Belmont Club

The Profiteer

One of the terms that eventually makes its appearance in a failing economy is “profiteer”. The further the Venezuelan economy fell the more Hugo Chavez and his successors engaged in fighting “profiteers”. The headlines fairly blare out. “Venezuelan army occupies white goods shops as punishment for ‘profiteering'” says the Guardian. “Venezuela soldiers shut shops accused of profiteering” bannered the BBC. “Venezuela guns for profiteers with price controls” says the latest.

Caracas – Venezuela decreed on Friday a new price-control law that sets limits on company profits and establishes prison terms for those found guilty of hoarding or overcharging, part of President Nicolas Maduro’s efforts to tame inflation.

Maduro, who was elected last year to succeed the late Hugo Chavez, blames a 56.2 percent jump in consumer prices last year on an “economic war” led by political adversaries, while critics call it evidence of the failure of Venezuela’s state-driven economic model.

Today we learn from the Washington Post that AOL chief executive Tim Armstrong reversed himself “after days of pressure on the company. Many employees were angered by a report by The Washington Post that retirement benefits were being changed.”  Readers will recall that Bloomberg reported a cut in the Huffington Post’s employee benefits due to Obamacare.  The Huffington Post itself denounced the cuts as due to Tim Anderson’s greed and selfishness.

Armstrong’s explanation, which partially linked the 401(k) changes to childbirth costs, was criticized as insensitive and unclear. “AOL CEO Tim Armstrong, who makes $12m a year, takes away retirement money from employees for cost of sick babies,” tweeted Guardian editor Heidi N. Moore to 45,000 followers. Armstrong made $12.1 million in 2012 — four times his 2011 salary, according to public filings. …

The change means employees who leave AOL before the yearly match won’t get that additional income — potentially losing out on hundreds or thousands of dollars they would have added to their retirement accounts otherwise. Current employees also won’t benefit from market gains that take place throughout the year.

AOL is not the first company to pare back its employee retirement account funding in this way. In 2012, IBM announced a similar move. At the time, benefits experts predicted more companies would begin to follow IBM’s lead. So far, AOL is the only major company known to have done so.

Other companies, though, have eliminated matching funds altogether. AOL offers matching contributions up to 3 percent of an employee’s salary.

The policy shift was first reported this week by a Washington Post reporter, who wrote that AOL was making 401(k)s “worse for everyone.”

The company had not responded to a request for comment on the policy change as of late Thursday afternoon.

Moreover to let the AOL cut benefits would have proved Obamacare bad even for its advocates. So they are doubtless relieved to see this profiteer get his comeuppance at the hands of public pressure. But he’s not the only one facing trouble for passing on the pain the system produces. The insurance companies are under pressure to offer wider networks than their policies stipulate. Megan McArdle writes:

However much good, sound policy sense narrow networks might make, they are political poison. Regulators and politicians are going to find it very hard to withstand the appeals of constituents who have been restricted to the bargain basement of our nation’s health-care system. I simply don’t think they’ll be able to stand it for very long. This is basically what happened to the managed-care revolution that held down cost growth in the mid-1990s — people in those plans complained bitterly, in their capacity as both voters and employees. A combination of legal and market pressure forced insurers to open up their networks and approve more treatments. And then costs started rising again. As people begin using their Obamacare policies and start running into restrictions, the same sort of pressure will begin to mount.

And indeed, it’s already started, according to the Wall Street Journal:

“Insurers are facing pressure from regulators and lawmakers about plans that offer limited choices of doctors and hospitals, a tactic the industry said is vital to keep down coverage prices in the new health law’s marketplaces.

“This week, federal regulators proposed a tougher review process for the doctors and hospitals in plans to be sold next year through HealthCare.gov, a shift that could force insurers to expand those networks.

“Meantime, regulators in states including Washington and New Hampshire are ramping up their own scrutiny, and lawmakers in Mississippi and Pennsylvania, among others, are weighing bills that could force plans to add more hospitals and doctors.”

Every progressive loves Obamacare it is just that they dislike what it does.

Obamacare is like one of those restaurants in which delectable and juicy meals are advertised on the signboard outside. Unfortunately the diner who actually enters the premises and samples the fare is presented with a meager plate of disgusting mystery food.  When the more burly customers complain to the manager he drags out the short order cook and with a great show forces him to dish out the special reserved cutlets and chops to the irate diners.  But as for the customers too timid or powerless to remonstrate, they must content themselves with the same slop as ever.

In the same manner, when “progressive” policies fail, rather than face the scandal, the solution is typically to enact exemptions to maintain appearances rather than fix the underlying problem.  A little spectacle helps: raid a few stores and ostentatiously give away the contents to the public, with the TV cameras rolling or pressure AOL to return to the status quo ante and — Victory! This creates a Potemkin system where the profiteers are always stealing the food from the bounty which should have been there — “if only Lenin knew”.

