To Buy Or Not to Buy

To Buy Or Not to Buy

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Now that consumers can generally make an efficient health insurance purchase at HealthCare.gov and most of the state-run exchanges, we can finally get to the real question.

Are the healthy uninsured going to buy it?

The big health insurance changes Obamacare made to the individual and small group market were arguably done in order to get everyone, sick and healthy, covered in a more equitable system.

To be clear, no one I know of wants to go back to the prior health insurance market that excluded people from being covered because of pre-existing conditions.

But what if most of the uninsured literally don’t buy Obamacare?

Then people will question whether or not all of this change was worth it: Why did those who were in the old individual and small group market have to accept all of the expensive changes, narrower networks, higher deductibles, and fewer choices if the uninsured largely don’t want it?

Are we moving away from a system where only the healthy could buy health insurance to a system where only the sick want to buy it?

As I have reported on this blog before, many working class and middle class subsidy eligible people will find health insurance premiums on the exchanges, after federal subsidies, at about 10% of their after-tax income. The average standard Silver plan deductible is almost $2,600 and the average Bronze deductible is $4,300 according to Avalere Health.

More than two-thirds of Silver plans sharply reduce the number of hospitals in their provider networks over typical employer plans according to a McKinsey study. That means most of the second lowest cost Silver plans––the plan the subsidy is tied to––will be a narrow network plan.

It therefore becomes a difficult decision deciding whether to buy or not buy a health insurance policy.

A recent Washington Post article, “Health Law Provides a Comfort to Those at Risk” told one side of the story. It recounted the relief a number of people had to finally be able to buy a health plan because they could not any longer be excluded.

One fellow intended to have gall bladder surgery as soon as his coverage was effective this month. Another needs surgery for endometriosis. Another women, with high blood pressure and a congenital heart defect, signed up as soon as she could. Another lady making $11,000 a year, with a health history that put her into debt, was able to get into Medicaid and be covered for the first time in eleven years.

About the same time, there was an article at Kaiser Health News, “One Texan Weighs Obamacare Options: High Deductible Vs. ‘Huge Fear.” It describes a 43 year-old women who is healthy and spent only about $1,500 for minor health care services last year. The best deal she found on the federal health insurance exchange would cost her $178 a month and would have a $5,000 deductible.

She hasn’t bought a policy yet.

She was quoted as saying, “I don’t smoke, I’m relatively healthy, so I was pretty insulted when I saw this [the price]. I was extremely angry actually. I felt hoodwinked by the insurance companies: ‘Oh, here’s this wonderful insurance plan but by the way you need to come up with $6,000 out-of-pocket first before we pay anything.”

Listening to people defend Obamacare I get the sense that they think this was the only way we could have done health insurance reform.

I will suggest that the Obamacare architects put most of their emphasis on deciding for consumers that they should have a mandate rich health plan. That in turn drove the cost up, which in turn drove the deductibles up and narrowed the provider networks.

An entrepreneur might have taken a different approach.

In business, this is often referred to as a market driven approach rather than a product driven approach.

A product driven approach is one where the developer tells you what is good for you because they know better. It generally does not lead to a successful business venture.

The market driven approach starts by asking what people really want and then figuring out how to deliver it.

In this case, the entrepreneur might have gone to the woman in Texas––really lots of people in her category–– and asked what she wanted. Then the entrepreneur would have recognized that the federal government was willing to pay something toward the premium in the form of the subsidy.

What kind of deductible would she consider reasonable? What kind of premium would she be willing to pay for a plan with her preferred deductible? What kind of first dollar benefits would she value? What kind of catastrophic benefit would make sense?

Then, with her premium, the federal premium, the deductible she considers reasonable, and the first dollar benefits she would value, what kind of plan could we build for her––and the many healthy people who think like her?

That plan would not have the long list of Obamacare mandates. It would not be “as good.” It might even be considered “substandard” by many. But she would value it, particularly because she could afford it, and she would likely buy it.

Would having these kinds of choices lead to anti-selection? They could. But the health insurance industry has a long track record of offering policies people have liked and clearly wanted to keep because they offered lots of choice and variety. After all, Medicare Advantage and Medicare Part D offer lots of attractive choices in a regulated market and they work.

