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Home Publications Blogs Beat the Press Casey Mulligan Argues Insurance Deductibles Should Rise by 40 Percent in 2015 (corrected version)

Casey Mulligan Argues Insurance Deductibles Should Rise by 40 Percent in 2015 (corrected version)

Wednesday, 09 April 2014 07:48

Casey Mulligan has once again left me baffled by the economic analysis in his Economix blogpost. If I'm understanding him correctly he is saying that the deductibles for insurance provided through the exchanges in 2015 should be allowed to rise by 40 percent, based on a rise of this amount in the average premium of non-employer provided insurance policies in 2014 compared with 2013. This is based on the provision of the law that deductibles and other adjustable payments should rise in step with medical inflation.

However as Mulligan points out at length, the 40 percent rise in the cost of the average premium in 2014 was not due to medical inflation but rather due to the fact that policies being issued in 2014 under the provisions of the ACA were more comprehensive than the policies being issued in 2013. Since the insurers priced these benefits into the premiums they charged in 2014, and this was also priced into the original schedule of deductibles and subsidies, why would we expect these costs to rise by 40 percent in 2015 relative to 2014.

Based on this logic, the Department of Health and Human Services has set the target increase for a variety of indexed measures in the ACA at 4.2 percent, its calculation of the overall rate of increase in per capita health care costs. It's not clear where Mulligan sees a problem here. Perhaps he is a better lawyer than me and believes the law requires that these targted payments in future years should rise based on the one time increase in 2014, but it is certainly hard to see any economic logic behind this view. In other words, if there is a scandal in having the targeted payments in the ACA rise in step with health care costs, it's hard to see what it is.


Addendum: An earlier version wrongly said that Mullligan was referring to insurance prices.

Comments (9)Add Comment
you keep using this word
written by Ken Houghton, April 09, 2014 8:19
Economic analysis. Economic logic.

I do not think it means what Casey Mulligan thinks it does.
written by skeptonomist, April 09, 2014 8:26
I don't think Mulligan is saying that there will be a 40% increase every year, although he is saying that the 40% increase in 2014 is not going to be reversed (which is very significant in itself). He seems to be quarreling specifically with the way HHS is only taking a fraction of this increase for adjusting things such as the employer penalty and cost-sharing parameter (deductibles). In other words, he says the employer penalty and cost-sharing parameters are not reflecting the actual increase in premiums. He further appears to be projecting that if there is a 10% rise (for example) in 2015, HHS will only use a small fraction of this.
written by Philippe, April 09, 2014 8:28
"Casey Mulligan has once again left me baffled by the economic analysis in his Economix blogpost"

The correct term is 'extreme-right-wing foaming-at-the-mouth propagandizing', not 'economic analysis'.
What, No Logic?
written by Larry Signor, April 09, 2014 8:33
Of course there is no logic to Mulligans argument. His only possible quibble is over the selection of the base line scenario used to compute ACA cost increases. He is arguing for making the law too expensive to provide coverage to poor people. Just another right wing hack trying to gut the ACA...

"Perhaps taxpayers of the future will remember March 11, 2014, as the day when one cabinet secretary added billions of dollars to the deficit."-Mulligan.
What we SHOULD do
written by ifthethunderdontgetya™³²®©, April 09, 2014 8:58
Medicare devotes over 98% of its expenditures to healthcare.

Under the ACA, insurers are limited to only "80%" overhead. (And they made sure they got to include claims reviews as "health care" and not administration, under the law that they wrote for themselves.)

Medicare for all. It's the right thing to do.
Once again defending ACA (so called)
written by jeff S, April 09, 2014 9:08
"This is based on the provision of the law that insurance premiums should rise in step with medical inflation."

I wasn't aware of this little provision in the law but it comes as no surprise since ACA was written by Insurance Company Rep Max Baccus. What this guarantees is that ACA (also known as free money for nothing for Insurance companies) won't be affordable for very long if it ever was.

Mulligan might be wrong on a detail but he's right in principle. The insurance companies have no interest in controlling HC costs because higher costs mean higher premiums and that core principle of the Health Insurance business is built into the law.

Low Price Flawed Apples to High Price Valued Oranges Do Not a Comparison Make
written by Last Mover, April 09, 2014 10:04

It's the standard flawed tautological baseline of how conservatives view "free markets", in this case the individual health care market before Obamacare.

Because that market was relatively free of "government interference" before Obamacare and therefore provided narrow coverage including elimination of pre-existing conditions with enough fine print to render much of it a useless fraud anyway, Mulligan nevertheless chooses it as the baseline from which "government interference" caused its "price to explode" via more comprehensive coverage.

Mulligan compares low priced flawed apples to high priced valued oranges then proclaims with gross error, that government caused the prices of like apples and like oranges to increase across the board ... by forcing insurers to provide customers "more" coverage than they want, like they had with pre-Obamacare narrow coverage.

However, those low (lower) price flawed apples were already very high prices to individual customers anyway. Now Mulligan wants to use them as the baseline to compensate insurers for providing "more insurance" instead of vastly superior "better insurance" that actually works.

Remarkably, Mulligan adopts the very role of government interference he presumes to oppose by advocating in effect, a higher than necessary price ceiling paid to insurers under Obamacare.

Specifically under Obamacare, insurers are supposed to compete for customers to "reveal" what prices (via the current price ceiling) are ultimately necessary to provide the health care in question.

Why does Mulligan want to step in beforehand and give insurers a windfall? Why isn't Mulligan willing to let the market of competition for insurers established under Obamacare, determine whether the price ceiling is too high or too low, based on whether more insurers enter the market or withdraw?
written by skeptonomist, April 09, 2014 10:52
Since the ACA was basically written by insurance companies and the Heritage foundation, the costs of subsidies are passed on to middle-class consumers above the subsidy levels. The new taxes on high incomes account for only a small part of the new costs. Also there are several reasons why costs are artificially low at the beginning - for example the penalties for non-signup are low, and insurance companies will be competing for the new market, expecting to raise rates later. Also there is no reason to think that costs won't be postponed or hidden for political reasons (which I guess is what Mulligan is accusing Sebelius of).

We can expect conservatives to exploit these real aspects of the ACA. They will be pointing out how the moochers are benefitting at the expense of hard-working Americans, job-creators or not, and they will be raising the alarm every time there is an increase in total costs or premiums. The fact that they have no better alternatives will not stop them.
Find Mulligan incomprehensible.
written by chris herbert, April 10, 2014 11:39
Every time I read a Mulligan article I ask myself 'what does he mean?' Very little of what I think I understand he means, makes any sense. I ignore him.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.