Affordable Care for the Rest of Us

Everyone agrees that the Affordable Care Act improved the situation for those people subject to the the Medicare “donut hole” in the Part D program, those people who have pre-existing conditions that prevented their ability to purchase health insurance, and the poor. Unfortunately these changes improved the situation for a very small portion of the population. Here is the Kaiser slide about the Concentration of Health Care Spending. The Affordable Care Act tries to help out with the left side of this chart. Most of us are on the right side of the chart and we need affordable health care options.


If we look at the NIHCM brief, Spending for Private Health Insurance in the United States, we cannot help but come to the conclusion that if high health care costs are the problem then group health insurance is the wrong answer. It wasn’t that way when I started working in 1976. Group health insurance was cheaper than individual health insurance. 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.

If you are a small or medium sized business that partially subsidizes the employee health insurance cost, the individual insurance market is very attractive compared to the group health insurance approach. According to the NIHCM brief those companies looking at the group health insurance approach would be looking an a 2011 employer contribution of $11,060, an employee contribution of $3,962, and an employee deductible of $2,220. When you look at the individual market approach the premium cost of $4,968 and the deductible of $3,879. When you combine individual health insurance with a $6,000 HRA, a HRA is pretty attractive option for healthy through moderately unhealthy employees. For a healthy to moderately healthy employee you will pay nothing with the HRA approach versus $3,962 for the group approach. According to there are 44 states who have an individual health market close enough to the national average that makes the individual health insurance an attractive option. A small business in these states who has less than 50 employees can get the holy grail of health care benefits, a defined contribution benefit that pays for essential benefits for their current and prospective employees. Unfortunately the same situation is not available for those businesses in Connecticut, Washington, Alaska, New Hampshire, New York, New Jersey, and Massachusetts. Their health care costs are already too high to make HRAs a viable option.

Follow-up to my Questions about Health Reimbursement Accounts

On Monday I got a phone call from a person with the Department of Labor who was following up on the questions I asked in the post, My Questions to the Department of Labor about the status of my HRA. He was nice but he did not have any answers to my questions. He had some advice. He said that the Department of Health & Human Services wrote the FAQ so I should contact them about the logic behind the HRA rulings in FAQ #11. He said that they also might be able to explain the legal status of HRA for firms with less than 50 employees. Oh well!

I went to the and sites looking for more information on HRAs or a way to contact them. No luck! Each time I go to these sites I expect them to eventually be more like and each time I leave disappointed. When it comes down to questions I have about health insurance premiums and what alternatives I have, they are not much help. If these sites are an example of how health exchanges will be designed, we are in for a rough ride.

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 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, and, that try to provide a similar service in are pretty useless for people shopping for insurance.

Economics of Privately Sponsored Social Insurance | The Incidental Economist

on Taylor who is now blogging on The Incidental Economist blog pointed out an interesting essay on the Economics of Privately Sponsored Social Insurance by Uwe Reinhardt. The interesting part of the essay for me was his definition for employer-based insurance:

Employment-based group health insurance, American style, is publicly subsidized, privately sponsored, community-rated social insurance sold to American employees on formally organized health insurance exchanges.

He goes on to make an eloquent argument that the Affordable Care Act is just like employment-based health insurance but with broader coverage. I have a couple of problems with his analysis.

  1. Most of America will probably agree that our number one health care problem is the amount we spend on health care. Our spending is double what the rest of the developed countries are spending and its growing faster than our wages. All of the economists and politicians agree this is not sustainable and our solution according to Uwe is to do more of the same! On the other hand if you think health care costs are the primary problem we need to address, it is pretty obvious that we need to do things differently. Since most of the people in this country have health insurance, the cost growth has been driven by this strange public-private concoction we call employment-based insurance. It is probably safe to say employment-based insurance cannot continue in its present form if we want to reduce health care costs.
  2. An annoying trend in health care essays like this is the assumption that health care insurance is equivalent to health care. The logical extension of this argument is that with 100% percent insurance coverage we will have perfect health. More health insurance will probably help but as Austin might say, things are complicated. Delivering good health care still has a lot of major problems other than insurance. In my favorite low income neighborhood I don’t think much will change. They are still going to the emergency room for their basic care. Infant mortality will remain high because they are not going to change their lifestyle or go to appointments.
  3. He also continues the fallacy that the healthy, uninsured people should subsidize sicker Americans. I wish it was this simple. This argument falls apart when you look at a real life example like I did. I compared health insurance rates for my family in Ohio and with health insurance rates as if I lived in Massachusetts. It would cost me an additional $11,892 per year for the lowest cost insurance available in Massachusetts. This does not make sense. I doubt we will ever get a good explanation of why Massachusetts costs so much more but it is not because we are subsidizing sicker Americans.
  4. Although Uwe speaks highly of health exchanges, I remain a skeptic. It does look like we are spending money on something the business world can do a lot more cost efficiently. I used the Massachusetts Health Exchange to come up with my estimate of health insurance costs in Massachusetts. I used to come up with the low cost plan for Ohio. The lowest plan on would cost me $305 per month. In fact there were 15 plans available for less than $400 and 55 plans for less than $600. I got a lot more plans from So what exactly is our rationale for taking away’s business.

Is the individual mandate necessary for health care reform?

Most of the recent debate about the individual mandate centers around the constitutionality of the mandate. A more interesting question is whether the mandate works. The answer to this question is different if you are an economist or an average person. The economist or policy maker will be happy if the mandate causes:

to cause the individual insurance market risk pool to become more favorable (include more relatively healthy individuals than it otherwise would).

