It was not that long ago that there was general agreement amongst the health care policy wonks that the “mandate was considered necessary for the market to work“. In reality what they meant to say was that the market needed both the individual mandate and affordable, unsubsidized health insurance to work. The Affordable Care Act(ACA) supporters realized that they could not deliver expanded benefits and affordable, unsubsidized health insurance. Expanding benefits was more appealing to their political base so they chose to kill the one thing that was essential for the market to succeed, affordable health insurance. So while the individual insurance market rotted away our courts debated whether the individual mandate was a “penalty” instead of a “tax” while maintaining that it was a valid exercise of Congress’s power to “lay and collect taxes”. The idea that the individual mandate was not as important as everyone claimed must be a grating reminder to Supreme Court justices like Justice Roberts who went out of his way to rationalize its legality. I wonder if the Supreme Court Justices learned anything from this exercise in futility.
The Irony of Repealing The Individual Mandate As Part Of A Tax Cut Package
Now after the ACA has blown up the individual insurance market, our legislators find themselves in a strange predicament. They cannot pass a health reform bill but they can pass a middle-class tax cut if they repeal the individual mandate. You got to love the idea of the nonpartisan Congressional Budget Office providing the intellectual foundation for repealing the individual mandate. What’s next? Repeal the Medicaid expansion because it would save the federal government even more money? According to their analysis, the primary source of savings comes from reduced subsidies due to healthy people leaving individual health insurance market. Avik Roy has more details in his Forbes article, How The CBO Drove Obamacare’s Individual Mandate Repeal Into Tax Reform. Although this sounds like a win-win situation, there are health insurance problems when you repeal the individual mandate. Robert Laszewski goes as far to call it a nightmare for the middle class. Then he backs off from this statement when he agrees that the repeal is good for the poor and healthy people. For the poor struggling with out of pocket costs, this is probably a better alternative than insurance. The group Mr. Laszewski says has the greatest risk are those healthy people whose income is greater than 400% of the Federal Poverty Level, who get sick, and do not have the money to pay for their illness. This sounds scary but for most major medical expenses, the combination of unaffordable health insurance and high deductibles puts this group in a more precarious financial position than going without health insurance. Earlier this year I wrote how we reduced the risk of this lesser evil.
In 2015 my wife and I came to the conclusion that the healthcare industrial complex would not willingly change their ways so we started building up our HSA. At the end of 2016, I asked our insurance company if they would offer me a lower rate. They declined and we chose to drop our health insurance. The markets are working, the customer has spoken, and our health policies are dysfunctional. Although we are nervous about our choice, we think we can do a better job managing our health care than the healthcare industrial complex. It is amazing how fast the money builds up when you divert your old health insurance premium amount into a savings account. I am mildly optimistic we can get better health care advice for non-emergency room treatments if we tell our health care providers that we are a cash customer. Every month we get by without a cancer diagnosis makes us a little more confident we made the right decision. If the insurance companies want us back all they have to do is show us an affordable health insurance plan!
In retrospect, we are a lot more comfortable with our decision now than when we started. We stuck to the plan and our emergency funds are in better shape. We are confident enough about our health that I am not sure an “affordable” health insurance plan could lure us back in. The only healthcare benefit we wish we had was the ability to add more money to our Health Savings Account.
In a recent opinion piece for the New York Times, Governor Kasich argued that the way forward for health care reform is more government spending. He says:
One vital improvement would be to provide adequate tax credits, which would help keep health plans in the individual market and encourage — not undermine — robust competition. Companies should also be required to continue following reasonable guardrails like ensuring minimum coverage that is genuinely useful and covers pre-existing conditions. Once we see these repairs taking hold, Congress should then take up needed improvements to Medicaid as part of comprehensive entitlement reform.
Health Care Reform Starts With Controlling Health Care Costs
The problem I have Governor Kasich’s argument is that he ignores the elephant in the room, health care costs. I can understand how the federal subsidies have benefitted hospitals, doctors, pharmaceutical companies, and insurance companies but not the consumer. Each of these groups publicly stated they were going to make health care bigger, better, faster, and cheaper. I don’t see it happening. Kasich is arguing that the health insurance markets will get better if we throw more government money at them. This is the exact same argument ACA supporters have made for the last eight years. The failure of the ACA to control costs tells us we need a different strategy if we want a different outcome. After eight years of using a carrot to encourage health care reform, maybe it is time to use the stick.
