Healthcare

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How Do We Measure Success With Health Exchanges?

One of the interesting problems with health exchanges is how do we measure success? Although the chaos and confusion the health exchanges experienced yesterday was amusing, it is likely to be temporary and not a good indicator of the success or failure of the exchange. So let us go look at some of the customers who tried to use the exchanges yesterday and why.

  • Preexisting Conditions — Obviously there were some people yesterday with pre-existing conditions who were more than willing to put up with a lot of hassles to get insurance from the health exchanges. Hopefully their new policies will reduce their out of pocket health care costs. From an insurance company standpoint these are the customers you dread. There is probably 99.9% chance that the insurance company will lose money on these customers but that is the big idea from the Affordable Care Act.
  • Checking out the Prices — That was me yesterday. I have an affordable, grandfathered plan that I am more than willing to stick with if it continues to be less expensive than plans on the exchange. Since I have not filed a claim in four years, insurance companies would probably refer to me as the “perfect” customer. I should be a customer that an insurance company selling on the exchange would like to poach.
  • Young, Healthy, and Uninsured — These young, healthy, and uninsured people are being asked to subsidize the customers who were uninsured because of preexisting conditions and to lesser extent the elderly. These are the people the insurance companies need to sign up but some preliminary search numbers indicated that they were using the site to figure out how they can avoid paying the penalty.

Between now and the end of the year the insurance companies probably expect to sign up a lot of people with preexisting conditions and a few young, healthy, uninsured customers. This is the expected result. This conclusion is based on the presumption that it is unlikely that a large group of young, healthy, uninsured who were unwilling to purchase health insurance when it cost over 50% less will be enthusiastic to sign up before they have to. The earliest they probably want to start playing the health insurance game is January 1st. So the key to success for health exchanges boils down to how many of these young people sign up in the open enrollment period between January 1st and March 31st. After March 31st we can probably assume that these young people are committed to paying the $95 penalty or that they have found an excuse for not paying the penalty.

Measuring the success of the health exchanges should be pretty easy after March 31st.  At this time the insurance companies will probably know the actual number of customers with preexisting conditions in the exchanges compared to the number of young people who will be supporting them. Maybe we will get lucky and find that in our state there are less people with preexisting conditions. Maybe we will get lucky and find that there are a lot of young, health, uninsured people who have the extra cash to pay the subsidized premium and are willing to overlook the fact that they are disproportionately supporting the health care for people with preexisting conditions. My guess is that we have plenty of people with preexisting conditions and that these young people will either find exemptions for not buying health insurance or are willing to pay the penalty 2015. This “least cost decision” follows the profile they established in the battle to get this group to pay for their illegally downloaded music and videos. If the young, healthy enrollment numbers do not meet expectations, then this would be the time when I expect the insurance companies and Affordable Care Act supporters to start panicking and a new round of chaos and confusion with the Affordable Care Act will begin.

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Where is the money coming from that is paying the subsidy in the exchanges?

Since the health exchanges are not working very well right now, I went back to the Kaiser Subsidy Calculator and ran my number through it. Here is what I got:

2013-10-01_11_23_58-SubsidyCalculator

 

Here is my problem. It said I qualified for a $7,593 subsidy. My current plan costs me $4,800 a year and fits within my HRA allotment with room to spare. Some pundits have argued that my plan is substandard. So I ran my grandfathered AARP-Aetna plan($3000/$5000/80%) through the CCIIO actuarial value calculator and it came up 64.1%. My plan does not cover maternity, office visits, and probably does not cover mental health problems. The only way I can imagine using the mental health feature is if my 59 year old wife gets pregnant. Except for the lack of maternity coverage it reminds me of my health insurance in the 1980’s. So I have a plan that is slightly better than a bronze plan that fits within my HRA allotment without a subsidy. The new features in the Affordable Care Act plans might be better for someone but I have zero value for them. What I find fascinating is that the silver plan from the exchange needs a 58% subsidy to be affordable. As a healthy, middle class person I assumed that the Affordable Care Act is asking me to pay extra to help subsidize the cost of health insurance for someone less fortunate. So who is paying the subsidy for my health insurance and why? Is this real money going into someone’s pocket or a high markup designed to make us feel like we are getting a bargain? Is the Affordable Act stupid, corrupt, or something else?