Eventually the exemptions become the rule and Potemkinism becomes general. Industry analyst Robert Lazewski notes that Washington is now mulling the possibility of reinstating all the policies that Obamacare canceled for at least 3 more years.  The health program is so great they are thinking of exempting everyone from it for a time. It will be Potemkin all the way down.

Rumors have been circulating in the marketplace all week that the administration was thinking of extending the individual health insurance policies that Obamacare was supposed to have cancelled for as much as three more years.

Those rumors have now come out into the open with Tom Murphy’s AP story that began running today.

That the administration might extend these polices shouldn’t come as a shock. My sense has always been that at least 80% of the pre-Obamacare policies would ultimately have to be canceled because of the administration’s stringent grandfathering rules that forced almost all of the old individual market into the new Obamacare risk pool.

But with the literal drop dead date for these old policies hitting by December 31, 2014, that would have meant those final cancellation letters would have had to go out about election day 2014. That would have meant that the administration was going to have to live through the cancelled policy nightmare all over again––but this time on election day.

The health insurance plans hate the idea of another three-year reprieve. They have been counting on the relatively healthy block of prior business pouring into the new Obamacare exchanges to help stabilize the rates as lots of previously uninsured and sicker people come flooding in. With enrollment of the previously uninsured running so badly thus far, getting this relatively healthier block in the new risk pool is all the more important. The administration’s now doing this wouldn’t just be changing the rules; it would be changing the whole game…

Would it be fair to make almost indefinite a two-tiered health insurance system with some people being able to keep their old policies but prevent others from getting them?

This might be one of those you can’t win for los’in moments for the administration. Stay on the cancellation track and make lots of people mad one more time on election-day or grant another three-year reprieve and make the people you forced to buy the new plan wonder why they can’t have the policy their neighbor across the street has.

The situation is that Obamacare is good for everybody in general, though it is bad for everyone in particular. For that reason the president, Congress and much of the Federal government have already exempted themselves from it and the Unions are working on being exempted as well. Not to be outdone, the Huffington Post has proved that they too can have the chops and cutlets made available from the special freezer.

But as for the rest … maybe we should have Robert Laszewski have the last word on the near-term future of Obamacare:

Is Obamacare, with its clearly liberal versus free market view of what an insurance market should look like, on its way to unraveling? As long as I have your attention, I will update you on a few other market happenings.

How many of the people who bought health insurance for January 1 have paid for their policies?

My review of carriers tells me the number of people who paid, and therefore whose enrollment was not cancelled as of January 1, lies somewhere between 70% and 85% depending on the carrier. The smaller plans are tending to have a better result and the larger plans the worse result. Perhaps because the smaller plans have had a better handle on the messy exchange enrollment just because they had fewer enrollments to deal with.

My informal survey can’t be too precise, but I can say with pretty good confidence that based upon the drop-outs so far, about 20% of the 3.1 million people the administration has said have enrolled through January are not going to stick. That means the real number is closer to about 2.5 million.

Some of this attrition is due to people not paying their bill because they decided not to buy after all. Some to people signing-up twice and just paying once––Healthcare.gov can’t handle duplicate enrollments! Some of it may be due to people wanting coverage but they never got their invoice in all of the January administrative mess. Until the dust settles we really won’t know.

Last fall I said that I thought it would be late January or early February before Healthcare.gov would generally be fixed.

Boy, was I wrong. The to-do list still includes:

  • Problems with the government sending enrollment transactions to the carriers––the 834s––that are still having error rates much too high for high volume processing.
  • The inability of the government to do an automated enrollment reconciliation with the carriers––to be able to sort out who really is covered and who is not––because that system still hasn’t been built.
  • The inability of the government to pay carriers because that system hasn’t been built––carriers are sending estimated bills to the feds.
  • The inability of the government to add and delete people from the system for things like a newborn or a divorce because that system hasn’t been built yet.
  • The inability of the government to handle appeals when people think their eligibility or subsidy calculation is wrong because that system hasn’t been built yet.
  • The inability of the government to cancel people off of Healthcare.gov because they never built that functionality. As a result, I expect they will be reporting bloated enrollment numbers for some time.

At least two carriers have told me that because the government can’t cancel people off the system, it the person shows up next month they can’t reenroll on Healthcare.gov because the government can’t get the old enrollment off the system.

Then there is the question of how many people signing up on the Obamacare exchanges previously had health insurance? Asking different carriers yields different answers. Most often they only know if they had the person on their rolls before––maybe they were with another carrier.

The information I am getting is that anywhere from 50% to 80% of the enrollments are from people who either had their prior policy cancelled or had a policy before but chose to give it up because they could now get a subsidy that made the cost of coverage cheaper for them.

If it’s not working all we need to know is: there’s a lot of profiteers and wreckers out there.

The Profiteer

The Profiteer


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