Being against Obamacare has been the keystone, the capstone, the mighty sledgehammer, the massive metaphor of your choice for the right for five years now. They couldn’t stop it from being passed. They couldn’t stop it at the Supreme Court.
They weren’t able to choke it off by “defunding” it. They rejoiced at the rubber-meets-the-sky rollout of Healthcare.gov, but then the kinks got worked out of that.They railed at the administration using discretionary powers built into the law to help it work better. Every horror story of Obamacare ruining people’s lives they came up with turned out to be false.
Almost all of the people cynically cancelled by the insurance companies as a way to sell them more expensive insurance got insured again fairly quickly. Then 7 million people signed up on the exchanges, and altogether some 10 million formerly uninsured people now have medical coverage.
But the right still needs to call it a “train wreck.” The magic mantra has to work for them. Just this morning, here’s a Republican Congressman saying that we have to cut Food Stamps because: Obamacare. Say that again slowly?
It’s getting harder and harder on the right to come up with new ways to say it isn’t working when it actually seems to be working. I have to hand it to them, though: Those spin factories are filled with hard-working creative people. Get to work early, stay late, trash Obamacare. Hey, it’s a living.
So what’s the latest? This fall, Obamacare premiums are going to “skyrocket”!
Health and Human Services (HHS) Secretary Kathleen Sebelius went before a House Ways and Means Committee hearing a few weeks ago and claimed outrageously that premiums on the exchanges are likely to rise for 2015, but not by much, and certainly more slowly that in the past.
What? How can this be? Yet another Administration figure has been trotted out to claim baldly to Congress and the American people that Obamacare is basically going to do all right.
TheHill.com got right to work and managed to come up with what they claimed were health insurance company officials eager to forecast that they would have to triple their premiums or more — and they would be rolling out those jack-ups right in time to deal a blow to Democratic chances in the fall elections. TheHill then published it under the breathless headline: “O-Care premiums to skyrocket.”
Neat, huh? Maybe a little too neat. Let’s see whether this claim makes sense.
Capped MLRs: Under the ACA, insurance companies must pay out at least 80% to 85% of premiums for actual medical costs, depending on the type of plan. These are “medical loss ratios” (MLRs). That’s the law. The other 15 to 20% is all they get for administration, advertising, executive bonuses — and profit. If they arbitrarily jack up rates, so that they are paying out a lower proportion in medical costs, they have to give the excess back to the rate-payers. The federal government has already forced some insurance companies to do this.
Those anonymous company officials who complained to TheHill claimed that “everybody knows” that higher costs imposed on the insurance companies by the botched Obamacare rollout will have to be passed on to consumers. Is this is true? Were there huge costs to the insurance companies? Doesn’t matter. Unless they plan to break the law and falsely report their MLRs, these alleged extra costs still have to be absorbed in that 15 to 20%.
So the only reason that they would be able to make premiums “skyrocket” is if the actual healthcare costs per person “skyrocket.” So how are healthcare costs doing?
Healthcare costs: Yes, healthcare costs (National Medical Expenditures) are continuing to go up — at a rate lower than 2%, the lowest rate that has been counted in the 50 years that they have been counting. Not a skyrocket.
But maybe they mis-guessed on 2014, and holy moly, they’re suffering! Or maybe they purposely under-priced their offerings in 2014 to gain market share. So they have to make up for it in 2015?
Price war: Talk to insurance marketing and sales people. I do a lot. They’ll tell you that you really don’t want to be the low-price leader. If you purposely under-price the market, you get the people who buy on price alone, and these are not anybody’s favorite customers. They will buy the cheapest product you offer this year, then drift away for someone else next year, when you have to raise the premiums. And you will have to raise your premiums, because your MLR came in at 110% — you’re spending more on medical care than the premium brought in, and you just can’t do that year after year.
So no, price wars are not the thing to do in healthcare insurance.
But maybe they guessed wrong on how expensive these new people are going to be with their new medical insurance?
Actuarial risk: It would be reasonable to assume that the insurance companies took their best shot at the actuarials for 2014. These are new markets and new customers, and there are lots of them. It’s a “bet the company” deal to get it wrong by any major amount. They have already figured in the really sick people who couldn’t get insurance before, and the bump in utilization from not-sick people who are newly insured and getting various problems taken care of, and so on. Looking forward to 2015, there is no new, extra actuarial bump in the offing, except that more of the uninsured, having missed the window this year, are likely to sign up when the window opens again in the fall.
But what about the balance of young and old?
