UPDATE – Oops, original post had wrong link to McDonough article — Fixed now, Sorry.
WASHINGTON DC – […] McDonough, speaking privately to Democrats in a closed session Thursday afternoon, said the president’s hands were tied, to an extent, in trying to move the policy to fit his promise.
“We do not have a deal where everyone who has received a cancellation notice that they can re-buy. We can’t mandate that,” he said, according to sources present. But, he argued, the new policy shifts the burden for cancellations to state insurance commissioners and insurance companies — an important political distinction. If a tea party Republican contends that someone lost his or her insurance because of the law, McDonough said “that is absolutely untrue.”
At one point, Rep. Jerrold Nadler (D-N.Y.) asked why the White House isn’t doing more to blame insurers for policy cancellation notices.
McDonough replied that there are good actors and bad actors in the insurance industry.
“I think it is dangerous to paint with a broad brush,” he said. (LINK)
In essence Obama’s “fixer”, Denis McDonough, is saying there are people in the Insurance industry who are “with us“, and there are some “against us“.
The problem looks like this:
When you think about what they are trying to do in practical terms you can use a paradigm that looks like this. On the x-axis you have “cost or contribution”. On the y-axis you have “use or health”. Both “contribution” and “use” go from low to high. This allows you to quantify the participants in Obamacare thusly:
- Q1 High Use and High Contribution = People who use heavy healthcare and pay high premiums. (Unhealthy Rich)
- Q2 High Use and Low Contribution = People who use heavy healthcare and pay low premiums. (Unhealthy Poor)
- Q3 Low Use and High Contribution = People who use little healthcare and pay high premiums. (Healthy Rich)
- Q4 Low Use and Low Contribution = People who use little healthcare and pay low premiums. (Healthy Poor)
*Rich is used generically as relative to subsidy; the more affluent you are the less subsidy you receive.
High Use | High Use
High Contribution | Low Contribution
(unhealthy rich) | (unhealthy poor)
——————— Q1 | Q2 ————————-
——————— Q3 | Q4 ————————-
Low Use | Low Use
High Contribution | Low Contribution
(healthy rich) | (healthy poor)
Obviously Quadrant 2 (Q2) is the most likely for signups. High use of healthcare and low premiums relative to use. (As described, those on Medicaid the currently uninsured who cannot afford the premium yet use the system)
Conversely Q3 is the least likely to sign up. Low use of healthcare and high premiums relative to use. (As described, the young and those on individual market)
Q1 and Q4 are both designed to break even. They will withdraw from the industry relative to their contribution. High/High and Low/Low. A generally easy equation to balance.
However, the current insurance cancellations are generally all for people who would fall into Q3. They don’t use much healthcare so currently they could customize their plans to be cost effective based on their needs; OR, go uninsured because they are healthy and don’t anticipate any need.
But Q2 (unhealthy poor people) needs Q3 (healthy rich people) for financial balance. If you take out Q3, or reduce the number of people paying in without taking benefit, then the risk pool is weighted all to one side and the insurance companies will incur massive losses.
What Denis ‘the fixer’ McDonough is planning to do – is to allow Q3 to leave the equation (if possible), retain their prior policy structure, and yet replace their needed financial contribution by using taxpayer money allocated within the law to reimburse the insurance companies for the financial inequity.
A temporary forced financial balance. Just long enough in duration to get the constructionist Democrats past the election cycle.
If there’s one thing DC is good at it’s spending money. And if they need to spend a little more to manipulate the ledger and protect their jobs, well, so be it.
Thus is the McDonough/Obama plan: Quantitative Appeasing.