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Tuesday, September 23, 2014 12:01 AM

Video: The Bizarre Reason Your Health Insurance Plan Was Cancelled

There are lots of reasons why your health care plan may have been cancelled but this one is arguably the most bizarre.

Please play the video or the following discussion will not make much sense.

Link if video does not play: Why Your Plan Was Cancelled: Health Insurance and the Affordable Care Act.

I am automatically skeptical of such videos and articles. So I did some digging. It appears the video has it right.

"De Minimis Variation"

PDF page 36 of 40 of Federal Register, Vol. 78, No. 37 / Monday, February 25, 2013 / Rules and Regulations, spells things out nicely.

§ 156.140 Levels of coverage. (a) General requirement for levels of coverage. AV, calculated as described in § 156.135 of this subpart, and within a de minimis variation as defined in paragraph (c) of this section, determines whether a health plan offers a bronze, silver, gold, or platinum level of coverage. (b) The levels of coverage are: (1) A bronze health plan is a health plan that has an AV of 60 percent. (2) A silver health plan is a health plan that has an AV of 70 percent. (3) A gold health plan is a health plan that has an AV of 80 percent. (4) A platinum health plan is a health plan that has as an AV of 90 percent. (c) De minimis variation. The allowable variation in the AV of a health plan that does not result in a material difference in the true dollar value of the health plan is +- 2 percentage points.
Outside of the video, the above obscure government doc was the only place I found an accurate discussion of bronze, silver, gold, and platinum ranges.

Since I did not have the term "de minimis variation" in my search, it took me a while to find that doc.

As Typically Presented

Most sites offer woefully inadequate explanations. For example Medical Mutual accurately defines Actuarial Value (AV) as "the percentage of total spending on Essential Health Benefits (EHBs) that is paid by the health plan," yet, falls woefully short in describing the various metals as follows.

  • Bronze: 60 percent of Actuarial Value
  • Silver: 70 percent of Actuarial Value
  • Gold: 80 percent of Actuarial Value
  • Platinum: 90 percent of Actuarial Value

That is what we have come to believe, and similar explanations appear on numerous healthcare sites. Ten percent ranges seem reasonable, but they are against the law.

Health Insurance AVs

  1. 0-57 Invalid
  2. Bronze AV: 58-62
  3. 63-67 Invalid
  4. Silver AV: 68-72
  5. 73-77 Invalid
  6. Gold AV: 78-82
  7. 83-87 Invalid
  8. Platinum 88-92
  9. 93-100 Invalid

Range Analysis

  • Number of 1-Point Ranges: 100
  • Acceptable Ranges: 16
  • Invalid Ranges: 84

Competition Not

If for any reason, health care providers do not want to modify pre-existing plans that are just outside the acceptable ranges, their only option under the law is cancellation.

The legislation guarantees "If you like your plan you may not be able to keep it."

What reason might insurers have to cancel plans?

Thanks to ACA, the providers all have captive audiences. They all understand that no other provider can offer a plan in anything but the 16 of the 100 possible ranges.

If a plan outside one of the allowed ranges makes a smaller percentage profit than something inside one of the ranges, there is a huge incentive for providers to simply dump the plan.

And Obamacare was supposed to increase competition!

Mike "Mish" Shedlock

Monday, September 22, 2014 4:25 PM

Bidding Wars Stop; Millennials Leave Their Parents' Basements, But Not For Homes; Pent Up Demand?

Bidding Wars Stop

With cash-paying investors on full retreat, existing home sales dropped 1.8% in August, according to the National Association of Realtors.

Lawrence Yun, NAR chief economist says that's a good thing because "first-time buyers have a better chance of purchasing a home now that bidding wars are receding and supply constraints have significantly eased in many parts of the country.”

While I agree it's a good thing that bidding wars stopped, the fact of the matter is home prices are once again in la-la land, especially for cash-strapped millennials loaded up with student debt, in low-paying jobs.

Pent Up Demand?

Yun states, "As long as solid job growth continues, wages should eventually pick up to steadily improve purchasing power and help fully release the pent-up demand for buying.”

There is arguably a pent-up demand for homes by millennials if wages do catch up, but that assumes millennials have the same value-set and attitudes towards debt as their parents.

In reality, median wages have not gone up much but home prices have. More importantly, attitudes of millennials are not the same as that of their boomer parents.

Millennials Leave Their Parents' Basements, But Not For Homes

Fortune reports Millennials Finally Leave Their Parents' Basements.

Jed Kolko, chief economist at Trulia, put together this graph, which shows that Millennials are finally moving out of their parents’ houses, after years of living at home:

But that’s where the good news ends. Over the past two years, Millennials have been moving away from home, but they don’t actually have enough money, or desire, to form their own households. The homeownership rate among Millennials continues to fall:

The falling homeownership rate and falling “headship rate”—which is the share of Millennials who are the head of a household regardless of whether they own real estate—suggest that this generation is still doubling up with friends or other relatives even if they aren’t living with Mom and Dad.

The one bright spot in the Census data for the youngest workers: between 2012 and 2013, median income for those aged 15 to 24 shot up by 10% from $31,000 per year to roughly $34,000 per year. But this is the first time since 2006 that this age group has seen any increase in income at all, meanwhile the cost of shelter has risen 16% since that time. Income for the older half of the Millennial generation rose just 1.1% between 2012 and 2013.

