EOB (Explanation of Blog)
This blog consists of three procedures, each billed separately. Procedure I palpates some thoughts about insurance in general. Procedure II diagnoses my situation with respect to ObamaCare and how various factors impact the insurance premiums I pay. Procedure III examines the cost of health care and the premise of ObamaCare. Procedure IV is the first thing they do in the ambulance but, as I said, that procedure is not part of this blog.¹
I. About Insurance
There are a few different ways to look at the elephant we call health insurance.
The first and original view of health insurance is as a prepayment for care one expects to receive or contracts to receive. “In 1929, a group of schoolteachers arranged for Baylor University to provide hospital benefits on a prepaid basis. This plan is considered the forerunner of Blue Cross plans, which were organized by a group of hospitals to permit and encourage prepayment of hospital expenses.” [Vaughn & Vaughn, “Fundamentals of Risk and Insurance”, Ninth Edition, 2003.] Think of the extended warranty or service contract we are usually pestered to buy along with our televisions and tablets. You are buying the right to have one’s equipment (or one’s body) repaired sometime in the future at little or no additional cost.
The second and more general way to view insurance is as a payment to another to absorb a financial risk you are unwilling or unable to absorb yourself. There does not need to be a pool of people taking risks similar to yours — any risk can be evaluated on its own merits. Think Lloyd’s of London. On its website today, Lloyd’s claims it has “issued a £1m policy to the National Sea Life Centre against attack by their giant Japanese crab.” Obviously, marine life facilities that harbor killer crabs do not comprise a statistical risk pool, yet such uncommon risks are commonly insured.
Crabstract
Lloyd’s is able to insure these one-of-a-kind risks by virtue of its deep pockets and its ability to price its premiums in line with its risk, so that Lloyd’s will come out ahead in the long run. Historically, private health insurers used a similar model: your premium was individually determined, based on your age, sex, weight, health history and pre-existing conditions.
Since I do not have employer-based group coverage, this is how I have insured myself the last few years. Luckily, my risk profile has been reasonably low.
The third way to look at health insurance, and the way Americans are now encouraged to view it, is as a mutual loss-sharing enterprise administered by a neutral third party, i.e., the insurance company. In this scenario, the insurance company charges just enough to cover its own costs and make a profit, while the cost structure of medical care is spread among the insured. Everyone pays a little more (either directly via premiums or indirectly via taxes) so that no member of the group has to experience personal financial ruin from health-related problems.
This is ObamaCare, in essence, a mutual loss-sharing enterprise. It distributes its losses (i.e., medical costs) among the insured based on age, income, zip code and tobacco use. What it does not do is deliver care per se — it is an insurance program. A better name for it would have been ObamaShield.
II. Why Did My Rate Go Up (? and !)
I am an economic calculator. I am fortunate to have enough financial leeway to weather short-term upsets and make buying decisions that are good in the long run. For example, I do not buy extended warranties, ever. My reasoning is this: no company would sell such a warranty if it expected to lose money on it. It sells the warranty at a price low enough to attract worried buyers but high enough to guarantee a profit. Like a casino, the insurer has a good idea what the odds are and what its take will be. It is not logical to think that the average consumer will come out ahead on a deal that has been structured in favor of the insurer. As I am just an average consumer, no less lucky than the next, I abide by logic and I stay away.
I do similar calculations when buying health insurance. My main goal is to cap my total possible out-of-pocket cost to something financially manageable. I want insurance for the big ones: heart attacks, strokes, cancer, car accidents, disabling diseases. Misfortunes or diagnoses that can cripple financially as well as physically. That is why a high-deductible policy worked for me. I paid for the lower-cost expenses myself so that I would pay less over the long term.
My current policy has a $10,000 per person deductible and $10,000 out-of-pocket max. That means that I pay all of my expenses (after the usual insurance company adjustment) up to $10,000 — after that, BCBS of North Carolina pays 100%. This policy costs me $156 per person per month and it expires (or will it?) at the end of 2013. Doing the math, I find that the minimum I will have to pay for my health care this year is 12 x $156 = $1,872 and the maximum I will have to pay is $10,000 more than that, or $11,872. (As it happened, I did have to pay the maximum this year, thanks to my left eye.)
I now compare this to the “closest equivalent” coverage for 2014 proposed by my insurer. This is the “Bronze 5500” plan with a $5,500 deductible and $5,500 out-of-pocket max. (High-deductible policies like what I have now can no longer be offered to people over 30. The Affordable Care Act sets a $6,350 cap on the maximum individual out-of-pocket cost.) Since I am not eligible for a subsidy, the BCBS Bronze 5500 policy will cost me $511 per person per month, or 327% of what I am paying now.
