Why The US Consumer Is About To Be Crushed

For the past three years, the biggest argument supporters of Obamacare would trot out every single time when faced with opposition to the mandatory tax, would be that despite widespread predictions of soaring prices, US medical care service costs had remained low and even, on occasion, declined (we leave aside the lack of discussion about soaring in deductibles which are one-time charges incurred whenever anyone does need medical care and whose impact on overall medical costs for the consumer is dramatic).

A big reason for this delayed increase in prices is that many insurers were unable to gauge the full base-effect impact of Obamacare on their P&L: after all, effective implementation of Obamacare had been materially delayed thus preventing an apples to apples comparison of incurred fees versus revenues.

All that changed moments ago when core US inflation finally spiked the most since 2013 driven by a 0.7% monthly surge in medical care service costs: the highest since 2007!

 

What’s far worse for the troubled US consumer, this is just the beginning. Because after finally digesting the true cost of Obamacare, any recent insurance prime hikes will seem like a walk in the park compared to what is coming.

According to the WSJ, key insurers in some states are proposing hefty rate boosts for plans sold under the federal health law.

Case in point:

  • In New Mexico, market leader Health Care Service Corp. is asking for an average jump of 51.6% in premiums for 2016. 
  • In Tennessee, the biggest insurer BlueCross BlueShield of Tennessee, has requested an average 36.3% increase. 
  •  In Maryland, market leader CareFirst BlueCross BlueShield wants to raise rates 30.4% across its products. 
  • In Oregon, the largest insurer Moda Health seeks an average boost of around 25%.

All of them cite high medical costs incurred by people newly enrolled under the Affordable Care Act.

The irony is that while the Obama administration “can ask insurers seeking increases of 10% or more to explain themselves, but cannot force them to cut rates. Rates will become final by the fall.”

Why the explosion in costs? Simple: take on look at the IBB or any other biotech index, all of which have exploded in recent years as a result of one key thing: pushing prices of medicines ever higher. Now, finally, these soaring prices which have likewise resulted in soaring stock prices, are about to be funded by everyone else.

Insurers say their proposed rates reflect the revenue they need to pay claims, now that they have had time to analyze their experience with the law’s requirement that they offer the same rates to everyone—regardless of medical history.

Health-cost growth has slowed to historic lows in recent years, a fact consumer groups are expected to bring up during rate-review debates. Insurers say they face significant pent-up demand for health care from the newly enrolled, including for expensive drugs.

“This year, health plans have a full year of claims data to understand the health needs of the [health insurance] exchange population, and these enrollees are generally older and often managing multiple chronic conditions,” said Clare Krusing, a spokeswoman for America’s Health Insurance Plans, an industry group. “Premiums reflect the rising cost of providing care to individuals and families, and the explosion in prescription and specialty drug prices is a significant factor.”

David Axene, a fellow at the Society of Actuaries, said some insurers were trying to catch up with the impact of drugs such as Sovaldi, a pricey pill that is first in a new generation of hepatitis C therapies.

Now Sovaldi has been great news for one group of consumers: those who were long the stock of drug maker Gilead. Alas, now the time has come to pay the piper. And while Sovaldi’s cost at $1,000 per pill and $84,000 for a typical 12-week course of treatment, has been a goldmine for GILD, the piper’s invoice will be massive.

Who pays it? Why everyone dear America. That’s the magic of socialized medicine the Obamcare tax, which means everyone has to chip in for the healthcare of the few. Meanwhile, GILD shareholders are laughing all the way to the bank.

As a result, expect Obamacare premiums, which are about to spike across the board virtually everywhere, to become a key talking point:

Insurance premiums have become a top issue for consumers and politicians as they evaluate how well the law is working. Obama administration officials weathered a storm as some younger, healthier consumers saw their premiums jump when the law rolled out, but were also able to point to modest premiums overall as insurers focused on other ways to keep costs down, such as narrow provider networks.

For 2015 insurance plans, when insurers had only a little information about the health of their new customers, big insurers tended to make increases of less than 10%, while smaller insurers tried offering lower rates to build market share.

Since the insurers have now had a chance to evaluate the impact of Obama’s landmark tax on the top- and bottom-line, they have decided that they will need to charge the mandatorily insured Americans more. Much more. After all, it’s not like Americans have much of a choice to say no to a “mandatory” tax.

BlueCross BlueShield of Tennessee, CareFirst in Maryland and Moda in Oregon all said high medical claims from plans they sold over insurance exchanges spurred their rate-increase requests. 

