Yesterday I made a comment on the post, Do Obamacare’s three “mores” spell long-term failure?, highlighting my concerns that the Affordable Care Act makes it very difficult if not impossible to bend the health care cost curve. I used as an example my own situation and pointed out that if I had to purchase health insurance on the exchange today I would get a subsidy that would pay the majority of the cost increase. My costs would go up but the government would be stuck with most of increase. That is the good news. The bad news is that I have an out of pocket cost dilemma. If health care reform was working right then I should be selecting a silverish bronze plan from the exchange with a similar out of pocket cost to my current plan. The problem is that the cost for a similar plan from the exchange will be greater than my HRA allotment and the excess amount will be paid out of my disposable income. To avoid this problem I am being nudged from my 2013 silverish bronze plan to the lowest cost bronze  or catastrophic plan and building up a much larger savings account for health emergencies. The Affordable Care Act has has forced me into a riskier financial profile. Since most of my health care costs for 2014 will probably fall below the deductible and the deductible has gone up to at least $6,350, it is even more important from a personal finance standpoint to have this savings account fully funded. So here is the dilemma. Do you buy catastrophic health insurance and gradually increase the savings rate or go “cold turkey” and dramatically increase your savings rate? If you are living paycheck to paycheck without any wiggle room in the family budget for increased savings then you are stuck in the Affordable Care Act donut hole. Hmm… this could get ugly!

Powerline has a post that is near and dear to my heart, “An Insurance Death spiral?” He highlights that maybe the most serious problem facing the Affordable Care Act may come from spiraling insurance subsidies. Since I have not found anyone with a good understanding of 2013 insurance costs I would not be surprised if the 2014 budget severely underestimates the subsidy costs. If the government is paying the bulk of the bill then it makes business sense for insurance companies to jack up the 2^nd lowest silver cost plan as much as they can get away with. That assures that even people like me get a subsidy. I understand why this makes political sense but it also makes controlling health care costs a moot subject. Here is my comment:

Thanks for the post. I was wondering who was paying the subsidy and why. As an example I am paying $391 per month right now for what I call a bronze plus plan. The lowest exchange price for a bronze plan for me is a little above $1,000 per month. The exchange calculated subsidy is $522 per month. So the insurance company is going to get an extra $87 from me and $522 from the government for a policy that is not as good as the one I have in 2013. This sure sounds like a sweet deal for the insurance companies and a real risk the government will get stuck with an out of control entitlement program. Maybe someday in the future we will look back at these days and laugh about the times when we could buy health insurance without a subsidy.

I listened to the video clip on the page, Arrival of Obamacare forcing insurers to drop customers with low coverage, and started to wonder when the Affordable Care Act was going to recognize that the customer is always right. The Wikipedia entry for the customer is always right says it was popularized “by pioneering and successful retailers such as Harry Gordon Selfridge, John Wanamaker and Marshall Field” who “advocated that customer complaints should be treated seriously so that they should not feel cheated or deceived.” Here is my simple proposition. Here is my existing health insurance plan. Show  me which part of this plan is going up and why. Put both plans on the table side by side and show me where the new Affordable Care Act is the better deal. It is put up or shut up time!

I must admit that my greatest health care is not getting sick but having my grandfathered policy canceled. I dread picking up my mail every day. Every day I look at the prices for policies on the federal and private exchanges, I imagine that dynamic duo of Affordable Care Act supporters and insurance companies are licking their chops. To them they see health care reform as a revenue problem and see me as the perfect insurance customer, healthy and have not filed a claim in twenty years. They have grand plans for health care reform and they need more money. Even though I may agree with some of their goals I am constantly irritated that once again a small portion of the middle class has been chosen to bear a disproportionate share of the burden. I feel betrayed by the President. I do not think he was careless when he said “If you like your plan, you can keep it.” He was expressing a commonly held belief that our existing plans were adequate and the transition would be planned, gradual, and painless. Now we find out that the health exchange was not planned very well, that insurance cancellation notices are snowballing, and getting a new policy via the federal exchange is painful. All of this pain and suffering for a reform that they are pretty sure will not work. Yeah, we are in the best of hands!