The average person just wants to know if the individual mandate saves them money. The idea of the individual mandate was that by adding more people to the insurance pool, health costs will go down for everyone and health care will become more efficient. Since everyone would have insurance there would be less emergency room visits and better preventative care. Several logical conclusions should be expected from implementing the individual mandate:

  1. Lower Health Care Costs – Health insurance rates will go down for everyone.
  2. Improved Health Care Efficiency – Health care cost increases should be less than the average for the country.
  3. Improved Health Care Competitiveness – Health care costs in individual mandate states should be less than in other states or countries.

Yesterday I decided to compare the health insurance costs between Ohio and Massachusetts. I entered my demographic data into the Health Connector for Massachusetts,, and the lowest Bronze plan available would cost me $1,296 per month. In Ohio I looked up a comparable plans on This site provides the same features as a Health Connector but does not need a government subsidy. The lowest plan on would cost me $305 per month. In fact there were 15 plans available for less than $400 and 55 plans for less than $600. Here is the screenshot of my insurance options at the Massachusetts Health Connector.

Massachusetts Health Connector quote

Here is the screenshot of insurance options at quote

As a healthy person I would pay an extra is $991 per month or $11,892 per year for my health insurance in Massachusetts. If you multiply $12,000 by every  healthy people added to the insurance pool, Massachusetts should not any problem lowering health insurance costs. The lower insurance costs in Massachusetts didn’t happen. The expected cost benefits from reduced emergency room visits and preventative care do not appear on the bottom line either. The Massachusetts insurance prices are so far off we have to conclude that something other than the individual mandate are the dominant drivers for health care costs and those problems are not being addressed. Since Massachusetts health insurance costs are not competitive with Ohio, the logical conclusion for the average person is that the Massachusetts health care system is broken and future health care systems built along the lines of the Massachusetts system are doomed to failure, too. To paraphrase Albert Einstein, replacing a broken health care system with a more expensive, broken health care system and expecting different results, is a sign of insanity.

Ideas for Bipartisan Health Care Reform

I am doubtful that Obamacare will be repealed in the next two years but I am slightly optimistic that it can undergo some significant improvements in controlling health care cost growth. Here are two key issues that I think we can get bipartisan support on.

  1. Embrace a a wider range of cost reduction strategies including HRA and HSA.
  2. Increase the transparency and honesty of how the Obamacare health system is supposed to reduce health care costs.

Although Democrats loath any health care other than universal health care it is probably an impossible task to convince the American people that universal health care will reduce health care costs. Since the experiments at controlling health care costs using universal health care failed in Tennessee and it looks like it will fail in Massachusetts, we need other health care options if we want to reduce costs.

One health care cost reduction option that has fallen through the cracks is Health Savings Accounts(HSA) and Health Reimbursement Accounts(HRA). I am an example of a person who has successfully used no health insurance, health reimbursement accounts, and health savings accounts for my family over the last ten years. The most recent employer provided health care costs that I could find are about $12,000 a year. My health care costs last year were $2,000. Beating the employer average for one year might be interesting but when you beat it for ten years you are looking at a viable health care alternative to universal health care and large employer health care plans. It may not be the right plan for everyone but it is the best investment I made over the last ten years. With the recent legislation my concern is that when the government develops a consensus that $12,000 for health insurance is normal, they will not be satisfied until everyone pays that amount. This is reflected in the recent health care reform which forces people to buy an insurance plan they may not need or want. The press coverage has indicated that the plans available in the health exchange will be modeled like those at large employers. For a person like me this amounts to a $10,000 a year tax. Even if I do not have to pay for the increase, I am grossly over-insured and my employer will bear the brunt of the cost increase.  When I read the description of how the health insurance exchange plan is supposed to work, it sure sounds like a governmental version of with social goals as the primary goals. This is a recipe for a cost control disaster. If our government really wants to lower health care costs, they need to have health care cost control as their number one priority. If controlling health care cost is our number one priority, than it follows that people need the option of low cost health insurance as an incentive for those people who are willing to become savvy about their health care options.

Things that make me go hmm… Insurance Finder

I was looking at today. It is a pretty site. I was researching information about how the recent legislation impacted HRA and HSA accounts so I decided to give this site a try. It did not have anything. Their insurance finder looked intriguing so I decided to give it a test run. Since I used ehealthInsurance to get my last health insurance policy, I was hoping that they would provide something even better than eHealthInsurance. The worst case scenario I expected is that they would clone eHealthInsurance. However, they chose to provide me with several completely useless suggestions, like check into getting insurance at work. If you are looking for health insurance, insurance finder is a complete waste of time.

The No-Cost Path to Cheaper Health Care


Republicans are offering common-sense reforms that would lower costs.

Naturally I like the plan as explained in this Wall Street Journal article, The No-Cost Path to Cheaper Health Care, by Mr. Shadegg, a Congressman from Arizona. As a person who buys his own health insurance with money from a HRA I have at work, I am familiar with his proposals. Buying medical insurance is about as complicated as buying auto insurance. I went to and picked the insurance that met my needs from the available health plans.  So for me the Republican plan is easy to understand, simple to implement, and has a real good chance to save me money. Although controlling health care costs polls as the most important reason for health care reform, the Democratic plan rarely talks about cost control. Read this quote announcing the vote on the health care reform bill.


The House will move on the $1.05 trillion legislation that would cover 36 million uninsured people and create a government plan to compete with private insurers even after the election of Republican governors in New Jersey and Virginia. President Barack Obama will go to Capitol Hill tomorrow to meet with House Democrats, as they seek the 218 votes they need to pass the bill, a Democratic leadership aide said.