Thinking Outside Of The Box Idea Number 1 – Repeal The Individual And Employer Mandate
One of the things I learned over the last couple of years is that the individual mandate is not necessary or important. Although the ACA supporters argued in the Supreme Court that it was necessary to avoid a death spiral in the health exchanges, the consumer is largely unaffected by premium increases. It is the federal government who bears the brunt of the cost increases since the consumer’s portion is limited to 8.13% of their income. Why will the consumer leave the exchange if their payment stays the same? The primary purpose of the individual mandate was to keep unsubsidized, healthy people in the exchanges. The lack of affordable health insurance forced healthy people to evaluate their health care options. They voted with their feet.
If our politicians really wanted to help the American people by putting more money in their pocket, the simplest solution is to repeal the individual mandate. In a letter to members of Congress, IRS Commissioner John Koskinen said about 6.5 million Americans paid an average penalty of $470 for not having health insurance in 2015. Ironically these Americans are the group who can least afford the penalty. As health insurance continues to get unaffordable for more people, we should expect that fewer people will be required to pay the penalty. If the government continues to get less and less money from this penalty, maybe we should admit that the individual and employer mandate are not working and never will. This would be a great time for both parties to join together and get rid of both mandates.
Last December we decided to drop our health insurance. Our reasoning was pretty simple. Which would make us feel more financially secure, health insurance or an extra $7,500 per year in a savings account?
We did think it through. My wife and I have not filed an insurance claim in over twenty years. We are the perfect health insurance customers so why not take advantage of our good health?
1. Since 2011 our health insurance has increased 13% annually. Medical cost inflation was around 5% annually over the same time period. It sure looks like the health insurance companies were raising rates because they thought they could get away with it.
2. The lowest cost bronze plan for my wife and I exceeds 8.13% of our income. It also was considerably more expensive than our grandfathered health insurance plan which also failed the affordability test. Even though the lack of affordable health insurance makes us exempt from the individual mandate, we are reminded that the ACA failed at its most important mission, affordable health care. When will the ACA or the AHCA start working on this problem?
3. For most of my life, I thought that health insurance was a no-brainer. The ACA completely reversed my position. I no longer believe that giving more money to the healthcare industry is beneficial or compassionate. Although some people maintain that health insurance is the same thing as healthcare, this insularity to healthcare costs bothers me. The politics of the situation has made it easier for the healthcare industry to ignore better-valued healthcare options. As an example when I asked my insurance company for a lower price, they said, “we do not do that”. They could not seem to grasp that healthy people do not want health insurance the same way unhealthy people do. Healthy people tolerate the cost of health insurance up to a point and then they start looking at alternatives in the same way they might change auto insurance. Healthy people are different and the health insurance exchanges are not sustainable without them.
4. How do we send a message to the healthcare industry? Our choice has been to hit them in the pocketbook. We are not trying to be heroes. Their loss is our gain. Every month my wife and I get by without a major medical expense, we win and they lose. It takes only a few months of savings to cover the AHCA pre-existing illness penalty. After a year or so we are in pretty good shape to cover most major medical expenses outside of cancer. At some point, the insurance companies will realize that chasing away their best customers is bad for business.
The United States will save about $2.6 trillion on health care expenses over a five-year period compared to initial projections made right after the passage of the Affordable Care Act.
Cost Savings Or A Bad Estimate
The trick to understanding the Affordable Care Act cost savings is the qualification, “than previously estimated”. If there are actual health insurance savings than we should see the cost curve bend. When we use 2011 as our benchmark health insurance inflation metrics tells us a different story. The cost curve did not bend. Health insurance inflation was largely unaffected.
Two weeks ago I posted my top question for both Presidential candidates so I decided to expand on that question and post my second question.
If we have a recession in your first term, what will you as President do differently with economic policies than was done in 2008?
The reason for this question is that the economy is weak and the chance for a recession is increasing.
