Patterico's Pontifications


Sebelius pumping up Dems with attacks on Big Insurance

Filed under: General — Karl @ 9:49 am

[Posted by Karl]

In hindsight, it seems odd that HHS Secretary Kathleen Sebelius had such a low-profile role in Democrats’ attempt to take over the US healthcare system. She now seems to be assigned the role of cheerleader, to pump up the party’s left-wing base. That is the main function of her idle talk about reviving the public option (which even Ezra Klein sees as pssibly self-defeating). It is also the main point of her recent attacks on big rate increases proposed by Big Insurance (Democrat strategist Ed Kilgore and The Hill are among those noting the attacks are “aimed at ginning up public support for their healthcare reform efforts”).

Her primary target is Wellpoint’s Anthem Blue Cross unit in California, which seeks a large rate increase in the individual market. Although Sebelius was quick to note that Wellpoint made billions last year, she ignored the fact that Anthem Blue Cross lost money. Paul Krugman gets half-credit for conceding that point:

Here’s the story: About 800,000 people in California who buy insurance on the individual market — as opposed to getting it through their employers — are covered by Anthem Blue Cross, a WellPoint subsidiary. These are the people who were recently told to expect dramatic rate increases, in some cases as high as 39 percent.

Why the huge increase? It’s not profiteering, says WellPoint, which claims instead (without using the term) that it’s facing a classic insurance death spiral.

Bear in mind that private health insurance only works if insurers can sell policies to both sick and healthy customers. If too many healthy people decide that they’d rather take their chances and remain uninsured, the risk pool deteriorates, forcing insurers to raise premiums. This, in turn, leads more healthy people to drop coverage, worsening the risk pool even further, and so on.

Now, what WellPoint claims is that it has been forced to raise premiums because of “challenging economic times”: cash-strapped Californians have been dropping their policies or shifting into less-comprehensive plans. Those retaining coverage tend to be people with high current medical expenses. And the result, says the company, is a drastically worsening risk pool: in effect, a death spiral.

Krugman then argues that “California’s death spiral makes nonsense of all the main arguments against comprehensive health reform.” However, Krugman ignores the fact that the woes of Anthem Blue Cross — and similar insurers — rest quite a bit with government in the first instance:

Wellpoint’s rate hikes are the direct result of the Golden State’s insurance regulations—the kind that Democrats want to impose on all 50 states. Under federal Cobra rules, the unemployed are allowed to keep their job-related health benefits for 18 to 36 months. California then goes further and bars Anthem from dropping these customers even after they have exhausted Cobra. California also caps what Anthem can charge these post-Cobra customers.

Most other states direct these customers to high-risk pools that are partly subsidized, but California requires the individual market to absorb the customers and their costs. Even as California insurers have had to keep insuring these typically older and sicker patients, the recession has driven many younger, healthier policy holders to drop their insurance—leaving fewer customers to fund a more expensive insurance pool.


This episode is a preview of the adverse selection that would happen nationwide if ObamaCare passes. The Democratic bills would control what insurers could charge and force them to take all comers, regardless of health status. These burdens were supposed to be made tolerable by requiring all Americans to buy insurance or face a penalty. Yet when this “individual mandate” proved to be unpopular, Congress watered it down so that younger customers would be able to pay the penalty knowing they can wait until they’re sick to pay the more expensive premiums. The only way an insurer can make up for these higher costs is to raise premiums.

Mind you, Big Insurance can blame themselves for their current plight. Their lobby — America’s Health Insurance Plans — was quite content to back ObamaCare, so long as there was no public option and the mandates were high enough to guarantee them higher profits in the future. The vast majority of Americans who are already have insurance — and are generally happy with it — deserve better. Unfortunately, the whining reply of AHIP honcho (and former Big Labor hack) Karen Ignagni suggests they still have not learned that you cannot cut a long-term deal with a crocodile.


22 Responses to “Sebelius pumping up Dems with attacks on Big Insurance”

  1. daleyrocks is probably thinking, “It’s about time!”