Out of Pocket Costs - Current Policy vs Bronze 5500
So the amount I am 100% certain to pay for health care goes up from $1,872 in 2013 to $6,132 in 2014. The most I will have to pay stays the same, $11,872 now vs. $11,632 next year. The chart at left (click to zoom) shows what I would pay for various levels of billed expenses. The bottom line is that I am sure to pay a lot more in 2014 than in 2013, unless my billed expenses reach $10,000 or more. What explains this?
Highmark Bronze Plans - Premium vs Deductible
One possibility is that the low deductible is driving up the premium. To see how deductibles affect premiums, I looked at the rate guide published by Highmark of West Virginia for its 2014 Bronze Plans. The chart at right (click to zoom) shows the monthly premium for the average 60-year-old for Highmark Bronze Plans with various deductibles. Note that the monthly premium actually goes up with the higher-deductible plans!
In the past, the deductible amount had a strong effect on the premium one paid. With the plans offered under the Affordable Care Act, things are a bit more complicated. The Bronze Plans in the chart above not only have different deductibles but different coverage levels and co-pay amounts for selected services. All Bronze Plans are designed to cover 60% of one’s expected medical expenses, and while different plans go about this in different ways, on average they all provide about the same economic benefit. That is why the premiums for the plans in the chart above are all in the same range.
Just for comparison’s sake, I went to the BCBS of North Carolina site and looked for the 2013 policy that is closest to the Bronze 5500 plan they are suggesting for 2014. The best match is the 2013 Blue Advantage Saver with a $3500 deductible, $7,000 out-of-pocket maximum, and 60% coverage on services. If I were to sign up today, this plan would cost $187 a month. The Bronze 5500 policy BCBS is offering me for 2014 costs 2.7 times that. So the deductible is not the issue here.
Highmark Bronze 5000 Plan - Cost by Age
What about age? I’m now 60 — is that the reason my rates suddenly shot up? Not really. This chart shows how the cost of a Highmark Bronze 5000 plan increases with age. Yes, a 60-year-old pays more than a 28-year-old, but not much more than a 59-year-old pays.
The 2013 BCBS Blue Advantage Saver plan I mentioned above would cost me the same as what a 28-year-old will pay for a 2014 Bronze plan next year.
If it’s not about age and it’s not about the deductible, then what? Could it be where I live? Does it have anything to do with whether my state uses federal funds to expand Medicaid? First, to get some idea of local and statewide variation in premiums, I again consulted the 2014 rate tables published by Highmark of West Virginia.
Highmark Bronze 5000 Plan - Cost by County Group
Highmark has divided West Virginia into five rate groups. The group you belong to and the rate you pay depends on the county you live in (see chart). This effect is larger than I had imagined. Example: a 60-year-old man living in Circleville, WV, will pay $5,304 for the Bronze 5000 plan next year. If he lived in Hillsboro, 67 miles to the south, his total would be $5,880. If he lived in Renick, another 15 miles down US 219, his annual cost would jump to $6,468.
Cost of Bronze 5000 Plans - Various States
There is also wide variation in premiums on a nationwide basis. I selected several cities at random, three from states that rejected Medicaid expansion, three from states that accepted Medicaid expansion and one (from Arkansas) that developed its own plan (see chart). It doesn’t look like a state’s participation (or lack of it) in Medicaid expansion can explain a 300% increase in insurance premiums.
As Sherlock Holmes said, “…when you have eliminated the impossible, whatever remains, however improbable, must be the truth.” In this case, what remains is not so improbable. What remains is that the increase in my premium reflects the true cost of insuring anyone and everyone for various essential services without regard to pre-existing conditions.
In my case, I will be moving from an individually-rated policy to a group-rated policy with no restrictions (other than age, residence and tobacco use) as to who is part of that group. My 2013 premium is 3x less than my 2014 premium will be, because in 2013 I was rated less likely than average to incur large medical costs, and because in 2014 that no longer matters. So that explains that. I will pay 3x more for health insurance than I do now, for the sake of no longer being concerned about my pre-existing conditions, for the sake of ensuring that others in my community have access to care regardless of their income or health status, and for the possible intangible benefit of living in a more healthy society.
This is a kind of social tax and, even considering changes in coverage, my share of this tax is on the order of $3,000 a year. This is rather more than I had been led to believe.