Death spiral: What about the dreaded “demographic death spiral,” with too few healthy young people signing up to balance out the 50-somethings and the chronically ill? Didn’t happen. Apparently a pretty good percentage of young healthy people signed up, especially in the last surge, enough to come close to the Administration’s projections and hopes. Now, of course, you can always just claim that the Administration is “cooking the books,” that’s an easy out. But my read is that the Administration, having been seriously burned on the “you can keep your insurance, you can keep your doctor” misstatement, is actually being quite cautious in its claims. I am not seeing any dancing in the end zone here.
But what if a particular insurance company got it wrong in a particular market? Won’t they get burned badly and have to jack up rates to make the loss back?
The Three Rs: The insurance companies are back-stopped by each other and the federal government if they guessed seriously wrong through the provisions in the law called the “Three Rs” (reinsurance, risk corridors, and risk adjustment). No one is going to be “forced” to make their rates “skyrocket.” If they want to stay in the market, they will be looking for very moderate increases.
Still, aren’t the insurance companies themselves saying that things are way out of whack, they are taking it in the shorts, and they are going to have to jack up premiums for 2015? Actually, no, they are not.
How the insurance companies really see it: There are plenty of reasons to believe that running most citizens’ healthcare financing through for-profit public companies is a bad idea. But it does have at least one advantage: unlike not-for-profits, for-profit public companies by law have to show a certain amount of transparency. They have to open the doublet and show us what they’ve got. In annual reports, in 10Ks, and in conference calls with Wall Street analysts, what CEOs and CFOs say has legal weight. Of course they want to sound positive, because they would like to drive the stock price up. But material forward-looking misstatements can get you sued by your shareholders. So unlike in alleged anonymous unattributed whines to political blogs, public company executives have some care about what they say.
And what are they saying? They’re doing fine. Wellpoint, one of the nation’s largest health insurers (it operates many of the for-profit Blue Cross/Blue Shield plans) recently raised its earnings projections. Why? According to CEO Joseph Swedish, mostly because way more people signed up for its Obamacare plans than it expected. Think about that: This also clearly means that Wellpoint expects to make money off of all those new customers at the prices they were quoted. Absent some huge demographic or actuarial bump, they don’t expect that they will have to “skyrocket” premiums next year to make up for some mistake.
This is just the latest in a string of positive financial projections since the first of the year from all the big for-profit insurance companies, including Aetna, Cigna, Humana, and UnitedHealth Group. Swedish at least doesn’t think this is temporary. In the same analysts call, he predicted that Wellpoint is currently in a position to “drive profitable growth over the next several years.”
So: Actual healthcare costs are almost flat. Healthcare insurers don’t really do price wars. They were serious about their actuarial guesses for 2014, including all the new expenses of really sick people and the previously uninsured. The “demographic death spiral” did not really appear. The Three R’s protect the insurance companies from getting the risk seriously wrong. And in public, when misstating things could get them into big lawsuits, they say they are doing fine, they can handle the risks, and they expect to make money.
So no, there is no reason to believe that rates for 2015 are going to shoot up, “skyrocket,” explode, use metaphor of your choice here. None.
There is plenty to find fault with in the ACA, and plenty of room to debate about the perfect way to reform healthcare. But I would expect people who want to add to that debate to come armed — with things like research, logic, facts, real quotes from real people, and an understanding of how this industry actually works.
With nearly 30 years’ experience, Joe Flower has emerged as a premier observer on the deep forces changing healthcare in the United States and around the world. As a healthcare speaker, writer, and consultant, he has explored the future of healthcare with clients ranging from the World Health Organization, the Global Business Network, and the U.K. National Health Service, to the majority of state hospital associations in the U.S.
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The lies are all coming due. I hope everyone remembers what Democrats did to them in 2016.
Out of network has a 20% deductible with no cap after you pay the $8,000 deductible. Obamacare sucks in every way. Also no eye doctors will accept our blue cross vision benefit at all. Soon expect all doctors to refuse Obamacurse.
There are many Democrats that are willing accomplices to the criminal lies told about this liberal infection of our healthcare. For the rest of my life I will work to get as many Democrats out of office at all levels. Not that happy with every Republican, but I do despise every Democrat for what they did to my healthcare.
My insurance just got cancelled.
–Was: We paid 383.00 per month with a 2000.00 deductible. Our birth control was covered 100 pcnt. 30.00 co-pay on meds.
–Now: we MUST pay 866.00 per month. 12000.00 deductable. No meds at all. Birth control not covered!!!
FACT.
You should be ashamed if yourself Flowers! You are carrying water and lie.
I’ve always been a democrat and voted for Obama, twice. I feel like a sucker.
