Earlier this week in the Fiscal Times article, Hospitals Plot the End of Insurance Companies, they described the “Kaiserification” of our health care system. Today I caught up with Michael McConnell’s answer to whether Hobby Lobby could avoid a substantial burden on its religious exercise by dropping health insurance and paying fines of $2,000 per employee? Here is what the Fiscal Times said about the Kaiserification of our health care system.

Dr. Ezekiel Emanuel, chairman of the Department of Medical Ethics and Health Policy at the University of Pennsylvania and one of the architects of the Affordable Care Act, agreed, saying that we’re beginning to see what he called the “Kaiserification” of our health care system.

He was referring to the Kaiser Permanente health care consortium, which combines a health insurance company with subsidiary hospitals and medical practices to create a fully integrated health care delivery system. He noted that large insurer Wellpoint recently completed the acquisition of a health care company in California, apparently with an eye toward replicating the Kaiser model in some form.

Emanuel said we’re witnessing “the end of insurance companies as we know them” and that if they want to survive, they “will have to get into the business of providing care.”

He predicted that in the world of health care, “the wave of the future is integrated delivery systems ”“ integrating insurance with delivery function.”

I agree with Dr. Emanuel on this point. I argued in the past that a local health care plan would be best for me and wondered out loud why we are using a federal solution to an inherently local solution. Here is what I said in my post, Health Care Reform for the Forgotten Man.

My perfect health care plan is an individualized health care plan issued from my local hospital that includes my local doctor. The perfect plan for the business I work at is a defined contribution plan. If we combine both of these together we arrive at the conclusion that if health care is to evolve to a more perfect system then it will be primarily a local solution with possibly some state-wide or regional features.

As much as I like the “Kaiserification” solution there are a few problems with it for both local and nationwide companies like Hobby Lobby.

1. How do you create and maintain adequate cost and quality competition in a region? Hospitals seem to be clueless about cost and quality control. Are health insurance companies a necessary evil till hospitals, government plans, and insurance companies can settle on one price for a service?
2. How do you compensate doctors and hospitals in other states if the patient wants to use them? My nephew had a chronic problem that was not resolved until he went to a doctor in a different state who specialized in the diagnosis and correction of that problem. His surgery was out of network. A similar but different problem exists for people living in a tri-state area. I can get to a highly rated hospital in Kentucky faster than I can get to one in downtown Cincinnati.
3. How do you manage health insurance benefits for a company with employees working nationwide? Hobby Lobby has about 561 stores and 21,000 employees.
4. How important is the health insurance benefit to attracting and keeping employees?
5. How disruptive would it be for a company to drop its health insurance benefit?

As Mr. McConnell pointed out the last two questions are important reasons for why Hobby Lobby, Walmart, Starbucks, and others will continue to offer a more attractive health insurance benefit to their employees than is offered via the exchange. Once again the conservative, go slow approach to reforming employer sponsored health insurance benefit continues to be more attractive to both employers and employees rather than the progressive, faster, less understood changes of the Affordable Care Act. The $2,000 penalty and “Kaiserification” of health care may be an appealing tradeoff for small companies with health care plans very similar to exchange plans. For large group plans the “Kaiserification” of health care is a confusing message to the existing employees and is becoming an unforeseen obstacle in hiring new employees. For large companies like Hobby Lobby their ability to hire directly affects their ability to grow. Justifiably these companies are proud of their existing health care plans and are probably getting upset that their existing and prospective employees are wondering who is telling the truth about health care. These are the people who were supposed to be able to keep their health care plans and be excluded from health care chaos! Unfortunately Dr. Emanuel’s talk of companies dropping health insurance as a good thing is just adding to the skepticism towards the Affordable Care Act. If there was any remaining good will in the public towards the Affordable Care Act, the polling says it is quickly fading. The obvious solution to the religious objection question is to allow the exchange to create a “Medicare Advantage-like” solution and let these large companies get back on track with the “go slow” approach to health care reform. Abortion benefits was not one of the big problems the Affordable Care Act was trying to fix. This would allow Hobby Lobby to offer a plan that complies with their religious beliefs and the government to offer a plan that complies with their religious beliefs. The solution is not pretty but does it matter when 27 parts of the ACA are postponed? As some point the judicial branch is going to get tired trying to fix the Affordable Care Act.