III. What Was the Premise (and Promise) of ObamaCare?
The main goals of the Affordable Care Act (as reported by the HHS website) include:
• Prohibit insurance companies from rescinding coverage
• Eliminate annual and lifetime limits on benefits
• Prohibit discrimination due to pre-existing conditions or gender
• Free preventive services such as colonoscopies and mammograms
• Extend dependent coverage up to age 26
• Close the Medicare prescription drug “donut hole”
I endorse every one of these goals. I have complained for years about how reluctance to report pre-existing conditions to your health provider (lest it poison your medical record) undermines effective care and long-term health; how high-deductible policies encourage the cost-conscious (like me) to put money ahead of their own health; and how unfair it is for one to seek to be healthier only to be punished for it later through higher premiums. (Prior to ObamaCare, you should never, ever have told your insurer you saw a physical therapist. Your visits may have been covered, but you would be put in a higher risk pool in following years, quickly clawing back any benefit you received.)
Each of those goals has a cost, however. Each should be viewed as an additional piece of insurance that will now be included in our plans. Just as refundable airline tickets (a form of insured travel) are more expensive than the non-refundable variety, insurance that has no lifetime limits, cannot be cancelled, and does not consider health history is going to be a more expensive product, because it incorporates more risk to the insurer.
I get this. I understand that the health insurance structure needed to be overhauled for everyone’s sake. And I understand that if I can opt out, and millions of others can opt out, then reform will not be possible, because the numbers will not add up and the cost of these additional pieces of insurance cannot be covered. Still, I feel that I have only been fed the benefits of reform while the expenses, in my case, have been glossed over.
The White House has consistently touted the idea that Americans will be getting better insurance for less cost — I did not hear one instance when rate hikes of 200 to 300% were acknowledged by administration officials. It is as if people in my situation — relatively healthy people buying private insurance but not eligible for federal subsidies — did not fit the narrative and so did not exist. As one White House blog proclaimed, “… families who purchase private health insurance through state-based exchanges … could save up to $2,300 each year on their health care spending.” But factcheck.org says such assurances were “misleading” :
Families counting on a $2,300 savings thanks to the exchanges may be disappointed come 2014. First, some families who were paying sky-high rates may well see some level of savings, and others, who were buying bare-bones plans, will likely see a premium hike. Second, this figure touted by the White House is savings compared with what premiums would have cost otherwise — so it’s not $2,300 in savings from what families are spending now. And third, increased costs due to better benefits may or may not be offset by lower out-of-pocket health care costs, depending on the family. The White House, after all, did say “could.”
As the rate shock for people like me has been coming to light in recent days, it seems some are trying to shift the blame for higher rates to those who bought “low-quality” insurance in the first place and to the insurance companies that had the gall to offer such lousy plans. Rep. Frank Pallone (D) of New Jersey, for example, has objected to any continuation of the so-called “low-quality 2013 plans” into 2014. He may be right, but I will be one of those paying substantially higher costs. While a lower deductible policy may be for my own good, it is hard to fight off the feeling that I’m submitting to a “nanny state” provision.
The truth be told: though I am pleased that we finally have reforms such as no cancellations, no pre-existing conditions, and subsidies for those who can’t afford insurance, I would have preferred that those features were incorporated into a single-payer system like Medicare. With a single-payer system, we might have been able to do something about the overall cost of health care, not just the affordability of insurance. But guess what. That would have meant exposing two inconvenient truths: one, that doctors², hospitals, insurance companies, drug companies and the medical equipment industry will never agree to any reduction in their respective revenue streams, which is really the only way to reduce the overall cost; and two, that a government-run single-payer system would make it clear how much such a program really costs³ and what taxpayers can expect to pay for it. That would never fly in this political environment.
If a single-payer system had been presented to me, and if I were told how much my taxes would go up as a result of the social good to be delivered, the emotional half of my brain could have considered this and embraced it in the spirit of shared sacrifice. But with the Affordable Care Act, President Obama avoided any mention of sacrifice. With his emphasis on product features and how much we can expect to save, he aimed his arguments to the analytical half of my brain, where my internal economist resides. And so my calculations began. And so this blog came to be written.
I wish President Obama would have trusted the people enough to talk about the costs of the Affordable Care Act (and how those costs would be distributed) as much as he talked about its benefits. But that is the reality of politics. It reminds me again (as if I needed reminding) why I dislike politics. It always gets things backwards.