Before a couple weeks ago, I wasn’t really against or for Obamacare. I didn’t feel I understood it well enough to take a side. Well, I sure know about it’s ramifications now and fear this is only the beginning.
I am unemployed due to major mental illness. I don’t take any government assistance. My wife works while I take care of the home and we get by. She makes enough so that we are not in poverty, but for 2 people, we are low income. I have always been insured by her employer. Early this year she took another job that doesn’t pay for family insurance, just (most of) hers. We were told that my coverage would be $3,000 for the year. The salary being offered was what she made at her old job, therefore we wouldn’t have enough to cover my insurance. The place really wanted her and agreed to up the salary $3,000 so we could afford the insurance. We were happy with that and she took the job.
Now, the numbers came in for next year’s insurance. We went from no deductible to $1,000 each. $30 copays are now $50 and my premium went up almost $1,800 for the year. We are in shock. Not only can I no longer afford mental health care, because of the deductible and higher copays, we don’t have the money in our budget to cover the nearly $2,000 premium increase.
I’ll just get Obamacare, right? It’s so much cheaper and I’ll get a credit since we are low income, right? NO. I looked into it. Because my spouse’s employer offers me the option to buy insurance, I can’t get Obamacare. Not unless they don’t offer a plan that meets certain requirements. Well, they do, but it’s awful. However, no more awful than the like-priced plans I see offered through Obamacare. $6,000 deductibles? Health insurance you can’t afford to use.
I am now forced to choose a bottom plan through my wife’s employer because it’s premium will be the $3,000 we have in our budget for my insurance. I just can’t afford to ever be ill now. It has a $5,800 deductible.
This past year (and for many previous years), I was someone who could afford the care to keep their mental health in check. Now, I am not. Not because we make less money than before, but because of the changes to the health care system.
We don’t have a lot of nice stuff, I don’t even have a cell phone or cable, but we were stable, had the essentials and an insurance that allowed us the ability to afford care for my illness. I am now devastated. I really don’t know what I am going to do.
I’m expecting some “Get a job” replies and I could’ve easily told this story while leaving out that fact, but I’m being honest. I would love to “get a job” but it’s not that easy. Especially when you have no college education and haven’t held a job in many years (and don’t have a car). I am not proud of myself and would love to be a normal person with a job, but battling my illness is a full time job that costs money rather than makes it. We can no longer afford that battle.
Think about how many other similar stories must be out there. How many more people with mental illness might be having to give up treatment. Think about how that might affect society.
Btw, I am not a smoker or drinker, not overweight, am younger than middle-age and have no physical health issues. My coverage was not changed due to anything having to do with me. This was simply the new pricing and policy changes.
I am self-employed and was forced by Anthem Bluecross to switch to Obamacare in starting Jan 2014. As a result, my insurance premium more than doubled, and it comes with a very high deductible.
In addition, my family doctor told me they are not accepting new patients with Obamacare, and the only reason he agreed to see me is that he’s been my doctor for more than 10 years. He urged me to change my insurance coverage.
I am also told that I cannot get specialist care as they will not be accepting new patients with Obamacare.
Recently, I received notice from Anthem Bluecross saying that the insurance premium will increase again for 2015.
I am in a hole that I cannot escape, thanks to Obamacare!!!
I am sure there are millions of people in similar hole!
This article must be joking.
I have had wonderful health insurace via a PPO through my employer for the past 5 years. The premium increases have been so low, in fact, that my employer absorbed them entirely during that time and continued to pay 95% of the total for all of us.
This year? As as direct result of ACA, the healthcare company we buy from will increase the premium 50%. Think about that. FIFTY percent. In one year.
Even with bad years and bad increases, that is shocking.
A committed of our employees reviewed the available ACA plans and concluded that none of them came close to the coverage our PPO had, and in fact, even the best of them would leave us with less coverage, higher deductibles, and even more than a 50% jump in cost. So no, this wasn’t some big bad insurance company comparing these costs. It was US. Our own employees, who had nothing to save but our own skin by finding the best deal that we could.
The final move will be to take an alternate from our old PPO provider that hits us with a significant increase,but not 50%. We will have to jack up our family deductible from $2000 to $4000, the company will have to cut back on how much they pay on our behalf by 10%, and we will have to contribute about an extra $200/month… all to keep what we had before ACA.
You may feel free to dismiss this as another “phony” anecdotal story, but I can only promise you that it is not. ACA is clandestinely, insidiously, tranferring the burden of insuring millions and millions of people onto the backs of working Americans through increased insurance costs, reduced choices, and increased taxes. If everyone would just step back and face reality, they would realize that it could be no other way. You cannot insure millions of uninsured and hand out massive insurance subsidies to millions more by magic. The money has to come from somewhere.
