THCB

Sorry. If You Want The ACA to Work, You’re Going to Have To Actually Make People Buy Insurance

A THCB reader in New York writes in with this timely observation:

“If you want everyone to be able to get insurance, everyone has to actually have insurance.

Most people agree that one shouldn’t be denied insurance because of illness and pre-existing conditions.  This is probably the least controversial aspect of healthcare reform. The problem is, you can’t insist that insurance companies sell to all comers at reasonable rates unless you also guarantee a sufficiently large risk pool that includes the healthy as well as the sick.

If you don’t see to it that the healthy sign up, people will go without insurance until they get sick, and the pool of the insured will become so costly that premiums will quickly spiral out of control.

So, to make sure everyone CAN get insurance, everyone MUST get insurance.

This isn’t a moral or political stance, it’s not something you can choose to believe in, it’s basic economics.

The problem with the ACA’s approach to ensuring universal coverage is that the incentives for the healthy to sign up are too weak.
The healthy who decide not to purchase insurance will have to pay a penalty, but that penalty will usually be substantially lower than the price of insurance. Perversely, this weakened approach to ensuring universal coverage could make things worse than they are today.  How?

Today, if I’m healthy and uninsured, I know that if I develop a serious illness, I won’t be able to get coverage.  At all.  This is an incentive for me to go out and spend the money on insurance. Once the ACA is in full force, if I decide that I would rather pay the (cheaper) penalty than buy insurance, I have the security that should I become sick, assuming it’s not a super emergency, I will be able to get insurance to cover future costs, since policies will have to be offered to all.  This security blanket for those who choose to remain uninsured is a major problem.”

Demanding that insurers sell to all comers, while encouraging rather than ensuring that everyone be covered, is a major flaw of the ACA.Although some other countries use a mix of private and public insurance systems, they all require, rather than encourage, citizens to carry health insurance. There is no other way.”

If you have questions about the Affordable Care Act or your buying insurance on the federal state exchanges, drop us a a note. We’ll publish the good submissions.

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ways to help anxiety
Guest

Thus, the finding suggests that the 5-HTT gene variation doesn’t cause anxiety by itself, but sets the stage for
anxiety to develop in response to a sufficiently stressful situation.
And those seconds are the ones where everyone seems to push my buttons instead of reading the signs
and walking away. Across the United States, small business owners everywhere
are probably busier than Fortune 500 CEOs.

Jenny
Guest
Jenny

I know I’m a late comer to this post, and maybe there is more information out there for people like me. It’s seems to go alone with the economic incentives argument. I’m a 26 year old on an individual policy that would be considered “substandard” according to the ACA. I reasoned that my coverage would be cancelled, and I would have to pay twice as much soon. However, I called my insurance provider yesterday, and I was told they were not kicking me off or canceling my coverage. “Are you saying if I file a claim in January, it would… Read more »

Michael Turpin
Guest

One element not noted in this thread is the new age banding requirements under ACA exchange pricing. Community rating allows age banding with no greater variance than 3:1. Variances were much higher under prior underwriting practices. The result is younger people will pay higher amounts for insurance which in turn creates an additional disincentive to purchase coverage. Until the penalty reaches the greater of 2% of AGI or $695, it won’t really grab the young and even then, a $3500 premium on a high deductible plan may not be worth the hassle. This also assumes i pay taxes so that… Read more »

Barry Carol
Guest
Barry Carol

Bob – I think it’s important to remember that every age cohort has one or two categories of expenses that account for a large percentage of their budget. For young people, it’s buying and furnishing a home and starting a family. For middle age folks, it’s paying for college and trying to save for retirement. For older people, it’s healthcare and health insurance costs. Most people in their early 60’s have fully paid for homes and children who are grown and (hopefully) on their own. If they’re retired, they no longer have job related expenses. If they’re reasonably healthy, they… Read more »

Lisa
Guest
Lisa

Barry, I agree that your facts are true for many older people, but there are additional trends that should be considered: 1) Corporate layoffs are focused on older employees. Many older people are “retired” against their will, long before they qualify for social security and medicare. Their children are in college and they stay in a high cost location as they look for work. If they move to a low-cost location, they’re giving up their option of returning to work. 2) Their savings is what they have to live on for the rest of their lives. Pensions and Social Security… Read more »

