Healthcare

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What if Individual Health Insurance Premiums do not go up as fast as expected?

Last week I found it odd that Austin Frakt chose to highlight the non-group(individual) insurance rates on the Incidental Economist. As he said in a comment he expects “the individual market will undergo more change than the group market in about a year.” That got me to thinking what if the individual insurance market does not go up as fast as he expects? The Affordable Care Act has been a cornucopia of unintended consequences.

In the health care debate individual health insurance occupies the same position as coal does in the global warming debate. The proponents of the Affordable Care Act have not gone as far as to say they are going to crucify the individual health insurance market but the intent is obvious. I have been unable to confirm their allegations that the individual insurance market policies are substandard and should be eliminated. The spearhead of the attack on the individual insurance market was the the Individual Mandate and the Essential Benefits regulations. The Affordable Care Act proponents were trying to make it easier for people with chronic, high cost health problems to get health insurance. The uncomfortable fact is that no insurance company in their right mind would want this group of people in their plans.  These people need grace and insurance is a dumb substitute. The grand idea of the Affordable Care Act was to force this group of high cost people into the insurance market with least number of people to spread the costs over, the individual insurance market. It is a dumb idea filled with malicious pitfalls. A Milliman report prepared for Ohio expects that the rates will increase 55% to 85% above the normal health insurance inflation rate. The conventional wisdom is that the healthy customers will choose to be self insured rather than pay the much higher premiums and the individual insurance market will lose its best customers. The only customers left will be those who have high medical costs. In this scenario the best case is that the individual insurance market gets smaller and in the worst case the market ceases to exist.

What if the Individual Insurance market expands?

Although I understand the rationale behind the declining individual insurance market scenario, the individual insurance customer is looking at a different health insurance picture. Here are some of the facts that may cause the individual insurance market to go against conventional wisdom and expand. The most important issue that the individual insurance market has going for it is lower cost.

  1. As a purchaser of individual health insurance I have been notified of the 2013 rate increase. Although the premium for my family plan will increase by 12% to $391 per month, the annual amount is only $4,692.  As a family who was self insured for a decade this is a competitive amount. The employer sponsored average of $15,022 is ridiculous.
  2. As a healthy family covered by a HRA who is living in a state with low individual health insurance rates, we have not paid any health insurance premiums or out of pocket health care costs in several years. When you compare this with the employer sponsored plans, the HRA is a big winner for the healthy families. The 2011 average employee contribution in the employer sponsored plans is $3,962.
  3. My insurance plan is “grandfathered”. I am not sure what this means in my specific case but a Kaiser article implies it may be exempt from the “Essential Benefits” regulation and its much higher costs.
  4. Ohio has passed a law forbidding the Individual Mandate. Since the Affordable Care Act proponents have said that the Individual Mandate is essential for the system to work, I would not be surprised if our politicians came up with an alternative plan for paying for high cost customers. Anything that spreads the cost of these customers over a much wider base is good for the individual insurance market.
  5. If you are a small or medium sized business that partially subsidizes the employee health insurance cost, the individual insurance market is very attractive. The employer sponsored contribution according to the NIHCM brief was $11,060. When you compare this price with a $6,000 HRA, a HRA is pretty attractive option that caps your health care subsidy for the future.
  6. If the states choose to implement a market based exchange using companies like www.ehealthinsurance.com rather than a state or federal exchange based on the ideas in the Affordable Care Act, it will be attractive to small or medium sized businesses to dump their employer sponsored plans. The state and federal exchanges have too much government baggage to be successful in a market place. The Affordable Care Act proponents subverted a good idea and are surprised by the lack of interest in their version of the exchange concept by the states. The government sites, http://www.healthcare.gov/ and https://www.mahealthconnector.org/, that try to provide a similar service in www.ehealthinsurance.com are pretty useless for people shopping for insurance.
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Spending for Private Health Insurance in the United States

Here are two charts from the the brief, Spending for Private Health Insurance in the United States. The Incidental Economist pointed out only one of these charts. Here is my favorite quote from the brief.