I’ve said it numerous times before: Obama can just quit the bull and come clean. ACA is nothing more than a big fat tax levied on America to pay for free health insurance for a millions of people. If he wants a social welfare system to provide free insurance, fine. He’s got it. He should have simply been honest enough to admit that that’s what it was all along.
I just divided my new monthly premium for a “bronze” plan by what I was paying before. Both are HSA-eligible high deductible plans. My increase is 164% in 2015 over what I was paying in 2014. I am young, healthy, and have no pre-existing conditions. In fact, aside from dental cleanings and regular checkups, I haven’t visited a physician in over five years. As a consequence of the new law, my largest fixed monthly expense is now health care. My health care premium exceeds housing, transportation, clothing and food expenses. Every month my health care premium costs more than dining out every day, joining two or three country clubs, or buying a new large-screen television. If I wanted to spend that amount of money every month on something I didn’t need, I would have a larger abode, drive a two-seater sports car, or buy a boat. If I saved the increase in insurance premiums for a year I could take a two-week vacation in Europe or take a month off of work to serve as a missionary. Putting that money in a college fund would ensure that when I am ready to have children, their higher education expenses would be covered. As it stands, my efforts at being a responsible citizen are being undermined by legislation that is intended to benefit folks like myself, and I am in greater danger of financial insolvency due to required insurance payments than I would be if my plan didn’t cover contraceptives or maternity care.
Hi there just wanted to give you a brief heads upp and let yyou know a ffew of the images aren’t loading properly.
I’m not sure why but I think its a linking issue.
I’ve tried it in two different web browsers and both show the same outcome.
I have the facts, our plan went up $6,000 (school district). This is just more redistribution, taking from working people and giving to Obama Voters. I’m going to find a way to get out of it as our deductible is now about what it will cost us to pay the doctors we no longer have access to directly, the $6,000 we pay for our work (school) subsidized premiums is wasted. The good doctors and hospitals don’t accept Obamacurse. I’d like to do my part to help make the whole thing collapse. The limited network and shoddy care aren’t worth paying for under Obamacare. Everything Democrats do makes the original problem look like the good old days.
My wife is a school teacher and we have always had excellent insurance. Our insurance runs July to June, so we have the Obamacare plan. Most others will get screwed after the election as the shyster democrats pushed corporate plan changes to after 11-15-14. . Last year we paid $500 a month and had $5 to $25 copays and no limits on our network. This year we pay $650 a month and now have a $4,000 deductible and a very limited network. The deductible for out of network care is separate $8,000. The two closest hospital networks just sent us a notice that they will no longer accept our blue cross plan starting the first of next month; Oct 1, 14. The Democrats and Obama ruined our healthcare and I just volunteered with the republicans to help make Democrats pay by firing Democrats in office everywhere. For the rest of my life I will work / donate to get every democrat I can out of office.
Everything Democrats touch ends up worse than the original problem.
Funny how the feds are saying there will be a 10% increase, higher deductibles and increases in copays
I am guessing this is an Obamacare propaganda site
I’m all for everyone having affordable coverage. Sadly my parents, who worked their whole life, did not qualify for subsidies and were paying what they could afford. After ACA deemed their insurance as not good enough, they now pay twice what they were paying, and with a deductible that could bankrupt them should they ever be hospitalized.
In 2011, Medicaid was flailing with its cost. Voila, the 2010 ACA was presented. Problem: upping eligibility for Medicaid assistance [so a lot of folk would have to buy into ACA for getting any health insurance, so that Medicaid would not go bankrupt] and hoping that the government’s double dipping [taxpayer money towards spiraling Medicaid cost would be alleviated by forcing Americans onto ACA would be the solution] would then alleviate the Medicaid problem by another dipping means that would be costly to all except those receiving 100% Medicaid. Which means our economy is so bad that taxpayer monies just could not sustain those getting Medicaid without other resources and voila, we are pushed into and unto ACA. Problems will continue to plague the ACA because of the economy and younger folk not supporting the ACA and taking a fine rather than buying into ACA. For those up to age 26, that leaves the lower middle class and the middle class vulnerable to what is happening. It is what it is. Will no premium insurance be yet with us. As for ER, most of these folks cannot get weekend doctor services and many are eligible for Medicaid and/or are destitute or receive Medicaid anyway. So, now let’s charge those with insurance for it. In the end, it does add up. And there are yet those who fall through the cracks by one reason or another, one being over eligibilities by even $100 in income. Just my opine.