The Tennessee insurer said it lost $141 million from exchange-sold plans, stemming largely from a small number of sick enrollees. “Our filing is planned to allow us to operate on at least a break-even basis for these plans, meaning that the rate would cover only medical services and expenses—with no profit margin for 2016,” said spokeswoman Mary Danielson. The plan’s lowest monthly premium for a midrange, or “silver,” plan for a 40-year-old nonsmoker in Nashville would rise to $287 in 2016 from $220. 

* * *

Moda Health said that with more than 100,000 individual members, it had the best data “on the care actually being received by these Oregonians. Our proposed rates reflect that.”

Under Moda’s proposal, a 40-year-old nonsmoker in Salem would pay $296 a month in 2016 for a silver plan, up from $245 a month this year. “It is a balance,” said Oregon Insurance Commissioner Laura Cali of her rate-review process.

But wasn’t the Affordable Care Act supposed to make healthcare prices more, well, a?. Well no, as we have explained time and again, most recently last summer.

But the biggest irony: just as Obamacare was the primary reason for the US Q3 GDP surge to 5%, as we explained last December, fooling many pundits into believing the US economy was finally in a self-sustaining liftoff mode…

… so this year it will be up to Obamacare to single-handedly pump up core CPI inflation – that biggest missing link from the Fed’s “successful monetary policy” checklist.

As for US consumers? Why, they are about to get the short end of the stick again, as any and all “gas savings” now and in the future, will be once again spent on, you guessed it, health insurance.

The problem with that being that unless oil crashes again, there are no gas-savings to be had. Which means one thing: the only thing crushed yet again will be the US consumer, that 70% component of US GDP.

But don’t worry: when the US economy slows down to a crawl once more, and posts a negative GDP print this time during the summer, there will be a double seasonal adjustment for that.

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About the Author: Tyler Durden

  • g13man

    In New Mexico, market leader Health Care Service Corp. is asking for an average jump of 51.6% in premiums for 2016. [ all the illegals ? ][ grab anothers card and use it , they all lookand sound the same ]

    In Maryland, market leader CareFirst BlueCross BlueShield wants to raise rates 30.4% across its products. [ lobbyist expenses and payoffs ][same as the above , previous mayor O-mally welcomed the illegals to make it to governor [do u really want him as prez]]

    any one else want to fill in the gaps for the other two listed states ?

  • Joe Cabot

    Thanks for confirming that you are medicated. Explains much.

  • berky

    do you read any of the articles that you post on?

    “In New Mexico, market leader Health Care Service Corp. is asking for an average jump of 51.6% in premiums for 2016.”

  • Joe Cabot

    Read the article.

  • JohnDille

    WHAT 51.6% INCREASES ARE YOU TALKING ABOUT!!! YOU ARE GOING TO HAVE TO CUT AND PASTE THE DATA YOU ARE REFERING TO, OR SOMETHING, BECAUSE I HAVE NO CLUE WHAT YOU ARE TALKING ABOUT!

  • Joe Cabot

    Uh, in a previous response you noted that increases like these have been occurring for decades, so I asked you to document where 51.6% increases have been occurring for decades. Apparently you can’t, just like you can’t support your claim that you are a published economist.

  • JohnDille

    FILIBUSTERING WHAT??? I ALREADY SAID I HAVE NO IDEA WHAT THE HECK YOU ARE REFERING TO… THE 51.6% INCREASE IN ILLEGALS THAT REPUBLICANS WANT TO COME INTO NEW MEXICO TO DO THEIR DIRTY WORK FOR THEM, AT SLAVE LAVOR WAGES??? AS FOR MY PAPERS… I ALREADY TOLD YOU WHERE TO FIND THOSE… AS WELL… GO TO THE RELEVANT LIBRARIES… IN ILLINOIS AND HERE IN IDAHO AND DOWN IN NEVADA… AND SPEND ALL THE TIME YOU WANT AT MICROFICHE MACHINES, LOOKING FOR STUFF THAT WAS PUBLISHED WHERE AND WHEN AND WHAT THE TITLES WERE I HAVE NO IDEA!! I AM NOT LIKE YOU RIGHT WINGERS… I PUT STUFF OUT FOR PUBLICATION… AND IF IT GETS PUBLISHED I USUALLY DO NOT EVEN KNOW, BECAUSE I HAVE RARELY BEEN PAID FOR MY STUFF… ITS MY PUBLIC SERVICE WORK…. ALL OF IT!

  • Joe Cabot

    You are filibustering again. You make a lot of claims here than go into avoidance mode when asked to support them. By the way, still waiting to learn where we can find your published economics papers.