Premiums for coverage purchased in the non-group market are considerably lower than for coverage obtained through an employer and are rising at a slightly slower pace.

So why are we are trying to make the individual insurance market more like the insurance obtained through an employer? Is this a case where misery likes company?

 

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The Problem with the Economy is People Like Me

Since we are all Keynesian economists until we realize that “Keynesian economics” doesn’t work, the problem with the economy is the lack of consumer demand. So let’s do the math on consumer demand. The 47% dependent on the government for their income are by definition living from paycheck to paycheck and have a very limited chance of expanding their spending. The remaining 53% are in a different pickle. Most of those businesses have not seen their sales grow. As a result their employees have not seen their wages grow. In this group are some consumers saddled with too much debt. Since they seeing the increased costs of living, their budget for the upcoming year is to spend less and try to work their way down to a more manageable debt load. I don’t put a lot of hope that they will increase their spending.  They could opt to default on their loans but this will not allow them to increase their spending. There is a part of 53% that had their houses foreclosed on or they defaulted on their consumer debt. If the financial system still has any common sense then these people credit score is bad enough to keep them from spending more than their income for many years to come. From 1980 to today this economy has lived off of convincing consumers to increase their debt. Now there is a much smaller group of consumers who can afford to spend and increase their debt then there was in 1980.

So now we get to people like me who can afford to spend or increase their debt but choose not to. Like most people who feel blessed to have a job and to be debt free, I do not feel wealthy. I still have financial problems. It is highly likely that my income will not go up in 2013 and  I already know that my health care, taxes, and utilities are all going up in 2013. I feel a quiet desperation with my future. My time is running out to save money for retirement. It is critical that I increase my retirement saving rate but my health insurance costs are are accelerating even though we are a healthy family. It is frustrating that in this current health care system a significant portion of my health care cost increase is going to pay my “fair share” to help the uninsured pay for their insurance. Unfortunately this diverts funds I was planning to use for my retirement.  If the system is not working for those with a job, no debt, and good health, the system is not working for anybody. So I am going to focus on doing the simple things to take care of my family. I will cut back on smartphone and cable TV costs. A new car or a house is out of the question. If we are lucky we will not buy any new appliances either. Going without health insurance is an option. Although John Maynard Keynes is cursing me from his grave to spend more for the good of the economy, the economy will have to fix itself without me. Good luck to those Keynesian economists trying to stimulate consumer demand!

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Obamacare to Increase Individual Insurance Premiums

I made a comment on the Forbes article, “In Ohio, Obamacare to Increase Individual Insurance Premiums by 55-85%”, which reflects my objections to Obamacare as health care reform. The amount of cost attributed to “benefit expansion” in the article surprised me. I read the report last year and forgot that “benefit expansion” was a polite way to describe the additional benefits the chronically sick will get via a “Silver” plan that will reduce their out of pocket expenses.

As a person who purchases individual health insurance in Ohio and who read the Milliman report, there are a couple of issues I should highlight.

1. Ohio is one of those states in which the individual health insurance market costs considerably less than the small business or group insurance plans. My “bronze” plan through Aetna costs only $4188 per year. Compared to rates in large plans my plan is where real health care reform should be going. I would like to keep my plan just the way it is but Obamacare won’t let me.

2. The two major drivers of the individual health insurance cost increase, “benefit expansion” and “risk pool composition changes”, only benefit the “un-insureables”. I did not find any benefit expansion for the healthy in the report that my existing plan does not already have. By forcing the “un-insureables” onto the smallest market segment the individual health insurance purchasers will bear a disproportionate share of health care costs for the un-insuredables. The likely consequence of the rate increases, is that the healthy will leave the individual insurance market and rates will continue to spiral upward for those remaining in the market until the market ceases to exist. The obvious solution is that we should spread society’s obligation to care for the chronically sick over the entire population. The individual mandate was a really dumb idea for how we should pay for the chronically sick.

3. Health care reform does not exist until we can show that we have slowed down the increases in health care costs.

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Romney: People Don’t Die For Lack Of Insurance

This is an interesting Romney quote from Kaiser Health News and NPR‘s Shots blog. I could guess at the narrative, health insurance equals health care. I was curious whether this article would discuss the “cash” customer and personal responsibility, too. Here is the part of the article I wanted to keep since it links to the law that requires hospitals to treat people show show up with bona fide emergencies.