I have been in ER’s as a visitor about 10 times in MN. I never saw a patient who was not in clear pain and distress. Of course that is not very scientific.
One solution would be to levy an initial charge of $75 for all ER visits, i.e. about the same as an urgent care clinic might charge.
ER’s can also do triage, though as you say it will not be easy to then turn a patient away.
As for health plan coverage— I sure seemed to run across a lot of plans that had the same high deductible for anything, broken leg or common cold.
Bob,
There are safety net hospitals that treat large numbers of low income and uninsured patients that tell us that as many as half of their ER visits are unnecessary meaning they could have been dealt with perfectly well by a primary care doctor, urgent care clinic or an NP in a retail store clinic. If people knew that emergency room treatment offered first dollar coverage, many more would use if rather than go to a much less costly setting where they might have to pay a deductible or co-payment.
Lots of better health plans do cover emergency treatment for a modest co-payment at most but people need to be responsible. If you have chest pain, severe pain elsewhere, broken bones or are bleeding profusely, by all means, go to the ER. If you have a cold, sore throat, mild fever, etc. give it a chance to resolve itself or go to a primary care doctor, walk-in clinic or retail store clinic.
Taiwan has a single payer system that uses a smart card to pay providers and keep track of care. However, if you are deemed to be making excessive and inappropriate use of the healthcare system, you get called in for a “talking to” by the authorities. How well do you think that approach would go over in the U.S.? I don’t think it’s unreasonable though.
If we were truly paternalistic about emergency care, we would just put ER’s into the federal budget like police stations or fire departments. I know this would be hard to do in accounting terms, but not impossible.
Instead we are mandating the purchase of insurance that generally has high deductibles, even for emergency care.
I have been involved in several cases involving young nieces and nephews of mine. They had insurance with deductibles in the $2,500-$5,000 range, and they needed ER care.
So they wound up with bills for $1,800 or $2,700 that they could not pay, and had to make adjustments with the hospitals.
This most certainly does not solve the problem of cost-shifting that you correctly describe. All we have done is get a little more revenue into the hands of insurance carriers, but left the hospital billing mess alone.
The ACA was very proud of inserting first dollar coverage for $80 contraceptives or $50 screening tests into the 2009 legislation.
I would rather have had first dollar coverage of ER visits!
Bob,
I think society is more paternalistic, as you put it, toward health insurance because of the so-called free rider problem. We passed legislation called EMTALA in the 1980’s which requires hospital emergency room personnel to at least try to stabilize patients who need care whether or not they can pay. We’re not willing to just let them die outside (or inside) the ER. The cost of treating people who can’t pay gets built into the bills of those who can and do. The Kaiser Family Foundation estimates than uncompensated care adds at least 6% to hospital bills vs. what they would have otherwise been. The more people that have adequate health insurance, the less uncompensated care the rest of us will have to pay for.
With respect to life insurance, if I don’t buy it to protect my family and I die prematurely, society doesn’t step in to provide what adequate life insurance would have. The relatively modest children’s benefits from social security are helpful, of course. I don’t think widows can collect SS benefits until they’re at least 60 but I’m not sure about that. Spousal benefits are also helpful but far from adequate by themselves.
Regarding health savings accounts, I think these are oversold by conservatives. They work OK for the upper half of the income distribution but I don’t think they reduce medical claims by all that much in the end. Lower income people can’t afford the high deductibles in HDHP’s and they can’t afford to contribute to a health savings account either if they don’t have an employer to make a contribution on their behalf. For those with chronic conditions like CHF, diabetes, asthma, COPD, hypertension and depression, the HSA’s probably aren’t all that helpful even if the individual can afford to contribute to them. That all said, I do think high deductible plans should be available for people who are able and willing to self-insure more of their potential medical claims in exchange for a meaningfully lower insurance premium. As you previously suggested, I think they should have to prove they have the financial wherewithal to actually do so if they have to pay claims up to a high deductible like $10K or more.
Barry, my own background is life insurance, and it sometimes leads me to think that I also know a lot about health insurance.
But life insurance is much simpler. There is only one kind of claim– the whole death benefit. Therefore premiums go up or down in lockstep with the death benefit. A $500,000 20 year term policy is always twice as expensive as a $250,000 20 year term policy, at the same age.
So I start thinking that a $2 million maximum benefit in health insurance is twice as expensive as a $1 miliion max benefit. As you point out, it is not.
Life insurance is different in other ways. People make poor choices in life insurance all the time– wrong amount, wrong duration, or not buying at all.
But there is no national policy to force them to make good choices.
