Since it is highly unlikely that my grandfathered health insurance plan will be offered to me next year, I have been looking at various health care strategies for 2017. I see two options available to us, self-insurance or figuring out a way to get subsidized health insurance.

1. Our favorite option is to self-insure from 2017 until 2019 when we become eligible for Medicare. The reason we are self-insuring is because health insurance from the exchange is greater than 8.05% of our adjusted gross income. The good news is that we are exempt from the individual mandate tax because health insurance is too expensive. In 2016 we are on schedule to max out our Health Savings Account(HSA) contribution. Assuming that we do not have any significant medical issues before 2017 we will start the year out with about $10,000 in the HSA. In 2017 we plan on depositing an amount equivalent to our current health insurance premium, $547, into a savings account. Ideally it would be a HSA since a HSA account should be completely flexible. Under current regulations people who self-insure are not allowed to contribute to a HSA. If we run into a major medical issue we will either pay it, delay treatment until we can get health insurance from the exchange, or use an interim health insurance plan to tie us over until we become eligible to purchase insurance from the exchange. If we can make it through 2017 without a major medical issue, we could enter 2018 with about $16,500 in savings for medical care.
2. An option I have not fully evaluated are strategies to reduce my taxable income below the subsidy threshold(4 times the Federal Poverty Limit). If we both contributed to a traditional IRA then our Adjusted Gross Income might qualify. Even if we qualified for a health insurance plan through the health exchange, I am not sure it we would buy it. My grandfathered health insurance plan has a $3,000/$5,000 deductible. This means I need to dedicate about $5,000 of my emergency fund to health care costs. When I look at the health insurance plans on the exchanges, they had much higher deductibles, $6,500/$13,000.  In this case I should have about $13,000 in my emergency fund. If you have only $10,000 and are healthy, it probably make more sense to use our health care money to build up the savings until we exceed $13,000 money and then use an interim health insurance plan to tie us over until the next health insurance exchange enrollment period.

I am a firm believer that the health insurance exchange concept as envisioned by the Affordable Care Act was a bad idea that was poorly implemented. In a masterstroke of stupidity, the Affordable Care Act combined health exchanges with “high-risk pool” plans. Health exchanges work reasonably well as long as the individuals are relatively healthy and health insurance from the exchanges is affordable. Since the exchanges are market-based they are fragile and largely depend on cost, trust, and goodwill for their survival. “High-risk pool” plans have been offered for many years by states to provide coverage if you have been locked out of the individual insurance market. People who purchase health insurance from high-risk pools are actually purchasing charity health care from the government. This is a completely different product than the health insurance being purchased by healthy people. The only way this combination of health exchange and high-risk pools could work is if the unsubsidized health insurance from the exchanges continued to be affordable despite the addition of high-risk pool individuals. This is where the Affordable Care Act really screwed up. The individual insurance market is a small market and the addition of high-cost individuals has already caused health insurance premiums to soar and for the cost sensitive, healthy people to start seeking a lower cost alternative. We have already begun to see the beginning of a death spiral in the health exchange as more and more healthy people leave in response to higher insurance premiums and out of pocket costs. At some point the only people left are the high-cost individuals and the exchange is transformed back into a high-risk pool. It was when I was reading this article, Obamacare’s Cost per Beneficiary Explodes with Shrinking Enrollment, that I realized that the transformation is almost complete and the exchange in its present form will never be a properly functioning, broad-based, market for health insurance. There is no way the Affordable Care Act supporters can argue that the high-risk pool version of the exchange is a step forward. We spent a lot of money and time making an exchange that does not work and will likely never work. In order to re-establish the cost, trust, and goodwill we had before the Affordable Care Act, we have to go back and humbly offer a health exchange where healthy people matter again.

When I first heard about the $2.5 billion risk corridor shortfall in 2014 I was both happy and dismayed. I was happy because I did not believe the Congressional Budget Office estimate that the risk corridors would make the government $8 billion. It just did not make sense that the insurance companies would have excess profits from insuring enrollees who were generally older and sicker than anticipated. I was dismayed that the insurance companies would be confronted with two choices:

1. Raise insurance rates for policies issued through the exchanges
2. Get the middle class to pay for a bailout

Today I read an article, How Congress Stopped a Massive Obamacare Bailout, which said that Congress had looked at the “risk corridor” appropriation problem and decided last year that the risk corridor program would be budget-neutral for fiscal year 2015. Since Congress has already opted for the budget-neutral approach that makes it almost impossible to switch to a “risk corridor” appropriation method  in an election year without it looking like a bailout. That leaves insurance companies with only one alternative. They will have to raise rates to recoup their losses. Since 87% of the people in the exchanges have subsidized insurance, their cost is unchanged. It is the government and that 13% of the people who do not get subsidized insurance who will be hurt from the higher insurance rates. This is the first step of the death spiral. Maybe this is the reality check the insurance companies needed to get on board with either repealing or replacing the Affordable Care Act. It should be obvious to the insurance companies that the current system is not working and they were duped!

I was sure that this was the year my grandfathered health insurance plan would die. Some people have had their plan canceled twice. Yesterday I got a letter telling me that the 2016 premium would be 14% higher than last year. The consolation prize is that my grandfathered health insurance plan is better and cheaper than getting health insurance from the exchange. Although we were leaning toward going without health insurance in 2016, we opted to go another year of grandfathered health insurance to build up our health savings account.

I am puzzled why my grandfathered health insurance plan is still alive. When I see a report of a $2.5 billion risk corridor shortfall in 2014, I wonder what went wrong and how the insurance companies and our government officials are going to make the middle class pay for their mistakes. Since health insurance from the exchange does not become affordable for me until I earn $146,850 a year, I assume insurance companies have given up trying to entice healthy people to buy unsubsidized insurance from the exchange.  To avoid the dreaded adverse selection scenario the only solution left is to force these healthy people into the exchange by canceling their grandfathered health insurance plans. That will not be pleasant and may have an unintended consequence. When health insurance goes over 10% of a family’s budget, self insurance looks pretty attractive for pissed off, healthy people.