  • JohnDille

    51.6% INCREASE…. IN WHAT??? REPUBLICANS WANT 51.6% MORE ILLEGALS TO COME ACROSS THE BORDER SO THEY CAN HIRE ALL OF THEM??? WHAT WOULD BE NEW ABOUT THAT??? THEY WERE GETTING A MILLION TO TAKE CARE OF ALL THEIR CITIZENS, SO NOW THEY WANT A MILLION AND A HALF??? THEY WANT A 51.6% INCREASE IN FUNDING TO USE TO KEEP REPUBLICANS OUT OF THE STATE, SO THEY WON’T DO ANY MORE DAMAGE??? I HAVE ABSOLUTELY NO IDEA WHAT YOU ARE REFERING TO!!

  • Joe Cabot

    New Mexico is asking for a 51.6% increase for 2016. This type of increase has been going on for decades? Please document anything that shows that this state has been having 51.6% annual increases over the decades. You must have had one of those mythological papers published on this subject as well.

  • JohnDille

    THE INCREASES MENTIONED HAVE BEEN HAPPENING FOR DECADES… WHICH WOULD BE OBVIOUS IF THE CHART THEY SHOWED WENT BACK MORE THAN 10 YEARS! THE MOST RECENT SPIKE IS PRETTY MUCH IDENTICAL TO THE SPIKE THAT HAPPENED ABOUT 7 YEARS AGO… AND NOT MUCH MORE THAN THE NUMEROUS SPIKES SINCE THEN! AS FOR MY MEDICAL CARE PLAN… I AM ON MEDICARE… AND WILL REMAIN ON MEDICARE UNTIL REPUBLICANS FIGURE OUT A WAY TO DESTROY IT SO THEIR CORPORATE BUDDIES CAN ROB US OLD FOLKS BLIND BY CHARGING US FOR STUFF WE CAN GET MORE OR LESS FOR FREE… IF WE REALLY NEED IT! MY WIFE WILL TURN 65 IN A YEAR OR SO, AND ALREADY THEY ARE SENDING HER SUPPLEMENTAL INSURANCE PLANS SO THEY CAN SIPHON OFF BIG MONEY OUT OF HER POCKETS, USING SCARE TACTICS AND SUCH, LIKE REPUBLICAN DOMINATED CORPORATIONS ALWAYS DO!!! MOST PEOPLE OPT OUT OF OBAMACARE BECAUSE THEY DO NOT NEED IT… THEY ALREADY HAVE THEIR OWN INSURANCE VIA CORPORATE HEALTH CARE INSURERS AND WHAT NOT! A LOT OF THOSE PEOPLE COULDN’T KEEP THEIR PREFERED DOCTORS, EITHER…. AND THEIR COSTS ARE AS GREAT AS… OR MUCH GREATER THAN… OBAMACARE! IF OBAMACARE HAD BEEN AVAILABLE TO MY WIFE WHILE SHE WAS STILL WORKING AT HER LAST JOB, NO DOUBT THE COMPANY WOULD HAVE CONVERTED EVERYBODY TO OBAMACARE… BECAUSE THEY COULD HAVE PROVIDED BETTER INSURANCE UNDER OBAMACARE… AT LESS THAN HALF THE TOTAL COST!!! REPUBLICANS WILL NEVER MENTION THAT, OF COURSE!!!

  • Joe Cabot

    Uh, maybe the increases that are noted in the article just up the page, although you will undoubtedly yell and scream that those are fake, rigged, republican, or lies. Oh, and if O’BomberCare is so wonderful, why did you opt out?