(We do have spousal benefits and child benefits in Social Security, which act in effect as modest life insurance policies if a worker buys no coverage of their own.)
Why are we more paternalistic about health insurance? (I am not saying that all paternalism is bad….I am just noticing the contrast.)
Arnold Kling (who is very conservative) reviewed a column by John Cochrane that praised individual HSA’s……and Kling pointed out that no large nation in the world organizes its health insurance system around personal choice. No nation wants to face the consequence of bad choices.
Bob,
You’re correct about the amount of commercial insurance premiums attributable to medical claims as opposed to administrative costs and profit.
As for Paul2’s policy, I think there are probably a number of moving parts and one would have to see the actual policy to make a judgment. I can think of several things that could cause the premium to increase significantly independent of the elimination of the coverage cap. They include the following:
Scope of coverage – A lot of less comprehensive health insurance plans don’t include coverage for maternity, chiropractic care, mental illness and substance abuse treatment. There may also be limits on hospital coverage for non-emergency care aside from the coverage gap. We also don’t know what the drug coverage is. It may only cover generics or even not cover drugs at all.
Age rating impact – Before the ACA, older folks could be charged as much as 5-6 times what younger people pay for similar coverage. Under the ACA, that limit fell to 3 to 1 with the difference made up by charging younger people more. I don’t recall if Paul indicated how old he is.
Population risk – If the new pool of covered members skews older or if the younger portion includes more women likely to use maternity benefits, premiums will be higher other things equal.
If an insurer can expect to shed 10% of its claims risk by purchasing reinsurance, the premium might not change at all if the cost of the reinsurance is roughly the same as the expected risk to be shed. Even if the reinsurance were covered by some new tax, I wouldn’t expect premiums to decline by more than 10% which would also include lower claims costs and lower broker commissions attributable to a lower premium.
I get that young, healthy people may not want to pay for some of these more comprehensive benefits including the elimination of a coverage cap. Most employer coverage includes comprehensive benefits with very high coverage caps or none at all. They are also purely community rated. People accept the arrangement because those are the rules that have been in place for decades. Also, since the employer is paying most of the cost on the employee’s behalf, the true cost of the insurance is not visible even though most economists will tell you that employees are actually paying it in the form of lower wages than they would otherwise be paid. The same is true, by the way, for the employer share of payroll taxes.
Two points, one rather minor and one major:
Minor — I assumed that private insurers did indeed collect $1 trillion in premiums, but that they paid out $800 billion in actual claims.
Major — based on the post from a couple of days ago by Paul2, I was thinking that a national reinsurance fund which paid 10% of claims would cut premiums by much more than 10%.
Remember that Paul2 lost his $150,000 cap on pre-ACA insurance, and his premiums actually doubled!
Now the tough question is whether removing the annual/lifetime cap is what caused Paul’s premiums to double. Where is an actuary when you need one?
Bob,
I always appreciate your comments. Thanks.
I think Medicaid spending now is closer to $450 billion or a bit more for the federal and state share combined. Private insurance for those with employer coverage plus those who purchase policies in the individual market is in the $900 billion to $1 trillion range, now I think. So, we’re approaching $2 trillion for Medicare, Medicaid and private insurance combined. Then you have out-of-pocket payments for individuals which total 12% of healthcare costs in the U.S. but, amazingly, 30% in Switzerland. Then there are all the other things I mentioned in my previous comment – public health initiatives, medical research, hospital construction, administrative costs, etc.
Regarding the impact of a 3% payroll tax to mitigate insurance premiums, I think you’re comparing apples and oranges. If a $50,000 earner who needs single coverage would have to pay between $4,000 and $5,000 annually for a policy today and a 3% payroll tax cut that premium by 10%, he would save $400-$500 on his premium but pay $1,500 in payroll taxes (3% of income). For those with income between 300% and 400% of the FPL, they would need to pay 9.5% of income before subsidies kick in. With the payroll tax, they would still have to pay 9.5% of income before subsidies but now would also have to pay the new 3% payroll tax. The government would capture all or most of the premium reduction through lower subsidy payments.
A family making $100K needing family coverage at a cost of $15,000 would save $1,500 from the 10% premium reduction but would pay $3,000 in new payroll taxes. It’s also worth noting, that at least in NJ and other high cost states with strong public sector unions, the gold plated coverage that these employees receive cost taxpayers well north of $20,000 per year for family coverage. If the employee receives a wage of $80K, the health benefit is worth 25% of income to which at least some of these employees still contribute nothing. More recently, NJ employees now contribute 1.5% of their income toward the cost of the premium. They also get very generous pension benefits which are also hugely expensive to taxpayers. They know what their salary is but they have no clue how much they receive in total compensation which is unfortunate.