    But I did get around to it. 😉

    Karl (f07e38)

  2. Karl – Sebelius, a former insurance commissioner, also ignores that approx. $2.2 billion of Wellpoint’s profit came from the sale of a subsidiary, not operations. It’s completely disingenuous of her to claim publicly that she fails to understand why Anthem was asking for such a large price increase in the individual market in California. Apparently she wants carriers to lose money in some lines of business and offset those losses by profits in other lines. That’s a perfect illustration of this administration’s mindset, virtually none of whom have ever managed a private sector business. Companies who want to stay in business ling-term don’t manage their portfolio of businesses that way.

    daleyrocks (718861)

  3. there’s something fishy about your argument daleyrocks.

    redc1c4 (fb8750)

  4. lol

    [note: fished from spam filter. –Stashiu]

    SPQR (595f12)

  5. While I’m unhappy to see private enterprise vilified in this manner, you can’t help but feel just a bit of schadenfreud regarding the insurance industry’s plight. Like their erstwhile partners in the healthcare reform scheme, they paid no attention to what their own customers’ best interests were, instead cutting backroom deals in order to cover their backsides. And the AMA can go over and down the ditch as well – their actions were nothing less than shameful in this instance.

    Dmac (799abd)

  6. “take over US healthcare system”?????? In line one mind you!

    How am I supposed to read after that blatant misrepresentation? I couldn’t. It’s as ridiculous as claiming the war in Iraq was for oil.

    Point of fact, neither chambers’ bill takes over American healthcare. Neither bill TOUCHES American healthcare. The bills reform health insurance by giving those poor suffering insurance companies 30 million new customers.

    Geez, karl, if you’re gonna like this, why not just go [back to?] Free Republic?

    timb (449046)

  7. As non-Freeper Michael Kinsley put it:

    If the government requires insurers to accept all customers and charge all the same price, regulates all aspects of their marketing to make sure they aren’t discriminating, and then redistributes the profits to make sure that no company gets penalized unfairly, in what sense is the industry still “private”?

    And if the funding mechanism is almost entirely socialized, gov’t is in a position to dictate terms to providers.

    Apparently, timmah’s latest tactic is to suggest I’m a hack, but he’s beclowning himself in the process.

    Karl (f07e38)

  8. “The bills reform health insurance”

    timb – The bills “reform” health insurance by turning health insurers into public utilities but call it increasing competition. Some people can talk honestly about what the bills do, others, such as yourself, can’t.

    daleyrocks (718861)

  9. As per his usual MO, timb comes here for 5 seconds, drops his turdlets and spews expectorate, then promptly leaves. Why bother to respond? He never sticks around to defend his baseless invective.

    Dmac (799abd)

  10. “This episode is a preview of the adverse selection that would happen nationwide if ObamaCare passes”

    So now opponents decry the “watered down” mandate.

    imdw (1af0fd)

  11. Actually, what those bills would have accomplished is very close to the old concept of State Corporatism,
    which certain Italians called Fascism, and certain Germans called National Socialism…
    Different masks on the same face.

    AD - RtR/OS! (02a1f9)

  12. imdw,

    Yes. Congress took a bad idea in theory, and would make it worse in practice.

    I’m sure you can come up with many examples of Congress doing this from a lefty perspective.

    Karl (f07e38)

  13. Now, Dmac, that’s just a tad harsh, is it not ?

    timb is doing the very best he can to add valuable clarification to our discussions here … he can’t help it that comments like #7 are his best efforts …

    If timb was capable of understanding the truth and facts behind the talking points he brings here, he would not be able to type anything in support of said talking points …

    timb – if those “30 million new customers” are such a good thing, how about one of the Healthcare-related Unions opens up a company to take care of them ? That Union could provide “Cadillac” care to its own members with the same new company … everyone wins that way, right, timb ?

    Alasdair (82864f)

  14. “That Union could provide “Cadillac” care to its own members with the same new company … everyone wins that way, right, timb ?”

    Alasdair – There is a company called Union Labor Life Insurance which was started by unions in the 1920s. Interestingly, it took a stand against single payer health care in the early 1990s. Predictably it’s also had its share of scandals. I think it only writes supplemental health business these days.

    daleyrocks (718861)

  15. Neither bill TOUCHES American healthcare.

    Why should I ever read anything else you write ?

