This week the U.S. Department of Health and Human Services announced that nearly 7 million consumers would receive $330 million in refunds from health insurers.
Under the Affordable Care Act, the carriers must spend 80 cents of every dollar in premiums towards medical care or steps to improve healthcare quality.
That leaves 20 cents for things like salaries, bonuses and other administrative costs.
This provision of the ACA is often called the 80/20 rule.
Q. What’s the reason for the 80/20 rule?
Kaiser Family Foundation Senior Vice President Larry Levitt was pretty succinct when he said “this is really a protection against insurers trying to gouge people.”
When Obamacare architects were designing the law, they wanted to make sure most of the money consumers spent on premiums would actually be dedicated to medical care.
While Levitt says 80/20 was a late addition to the legislation, he believes it’s actually changing the nature of the insurance industry.
“It’s in effect putting a cap on overhead and profits and that’s a pretty dramatic step that I don’t think people fully appreciate,” says Levitt.
Q. I’ve paid my premiums and haven’t visited the doctor once this year. Will I see some money in my mailbox soon?
The only way someone qualifies for a rebate is if the particular insurance plan you’ve enrolled in falls short of the 80/20 ratio.
If you’re enrolled in an insurance policy that meets the target, you won’t be getting a check any time soon.
If you get coverage at work, your company gets the refund, or a credit towards next year’s coverage.
Q. How is this rule impacting insurance companies?
When the 80/20 rule began in 2011, insurers paid out more than $1 billion in rebates. This year it’s a third that much.
Matthew Eyles with Avalere Health says the industry has clearly figured out how to calculate their expenses and how money they’ll spend providing medical coverage.
“This is almost pixie dust really if you think about the amount of premiums that insurers collect in hundreds of billions,” he says.
Under this new system there is little incentive for insurers to inflate premium prices, particularly on the health exchanges.
If prices are too high, not only are consumers less likely to buy those plans, insures know they’ll have to return profits at the end of the year.
In that regard, Kaiser’s Larry Levitt says insurers are becoming more like public utilities.
“Insurers still have some flexibility in how they design these products. But an insurance policy is a much more standardized product. And the pricing is much more regimented as well,” he says.
Q. If insurers can’t make as much off of premiums, are they finding new ways to make profits?
HealthLeaders-InterStudy analyst Paula Wade says insurers can make up any lost revenue by increasing deductibles, co-pays and other out-of-pocket expenses consumers face.
“If you look at the how the major insurers are doing, they are doing very well,” she says.
“I wouldn’t lose any sleep worrying about their profits.”
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Markets have been setting records pretty much every other week for months, investors are making record money... and Wall Street?
Well, it’s looking a little lean.
"I think it’s really tough, even for people who are really good at it, to be honest," says Jesse Marrus, president of StreetID, a financial careers service. He says jobs on Wall Street have been drying up. "It’s definitely an ‘eat what you kill’ business, so there are people losing their positions in that space."
Why is there less of a killing to be made for Wall Street workers?
"Trading volumes are way lower than they were," explains Max Wolff, chief economist at Citizen VC. Trading volumes - a.k.a. how many trades are done per day - is where Wall Street makes its money. Fewer trades mean a lot fewer commissions. Trading volume has been really low since the financial crisis. Last year, the number of trades was a third lower than it was in 2009.
A big reason for the low trading volume is the low level of investor enthusiasm. "It's no secret that this is one of the world’s most hated rallies," says Wolff. "It’s been pretty clear that the markets got well ahead of the macroeconomic health of the U.S. and they've stayed there. And everyone kept waiting for this correction that didn’t come and slowly, begrudgingly people jumped on board, because they couldn’t afford just to watch other people make money forever. But they didn’t believe in it and they definitely don’t want to catch the elevator ride down that everyone’s afraid may come."