Regarding the difference in spending on healthcare among countries, I’ve never seen a good definition of what is included in healthcare costs in other countries. I see it every year for the U.S. in Health Affairs magazine. For the 150 million people in the U.S., including family members who get their health insurance through an employer, the employer’s share of the premium plus the employee’s contribution can easily exceed 40% of base wages for those who receive family coverage and are paid a middle level salary. In France, it presumably doesn’t matter if you need single coverage or family coverage. The payroll tax is still the same 13% of income though the supplemental coverage is probably priced on an individual basis just like Medicare supplemental plans are.
Thanks Barry.
I think that you are right about a $150K maximum covering 90% of claims costs.
Now let us assume that in a given year, Medicare pays $550 billion in total claims, Medicaid pays $350 B in total claims, and private insurers pay $800 billion in total claims.
That is a total of $1.7 trillion. One tenth of that is $170 billion.
So the new payroll tax would be about 3% of payroll, in exchange for which health insurance premiums would go down because carriers would not have to reserve as much for blockbuster claims.
Now for a lot of individuals and businesses, their premiums would drop by a lot more than 3%. They would come out ahead by paying the tax.
I realize that this kind of quick calculation does not always survive actuarial reality. (or political reality.) Still I find it an interesting thought.
On a side note: Your comments about France with a 13% payroll tax plus supplemental policies brought up an old question I have had for years.
Everyone dumps on the USA for spending 17% of GDP on health care, and praises European nations for spending 8-10% on health care and covering everyone.
Something about this has always puzzled me. Relatvely few US corporations pay more than 17% for health care, and plenty of small businesses pay nothing. Our Medicare taxes and the taxes for Medicaid probably eat up no more than 5% of GDP.
Whereas every single business in France or Germany pays the 13-14%.
How can their spending be lower than ours?
This does not change any arguments, but I honestly wonder how these numbers are measured.
thanks
Bob,
I hear you except that I’m not sure how one would administer such an approach. I’ve personally seen low birth weight premature baby cases generate bills well into seven figures. Cancer treatments can exceed $100K just for the drugs. Then there is the need for hospital and physician services plus other care. Even long term care in high cost states can cost more than $14K per month just for the custodial care before any drugs or medical services that might be needed. CHF patients can be in and out of hospitals quite frequently. That all said, it would be interesting to learn just what percentage of care is attributable to bills in excess of $150K for a given patient in a particular year.
I’ve read that if we just take the first $5K of bills incurred by each patient, including the very expensive patients, we would be looking at between 25% and 33% of medical claims. The first $150K of spending might already account for 90% of claims costs even at U.S. reimbursement rates except that Medicare and Medicaid combined probably account for at least 40%-50% of provider revenue with private insurance plus out-of-pocket payments accounting for most, but not all of the rest. Total medical spending also includes such areas as R&D, hospital construction, public health initiatives, administrative costs incurred by payers among other things. At the same time, in any given year, half of the population uses few medical services or none at all.
Large self-funded employers average at least $5K of spending per covered life unless they have an especially young and healthy workforce. The French pay 13% of income for their Medicare for all system which only covers 70% of allowed charges. Most people also have to either get a supplemental plan to cover the rest through their employer or pay for a policy themselves. At more than 17% of GDP, healthcare is very expensive in the U.S. but it’s also quite expensive in most other developed countries as well as a percentage of income most people pay in taxes to support their system. Young healthy people who don’t use or need much healthcare probably do not view it as worth its cost, but that’s the way most systems work. Like most forms of insurance, if you want health insurance to be there for you when you really need it, you have to be prepared to pay for it when you don’t.
Thanks, Barry, but I do have one heck of a time with my proposal that if the cost of treatment (better yet, the bills for treatment) exceed $150,000, then the medical providers just accept $150,000 and be done with it. Other than the drug companies, I think that quite a few doctors and ethical hospitals would be OK with this.
Then you would not need a reinsurance fund for costs in excess of $150,000, because in my world no bills would exceed $150,000.
I am going to stick on this stubbornly, because as you correctly percieve, a large portiion of everyone’s health insurance premium goes to cover claims that would be laughed out of court, if you will, in most other nations.
Paul2,
You’re suggesting a reinsurance pool to cover high medical costs. The threshold above which reinsurance would kick in is called an attachment point. Even a $250,000 attachment point is considered low these days and is quite expensive as a result. Reinsurance with a $100K attachment point would be extremely expensive.