This poor performance could mean that the housing industry is building too many homes, according to Kolka. This is quite the surprise given that single-family housing construction is still well below pre-crisis and even pre-bubble norms.
Census Data

I commend Fortune for linking to the actual data. Few mainstream media articles do.

For those who wish to take a closer look: Income and Poverty in the United States: 2013, Issued September 2014. Here are a couple of charts and stats that caught my eye.

Real Median Income

Full-Time Employment

Real Medium Income Notes

  • Real median household income for those 15-24 shot up by 10.5% but only from $31,049 to $34,311. That's not enough to support buying a nice house in most areas. Moreover, the 15-24 demographic has 6.3 million households and typically that age group does not buy houses anyway.
  • Real median household income for those 25-34 (about 20 million households) was only up 1.1% to $52,702. Home prices rose more, making homes less affordable.
  • Real median household income for those 35-44 (about 21 million households) was only op 0.7%, but to a better looking to $64,973. 
  • Those aged 45-54 and 55-64 actually saw incomes declines of 0.3% and 3.3% respectively on household populations over 23 million each.

Attitudes, Wages, Home Prices

That data is from 2013, but it's very safe to conclude nothing much changed in 2014. None of the income data is supportive of more household formation. Wages have not kept up with home prices in the key demographic groups. Things are far worse if you factor in attitudes.

Attitudes - Fed's Biggest, Most Futile Fight

I have been talking about attitudes for years. For example, please consider Please consider Teenagers Scared Over Plight of their Parents; Attitudes - Bernanke's Biggest, Most Futile Fight

That 2010 post contains an email from "Nancy Drew" about her daughters, aged 15 and 17 with their friends scared half-to-death about their parents' financial woes.

Such memories last a long time.

I wrote then and I repeat now ... "Those fretting over base money supply and foolishly screaming hyperinflation (or even inflation), simply do not understand the dynamics of debt deflation, nor do they understand how small the increase in base money is compared to debt that will be written off, nor do they understand the role of changing social attitudes towards spending."

Clash of Generations

On May 30, 2014 I wrote Clash of Generations - Boomers vs. Millennials: Attitude Change Will Disrupt Wall Street and Corporate America

If you haven't read that, please do. And if you have, I suggest it's well worth another look.

Pent Up Demand to Sell 

Yun thinks another housing boom is just around the corner. He talks of a pent-up demand to buy.

I suggest there's a pent-up demand to sell for three reasons:

  1. Aging boomers seeking to downsize
  2. All-cash equity buyers looking to take profits 
  3. Some of those who were underwater and hoping to get out will do so if and when they get a chance

Will millennials be able to plug all of that pent-up selling pressure? I think not.

Mike "Mish" Shedlock

1:28 PM

Spain Mandates Public Companies "Stop the Bleeding" No More Layoffs

In a concern over votes, regional government spending is on the rise. In addition, Spain Mandates "Stop the Bleeding" No More Layoffs in Public Companies.

"Stop the Bleeding" via translation ...

Nine months after the local elections, the government has begun to show signs of needing a push to overcome the electoral polls. The unemployment remains, along with public debt, macroeconomic data that further tarnishes their results. For this reason, some sources claim that the Government has called on companies possessing some control to hire staff or fail to fire.

Although the discourse of government is to "rationalize public spending" and "reduce the number of officials," the fact is that regional governments are the largest employer in the country. Together, they have more than 2.5 million workers, and despite successive cut plans, thirteen regions have increased their spending on staff.

According to sources, some companies linked to State or investments through the State Society for Industrial Holdings (Sepi), have begun to put the brakes on the dismissal of staff working at the express request of the Government.
Government Tentacles

Here's the essence: Public companies where the Spanish government has tentacles have been ordered "don't fire".

By the way, companies that can't fire, won't hire. Of course that does not apply to the government itself. 

Austerity? Where is it?

With government spending going up in 13 of 17 autonomous regions in Spain and with a slowdown in Europe at large, it's quite easy to predict another budget deficit target miss by Spain.

IMF Forecasts 19% Unemployment in 2019, Asks Spain to Increase VAT

Here's one I missed from July: IMF Improves Forecast for Spain, but Expects Unemployment Rate of 19% in 2019.

Also via translation ...
According to projections by the institution in the medium term, growth will remain at around 1.5 or 2% and unemployment will drop significantly but at 18.7%

The IMF however has improved its growth forecasts, but also stressed the need to raise VAT and cut contributions to Social Security.

The governing body of Christine Lagarde, the Spanish economy expected to grow 1.2% in 2014 and 1.6% in 2015 compared with 0.9% and 1% previously. Also forecast a steady pace of expansion will allow GDP growth of 1.7% in 2016 and 1.8% in 2017, while in 2018 would lead to 1.9% and 2% a year later.

Spain's unemployment rate is 24.5% according to Eurostat.

The scary thing is the IMF is typically overoptimistic on everything. If Spain actually raises the VAT as the IMF wants, it 99% certain Spain will not hit even the IMF's lowered growth targets.

Here's the question of the day: If the IMF is overoptimistic on its 2019 assessment of employment and growth, how long can Spain put up with this?

Mike "Mish" Shedlock

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