What he said last month was that if people need emergency care, they can always go to a hospital and get it. And that’s true. The Emergency Medical Treatment and Active Labor Act requires hospitals to treat people who show up with bona fide emergencies, or women in, as the name suggests, active labor. But it doesn’t require them to provide that care for free. They can, and usually do, try to collect from even uninsured patients, often at fees well above those negotiated by insurance companies.

Here is an article on BusinessInsider that discusses what to do when “What To Do When Your Doctor Goes The Cash-Only Route”.

It is hard for me to imagine people receiving adequate health care if they do not have an emergency fund at least the size of their deductible and yet here is a blurb posted by John Goodman on the Health Policy Blog saying a quarter of Americans are woefully prepared for even a minor medical crisis.

Almost a quarter of Americans have less than $100 in their emergency savings fund, according to a recent TNS survey for CashNetUSA. Of the 1,000 participants surveyed, a staggering 22.8 percent reported that if they needed to cover an emergency expense within one day, they would have less than $100 available.

Both males and females reported similar savings patterns, however, 55 percent of Americans with children under the age of 18 reported having less than $800 in emergency savings compared to 42 percent of those without.

One of the most cost effective ways to improve your health is through regular exercise and a better diet. Changing your eating habits is not easy and exercise is sometimes painful but it is a whole lot better than having to go to the doctor. I can fix some of the common sources of health problems. I try to remind myself that at my age most people go to hospitals to die. If I do my part on the health problems I can control and I get lucky on the health problems out of my control, I plan to put that last visit off for quite awhile.

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How to Replace Obamacare

I believe that repealing the Affordable Care Act(ACA) is the appropriate policy because the improvements from ACA come primarily through cost shifting rather than actual health care reform.  As an example the Individual Mandate attempts to force the high cost, uninsurable patients onto the smallest health insurance segment, the individual health insurance market. A Milliman report prepared for Ohio estimates that the insurance rates in the individual health insurance market will go up 55% to 85%. It is not likely that the individual health insurance market will survive and then we will have a much larger uninsured problem.

The Medicaid expansion is even more amazing. While the fiscally responsible states complain about their problems with coming up with their modestly increased matching funds, the federal government has magically raised the money without any raising taxes. With the Medicaid expansion we have confirmation that the mythological free lunch exists. Since most of the ACA policies make it more difficult reform health care(e.g. community rating, essential benefits, health subsidies), we might as well start over and try to make some actual health care reforms without the cost sharing baggage.

For a different perspective how to replace Obamacare we have this article from the National Affairs article, How to Replace Obamacare. Here is their argument against the repeal-only approach.

But repeal will not be enough, for a simple reason: Although Obamacare would worsen many of the problems with our system of health-care financing, that system clearly does call out for serious reform. Despite the widespread public antipathy toward the new health-care law, simply reverting to the pre-Obamacare status quo would be viewed by many Americans, perhaps even most, as unacceptable. After all, a repeal-only approach would leave many of the most grievous flaws in our system of financing health care unaddressed. Chief among them would be steadily rising health-care costs, driven by the same misguided government policies that so evidently demand reform.

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Did We Just Witness Judge Roberts Fall on his Sword to Preserve the Stature of the Supreme Court?

After listening to a multitude of pundits and a cursory reading of the opinion I am left with the opinion that Judge Roberts fell on his sword in an attempt to preserve the stature of the court. However honorable this effort make look to some I am convinced that his actions reflect his overriding concern about the public’s opinion of the court rather than the responsibility the judiciary has to the law. In a perfect world we would have a sense of closure after this decision. In a less perfect world we would have at least a sense that there some common ground that our politicians could work with to cobble a consensus. Instead we are left with a new gapping tax hole that unravels the checks and balances our forefathers carefully crafted into the Constitution. So what should our legislators work on next, reforming the health care reform or close the new gaping tax hole? In one fell swoop he chose to change a law into a tax so that he could avoid overturning a law that was duly passed by the legislature. It is a poisoned cup of wine in we drink in which everyone loses.