If such a fund were financed by a flat tax on insurance policies, it would accomplish little to reduce costs because insurers would need to pass it on in premiums. If it were financed with some other dedicated tax like an increase in the Medicare portion of the FICA tax, it could be quite costly for the middle class as well.
You need to remember that in any given year, the most expensive 5% of insured members account for 50% of medical claims and the most expensive 1% account for over 20% of claims. If we want to find ways to lower the cost of health insurance without materially cutting back on covered services, we need to reduce the cost of healthcare. Health insurance is expensive because healthcare is expensive. It’s that simple.
Bob Hertz – I think there are some good ideas in ACA like a standard suite of covered services. Where they go wrong is with the catastrophic costs. I think there should be a catastrophic fund managed by Feds that might be fed by some tax revenue, maybe a premium paid by health insurance carriers and some other sources. Once the costs for a policyholder go over say $100k the fund would pick up the rest. This way the insurers, especially the smaller ones, wouldn’t have to be so worried about carrying a bunch of very sick policyholders. How can anyone save for retirement if they have individual policies and are paying up to $2k per month for a couple especially in their later years before retirement. The biggest laugh for me is the rhetoric in the ACA world where they say the younger person will pay a little more and the older person will pay a little less. Yeah, right. The difference between what a 22 year old and a 58 year old pays per month on average for a silver plan is $350 – $400 ($250 vs $650) at least in my state of Wisconsin.
Paul2, this is a classic case of what may be wrong with the ACA.
Your old plan had some caps, and there was probably one chance in a thousand that in some future year you would exceed the caps and have a serious problem.
The ACA fixed your one in a thousand risk, but the cost to you is very large.
In fact you would be closer to bankruptcy by paying the new plan premium than you ever were under the old plan.
The drafters of ACA live in a cushy world where generous employers (like the federal government) cover nearly all the costs of improvements in the standard benefits package.
My solution was always this: let people buy limited-benefits insurance if that was what they could afford. Then, when that one in a thousand cancer came up, force the oncologists and hospitals to accept the limits and refuse to allow balance billing. $150,000 is plenty of money to cure any disease with realistic price controls on drugs and on hospital fees.
Bob Hertz, The Health Care Crusade
Well, I didn’t believe all the Obamacare/ACA horror stories until it happened to me. My employer just announced that they are switching to a set of ACA compliant health plans. My current plan is a limited “budget” plan but it worked for me. My premium – that is my contribution will go from $308 a month to $710, deductible from $500 a year to $2500 for the just rest of this year after the new plans are implemented (June 1 to December 31). Maximum out of pocket from $2500 to $6500 for the rest of this year. I just can’t believe it. I’m going to have to waive participation because I just can’t afford it. I don’t qualify for any premium assistance and paying the IRS will be a bargain compared to the $8520 in yearly premiums.
This comparison is not apples to apples, I realize that. The budget plan had an outpatient cap of $10,000/year and a $150,000 cap on all categories of medical expenses per year. The ACA plan is much more comprehensive but I will have gone from having something that took care of my basic medical needs to nothing at all. For me the premiums did skyrocket and ACA in my case is a complete disaster.
Someone forgot to read…,.Its terrible how you sound . i have worked this industry for over 10 years and the things you say are idiotic! BE informed ask questions dont research for answers. Every household is different! Most Americans just so you will know qualify for an additional tax credit called COST SHARING that the idiots against never spoke of…and by the way it reduces the deductible and out out of pocket that you meantion is so high . Also to follow up most of those deductibles under the silver plans can be as low as a platinum plan deductible. Shhh until you get the facts! Toodles
“my parents are paying for me.”
Why is that not a subsidy?
my parents are paying for me.
Andrei, who pays for your health insurance now?
Well, i don’t get a subsidy and i said all because the healthcare reform is for everybody. If i am mistaken, i’m sorry but i’m seeing this as a positive thing. I have been sort of interested in what the american people are saying. If you can, please explain to me why people are against it…
Well, i don’t get a subsidy and i said all because the healthcare reform is for everybody. If i am mistaken, i’m sorry but i’m seeing this as a positive thing. I have been sort of interested in what the american people are saying. If you can, please explain to me why people are against it…
“I am in favour of Obamacare.”
Andrei, do you get a subsidy?
From your blog home page;
“Obamacare provides affordabe healthcare for all american citizens,”
Why do you “all”?
I am in favour of Obamacare. I know there are some minor drawbacks but it seems that more and more people are signing up for it. My blog covers this issue:
http://publiccomm31.wordpress.com/2014/04/12/obamacare-healthcare-reform/
I’m looking forward to hearing all of your opinions.</