Once again I am reminded me of this old nursery rhyme.

Humpty Dumpty sat on a wall,
Humpty Dumpty had a great fall.
All the king’s horses and all the king’s men
Couldn’t put Humpty together again.^[1]

Rick Caird had this to say about the Affordable Care Act over at Althouse …

We need a like button. I liked Mead’s comment of “… all I got was this lousy insurance requirement”.

We shouldn’t forget that ObamaCare was written in the dead of night by Harry Reid’s office, voted on, unread, by the Senate hours later and sent to the House which passed it “as is” so it would not have to go back to the Senate where Scott Brown’s vote would have killed it.

Therefore, there was no internal consistency check. There was no opportunity for clarifying amendments. There was no opportunity for anything Harry Reid did not think was appropriate. That is why we keep finding these unintended consequences that Obama tries to paper over with Executive Orders.

That is why the idea of “fixing” ObamaCare is a very bad idea. There are so many traps in the bill (as well as in the stacks of “rules”) that no one could untangle the mess. This is just like a badly designed web site. Best to start all over than try to add undocumented patch upon undocumented patch in a vain attempt to fix it.

If the Republicans get control of the Senate, they should identify what the minimum requirements of a health care system should be, and create a much simpler, easy to understand bill and send that to Obama.

As a fan of the KISS principle I agree with his fix for our health care system although I am very skeptical that the right political environment will exist in 2015 or 2016. The unsubsidized health insurance price increase for healthy people is a problem that is just not going to get solved without major changes to the Affordable Care Act. It is a sign of insanity when Affordable Care Act supporters chase away the best customers and expect our health care system will become sustainable.

For kicks I went over to the Kaiser Health Subsidy Calculator again and here is what I found. I am paying $407 per month for a silverish-bronze unsubsidized, grandfathered plan with a $3,000 deductible. For the mathematically challenged that is $4,884 a year. So why does a $12,627 plan with a $6,927 subsidy make sense for a healthy person or the country? The country would be paying $6,927 more for something they got for free in 2013. I would be paying $816 more for a silver plan. The silver plans I looked at had a higher deductible, too. The winners in this environment are those folks who think the biggest problems facing health care reform will be fixed by throwing more money at it. I remain skeptical that this shell game approach to health care reform will fix anything. This leads me to the conclusion that repeated delays is the simple, popular, and successful political answer to fixing the Affordable Care Act.

Mark this as another Affordable Care Act fix I do not understand. Politics makes for strange bedfellows. As the “perfect” insurance customer the Affordable Care Act needs people like me to participate in the exchanges to make them sustainable. As a 60 year old gym rat I pay about three times more to the exchange than a millennial. Don’t get me wrong if we are not going to repeal the foolish thing then this is the next best solution. On the other hand I am the most likely prospect to go the uninsured route. Once again here are my reasons.

1. My health care costs excluding insurance premiums over the last five years amounted to about 7% of my total health care bill. With health care costs this low I have not made a claim on my health insurance plan.
2. When I compare my PPO plan with the narrow market HMO plans on the exchange I prefer my old plan. At this time it costs almost as much as the lowest cost bronze plan with the subsidy but has a lower deductible and out of pocket cost. For most major medical situations I am financially better off with the old plan.

Here is what the Yahoo article, Obama Said to Allow Two-Year Renewal for Old Health Plans, said.

Americans who kept health plans that don’t comply with Obamacare requirements will be able to renew those policies for two more years, according to a person familiar with the matter.

