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.
One of the greatest ironies about the Affordable Care Act was that it whiffed on providing affordable health care. Any idiot can expand Medicaid without paying for it. It takes a savvy group of politicians to bend the cost curve in a sustainable way. The key to sustainability was to focus on the unsubsidized health insurance cost.
The Hidden Health Insurance Goal
The Affordable Care Act supporters did believe in the importance of affordable health care. In fact, they had a very specific goal for affordable health insurance. When you go to healthcare.gov it says that if the lowest cost Bronze-level plan available to you through the Marketplace is more than 8.13% of your household income then your health insurance is unaffordable. This implies that since the Marketplace subsidies cease at 400% of the federal poverty limit(FPL), the lowest cost Bronze-level plan should cost no more than 8.13% of the 400% FPL. As an example for a two person household, the lowest Bronze-level plan should cost no more than .0813 times $64,080 or $5,209.70 per year. This rate is not unreasonable. A couple of years ago my grandfathered health insurance plan cost that much.
Affordable Health Insurance For The Middle Class Means Affordable Health Insurance For Everyone
My Health Inflation
As a healthy family who not filed an insurance claim in twenty years, I find it exceeding odd that I cannot find affordable health insurance. As an example when I priced health insurance in the Marketplace last October, the lowest cost Bronze-level plan would cost me $12,696 per year. Even my grandfathered health insurance plan exceeds the 8.13% limit. The cost control performance of the Affordable Care Act remind me of the Zig Ziglar quote,
You hit what you aim at, and if you aim at nothing you will hit it every time.
The canary in the coal mine is those healthy people purchasing unsubsidized health insurance and yet this is the group that is most likely to be taken advantage of. When I look at five years of 13% increases in my health insurance premium, I feel like my insurance company took advantage of my situation. When I look at the $12,696 premium from the Marketplace, I feel like the government and the insurance companies conspired to take advantage of my situation. The Urban Institute has offered some ideas on fixing the Affordable Care Act such as a premium cap at 8.50% of income and an individual mandate modeled after Medicare. The premium cap at 8.50% of all income is a step in the right direction but I prefer 8.13% of the 400% FPL. Since I do not think the Affordable Care Act supporters and insurance companies have been honest with me over the last five years, I think the only way we can keep these folks honest is to have no mandate. Frankly, I have not found any Medicare participants who like their mandate so why push this headache on the rest of the population? The most pragmatic solution for me is to self-insure even though healthy, unsubsidized people are the foundation that allows us to offer affordable health insurance to everyone. If the Affordable Care Act had any redeeming value to the middle class, I do not see it in this graph. We did not get more affordable health care.
Life expectancy vs. health expenditure over time, 1970-2014
As part of the 21st century Cures Act health reimbursement accounts(HRA) were restored for small businesses yesterday. Qualified small employer health reimbursement arrangements are now exempt from the Affordable Care Act group health plan requirements. Without the exemption the small businesses using a HRA would face severe penalties for having a non-compliant “group health plan”. The small business I work at terminated their health reimbursement account at the end of 2014. They replaced it with a monthly cash bonus.
Will Health Reimbursement Accounts Make A Comeback In 2017?
My boss indicated that he would like to offer a Health Reimbursement Account in 2017. Potentially this sounds like a good deal even if we have to give up our bonuses. Pretax money goes about 20% farther. The problem is in the details.
What happens if you have a subsidized health insurance plan purchased through ACA exchanges? Zane Benefits implies that HRA payments will lower the premium tax credit. If the HRA amount is greater than the premium tax credit the employee will get a small benefit. Otherwise the only beneficiary is the government.
What happens if an employee wants to self-insure? Zane Benefits implies that the employee needs an ACA compliant health insurance plan to claim qualified out-of-pocket medical expenses.
I was thinking about Paul Krugman’s claim that the Affordable Care Act is saving us money when I remembered a graph I made in 2014. My graph showed the life expectancy at birth vs. health spending per capita for various countries in 2011. An updated graph should show the progress the Affordable Care Act made at saving us money.
Did The Affordable Care Act Make Our Health Care Costs Better Or Worse?
According to the OECD the United States spent $8,508 per person in 2011 to achieve a life expectancy of 78.7 years. In 2013 the United States spent $8,743 to achieve a life expectancy of 78.8 years. This means we spent an extra 2.7% to achieve a 0.1% gain in life expectancy. For the amount of money the United States is spending we should expect our life expectancy would be 84.6 years. When you compare these numbers to a country like Denmark it looks like we got a really bad deal. Denmark spent an extra 1.2% to achieve a 0.6% gain in life expectancy. The United States spent way too much money on health care in 2011 to achieve average health care outcomes. The Affordable Care Act was going to fix that problem by creating affordable health care. The graph below shows that this ratio is still way outside of band of developed countries in 2013. Using these simple metrics the Affordable Care Act made our health care cost problem much worse.
OECD Life expectancy at birth vs. health spending per capita
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.
Something strange happened this weekend. My health insurance company sent me a letter saying they could continue my grandfathered health insurance plan with them as long as I was happy with a 13% increase in my premium. I threw it out on the counter for my wife to look at. Her gut reaction is to screw them. It is a natural reaction from someone who is still reacting to the misinformation that “you can keep your health care plan if you like it”. Since I did not expect my insurance company to offer my grandfathered health insurance plan in 2017 I had to think.
My previous health care plan for 2017 was based on my presumption that my grandfathered plan would not be available. Despite the craziness of the Affordable Care Act it still makes sense for an insurance company to attempt to keep the perfect customer in the program. The problem is that for the last five years I endured 12% increases despite never making a claim. Now that I have over $5,000 in my Health Savings Account I can be more aggressive about the price I would self-insure. The fact that the lowest cost bronze plan from the exchange is much worse than my current plan is not relevant except that it makes me exempt from the individual mandate. The Health Savings Account with an extra $6,500 in my savings account is a very attractive health care strategy. At what price would my grandfathered health insurance plan be attractive?
Did The Affordable Care Act Screw Up The Health Insurance Market?
Medical Care Inflation
Recently I came across a chart over on the Health Care Blog that summarizes my problem. If my health insurance had increased at the inflation rate for medical care(~3.2% annually since 2011) my health insurance would be well within my boundaries for affordable health insurance. It did not. If my health insurance premium in 2011 was the fair market price then you have to wonder why my health insurance did not increase at a rate closer to 3.2%. Were the 12% annual increases an unintended consequence of the Affordable Care Act meddling with the health insurance market for healthy people?
My Revised Health Care Plan For 2017
Since I was already outside my boundaries for affordable health insurance in 2016 the question is what price would lure me back in for 2017? My plan is to ask my insurance company if they would accept a 0% increase. If they accept my proposal we will continue with our health insurance and putting additional funds in our Health Savings Account. If they reject my proposal we will self-insure.
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?
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.
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.
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.
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.