Deutsche Bank and JP Morgan said in June that the chance of a recession in the next twelve months is between 36% and 60%.
The 1% GDP growth for the first two quarters of 2016 is sufficiently weak that a slight miss can easily drive the GDP negative and unemployment up.
Health Services Grew Almost 12 Times Faster Than Non-Health GDP. Since 2015 the increase in health care spending has resulted in flat retail sales. This health care driven economy is different than the consumer driven economy we have experience with. The health care driven economy has very narrow benefits to the overall economy compared to the consumer driven economy. Based on the GDP numbers over the last year and a half, it looks like we can have either a health care driven economy or a consumer driven economy but not both.
I think after 8 years of zero interest rates the wealth given to the banks did not trickle down to the American people.
The crucial distinction between a recession in 2008 and 2017 is that there are few if any policy options left.
With interest rates between 0% or 0.25% there is almost no benefit from lowering rates.
Weakening the dollar to increase exports is a risky policy, too. It could cause capital flight and increased interest rates.
It has been a Chinese goal to replace the dollar with the SDR as the reserve currency. To achieve that objective China will trade in a portion of its dollar debt for SDR based debt. This will probably cause increased interest rates.
Can the Federal Reserve continue to expand its balance sheet in a rising interest rate environment without international repercussions?
Can we learn anything about potential policies addressing a 2017 recession from Mr. Trump’s casino problems in Atlantic City?
My second question is what will you as President do differently concerning health care policies than was done in the Affordable Care Act?
The reason for this question is that if the ACA cannot continue in its present form so how do we address a sustainable reform?
The health exchanges of the Affordable Care Act are probably in a death spiral.
President Obama, Mr. Gruber, and other Affordable Care Act supporters have a trust problem with the middle class. The lies they told the middle class about the Affordable Care Act may be forgiven but they are not forgotten. Lying has consequences.
We have two separate health care problems, a spending problem on high cost chronic care customers and an insurance problem with the healthy customers.
The big idea for the Affordable Care Act was to dump high cost chronic care patients on the smallest health insurance market. A smarter idea would be move to high cost chronic care patients to either Medicaid or Medicare and let the health exchange work like a free market for healthy customers. If society has a moral obligation to provide affordable health care to high cost patients than it makes sense to spread these costs across a much broader base. Making a small group of healthy customers pay society’s cost for the high cost patients is the recipe for a death spiral.
We have an extremely complex way of subsidizing health insurance.. The Affordable Care Act prepays health insurance subsidies to insurance companies for low income people and uses the IRS to check compliance. If we are concerned about making a more efficient health care system than a simple re-design would avoid the money spent by the IRS on compliance.
As a person who started work in 1976 I have always had the option of affordable health insurance. As a recently as 2011 health insurance cost me $311 a month. By 2016 my grandfathered plan had increased 76% over my 2011 premium of $311 to $547. This increase is much greater than the increase in inflation and is an extravagant increase for a person who has not filed an insurance in over 16 years. The situation in the exchanges is unfortunately much worse. The lowest cost 2016 bronze plan would cost me $1,025 a month. This is 87% higher than my 2016 grandfathered plan and far higher than the 8.05% the IRS had declared as affordable. Despite being the perfect insurance customer I can no longer find affordable health insurance. In 2017 I will go without health insurance.
According to a study from the Mercatus Center the states that expanded Medicaid under the Affordable Care Act have seen enrollment higher than expected and the cost of individual enrollees has been more expensive than projected.
After listening to Episode 49 Obamacare Sinking? Why, It’s Just a Flesh Wound, Says Krugman! I felt compelled to add my two cents. Although I have not written about the Affordable Care Act in a long time I have not given up hope for meaningful health care reform. Just last week after a little prodding from Ross Kohler of ZaneBenefits I sent emails to my senators asking for their support for The Small Business Healthcare Relief Act [H.R.5447/S.3060]. The odds of it passing are up to 39% on govtrack.us! I remain optimistic for healthcare reform in the same sense as Jonathan Tepperman is optimistic in his TED talk, The Risky Politics Of Progress. He lays out a framework that worked for several previously intractable issues. I am afraid that with this issue we will have to wait for the collapse of the health exchanges before we will find the political motivation to make meaningful bipartisan changes. Think of it as the first step in a Twelve-step program for health care reform.