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Health Insurance Oddities

This year my son graduated from Virginia Tech and received his commission in the Army. Last month he reported for duty so I called Aetna to drop him from my health insurance. The customer representative said that I could not do that. I said, “Whoa! I am his dad and I am paying the bill. Are you saying I cannot drop him from the plan?” She said that since he was over the age of 21 he had to call or write them requesting to be dropped from the plan. Wow! Talk about stupid! I thought this might be an unintended consequence from the Affordable Care Act but I have not found any rules or regulations requiring the consent of the child if they are over 21.

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Welcome to Obamacare

I have a grandfathered health insurance plan paid for by a HRA. Based on Zane Benefits revised analysis on HRAs, New Guidance on Tax-Free Reimbursement of Individual Health Insurance, I am afraid I am screwed so I better start looking at Plan B. I tried to sign up on the health insurance exchange and here is what I got:

2013-10-01 10_37_41-Sign Up - Unsuccessful

 

This is slightly different than the screen image over at Welcome to ObamaCare. I guess that chaos and confusion will be the new normal for next couple of months.

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Why Not Delay the Individual Mandate?

I wrote most of this comment on the post, Why Not Delay the Individual Mandate?. Then I thought of another individual mandate alternatives and added it this post.

Okay, let’s get real. My family is healthy and we purchase our insurance through the individual market. Our rates are low compared to the proposed rates available via Affordable Care Act. We have a real possibility of 100% increase in our insurance premiums. I have skin in this game.

I read the Urban Institute article and I remain unconvinced by their argument. Although I am at the greatest risk for unintended consequences, I am still in favor of postponing and eventually getting rid of the individual mandate. Despite their arguments the Individual Mandate is still a really dumb idea. Here is my reasoning:

  1. If uncompensated hospital care is the primary problem, then I prefer our existing system in which these costs are spread over a much larger population.
  2. If adverse selection is the primary problem, the Affordable Care Act proposal is only slighter better than doing nothing. Even the ACA supporters recognize that their proposal most likely will not work if the a few high cost patients get insurance(charity) in the individual market. This market is just too small to support many high cost participants. The only workable solution is to spread this charity over a larger population group. There are several ideas on how this can handled.
    1. Some ACA supporters argue that we need to go to a single payer system and the failure of the individual market is part of the path to this final solution.
    2. A few others are arguing that we should single pay these high cost un-insurable patients. I call this the Medicaid solution.
    3. A variation of #2 is that we expand the high risk insurance pool. The ACA high risk pool is presently closed to new participants.
    4. Another possibility is a Federal re-insurance plan to cover high cost customers. When you go over a certain payout amount, the government re-insurance kicks in. I think the Dutch use a variation of this idea to limit the risk a single unlucky customer will bankrupt the insurance company. I call this the FDIC solution.

My gut feeling is that the most successful plan to create a workable individual insurance market is to stick the insurance companies with the un-insurables and let them lobby the state/Congress for help. When you piss off the middle class, you should expect that there are consequences.