So investors are putting their money in the markets and leaving it there: They’re not buying a hot new stock or selling it off based on a hot tip. Instead, they’re buying and holding. "For there to be trades, there have to be differences of opinion," says Lawrence White, a professor of Economics at the NYU Stern School of Business. "Somebody has to think, 'It’s a good time to buy!' and somebody else has to think, 'It’s a good time to sell!' When trading volumes are lower, it just means there’s less diversity of opinion, more consensus."
All of that consensus has had a very chilling impact on Wall Street. "It’s really alarming for the people who are in the broker/dealer seats that really rely on the trading volumes," says Marrus. "Despite the record highs, it’s still really hard for them to make the commissions that they were making and make the livings that they were making because the volume’s low and the volatilities are so low."
But even if volatility and volume come back, Wall Street workers probably won't be back to the good old days. Electronic trading has replaced brokers and traders to a large extent and the future Wall Street broker will probably look a lot more like Hal than a power player in a pin-striped suit.
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The Agricultural Act of 2014 – also known as the Farm Bill – was passed by Congress earlier this year. We talked with Secretary Tom Vilsack of the U.S. Department of Agriculture about what he thinks should happen next:
On agricultural business in rural America:
“I think it’s important for the folks to understand that there’s great profit opportunity and business opportunity in rural America. We’re about 75 percent of the land mass in the United States. The vast majority of America is located in rural areas. It’s where most of our food comes from, a lot of our water. So there’s an importance to this place and that’s why I think it’s worthy of attention and worthy of investment.”
Vilsack says we need to think more about agricultural products beyond food and fuel. He also said the infrastructure needs of rural America are well documented and need improvement:
“The American Society of Civil Engineers suggests that our infrastructure would rank a D+ - well, that’s not good enough for us to be competitive in a global economy.”
Rural America has had a hard time bouncing back from the recession. He says this bill will supply for jobs in that area:
“There are a lot of people looking for work that maybe have a community college education, maybe a high school education. These construction jobs, these trade jobs are great opportunities for them to rebuild the middle class.”
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Alan “Ace” Greenberg, who rose from a Bear Stearns clerk in 1949 to become the firm’s CEO in 1978, died Friday at 86. The cause was complications from cancer.
When he joined the investment bank, it was a little, scrappy company. It rose to become one of the industry’s biggest, but never lost its outsider image, until it nearly collapsed in 2008. JPMorganChase acquired the company at a bargain basement price, in one of the first moves of the impending financial crisis.
Ace Greenberg came from another era of Wall Streeters. He had no Ivy League degree. He was born in Kansas, and he grew up in Oklahoma.
“He liked to gamble, he liked magic, he liked bridge, and, of course, the only way to legally gamble at that time was to go to Wall Street,” says William D. Cohan, author of “House of Cards, A Tale of Hubris and Wretched Excess on Wall Street,” a book that chronicles the fall of Bear Stearns.
During his career, Greenberg’s trades made a lot of money, and by 1978, he was the boss, instilling in the company a culture both of risk taking and frugality, reusing envelopes and giving new employees welcome packets with a note and some supplies.
As former Bear Stearns trader Lee Munson remembers it, the note said, “You have 50 rubber bands and a box of paper clips, and use them wisely throughout your career at Bear Stearns because you’re not going to get any more.”
Greenberg stepped aside as CEO in 1993, making way for his successor, James Cayne. He had first met Cayne playing bridge.
“Bridgeplaying was the Facebook of their time,” says Cohan.
As Bear Stearns was starting to unravel in 2007, Cohan says Cayne was in communicado at a bridge tournament. And, he says Greenberg developed a grudge against his former friend and successor for driving the firm into the ground.
“That, of course, ignores Ace’s role in it because Ace was part of the firm’s DNA,” Cohan says.
Greenberg was on the executive committee when the firm was sold to JPMorganChase. Greenberg told host Kai Ryssdal on this program in 2010 that he didn’t have much influence by that point.
“I did what I could. I tried as hard as I could. Kai, you have to understand that I was a very very small shareholder of Bear Stearns during this period,” Greenberg said.
He told “Marketplace” that what he regretted most were all the Bear Stearns workers who lost their jobs in 2008.
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