Health for life

According to the White House, the health insurance exchange glitches are a symptom of high demand from a grateful citizenry eager to embrace Obamacare. While articles like this and this suggest that sloppy and amateurish programming is really behind the website crashes, the Disease Management Care Blog is concerned that early high demand - if it exists - could be an early sign of a coming insurance death spiral.

"Death spirals" occur when persons with high levels of risk disproportionately enter an insured population.  When that happens, premiums have to rise to match the increased expenses. That, in turn, causes persons with lower risk to drop their insurance, leading to an even higher proportion of high risk individuals, who drive prices even higher.

The DMCB intuitively doubts that the early high demand described by the White House is the result of healthy latte-sipping millenials and young invincibles having nothing better to do with their web-surfing time.  Rather, the persons most likely to be in a rush to get into the web site are persons who really need insurance.  Those would be the ones facing huge health care bills.
 
Another indication is the relative lack of the standard individual anecdote or "ledes" in media reports that hook the reader into paying attention.  Used by politicians and journalists alike, ledes put a "human face" on a narrative by bridging the personal and the policy.   

Supporters of exchanges would probably like to see something ledes along the lines of...

For years, 25 year old Ivanna Ceeadoc could only lurk outside the local health clinic and watch helplessly as her friends from the coffee shop down the street got free health communications from the nurse practitioners within.  But after using the health insurance exchange....

or

Until he signed up in the health insurance exchange, part-time jazz drummer and retail specialist Hank Erinfersumburgers never had to see a health care provider. Previously unaware of a bleak future of fast food and tight clothes, Hanks zero dollar co-pay now lets him see a dietician and have enough money left over for a lunch......

Young Ivanna and Hank havent made an appearance in the national health insurance exchange narrative because they probably arent part of the story.  More likely, its persons in their 50s and early 60s who have been hold they need a joint replacement, an angioplasty or back surgery....

 Ima Medeesazter was looking at a stack of medical bills a mile high.  Her surgeons plans included weeks in a hospital costing her hundreds of thousands of dollars. Ima put things off, but now that she used the exchange, she can look forward to getting to know her ICU nurses really well.......

Even more worrisome: this astonishing statement by HHS Administrator Kathleen Sebelius that she "doesnt know" how many have enrolled in health insurance since the October 1 opening date.  If the experts running the shop are unaware the Insurance 101 principle of knowing who and why persons are signing up for health insurance, they have no idea about the spiral threat.

Image from Wikipedia

While the prescient Disease Management Care Blog was among the earliest to identify the threat of an Obamacare-induced insurance "death spiral," it missed spotting the potential fallout from a delay of the individual mandate.

As shrewdly pointed out in this Politico article, health insurance timelines require at least three months of claims experience to inform future rate setting.  Once that actuarial work is done, it then has to go through the states Insurance Departments for approval.

In other words, if large numbers of Obamacare customers are allowed to sign up after March 31, 2014, insurance companies wont know what to charge their customers on January 1, 2015. 

While overcharging can be remedied by customer rebates, it remains to be seen how accommodating Washington DC will be if the insurers undercharge. That means negative cash flows, raiding surpluses and facing the ire of their investors and Boards of Directors.

Its baseball season, so think of the death spiral as a potential strike one, and inaccurate rate setting as a potential strike two.

Which brings the DMCB to a dreaded strike three. If it happens, the health orm brand could be irretrievably tarnished.  It could also and sink the current version of Obamacare.

Strike three would be a critical mass of inaccurate insurance policies.

If reports like this and this are even remotely representative of the back-end of Obamacare enrollment, the relative trickle of individuals who are successfully navigating the exchanges are getting commercial polices that depend on a very vulnerable reconciliation process involving many moving parts.  That includes information from the "hub" as well as user-based data entry. As noted in this report, commercial insurers are being forced to manually "clean up" the information prior to issuing their exchange-generated policies.

The DMCB suspects that a "garbage in, garbage out" adage may apply. Thanks to sheer number of inputs, clean-up mistakes are going to be inevitable.  And it will get a whole lot worse if the healthcare.gov web site gets only partially fixed. 

While a few mistakes are acceptable in large risk pools, more than a few could be huge problem at three levels:

1. At a business level, where a core competency of insurance companies is to cover their enrollees and only their enrollees. Insurance companies are really good at knowing who is and who isnt insured for a covered or non-covered service with or without a variety of co-insurance arrangements.  Its more than just getting it right, it goes to the core of their business model. If enough policies are inaccurate, it could bring the finances of some smaller health insurers to their knees.

2. At national health policy-making level, where a critical mass of insured customers with premiums and subsidies mismatched to the risk could destabilize the market and distract our political leaders. Think about the customers who assume a service is covered, providers who expect to get paid accurately, balance sheets that dont lect the truth about claims expense as well as IBNR and regulators who will need to sort it all out.

3. At an Obamacare "brand" level.  Think about all those unfriendly and anecdotal news reports about vulnerable patients who ended up legitimately - if mistakenly - paying more out of pocket for care, or persons mysteriously lacking insurance, or hospitals and doctors being unable to get paid. It could ultimately track back to the HealthCare.gov web site that everyone will loves to hate.

The worst part is that the White House has done such a masterful job of bullying the insurers that its unlikely that theyll want to rock the boat by going public with any notification that their enrollment data is corrupted.  Mr. Obama will naturally claim that he wasnt in the loop and his loyal aides will deflect blame elsewhere.

Strike three, and we may not even see it coming.