Obamacare is in trouble. The person who needs gall bladder surgery this month bought it. The person who is healthy felt “hoodwinked.”

At its core, what’s wrong with Obamacare? It is a product driven not market driven enterprise.

Until the people who run Obamacare start listening to the people who aren’t buying it, Obamacare won’t work.

Robert Laszewski has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog, where this post first appeared.

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14 Comments on "To Buy Or Not to Buy"


Guest

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Guest
Barry Carol
Jan 14, 2014

“What we’re finding is there is no magic in actuarial insurance – the risk is the risk.”

Peter1 —

You’re correct. And in a single payer system like Medicare, the cost is the cost. No matter how many medical claims come in and no matter how much they cost in total, taxpayers are expected to just pay them. But hey, it’s all one pool.

As Canada and the UK show us, the only way to control healthcare costs below natural demand is to control supply especially if you have a system where no cash is exchanged at the point of service. Demand for care is potentially infinite when you don’t have to pay anything to the provider. If you control supply, especially for non-emergent care, people are forced to wait sometimes for quite a long time for services like imaging and hip and knee replacement. Americans won’t stand for it.

A friend’s late father-in-law lived in Montreal for most of his life. Late in life he developed a tumor on his groin but it wasn’t immediately life threatening. He was put on a waiting list for surgery. He kept getting bumped by people who needed treatment on an emergency or higher priority basis. Two years later, he died of something else and never did get the surgery. I don’t think Americans are willing to sign up for that. Even if his life wouldn’t have been extended had he gotten the surgery, he wouldn’t have had to live with the condition and discomfort if he had.

Guest
Peter1
Jan 14, 2014

“A friend’s late father-in-law lived in Montreal for most of his life. Late in life he developed a tumor on his groin but it wasn’t immediately life threatening. He was put on a waiting list for surgery. He kept getting bumped by people who needed treatment on an emergency or higher priority basis. Two years later, he died of something else and never did get the surgery. I don’t think Americans are willing to sign up for that. Even if his life wouldn’t have been extended had he gotten the surgery, he wouldn’t have had to live with the condition and discomfort if he had.”

Barry, I consider that story a wise use of resources and am not horrified by it – not knowing the “discomfort” level.

Many on the right advocate for science based medicine, like non-threatening prostate cancer, to cut costs, which would also include stories such as your friend’s. That’s what all the discussion is about, when are you too old and sick to have life prolonging surgery.

Guest
Barry Carol
Jan 14, 2014

“Barry, I consider that story a wise use of resources and am not horrified by it – not knowing the “discomfort” level.”

Peter1 –

It may well be a wise use of resources but I don’t think most Americans would agree with you. In this particular instance, I don’t know the discomfort level either or whether medication could mitigate it without compromising alertness or becoming addictive. I believe he was in his early 80’s when he died.

My own personal rule of thumb about whether care should be provided or not is this: If I’m not willing to spend my own money for it even if I could easily afford to, I don’t think I should spend taxpayer or insurer money either. My sense is that way too many people in the U.S. are more than willing to spend taxpayer or insurer money on futile or marginally useful care but wouldn’t dream of spending their own even if they could.

Guest
Barry Carol
Jan 13, 2014

Peter1 –

Most plans offered by large employers offer lower deductibles than the exchange plans you described. The thing is, though, that the employer plans are based on pure community rating which means that every employee contributes the same amount toward the cost of the premium whether he is 21 or 64 years old and whether he’s healthy or sick. So, it’s a good deal for the older workers but for the younger folks, not so much. Some employers do vary the contribution based on income and require higher paid workers to contribute more of the cost so lower paid workers can pay less but the key to the model is pure community rating or a 1 to 1 age rating band as compared to 3 to 1 for plans offered through the ACA exchanges.

While we can argue about how comprehensive the required insurance coverage should be, the only viable alternative to the ACA approach, I think, is high risk pools. I’ve said before, though, that politicians have not historically been willing to spend a huge amount of money to cover a relatively small number of very sick people many of whom are too sick to even vote. Moreover, I don’t think it’s appropriate to basically say that insurance companies can cover all of the healthy people and taxpayers will pick up the tab for the sick. We had high risk pools for years in at least 35 states. They don’t work. The coverage is thin and expensive and the premium paid by the insured only covers 33%-40% of medical claims costs with the rest paid by general state tax revenues and surcharges on insurance companies.