    California has amazing mandates that run the cost up sky high. As an example, last September, I got a bill for my 19 year old daughter’s Blue Shield that went from $333 for a quarter to $1003 a quarter. That’s exactly three times. Why ? Because they have to cover pregnancy. So, I raised the deductible for her to $2500. What happened ? The premium went back to the level it had been before.

    Actually, come to think of it, that is for two months, I guess instead of three. So, instead of $100/ month, her insurance is $150.

    The enemy is first dollar coverage and mandates. With sensible insurance regulation, it would be about $50/month for healthy young people.

    Mike K (2cf494)

  16. …they still have not learned that you cannot cut a long-term deal with a crocodile.

    Sure you can. It’s just that being eaten becomes not a matter of if, but when.

    Blacque Jacques Shellacque (5ef35b)

  17. I used to work for Farmers Insurance and am very familiar with underwriting and risk analysis. The entire industry depends on correct risk evaluation and any disturbance of the risk invalidates the concept of insurance which is we gather together and insure each other. If all you have are the old and already sick by definition that is a group you cannot insure.

    We (Farmers) once carried property insurance (fire) in an area where there was a 100% chance of fire every five years. We wrote business there under the state assigned risk program in which the overall population actually assumed the risk. Lots has changed since the trial lawyers arrived on the scene and a poor risk spread could break any insurance company in a week.

    Howard Veit (0d2b4f)

  18. I find it interesting that BHO wishes to end the anti-trust exemption for the Insurance industry, an exemption that exists so that they may share underwriting (risk) assessment, which allows them to operate on a level playing field.
    Without the exemption, it would seem to this layman, that most insurance companies would have to increase rates in fields that they do not have extensive histories in, as they would be operating somewhat blind.

    AD - RtR/OS! (02a1f9)

  19. Meat and potatoes…

    GeneralMalaise (0428a9)

  20. Stripping out one time and nonoperating items from Wellpoint’s earnings leaves the company with net income for 2009 of approximately $2.9 billion. It ended the year with 33.7 million enrolled members. Doing the math, that translates into a profit of $86 per enrolled member.

    OMG!! Robber barons!! Gougers!! Bloodsuckers!!!

    daleyrocks (718861)

  21. As non-Freeper Michael Kinsley put it:

    The tragedy of Michael Kinsley’s life is his silly contrarianism and how it can be used by reactionary fools to say “if a ‘librul’ says it, it must be true.”

    His quote is as stupid as your claim, karl. If regulation of insurance policies meant “takeover,” then the US govt currently controls all electrical companies, all cable companies, and, wait a minute, all insurance companies already (see “States, Individual, Insurance Department Regulations)!

    Yet, I still see the executives of those companies practicing business models and buying Gulfstreams. I feel terribly sad for the CEO of Sallie Mae when he learns regulation means “takeover”….I’m betting he somehow keeps the 200 acre Northern Virginia estate with its private golf course, despite the alleged govt “takeover” that made his company possible.

    As for Mike, the only literate person on the board outside of Karl, maybe you should listen to Blue Cross and Blue Shield’s PR machine before you blame mandates. According to them, healthy people are dropping health care and leaving only sick people in the pool, which raises the prices. Mindlessly blaming the government for a fee increase the insurer blames on the market is not exactly….well, a good argument. But, it does illustrate why an individual mandate, much like car insurance, is vital to pass even this anemic legislation.

    Obviously, these bills have absolutely nothing to do with govt “taking over healthcare.” Govt bureaucrats don’t control what drugs you take, what doctors you see, what tests you have, what treatment you receive. Private companies do and they are about to get 30 million new customers.

    Oh, and Karl, I’m not suggesting you’re a hack; you are. You are the one writing stupid phrases you heard from Rush. You are the highly trained professional who relies on defense of his arguments on a quote from someone else and imagines you have said something profound. Quoting someone who is wrong, doesn’t make you right.

    It is, however, something like Jake Tapper or Dana Millbank or Limbaugh or…gee, I guess Frank Lutz (see the first four questions). People who opine on policy without caring about its outcome and whose only goal is obstruction…golly, I think that’s the definition of hack.

    Thanks again for contributing to America being ungovernable, Karl. The partisan chimps here will cheer you along (hi, dmac), but, as you can see from Dr. Mike’s daughter, you’re not exactly helping anyone are you?

    timb (449046)

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