Another point that I did not make in the original comment was the point that the Urban Institute article made that one of the objectives of the Individual Mandate was to “to maximize insurance coverage” as if this would magically lead to better health care outcomes rather than outright theft from the middle class. Their idea is that if you build it, they will come. I call this the “Field of Dreams” health insurance argument. Unfortunately health insurance was a product created for the middle class. The rich do not need it and the poor cannot afford it. It worked for the middle class when it was affordable thirty years ago but not so well for the rich and poor. Despite the fact that health insurance was not working for the middle class, the ACA supporters took this idea and said that if we subsidize the the health premiums it should work for lower income people. This is a variation of the “free health clinic” argument. Unfortunately our experience with “free health clinics” is that they have been for around for a long time and we are still dealing with the same health problems. Do the ACA supporters really expect that “free health insurance” will have a different result than the free health clinics? My best guess is that health insurance does not heal people. Hospitals do not heal people.  People heal people. Middle class people schedule doctor’s appointments when they find a health problem. Lower income people go to the emergency room when they find a health problem. Different strokes for different folks. As an example of the problem we are facing, for at least the last twenty years we have had approximately “free medical care”  for “at risk” mothers in Hamilton county. This “free medical care” was tied to an aggressive campaign by Cincinnati Children’s Hospital to reduce infant mortality and yet we still have an infant mortality rate for black mothers that is twice the rate of white mothers. I only have to drive thirty miles to be surrounded by third world infant mortality outcomes. Health care outcomes for the poor is truly “complicated” and health insurance is a small piece of puzzle. I have no confidence that the Affordable Care Act will improve health care outcomes for the poor and I doubt that any progress in health care outcomes will be the result of a federal program. It was purely a political maneuver completely disconnected from the needs and desires of the poor and middle class. I find it truly amazing that people who did not buy health insurance before will become magically happy when they are forced to make their first health insurance payment. Obviously they are better people than me. I do not remember ever being happy making an insurance payment. My most amusing thought is that the ACA supporters think that a single, working mother who is living paycheck to paycheck will pay a health insurance premium rather than buying the latest basketball shoe for her teenage son. Talk about someone who is out of touch. I was recently reminded of this situation when I listened to Planet Money’s podcast, Episode 487: The Trouble With The Poverty Line. As a volunteer for Habitat for Humanity I heard several variations of this same story. The outcome of each story is still the same. Poverty is complicated.

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Health Care Reform for the Forgotten Man

As a person who purchases their health insurance in the individual insurance market place I do not feel sorry for the Affordable Care Act supporters. I am keenly concerned with what I call Health Care Reform for the Forgotten Man will look like. I was recently reminded in a post by Harold Pollack on the Incidental Economist blog than the supporters of the Affordable Care Act are in a pissing match with the insurance companies about covering people who are both uninsured and un-insurable. Asking insurance companies to take customers they are going to lose money on is a dumb way to run an insurance company but that is the Affordable Care Act’s supporters big idea. As a healthy person I did not ask to be involved in their idiotic debate but in their perverted political logic they decided that healthy people like me can be coerced into helping them solve the problem with the un-insurables. This is the Forgotten Man scenario outlined by William Graham Sumner and made famous by the Amity Shlaes book, The Forgotten Man: A New History of the Great Depression. I thought we learned our lessons after a decade of failed grand ideas in the 1930’s. Good policies have to make sense to the people paying for them. Health insurance was a product created for the middle class and paid for the middle class. The rich do need it and the poor do not have the money to buy it. Do we really want to go down the path in which health care insurance reforms do not make sense to the man and woman who are ultimately paying the bill? Are we really asking the most price sensitive people in the health insurance market to bear a disproportionate share of society’s burden for un-insurables and hope that it turns out okay?

So where do we go from here? Once again Harold Pollack reminds us that there is no room for debate. Recently he dismissed a fairly modest proposal for individualized health insurance plans as a non-starter. As a healthy person I think that an individualized health insurance plan is the next logical step for health care reform. In fact I will go one step further. 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. This local focus does make you wonder how a federal program became the big player in an inherently local problem. If health care is to evolve into a better system then the Affordable Care Act looks like a step in the wrong direction. My second choice is a plan similar to the one they offered when I first started working in 1976. Everyone signed up for the plan because it was inexpensive and inclusive. When the third party payer system is working right and large group plans are cheaper than individual plans, this type of solution is a no-brainer. Unfortunately we have strayed far from the path since 1976. Since most large group plans are more expensive than the individual plans it is easy conclude that the third party system is already dead and that businesses will enter into a defined contribution arrangement as quickly as possible. My third choice would be to keep my existing plan and rates. Every time a supporter for the Affordable Care Act says that there are no alternatives I grit my teeth. It is bad enough that my rates are rising rapidly but now my insurance company, Aetna, has announced that they are not going to participate in the state exchange. All of this uncertainty and fear was not supposed to be happening to healthy people who had health insurance. If the plan by the Affordable Care Act supporters was to make everyone miserable, they have succeeded. Yea, I am pissed. So I am left with my fourth choice, the Affordable Care Act. It does nothing for me except cost more. The supreme irony of the Affordable Care Act is that it is littered with so many failed programs, delayed mandates, and confusing regulations that it is the poster child for smaller government. I doubt a libertarian could have deliberately screwed up the Affordable Care Act as well as its well intentioned supporters have. The best way to judge the Affordable Care Act reforms is to see whether the reforms can stand on their own or whether they require the IRS to enforce them. Most of us can still remember when we had perfectly good health care plan without IRS involvement. The supporters of the Affordable Care Act are now arguing that although there are some flaws in the Act this is a good first step for health care reform. From what I have seen of the reforms that is akin to throwing a grenade into a crowded room and saying that is a good first step at getting people to exercise more. At some point we have to start realizing that the Affordable Care Act is not a creative destructive force of good but a plain old, well intentioned, destructive force. This is something that the unions and the general population agree on. We have seen the future of health care and it looks a lot like Detroit.