Bob Hertz —

If we were starting with a clean sheet of paper, I think the Swiss approach would be the closest match with our culture and values. Define a basic set of benefits and offer a range of deductibles. In Switzerland, the individual deductible ranges from 300 to 2,300 CHF or about $330 to $2,530. I would set the minimum individual deductible at $500 and the maximum at $10,000 though I would require anyone who wants a deductible of $5,000 or higher to show that they have adequate savings or other resources to cover it should they incur claims of that magnitude. I would also allow tiered network and narrow network plans that could cost 25%-30% less than a broad network plan. I would cap the individual contribution toward the premium at around 10% of income and subsidize the rest. In Switzerland, 45% of the population qualifies for a subsidy and there is no such thing as either Medicare or Medicaid. Everyone over 25 years old pays the same premium in a given canton (26 cantons in Switzerland) with a slightly lower rate for those 19-25 and a much lower rate for children up to age 18. In this country, probably half of the population would need a subsidy and maybe more.

Guest
Peter1
Jan 14, 2014

“The thing is, though, that the employer plans are based on pure community rating which means that every employee contributes the same amount toward the cost of the premium whether he is 21 or 64 years old and whether he’s healthy or sick.”

Whose community, the employer’s or the general community? All workers contribute the same, but all those “contributions” are subsidized by employer contributions so the younger workers also get a great deal. My wife’s contribution use to be zero, it’s now about $36.

What’s an “exchange” supposed to mean, just a collection of individual policies? Certainly Obama sold these as our great savings mechanism.

Guest
Barry Carol
Jan 14, 2014

Peter1 –

The “community” in self-funded employer plans is the employees and their family members, not the community at large. My former employer’s community was older and sicker than the average for the general population and its benefits package was pretty comprehensive so its cost per covered life was also above average. Companies with a younger workforce like Whole Foods or Starbucks will spend less than average per covered life.

As for the “subsidies” that employers provide, every reputable economist will tell you that the employee actually pays these costs, along with the costs of all other fringe benefits including the employer share of FICA taxes in the form of lower wages than he or she would otherwise be paid. To the employer, a dollar is a dollar whether it goes for wages or benefits. It’s the cost of the total compensation that matters to it. Unionized employees in particular have come to prefer to receive a relatively large share of their compensation in the form of health insurance benefits because of the tax preference that only exists because of World War II era wage controls that made it hard to attract employees at that time. That’s an example of unintended consequences on steroids for you.

The exchanges are intended mainly to facilitate competition by allowing people to easily compare costs and benefits of various insurance offerings without engaging and paying for an insurance broker. The cost per covered life for any health insurance pool will be driven mainly by medical claims costs which, in turn, are driven by the average age and health status of the people who sign up. The older and sicker the pool members are, the more the insurance will cost. The Obama administration estimated that 40% of the people who sign up need to be relatively young and healthy for the numbers to work.

Guest
Peter1
Jan 14, 2014

Barry, the higher benefits/lower wages argument only goes so far. Those who work for non group insurance provided companies usually get paid a lot less – the wage market is the wage market.

If employees are getting paid less they’re making up for it with non-taxed compensation on dollar one, while those having to pay their own premiums and costs get no tax help up to a certain amount.

“The exchanges are intended mainly to facilitate competition…”

How can that be of any value when insurance has always claimed they make a pittance on profit and mostly pay out claims and administration (oh, and bonuses). My understanding was the exchanges created a form of group benefit for individuals – guess not as I’m just where I was as an individual before ACA.

“The Obama administration estimated that 40% of the people who sign up need to be relatively young and healthy for the numbers to work.”

As of the latest report it’s only 24%. What we’re finding is there is no magic in actuarial insurance – the risk is the risk. Companies can slice and dice the existing deck of cards to look different, but they’ll get your money some way – just like Vegas.

The best route is one large pool, as would be possible in single pay where all costs are distributed over a large number of people.

