for their offerings is tightly regulated and will likely become more so as we get further along the implementation road.