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What Explains the Slowdown in Health Care Spending?

John Goodman wrote a post, What Explains the Slowdown in Health Care Spending?, and included the following quote from a NYT article by Uwe Reinhardt.

One concludes from this analysis that both year-to-year fluctuations in national health spending and the longer-term trend in that growth rate are driven primarily by current and prior-year changes in macroeconomic conditions.

I was curious about how he reached his conclusions since it reminded me of the John McDonough’s macroeconomic premise in the article, “Does Massachusetts Have the Nation’s Highest Health Insurance Premiums? It Depends.” In that article Mr. McDonough speculated that the reason Massachusetts has the highest health insurance premiums in the country is because they have the highest median income. In other words health insurance premiums migrated to the highest price the Massachusetts market would bare. In Mr. Reinhardt’s article, Controlling Health Care Spending, Revisited, I found a fascinating graph of the year to year growth in real per capita health care spending. My immediate question is what happened to real per capita income over the same time frame? Since I know how to get income data from FRED here is my version of the two indicators on the same graph. For those who are curious I estimated the year to year growth in real per capita health care spending from the NYT graph so I could put it into an Excel spreadsheet. It sure looks like the year to year increases are trending down to the increase in real disposable income. This would be a logical result in an environment where out of pocket costs are increasing and the country is increasingly sensitive to health care spending increases that exceed the general inflation level. If the large businesses and government entities that sponsor large group health insurance plans are unwilling to expand their contribution to health care spending, you have to wonder how we can expand our health care spending without a major increase in GDP and real per capita disposable income. If the predictions of slow GDP growth are correct then it looks like we are playing a game of musical chairs and the music is winding down. Even if there is no health care inflation then “someone” is being set up for a cost squeeze as we expand the health care system and its not likely to be the consumer. They look like they are tapped out. This reminds me of the typical problems faced by out of control entitlement systems. We have seen the future of health care and it looks a lot like Detroit.

RealDPIvsHealthSpending1

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Probably The Smartest Thing The Affordable Care Act Has Done

A couple of years ago I purchased my health insurance using eHealthInsurance.com. It was easy to use and it had a large selection of plans available. I think that eHealthInsurance.com is what healthcare.gov and the state exchanges aspire to be when they grow up. Now I see that they have seen the future and are comfortable with letting the professionals do the work.

The federal government has signed a landmark deal setting the stage for leading online insurance exchange eHealthInsurance.com to enroll potentially millions of people on new Obamacare marketplaces being operated by the government, it was revealed Wednesday in a filing with Securities and Exchange Commission.

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The Individual Mandate–A Fool’s Errand By Another Name

Over at Kaiser Health News Roni Caryn Rabin made the argument that the reason New York insurance rates are dropping so dramatically is because of the individual mandate. Here is what she said:

The nosedive in health insurance prices that New York officials announced earlier this week was driven by many factors, but the most important was the individual mandate, a central component of Obamacare.

