Coyote Blog

For years Progressives, led by President Obama during the legislative process for the PPACA, have attacked health insurance companies for their profits and overhead.  I never understood the former -- at generally 5% of revenues or less, even wiping health insurance profits out altogether would offset less than a year's worth of health care inflation.  The Progressive hatred for health insurance overhead was actually built into the PPACA, with limits on non-care expenses as a percent of premiums.

Progressive's justification for this was to compare health insurer's overhead against Medicare, which appears to have lower overhead as a percentage of revenues.  This is problematic, because lots of things that private insurers have to pay for actually still are paid for by the Federal government, but just don't hit Medicare's books due to funky government accounting.  Other private costs, particularly claims management, are areas that likely have a real return in fraud reduction.  In this case, Medicare's decision not to invest in claims management overhead shows up as costs elsewhere, specifically in fraudulent billings.

None of these areas of costs make for particularly fertile ground for demagoguing, so the Progressive argument against health insurance overhead usually boils down to marketing.  This argument makes a nice fit with progressive orthodoxy, which has always hated advertising as manipulative.  But health insurance marketing expenses mainly consist of

1. Funding commissions to brokers, who actually sell the product, and
2. Funding people to go to company open enrollments and explain health care options to participants

Suddenly, now that Progressives have taken over health care via the PPACA and federal exchanges, their tune has changed.  They seem to have a near infinite appetite for marketing money to support construction of the exchanges (which serve the role of the broker, though less well because there is no support)  and information about options to potential participants.  That these are exactly the kinds of expenses they have railed against for years in the private world seems to elicit no irony.  Via Cato

Now we learn, from the Washington Post’s Sara Kliff, “Sebelius has, over the past three months, made multiple phone calls to health industry executives, community organizations and church groups and directly asked that they contribute to non-profits that are working to enroll uninsured Americans and increase awareness of the law.”

This follows on from revelations in California (revelations that occurred before a new California law that makes PPACA costs double-secret).

[California] will also spend $250 million on a two-year marketing campaign [for its health insurance exchange]. By comparison California Senator Barbara Boxer spent $28 million on her 2010 statewide reelection campaign while her challenger spent another $22 million.

The most recent installment of the $910 million in federal money was a $674 million grant. The exchange's executive director noted that was less than the $706 million he had asked for. "The feds reduced the 2014 potential payment for outreach and enrollment by about $30 million," he said. "But we think we have enough resources on hand to do the biggest outreach that I have ever seen." ...

The California Exchange officials also say they need 20,000 part time enrollers to get everybody signed up––paying them $58 for each application. Having that many people out in the market creates quality control issues particularly when these people will be handling personal information like address, birth date, and social security number. California Blue Shield, by comparison has 5,000 employees serving 3.5 million members.

New York is off to a similar start. New York has received two grants totaling $340 million again just to set up an enrollment and eligibility process.

These are EXACTLY the same sorts of marketing costs progressives have railed on for years in the private world.

Proponents of Obamacare and other aggressive government health care interventions often argue that government health insurance will be less expensive than private health insurance.  Ignoring the whole history of government provided services (which you have to do to accept this argument), it is entertaining to press them on what costs will go away.

First, they will argue "profits."  Health insurers "obviously" make a lot of profit, so doing away with that will amount to a lot of savings.  Several years ago, when Obama was actively demagoguing** the health insurance business, the profit margins of health insurers were all around 3-4% or less.  Which means in exchange for eliminating all private profit incentives towards efficiency and productivity, we get a 3% one time cost reduction.  Not very promising.

After profits, Obamacare supporters will point to administrative costs.  Their philosophy that private insurance administrative costs drive health inflation is built into Obamacare, which places a cap on non-care related costs as a percentage of premiums.  I would argue a lot of this cost is claims management and fraud detection that government programs like Medicare don't have, to their detriment, but let's leave that aside.  I think most Obamacare opponents are convinced that there are billions in marketing costs that could be eliminated.  This has always been their bete noir in pharmaceuticals, that drug companies spend too much marketing.

I have said for years that to a large extent, what outsiders call "marketing" in health insurance is actually customer service and information, in particular agents who go out to companies and help people understand and make their insurance choices.

Well, it turns out that when the shoe is on the other foot, Obamacare supporters suddenly are A-OK with massive health insurance marketing costs, even when what is being marketed is essentially a monopoly:

[California] will also spend $250 million on a two-year marketing campaign [for its health insurance exchange]. By comparison California Senator Barbara Boxer spent $28 million on her 2010 statewide reelection campaign while her challenger spent another $22 million.

The most recent installment of the $910 million in federal money was a $674 million grant. The exchange's executive director noted that was less than the $706 million he had asked for. "The feds reduced the 2014 potential payment for outreach and enrollment by about $30 million," he said. "But we think we have enough resources on hand to do the biggest outreach that I have ever seen." ...

The California Exchange officials also say they need 20,000 part time enrollers to get everybody signed up––paying them $58 for each application. Having that many people out in the market creates quality control issues particularly when these people will be handling personal information like address, birth date, and social security number. California Blue Shield, by comparison has 5,000 employees serving 3.5 million members.

New York is off to a similar start. New York has received two grants totaling $340 million again just to set up an enrollment and eligibility process.

** Don't be fooled by the demagoguery.  This is standard Obama practice.  In exchange for eating sh*t from Obama in public, private companies get all kinds of crony favors in private.  Remember, health insurers got the US government to mandate that everyone in the country buy their products, and got the Feds to establish trillions in subsidies to help people do so.  This may be the greatest crony giveaway of all time, and to cover for it, like a magician distracting your eye from the sleight of hand, Obama made it appear in public as if he were health insurers' greatest enemy, rather than their sugar daddy.