My comment to Episode 49.
As a middle class person who was hurt by the Affordable Care Act I was disappointed that Mr. Krugman did not reach out to the middle class with some better ideas. My annual health insurance premium went from $3,732 in 2011 to $6,564 in 2016. The lowest cost bronze plan for 2016 was going to cost me $12,300. I do not need a Nobel prize in economics to figure out that I am much worse off in 2016 than I was in 2011. For a person who has not filed a health insurance claim in this century, I lay the blame on the Affordable Care Act.
Since it is highly likely that my grandfathered health insurance plan will not be available to me in 2017, next year I am confronted with an interesting dilemma. The IRS says I should spending no more than 8.05% of my income on health insurance. That means the lowest cost bronze plan will be affordable for when I start earning $152,795. Sadly I am not earning anywhere close to that number. In an ironic twist since there are no health insurance plans available from the exchange that are affordable to me, it appears that the Affordable Care Act is recommending that I should be uninsured and enjoy my exemption from the individual mandate. I am not sure which universe Mr. Krugman is living in but the lack of affordable health insurance in the exchange is more than a bump in the road to the average middle class person. For the first time in my forty year career I will not have affordable health insurance available to me. Is this the Affordable Care Act good news Mr. Krugman was referring to?
Here is a nice story about the Cadillac Tax provision of the Affordable Care Act. Although I am not affected by the Cadillac Tax I found the video clips of Mr. Gruber and Mr. Emanuel to be particularly insightful at explaining why lying and deception was necessary to pass the Affordable Care Act. Since most of America expected that passing the Affordable Care Act would result in more affordable health care, it would have been wiser if these two men spent more of their time thinking of ways slow down health care cost increases rather than gloating over how they pulled one over on the American public.
As I have said in the past unless health insurance exchanges changed their ways and started to offering affordable health insurance to the un-subsidized healthy people they were going to morph into high risk pools. It appears that Brian Blase and I agree on this matter. In a recent article posted on Forbes and the Mercatus Center he highlights some of the problems that are worth repeating, enrollees are poorer, enrollees are older, and un-subsidized healthy people are not signing up.
Takeaway #2: Enrollees Skewing Much Poorer Than Expected
The table below shows enrollment by income group in 2015 and 2016 contrasted to the Urban Institute’s projections of 2016 enrollment made in January 2015. The table shows that exchange enrollees are much poorer than Urban expected. Other groups, including CBO and Rand, also made large errors with this projection. For example, when the law passed, Rand projected that nearly half of exchange enrollees would be unsubsidized when the law was fully implemented.
As a healthy person who is exempt from the individual mandate because I cannot purchase health insurance from the exchange for less 8.05% of my salary, I have indicated that I will go without health insurance in 2017 because saving the equivalent of my 2016 insurance premium into a savings account gives me better bang for my healthcare buck than paying exorbitant premiums for insurance I will unlikely use when it has a $10,000 deductible. With the lowest cost 2016 bronze plan costing $1,025 a month, this is up 78% over my 2016 grandfathered plan and 229% over my 2011 premium of $311. Not surprisingly Brian says it differently but the result is the same.
Unless people receive extremely large subsidies or have very expensive health conditions, buying exchange plans generally makes them worse off than remaining uninsured. As a result, the exchanges appear to be morphing into high risk pools for people with income less than twice the FPL. Simply put, it now appears that there is a significant risk that the ACA, without major change, may lead to the destruction of the individual market for health insurance.
There is something just not right about our economic malaise. Obviously this economy is different from my father’s economy but just because it is different does not mean it is better. When I went to college in the 1970s my middle class parents cash-flowed my education. Today it is nearly impossible for middle class parents to cash-flow their kid’s college education. Is this progress? The same is true about health insurance. It was such a non-issue in the 1970s that I can only remember that I had it and did not have to pay for it. As a healthy person I get no value from my current health insurance but it has grown to be one of my largest expenses and most of the increase occurred in the last couple of years. Is this progress? We seem to stuck in a loop where we keep spending more money to get the same results our parents got for much less. It is this value proposition that is frustrating and angering the middle class the most. Yesterday I was pleasantly surprised to read a Mauldin Economics newsletter describing “Dillian’s Loop“. Jared described it simply by giving the following example.