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Attention Health Care Shoppers: Colorado’s New Price List For Procedures

Here is a health care reform I can get behind. I was amazed at the price difference for pregnancy care if you were willing to pay cash. For more information about the Colorado effort please go to the nonprofit Center for Improving Value in Health Care site. For more information about the nationwide effort go to the All Payer Claims Database site.

Colorado is one of 14 states that have or are setting up searchable databases designed to help people shop and compare health care options based on price and quality.

Attention Health Care Shoppers: Colorado’s New Price List For Procedures
Eric Whitney, Colorado Public Radio
Wed, 16 May 2012 10:08:33 GMT

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How to Cut the Cost of Contraceptives by Regulating Less, David Henderson | EconLog | Library of Economics and Liberty

Here is an interesting solution to the contraceptive debate. You change the policy to allow pharmacists to determine whether a female can purchase contraceptives. This policy could be extended to several drugs that presently require prescriptions such as Viagra. Increased access typically results in lower costs. This could  lower health care costs without lowering health care outcomes.

What is the regulation? It’s the one that requires contraceptive pills to be prescription drugs. If, instead, drug companies were allowed to sell contraceptives over the counter, access would rise and cost would fall.

But let’s say that you think that’s a little too much freedom for women to have. I don’t think that, but it’s not unusual that I’m in the minority here. I think women should be much freer than most people think. I think they should be free to buy foreign trucks without paying a tariff and should be free to buy goods from Cuba and Iran, to take two examples.

But, OK. Let’s say I can’t convince you. So how about this? Have the government keep insisting that contraceptives be prescription drugs–can’t trust those women, don’t you know–but let pharmacists decide whether to sell them to women who ask for them. In other words, cut the high-priced doctor out of the loop. This is done in many countries and, in fact, was done in the United States before 1938. Pharmacists often have more information about drugs than doctors do: fancy that.

With that little step, access would rise and cost would fall.

How to Cut the Cost of Contraceptives by Regulating Less, David Henderson | EconLog | Library of Economics and Liberty

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Why Isn’t Contraception part of the Gold Plan?

I do not have a problem with other people using contraception or getting it paid as part of their health plan. I do have a problem with me paying part of it. The simple solution is for contraception to be a benefit of the Affordable Care Act’s “Gold” plan or as an extra cost item for the Essential Benefit’s option. Sex is a choice not an “Essential Benefit”. As part of my health insurance I can pay extra for dental coverage. I think benefits like dental coverage and contraception should be extra cost options.  Our policy wonks seem to be locked into thinking that health care must be locked into a fairly rigid structure. The plans must be follow a “Bronze”, “Silver”, and “Gold” structure with no exceptions. A “cafeteria” style plan is a more flexible and logical alternative and is the more typical offering in the real world. It would at least show that the policy wonks were not asleep in Marketing 101. This is a pretty common practice in the insurance industry.

The fundamental question is whether society is better served with heath care under the tax model or the insurance model. Since most of our health care is paid for by a third party system, it works and feels like a tax. For people purchasing health care insurance directly it works and feels like an insurance policy. The interesting irony is that ACA realizes that the third party payment system is not affordable or sustainable and their first act is to make individual health care insurance unaffordable and not sustainable. This is not a strategy to lower health care costs. In a previous post I compared Ohio health care insurance to Massachusetts. The cost of “Essential Benefits” in Ohio was $305 per month and the cost in Massachusetts was $1,296. To put this in perspective I purchased a two year old car last year for what I would have paid for “Essential Benefits” health insurance premiums in Massachusetts. I could have bought a new car with the cost of a “Gold” plan. In my entire 35 years of paying health care costs for my family, we have not spent what the average Massachusetts person pays in one year for their “Gold” plan. Our health care costs do not make sense so our first attempt at fixing the health cost problem is to model a national system after Massachusetts! With Massachusetts as our model why do we expect health care costs will slow down? It is a sign of insanity when you keep doing the same thing and expect different results.