Guest
Bob Hertz
Jan 13, 2014

Notes to Aurthor:

Cancelling policies because the insured became ill has been illegal since about 1996. Not that it did not happen, but as you suggest, we did not the ACA for this reason.

and

The reason that insurers raised rates after an illness is that they had a very small risk pool.
When one person out of 1,000 insureds has a $1 million claim, then rates will go up
But in a huge pool like the Federal Employees Plan, people get transplants every year and there is no drastic increase in rates.

My overall response to Mr Laczewski;’s post is this:

It is an American habit to think that health care can be reformed if people choose to buy the right kind of policies.

As Prof Joseph White has pointed out often, other nations do not wait around for citizens to buy right. Instead they install mandatory social insurance and just raise taxes.

We shall see which approach works. I am a closet European on this one.

Guest
Aurthur
Jan 14, 2014

Mr. Hertz, a couple comments:

1,000 insureds is not a pool, very small or otherwise. A self funded employer with 1,000 members that did not have a reinsurance policy at a pooling point under $200,000 would likely be considered negligent. An insurance carrier with only 1000 insureds without a reinsurance arrangement may actually be criminal.

http://www.managedcaremag.com/archives/0903/0903.catastrophic.html

I suggest the reason the Federal Employees Plan hasn’t had drastic increases is because the rates are already pretty high. The fact that there are a lot of people in this plan helps especially when it is funded at $650 to $700 per government “worker” per month.

http://www.opm.gov/healthcare-insurance/healthcare/plan-information/plan-codes/2014/brochures/71-005.pdf#page=156

Guest
Jan 13, 2014

“I am a closet European on this one.”
__

With you on that.

Guest
jbjones
Jan 13, 2014

I agree with RL that the products offered on the exchanges may not attract enough customers. But I don’t think the problem is as deep as he suggests. The central issue in designing the Obamacare exchange is figuring out how much of the cost of insuring sick people is funded by premiums paid by healthy people and how much is funded by taxes and other “outside” sources. It may well be the case that the policies on the exchange, even post-subsidy, are too expensive to attract healthy consumers. In that case, just increase the subsidies and make up the difference in taxes. (Alternatively, somehow hive off the sickest people into a special, tax-subsidized high-risk pool, and let everyone else purchase from a cheaper pool.) I view all this stuff about mandated coverage as a red herring. The preventative services probably aren’t that costly, even if they were worthless. (See http://kaiserfamilyfoundation.files.wordpress.com/2013/01/8219.pdf) Given that people are complaining that prices AND deductibles are too high, adding catastrophic options to the menu probably won’t help much either. In any event, all of these are fixes that could be made without changing the fundamental nature of the ACA, even if the allocation of dollars changes a lot.

Guest
Peter1
Jan 13, 2014

Off Healthcare.gov my plans (no subsidy) are:

Lowest price Bronze – $454/mth, $6300/yr deductible, $6300 OOP, No payment for any doctor until deductible has been met.

Blue Value Bronze – $559/mth, $5000/yr deductible, $6350 OOP, payments to docs + co-insurance.

Blue Advantage Silver – $666/mth, $3000 Deductible, $6350 OOP + 30% co-insurance after deductible.

I’m healthy, always have been. Had a hip done last year in India for $10,000 including hotel/resort/hospital/doctor/device/air fare. Accredited hospital, world class surgeon, British trained. I would go back for other elective surgeries if need be.

I won’t buy, at least this year. I could live with the premiums but the deductibles are ridiculous, especially if the illness occurs at the end of the year so that I’ll need to start all over again in the new year.

I’d be interested to learn what others with employer subsidized plans pay for deductibles.

Guest
Aurthur
Jan 13, 2014

“To be clear, no one I know of wants to go back to the prior health insurance market that excluded people from being covered because of pre-existing conditions.”

Mr. Laszewski, while it is true you do not know me, I believe if you surveyed people you do know, you would find someone wanting to go back to the prior health insurance market that excluded people from being covered (that is no guaranteed issue with no prior coverage) because of pre-existing conditions. This is what used to be called insurance. What most people actually object to is the practice of insurance companies canceling policy based on significant medical conditions that arise while a person is covered or raising rates at draconian percentages on a basis that singles out these same people. It turns out these practices were already on the decline and not widespread. These practices could have been dealt with only where they existed. This would have involved disruption of less than 2% of the population instead of 100%.