Arguably the poster child for the Affordable Care Act and the Individual Mandate has to be Massachusetts health care system, so let’s look at their experiences. Back in 2011 Austin Frakt pointed out in “The individual mandate: Evidence from Massachusetts” that the “mandate did the job it was designed to do”. I pointed out in a comment that this success did not translate into lower insurance rates in the individual health insurance market.  When I entered my demographic data into the Health Connector for Massachusetts in 2011, http://www.mahealthconnector.org, the lowest Bronze plan available would cost me $1,296 per month. When I looked up comparable plans on http://www.ehealthinsurance.com for Ohio and it costs me $305 per month. In fact there were 15 plans available for less than $400. It is interesting to note that Ohio seems to have a lot more competition than the states whose health insurance regulations look most like the Affordable Care Act, Massachusetts and New York. From the Massachusetts experience we can conclude that the individual mandate has not been a significant factor in reducing the cost of the health insurance in Massachusetts. In John McDonough’s article, “Does Massachusetts Have the Nation’s Highest Health Insurance Premiums? It Depends.”, he argues that the higher cost for Massachusetts is primarily the result of higher household income. A cynical person might conclude that Massachusetts is paying the highest rates it’s population will bare without screaming. What the Massachusetts experience has shown us is that the Affordable Care Act and in particular the Individual Mandate will drive the premium costs in the individual market upward to the rates paid by the large group plans and we are not going to know why. Are the higher rates because of the individual mandate, higher household income like they have in Massachusetts, or less competition as a result of more regulations like they have in New York and Massachusetts? The ironic part is that none of these reasons for higher rates are likely to result in better health care outcomes for the general population. So if you purchase health insurance in the the individual market you are confronted with the painful dilemma. Your health insurance rates will soar out of control if the individual mandate does not work or your health insurance rates will go up probably up to the point where they are barely affordable if the individual mandate does work. In either case you lose. The best solution is for us to go back to the system we had before the Affordable Care Act and think up a more equitable single payer system to pay for guaranteed access.

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Are New Yorkers the Dumbest Shoppers in the World or Did They Discover a Cure for Cancer?

Healthcare Lunchbox128When I read the article, “Health Plan Cost for New Yorkers Set to Fall 50%”, I immediately wondered how did they do that? That is a pretty dramatic drop in insurance premiums. Did they discover a cure for cancer and forgot to tell the rest of us? Here is what  Roni Caryn Rabin and Reed Abelson wrote:

State insurance regulators say they have approved rates for 2014 that are at least 50 percent lower on average than those currently available in New York. Beginning in October, individuals in New York City who now pay $1,000 a month or more for coverage will be able to shop for health insurance for as little as $308 monthly. With federal subsidies, the cost will be even lower.

So I decided to enter some data into the ehealthinsurance.com website and see what they would recommend for a healthy young male born in 1991 and living in lower Manhattan(zip code 10004). Here is what I got:

eHealth_2013-07-19 10_42_20

We can see that most of the plans are less than $1,000 per month with the lowest cost plan, $184.70,  being the most attractive to a healthy young man. In the ehealthinsurance.com November 2012 report, The Cost and Benefits of Individual & Family Health Insurance Plans, they said that the average cost for an individual policy in the state of New York was $357 per month. It is disappointing that only sixteen plans are offered. If I enter the same data but use a location in Ohio(Clermont county, zip code 45122) we see that he could get health insurance for a low price of $42.60 per month and have over 77 different plans to choose from. In fact 75 of those plans have a monthly premium that is less than $200. So I am confronted with a couple of problems with the New York Times report.

  1. What is the actual price for health insurance for a healthy individual in 2013? Is it the $1,000 per month as reported by the New York Times or is it closer to the prices quoted at eHealthInsurance.com? If it is closer to the rates available on eHealthInsurance.com then the rates are likely to go up in 2014.
  2. Assuming that New Yorkers have not discovered a cure for cancer or obesity in 2013, why are the insurance premiums going down in 2014? Is this a bet that the amount of medical care that is not covered by health insurance, Medicaid, or Medicare will go down dramatically in 2014 or an admission that New York City health insurance numbers are “funny” numbers? When you look at insurance rates in other states a 50% drop in insurance premiums for New York screams that someone is using “funny” numbers.
  3. Are we to believe that some of the most incredibly savvy business men and women in the country really paying over $1,000 a month for health insurance when they could be paying less than $700? If these guys and gals are really that savvy, why can’t they get a rate like they have in Ohio?
  4. With the obvious problems that an unexplained 50% drop in insurance premiums bring to the table, you would think the New York Times would not want to bring more attention to the fact that the idiosyncrasies of the New York insurance market are not duplicated elsewhere. In this case I would have thought it would be better to be thought a fool than to open your mouth and remove all doubt.