If the regulations work, they are declared a success and they write more regulations.
If they don’t work, it means they need to have more regulations.
In a way it reminds me of Albert Einstein’s quote, “Insanity: doing the same thing over and over again and expecting different results“. The subtle difference is that “Dillian’s Loop” makes fun of people who continue to propose single factor answers to multi-factor problems despite getting the wrong answer or in some cases the right answer for the wrong reason. In the developed world we still cling to the belief that there are simple solutions to complex problems and we are only one smart administrator away from eventual success. This belief permeates a lot of our policy making. Many of the Affordable Care Act supporters believe that because they expanded Medicaid it is working as intended and the act only needs a little tweaking to bring affordable health care back into the Affordable Care Act. If reforming health care costs was that simple why didn’t the Affordable Care Act supporters start off with that? Do they really believe a few more regulations will fix the health care cost problem? Even if this overly simplistic belief system leads us into making bad decisions on complex problems like the Affordable Care Act, regulations, or quantitative easing, we cling to another belief that there is still time to kick the problems down the road for the next generation to fix. The problem is that our faith in these two beliefs is waning and the clock is ticking on when our problems will spin out of control. If we cannot fake till we make it, we will be screwed.
My biggest financial problem for 2016 is keeping my grandfathered health insurance plan and paying for it with pre-tax money. In 2014 and prior years my health insurance was affordable since it was completely paid for with money from a Health Reimbursement Account(HRA) set up by my employer. Health insurance for healthy people was affordable and the HRA allowed my employer to pay for my health insurance with pre-tax money. Like most health care decisions before the Affordable Care Act it was a no-brainer. Then we passed the Affordable Care Act and everything became complicated and more expensive. In 2015 HRA’s become an inadvertent casualty of the Affordable Care Act. The next casualty I suspect will be my grandfathered health insurance plan. So I have three options:
Convince someone in government to allow me to keep my grandfathered health insurance for another year.
Not carry any health insurance.
Get health insurance from the exchange.
No one should be surprised that health insurance from the exchange is not affordable and the only happy customers are those getting subsidies. According to the HealthCare.gov Exemptions Screener, I should be paying no more than 8% of my income on health insurance. For a couple earning $63,721(400% of the federal poverty level) this is only $425 a month. Last November I looked up the lowest cost bronze plan and it was going to cost me $979 a month or $11,748 a year. For a couple earning $63,721, health insurance would have taken 18.4% of their income. According to HealthCare.gov a couple like me would have to earn $146,850 a year before a health insurance policy from the exchange became “affordable”. Only the subsidized, wealthy, chronically ill, or naive would choose health insurance from the exchange.
With health insurance from the exchange costing $11,748 or more per year in 2016, self-insurance becomes a financially attractive option. As a healthy family who has gone without health insurance in the past(1998-2008) and who is exempt from the individual mandate because I cannot purchase “affordable health coverage” from the exchange, the biggest financial risk is a hospitalization that costs more than $12,000. If you have the discipline to have a large enough emergency fund to cover future health costs then this is an attractive, financially efficient second choice. $12,000 per year will buy a lot of health care especially if you are a savvy buyer. If I could get a catastrophic care policy priced at 4% of my income this would be my number one choice since it would be the best of both worlds, encouraging both healthy living and saving for medical expenses.
My first choice is to keep my existing health insurance and to convince the government to reinstate HRA’s for companies with less than 50 employees. My health insurance plan is almost as affordable as the subsidized insurance from the exchanges. As a person who has not filed an insurance claim in the last 15 years, I am by definition the perfect health insurance customer. It is probably in the best interest of the insurance industry to do whatever it takes to keep me as a loyal customer. Although my employer gave me a $500 a month bonus this year to pay for my health insurance I would be financially better off if that money went into a HRA. Taxing a health care bonus is just plain stupid. Once again it is in the best interest of the insurance industry to bring back the HRA before I get comfortable going without health insurance.