The Obama administration, which has been deliberating the issue since November, is expected to announce today the extension of the health plans, said the person, who asked not to be identified because the decision wasn’t yet public.

When @Conrad Hackett tweeted an OECD graph of life expectancy at birth vs. health spending per capita I wondered how hard would it be for me to reproduce the same graph in R using the same data. Here is my version with the addition of confidence bands and the equation on the chart. If look at the chart we can see that Denmark(DNK) achieved the same life expectancy result for about $4000 less person. Considering how much we are spending we should be getting life expectancy similar to Italy or Japan.

Brian attempts to answer that question in the post, “Why healthcare exchanges are not well-functioning markets”, as the first part of a three part post on healthcare costs. The idea of a well functioning market is an intriguing question about the Affordable Care Act. Here was my comment.

Thanks for posting your thoughts. I have been thinking about this subject for some time and am very interested in your methodology since I was planning a similar analysis to try and answer the question, “What is the price of self-insuring?” It should be interesting what insight your use of statistics can provide us for a non-linear market. Most of the intriguing strategy questions ask what do we do when we cross a certain boundary. In my case it is the classic customer is always right question. At what price have they gone too far? Maybe after reading your third post I will have more answers.

To me the idea of a well functioning exchange is a moot point.  It was born a political animal and will never overcome the inherent problems with subsidizing one group of the middle class at the expense of another part. As much as I would like a competitive market because it would not only be good for me but a good foundation for a sustainable health care policy, it is just not going to happen. Good economics was destined to lose this battle.

Brian has inspired me. Last week I researched pre-existing conditions and tonight I finished creating a spreadsheet of my last five years of medical expenses. Tomorrow I will attempt at connecting the dots and making a stab at answering the question, “What is the price of self-insuring?”

Yesterday John Goodman wrote an informative post called, What Republicans and Democrats Don’t Understand About the Insurance Company “Bailout”. As a person who buys health insurance in the individual market I always thought the market worked pretty well despite the rhetoric. John Goodman confirmed that I was not alone in this assessment.

Wharton school health economist Mark Pauly and his colleagues have studied the individual market in great detail and discovered that despite so much negative rhetoric in the public policy arena this is a market that worked and worked reasonably well. Despite President Obama’s repeated reference to insurance plans that cancel your coverage after you get sick, this practice has been illegal for almost 20 years and in most states it was illegal long before that. And despite repeated references to people denied coverage because of a pre-existing condition, estimates are that only 1 percent of the population has this problem persistently. (Remember: only 107,000 people enrolled in the federal government’s pre-existing condition risk pool ”” out of a population of more than 300 million people!) At most, Pauly puts the pre-existing condition problem at 4% of the population.

The gist of John’s article is that he thinks we can fix the individual insurance market with something he calls “health status insurance.” It sounds worth trying but I remain very skeptical. As a 60 year old gym rat my insurance premium is going to be three times that of a healthy millennial and my grandfathered insurance premium. Community rating is a double edged sword. When you do the math my insurance premiums is equivalent to buying a three year old used car every year and crashing it on New Year’s Eve. Insurance premiums this high only makes sense if they give me a subsidy, too. If they do not give me a subsidy the money or my wife will beckon me to find another way to level the playing field. There is just too much money in play. We have gone from a market that worked reasonably well to one with competing subsidies. If Detroit dumps its retirees or high cost employees into the Michigan exchange and the exchange is threatened, does anyone think the government will let the exchange collapse? Once we start down the subsidy path, it is politically impossible to stop expanding the subsidies. Distorting a functioning market for political reasons has its consequences. Despite the efforts by John and others, I doubt we will ever pay a fair price for health insurance or return to a market that works reasonably well.

All of this reminded me of this old nursery rhyme.

Humpty Dumpty sat on a wall,
Humpty Dumpty had a great fall.
All the king’s horses and all the king’s men
Couldn’t put Humpty together again.^[1]