  • JohnDille

    WHAT MASSIVE INCREASES WOULD THAT BE??? AT MY WIVES LAST FULL TIME JOB… THEY SHUT DOWN AND MOVED THEIR OPERATIONS TO CHINA, AFTER SOME REPUBLICAN CRIMINALS BOUGHT OUT THE COMPANY… HER EMPLOYER WAS PAYING RIGHT AT ONE THOUSAND DOLLARS A MONTH FOR HER HEALTH INSURANCE… SHE WAS PAYING NOT QUITE $ 200… FOR A PLAN THAT INCLUDED A $ 7,500 DEDUCTABLE!!! WHAT A BARGAIN!!! FOR SEVERAL REASONS, WE DECIDED NOT TO GET OBAMACARE FOR HER LAST YEAR… WE JUST PAID THE PENALTY… ALL $ 122 OF IT!!! WE WILL PAY THE PENALTY AGAIN THIS YEAR, AND I WOULD ESTIMATE, BASED ON OUR INCOME AND EXPECTED INCOME AND ALL THAT SORT OF THING… THAT THE PENALTY WILL BE HIGHER THIS YEAR, PROBABLY AS MUCH AS $ 200!!! THAT WILL SURELY WIPE US OUT!!! HECK… WE COULD BE TAKING ALL THAT PENALTY MONEY AND COULD BUY ONE CHEAP PIZZA EVERY MONTH FOR THE WHOLE YEAR!!! FACE IT… ALL THE HATRED FOR OBAMACARE WAS JUST CORPORATEIONS TRYING TO SCARE PEOPLE INTO OPPOSING REAL HEALTH CARE REFORM… BECAUSE REAL HEALTH CARE REFORM WOULD HAVE CUT THE INCOMES OF NUMEROUS GIANT CORPORATIONS AND THOSUANDS OF VERY WEALTHY PEOPLE BY TENS OF BILLIONS OF DOLLARS A YEAR… THAT THEY HAD BEEN STEALING FROM WORKING PEOPLE AND THE GOVERNMENT FOR THE PAST SEVERAL DECADES!!!

  • Joe Cabot

    So you consider massive premium increases to be an indication of a system that is working well? I guess that passes for logic in your world. If these increases were occurring under a republican president, the veins in your head would be bulging to extremes never seen as you yelled and screamed at how the poor, downtrodden masses were once again be sacrificed at the altar of capitalism.

  • JohnDille

    HOW ARE THEY SAME??? BUSH DID NOTHING ABOUT THE GROWING HEALTH CARE CRISIS… THAT STARTED GROWING WAY BACK UNDER REAGAN… THEN HILLARY AND BILL CLINTON AND MANY DEMOCRATS TRIED TO DO SOMETHING ABOUT IT WAY BACK IN THE EARLY 90’S… AND THE REPUBLICANS AND THEIR CORPORATE BACKERS SHUT THEM UP! NOW… FINALLY… OBAMA HAS GOTTEN A WATERED DOWN VERSION OF A HEALTH CARE BILL PASSED… WITH TOTAL REPUBLICAN OPPOSITON TO IT… AND IT SEEMS TO BE WORKING VERY WELL! ALL THE VICIOUS ATACKS AGAINST OBAMACARE HAVE QUIETLY DISAPPEARED, THE OBSERVANT PERSON WILL NOTICE!!! REPUBLICANS AND DEMOCRATS ARE THE SAME…. IN THE SAME WAY THAT WHITE SLAVE OWNERS AND THEIR BLACK SLAVES WERE THE SAME!!! AND THAT SEEMS TO BE A PRETTY GOOD EXAMPLE OF JUST HOW””” SIMILAR””” DEMOCRATS AND REPUBLICANS ARE… BOTH ARE HUMANS… THOUGH WE CAN BE SKEPTICAL THAT RIGHT WING REPUBLICANS ARE HUMAN… BUT BEYOND THAT… NOT SO MUCH!!!

  • JohnDille

    NEVER HEARD OF PART D…. TELL ME ABOUT IT BECAUSE I AM ON MEDICATE AND HAVE NEVER EVEN HEARD OF IT!!!

  • Joe Cabot

    Well, at least you admit that O’Bomber and Bush are pretty much the same president. That’s a big step that you have taken. Kudos.

  • notthatGreg

    Yeah, you’re probably right. Medicare Parts A and B are good, because a Democrat president signed them into law, but Part D is bad because EVIL George Bush signed it into law. Solid logic.

  • JohnDille

    All that changed moments ago when core US inflation finally spiked the most since 2013 driven by a 0.7% monthly surge in medical care service costs: the highest since 2007! WOW… JUST LOOK A THAT SPIKE IN MEDICAL CARE COSTS!!! IT IS ALMOST AS BIG AS BACK IN 2007 AND 2006 AND 2005 AND 2004 AND 2003, WHEN GEORGE BUSH DID…. WHAT??? OH YEAH… HE JUST WENT ALONG WITH THE MEDICAL CARE COST ESCALATION THAT BIG CORPORATIONS HAVE BEEN CRAMMING DOWN OUR THROATS FOR THE LAST 30 TO 40 YEARS!!! REPUBLICANS ARE GOOD AT GOING ALONG WITH CORPORATE FRAUD AND ABUSE!!! THAT IS JUST ABOUT THE ONLY THING THEY ARE GOOD AT, BUT… HEY… THEY ARE GOOD AT SOMETHING!!!