On the Third Hand: Risk premiumBlog added by Allison Bell on May 8, 2014
Allison Bell

Allison Bell

Joined: August 22, 2012

Assuming that the Patient Protection and Affordable Care Act (PPACA) exchange system will continue to exist, policymakers should try to fix obvious problems with rules quickly, then do what they can to keep the rules the same for at least a few years.

I've been trying to do some interviews with people involved with setting up and running the public exchange system.

One thing that's striking is that the PPACA players have a hard time even expressing what they've experienced in any kind of detailed words fit for publication on a respectable website.

I think the theme behind what people are telling me is, "Please make the shaking and spinning stop. My stomach hurts."

Three health care economists -- Ralph S.J. Koijen, Tomas J. Philipson and Harald Uhlig -- have provided relevant data on the effects of unpredictable changes in government health policy on the health care market in a working paper published behind a paywall on the National Bureau of Economic Research website.

The gist of the article: Because publicly traded medical research and development firms are so vulnerable to government whims, investors demand a risk premium of 4 percentage points to 6 percentage points to invest in those companies' stocks.

In other words: Terror of changes in government policy is very expensive.

On the one hand: It doesn't look as if the authors of that paper tried to apply that hypothesis to the health insurance market, let alone PPACA World.

On the other hand: It seems reasonable to think that the same principle affects the commercial health insurance markets.

On the third hand: Regulators seem to think they can rearrange tens of billions of dollars in health finance system cash flows in a few weeks by waving their hands around. Maybe they can fix what ails commercial health insurers by having little statutory authority accounting fairies go into the blanks and change the numbers to make them look better.

If regulators can make Medicare look better with a little accounting assumption window dressing, why not do the same for commercial health insurance? Should work great! (At least until the insurance company employees want paychecks, the doctors want reimbursement checks, and the patients want care...)

Originally published on LifeHealthPro.com
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