Michael
Guest
Michael

I wrote the original post. To legacyflyer’s comment: “If I have to wait until the next open enrollment period and that is 6 months away, the strategy of waiting until I am sick to sign up may not be such a good one. Nevermind getting hit by a truck” Agreed. The exclusion of pre-existing conditions doesn’t mean you can get an insurance policy the moment you’re hit by a truck. But it still takes the edge off going without insurance. Most of the catastrophic expenses are caused by illnesses that extend over longer periods of time. And people will feel… Read more »

Bob Hertz
Guest
Bob Hertz

Good points, Barry. Megan McCardle had a post about one month ago and discussed the exact same scenario.

The tax deduction you mentioned earlier is kind of scrawny. Say that my hypothetical couple pays the $16,000 and pays $2,000 in out of pocket costs for the year

$18,000 exceeds 10% of their income by about $12,000. Taking a deduction for $12,000 saves them about $2400 in federal income taxes

I rest my case. In exchange for spending $18,000, the taxpayers get a $2400 break. Peanuts.

Maybe we should allow $12,000 as a tax credit instead!

Barry Carol
Guest
Barry Carol

Bob – To take your example of a 55 or older couple paying $16,000 for health insurance, we would need to raise the subsidy qualifying threshold to $168,400 to cap their share of the premium at 9.5% of income which is the maximum for those who currently earn between 251% and 400% of the FPL. Only about 2%-3% of taxpayers earn more than $168K. Moreover, if the subsidy threshold were raised that high, there would be a huge incentive for employers to stop offering health insurance, increase employee pay by the amount they were previously paying for health insurance and… Read more »

Bob Hertz
Guest
Bob Hertz

But if only a small number sign up, then total spending on subsidies will be lower than projected. We could potentially afford to raise the threshold,, and still spend less on subsidies than we are projected right now. I do not pretend for a minute that my little exercise solves the whole problem. The cancellations of individual coverage are a huge issue. Even if only 3 million persons are affected, they will make a lot of noise. It took a lot fewer than 3 million affluent elderly to sink the 1989 Catastrophic Care Act. I just think that raising the… Read more »

Barry Carol
Guest
Barry Carol

Bob – Raising the threshold for subsidies would just result in spending more taxpayer money that we don’t have. It’s worth noting that individual spending for out-of-pocket healthcare as well as for premiums to pay for health insurance, dental insurance and long term care insurance are tax deductible to the extent that they exceed 10% of adjusted gross income (previously 7%). So, people who don’t qualify for health insurance subsidies will likely get at least some of their costs covered via the tax code assuming they itemize deductions. I also think it would be appropriate to allow people who don’t… Read more »

Bob Hertz
Guest
Bob Hertz

Let me stake out a minority position here.

Let’s say that the only customers in the ACA exchanges are older and/or in poor health. Let;s also say that the great majority of customers are getting subsidies.

The premiums charged in the 2nd year of the exchanges will be quite high.

But for everyone under the 400% threshold, that won’t matter because their insurance costs are capped as a per cent of income.

Where is the problem?

OK, those who are over the threshold will face very high premiums. This is solvable — raise the thresholds!

2cents
Guest
2cents

Insurance companies are to spend 80% of premiums on healthcare, otherwise, they will have to refund premiums the next year in excess of premiums not spent, which is likely what is going to happen until it evens out in the next year or two.

Barry Carol
Guest
Barry Carol

The Achilles heel of the ACA is adverse selection which we are likely to experience because the penalty for not buying insurance is so low, at least in the first year. Insurers need a pool of people with an average age of 40 or so to make the numbers work. So far, most people buying insurance through the exchanges are 50 and older. If the younger people don’t enroll in sufficient numbers, we will have the feared adverse selection and premiums will increase sharply in 2015. A plan with a high deductible of, say, $5,000 per person before insurance kicks… Read more »

Bobby Gladd
Guest

Excellent comment.

