What you need to know when you hear conservatives predicting that health insurance premiums will skyrocket

Apparently conservatives have started searching for another doom-and-gloom narrative about Obamacare now that their attempts to drum up individual horror stories has been a bust. From the look of things, I'd suggest that the next line of attack will be to forecast that Obamacare is going to result in skyrocketing health insurance premiums next year. The opening salvo on this one came from Elise Viebeck at The Hill yesterday.

Unfortunately, the first thing you need to know is a little bit about the reporter writing the story. That's what our polarized media means these days. And as BooMan points out, Ms. Viebeck comes from the same "journalism" outfit that has given us Rich Lowry, Jonathan Karl, Ross Douthat, and Dinesh D'Souza.

Now that we have that context, its time to look at the actual arguments she's making. Jonathan Cohn does a comprehensive job of covering that. But I want to emphasize two things.

First, back in December 2011, Rick Ungar told us all about "the bomb buried in Obamacare." Its something called the "medical loss ratio" (MLR). What it means is that - as a result of ACA - insurance companies have to limit the amount of premiums dollars they spend on overhead and profit to 15% (20% for those in the individual market). Anything charged above and beyond that has to be refunded to their customers. Based on how insurance companies operated in the past, this is likely to decimate the resources they put into investigating and denying claims (a HUGE part of their previous business model). That's why Ungar called it a "bomb."

But it also means something else. When insurers set their prices on the exchanges this year, it was nothing more than educated guesswork because they didn't really know who would sign up. But in the future, unless they want to forgo that 15-20% allowed for overhead and profit, the rates will be set based on their medical loss ratio. In other words, it will be a combination of claims plus 15-20% overhead. Done deal. Anyone who leaves this "bomb" out of their analysis (as Ms. Viebeck did) is simply blowing hot air.

Secondly, if the Kaiser Family Foundation report I wrote about previously is any predictor, it might be that the for-profit health insurance giants like WellPoint and UnitedHealthGroup are the ones talking anonymously on background to Ms. Viebeck about big rate increases next year. That's because in many of the states Kaiser looked at, they are losing huge shares of the individual market to nonprofit companies and co-ops charging lower rates (ie, those who can forgo the "profit" part of "overhead and profit"). That could create a whole new kind of "death spiral" for these big companies as they insure a smaller portion of the market and therefore have to adjust their premiums just to capture that 15-20%. The story isn't simply about how many people sign up on the exchanges - its also about what companies they sign up with. IOW, that old free market concept called "competition" might be about to bite the big fellas in the ass.

And so, let me remind you of what Rick Ungar said almost 2 1/2 year ago:

This [MLR] is the true ‘bomb’ contained in Obamacare and the one item that will have more impact on the future of how medical care is paid for in this country than anything we’ve seen in quite some time. Indeed, it is this aspect of the law that represents the true ‘death panel’ found in Obamacare—but not one that is going to lead to the death of American consumers. Rather, the medical loss ratio will, ultimately, lead to the death of large parts of the private, for-profit health insurance industry...

If you thought that the Obama Administration chickened out on pushing the nation in the direction of universal health care for everyone, today [the day the new medical loss ratios went into effect] is the day you begin to understand that the reality is quite the contrary.