Unlike the Affordable Care Act supporters I am trying to think of ideas on how to make the law more efficient and less partisan. My guiding principle is that we should pursue the simplest health care reform policies until we find a more complex form that actually provides some measurable benefit. This is a variation of Occam’s Razor or the KISS principle. Part of the problem with the Affordable Care Act supporters is that they have consciously pursued complex polices when a simpler policy would be more than adequate. As an example Josh Barro at Business Insider argues “If You Like Your Health Plan, You Probably Shouldn’t Be Able To Keep It”.

But here’s the thing: One of the key reasons that America needed health care reform is that a lot of existing health plans were bad. There are a lot of health plans that Americans shouldn’t be able to keep.

Some old plans were bad because they had big holes in coverage, like plans with annual and lifetime benefit limits that could leave beneficiaries destitute if they got hit with major illnesses. Other plans were bad because they covered too much, encouraging beneficiaries to consume needless care because they had little or no financial responsibility at the margin.

In effect he is arguing that we should throw the baby out with the bath water because there are holes in the coverage in the low cost plans and too much coverage in the high cost plans. I have a lot of problems with this argument. I looked at my current, grandfathered plan and it does not have any holes that I consider significant. I have a passion for the details so I ran it through the actuarial spreadsheet and it comes in at 64.1%. Considering that it has both a lower price, $391, and a lower deductible, $3000/$5000, than the Affordable Care Act plans, it looks like the better deal. Probably the biggest problem I have with his argument is that I am beginning to believe that the price for the plans is a top down decision that does not reflect the actuarial costs from closing holes in existing plans. The pricing appears to be based on what the government/insurance companies feel the market will bear without political consequences. There is a collusion/corruption smell coming from the Affordable Care Act and it shows up as higher prices. So we have replaced a somewhat efficient, honest individual insurance market with a less efficient, dishonest market. The price increases are a pretty good indicator that we are going in the wrong direction!

For me and most healthy people the Affordable Care Act plans are the 4th best health care reform option. So here is a simple solution that is not politically charged. Let the grandfathered plans coexist for a couple years more with the Affordable Care Act plans. When the Affordable Care Act supporters start embracing the value option for healthy people, these plans will quietly go away.

This is an interesting report,  Enrollment in Obamacare Exchanges: How Will Your Health Insurance Fare?. When I enter my data for Ohio I show a 100% increase in rates from 2013 to 2014 when I use Anthem’s web site to price it. Hmm…

Results

Individuals in most states will end up spending more on the exchanges. It is true that in some states, the experience could be the opposite. This is because those states had already over-regulated insurance markets that led to sharply higher premiums through adverse selection, as is the case of New York. Many states, however, double or nearly triple premiums for young adults. Arizona, Arkansas, Georgia, Kansas, and Vermont see some of the largest increases in premiums.[5]

Sarah Kliff wrote a very nice article, “The last time the government expanded health care, it was also kind of a disaster”, about the last time the government expanded health care through an online exchange. She highlighted some of the problems when the government launched online shopping for the prescription drug program and pointed out that “about 90 percent of seniors say they are satisfied with their Part D coverage”. Unfortunately that is where the comparison starts to fall down. When the government expanded Part D there were a lot of “winners” and very few “losers”.  At the end of the article she quoted an expert who said, "They don’t remember the glitches in the first weeks of getting coverage. It’s the coverage that sticks with people." That is why this time it is different.

When you focus on the coverage there are a lot more “losers” in this “reformed” individual health insurance market. Most of the people who purchased health insurance in the individual market in prior years are in for a nasty surprise.  The vast majority of them are healthy and their insurance bill just went up. For those who have had their plans canceled and are now forced to use the exchange to find a new plan, they have found that the closest substitute to their plan costs 100% higher in the exchange. In many cases their existing plan is better and cheaper but they are being forced to pay a disproportionate share of society’s burden to care for the less fortunate. The Affordable Care Act supporters just whipped the sleeping dog and are now wondering why people are unhappy? The bottom line is that individual market reforms are not fair and even the Affordable Care Act supporters agree that there is a high likelihood that these health insurance reforms will not work. Health insurance was a product created for the middle class. The high income folks do not need it and the low income folks have more important things to spend their money on. At some point we have to recognize that this feeble attempt at Schumpeter’s creative destruction is not working. What we have gotten instead is plain, old destruction any idiot could conjure up and a new entitlement system that no one can control.