Paul
Guest
Paul

Sure, insurance can be offered to cover pre-existing conditions, but it should remain in the province of the insurance company to set the price. Most folks have group insurance, so it is a non issue for employee provided health insurance. No one should be coerced into getting insurance if they don’t want it, and, if they want it, it is their choice what they can afford to purchase. If the penalty(tax) were increased, then it would be a penalty and not a tax, and, thus, the ACA would be unconstitutional, which it is, really. ACA is an oxymoron, in that… Read more »

2cents
Guest
2cents

‘Why aren’t catastrophic plans available to everybody?’
Preventative medicine will keep you from having a catastrophic illness, which is much cheaper in the long run since you don’t incur major medical bills that you can’t pay and do not leave the workforce, apply for disability and live off the government due to your catastrophy. Preventative medicine is much cheaper than catastrophic medicine.

Doug
Guest
Doug

I think Lisa was saying that she’d rather cover her regular checkups and preventive medicine on her own, and have insurance for catastrophic coverage. And I agree she should be able to.

2cents
Guest
2cents

What if she injures her knee and can’t ambulate due to pain and needs a replacement? Catastrophic insur would not cover the replacement, only the exam and opiates that the doctor gives her at the ER. What if she has a hernia that really bothers her and is painful but not severe enough to get a repair under her plan? Both of these are enough to keep you from doing a job and thus leaving the workforce, and are very common elective procedures, that are not covered under catastrophic policies. There are many procedures that keep one from working that… Read more »

Tanya
Guest
Tanya

Not necessarily. I was diagnosed with NF2, a very serious disease, when I was 40. Since then I’ve had brain surgery and spine surgery. The disease is in my genes (literally, it’s a defect) and not one whit of diet nor exercise would change my fate. Not to mention that catastrophic insurance also covers against accidents, like car crashes or falls.

More importantly, however, if someone WANTS catastrophic insurance and WANTS to pay out of pocket for everything else (including preventative medicine) who are you or anyone to keep her from doing so?

Vik Khanna
Guest

Preventive medicine will do nothing of the kind. Catastrophic illnesses that produce super spender patients are almost always things like massive traumas, complicated pre-term births, multiple organ transplants, and rare disorders that require expensive biologics. Preventive medicine (or wellness) has nothing to do with preventing any of this.

James
Guest
James

You will also find common traits among super-utilizers (which tend to be high-cost) that include multiple chronic conditions, mental illness, often substance abuse, and various social factors (like unstable housing). However, I agree with Vik’s general point that general preventive doesn’t do much here. Indeed, it may not do much for the run-of-the-mill patients either. Some prevention has good ROI (immunizations and smoking cessation), while others will never pay for themselves. It may be justified as leading to better care in general (for some preventive items), but don’t look for money back. Indeed, in some cases, too much “prevention” can… Read more »

Lisa
Guest
Lisa

Most of us would rather manage our own health care decisions and rely on insurance only for the case of a major accident or serious health issue. I can handle my own checkups and colds, it’s the major health problems that destroy people financially. As an older person I accept the reality that my premiums will be higher than a 20 year old, but there needs to be more sanity in the system. A catastrophic policy with a low premium and high deductible would be ideal. I would be more than willing to buy a policy like that, but I… Read more »

Bill Springer
Guest
Bill Springer

Most consumers are out of touch with how much health care really costs these days. Lisa is complaining about $450 per month premium, probably not realizing that even a two or three day stay in the hospital will wipe out a full year’s premium. And as you get older, the likelihood of needing to be hospitalized and how long you’lll be in there both go up considerably. A healthy person age 65 would look at $450 per month premium under Medicare Advantage as a great deal!

Lisa
Guest
Lisa

Bill,
Check your facts. Medicare part B costs my husband $106 a month. If I could qualify for Medicare I’d be a very happy person indeed. I know what a stay in a hospital costs, that’s exactly why I want to purchase catastrophic insurance. Health care costs are so high because only high-cost cadillac plans are available . Even before the ACA there were no catastrophic plans available to older people, and that’s what needs to change. The system is outrageously expensive because everybody is being forced into high-end plans with coverage they will never use.

Lisa
Guest
Lisa

Medicare part D is $30/month for him, as well. My point is: I can manage preventative care on my own. I take no prescription drugs. If I have a minor accident I will pay out-of-pocket, but I’ve never had one. I badly want to buy catastrophic insurance in the case of a major accident, and I hope when the dust settles on the ACA squabbles that there will be a reasonable plan available to me. I can’t have $450/month eating up my savings for the next 6 years. My savings is what I have to live on for the rest… Read more »