_________________________________________________________________
Notes:
1: Yes, that was a Roman Numeral pun. When it comes to wit, I have no shame. (Or, perhaps, wit.)
2: From the September 8, 2011, New York Times: “Doctor Fees Major Factor in Health Costs, Study Says.” This is a surprise? The study found that “U.S. primary care physicians earn about one-third more than do their counterparts elsewhere … because a much larger share of their incomes is derived from private insurance.” Specifically, among primary care doctors, “those in the United States had the highest annual pretax earnings after expenses — an average of $186,582 in 2008.”
3: As Vaughn & Vaughn [2003] said, “Insurance does not prevent losses [read: health care] nor does it reduce the cost of losses to the economy as a whole. As a matter of fact, it may … have the opposite effect of causing losses and increasing the cost of losses for the economy as a whole.” The Economix blog of the New York Times, in a post titled “How Wider Coverage Affects Health Spending“, cited a specific example: “The Oregon Health Study found that getting Medicaid significantly improved [the group’s] self-reported mental and physical health, as well as their finances. But the Medicaid-insured group on average accounted for $778 more in annual medical expenses than the uninsured, a 25 percent difference.”
Mike Rangel, head of Asheville Brewing, told the Fox Carolina reporter that “he met with … representatives from a [local] Hindu temple about the name of the beer” and “they came to a respectful agreement” about the use of the image. “We definitely felt like we’ve done our diligence with our local community — we’ve had two complaints in 16 years,” Rangel said.
The pendulum bob of this blog seems to swing between “life is good” narratives and “things could be better” plaints — for the most part, this one is the former.
I had an eye appointment in Charleston, South Carolina, last week. I had hoped that my eyes would have recovered from the dilation drops quickly enough to let me drive home after the appointment, but I was still seeing starry lights well after dinner. So I decided to get a hotel room and drive home the next day.
My wife encouraged me to have a nice breakfast, see some sights while I was there, and take my time coming home. I followed the spirit, if not the letter, of her advice. Instead of a “nice” breakfast, I decided to have what the hotel offered: a hard-boiled egg, one of those not-really-a-bagel bagels, and a hot beverage called “premium roast” delivered in spurts and gooshes from a pump dispenser. (It always surprises me how ratings on TripAdvisor focus on the quality of a hotel’s breakfast bar, as if getting to make a waffle for yourself is like having breakfast at Tiffany’s.*)
Anyway, my focus that morning was on lunch. Back in 2009, the New York Times ran a mouth-watering feature article on Scott’s Bar-B-Que in Hemingway, South Carolina. I had saved the link, noted the location and promised I would visit it when I was in the area. Today would be the day.
Charleston to Asheville via Hemingway
Well, I was sort of in the area. The map at left (click to zoom) shows my detour to Scott’s Bar-B-Que. Google Maps said my lunch destination would add a little over two hours to my trip home. Hours, schmours, it was a nice day for a drive.
South Carolina 41 starts in the suburbs of Charleston and heads into the middle of the Francis Marion National Forest. Loblolly pines line most of the 30-mile route through the forest, though I did see a few stands of deciduous trees clinging onto bunches of red and yellow leaves.
There was little traffic on the road. I opened the sun roof of the car to bring more of the beauty outdoors inside. When I was about halfway through the forest, a tractor-trailer pulled out from a side road and in front of me. I followed it a few miles, regretting how my vista had disappeared behind a pair of steel doors and a row of tail lights, when it occurred to me that the easiest way to solve this problem was to pull over for a minute or so and let the truck get some distance.
So I turned off at the next intersection, a narrow road leading into the woods to who knows where, and I stopped the car. I was gazing up at the tall pines for a moment when I heard what sounded like a gunshot. Really? Way out here? Was that aimed toward me? Am I trespassing on someone’s property? I looked deep into the woods but could not see any signs or structures. Another shot! Hey, it’s been a minute now, time to get moving! As I got back into the car, three or four more shots cracked — what the hell was going on? While turning the car around, I saw a sign and got my answer: I had stumbled upon the Boggy Head Rifle Range. I laughed to myself. If only I had brought my AK-47, I could have joined the fun.
The rest of my drive through the forest was pleasant and peaceful. I hardly ever listen to classical music, but I found a public radio station that played a fitting accompaniment to the march of the pines. (Yes, there is public radio in South Carolina. The Soviet Union stopped jamming NPR radio signals in 1988, and the Republican Party of South Carolina followed suit in 2010, although I understand they are reconsidering.)
Continuing my drive northward on South Carolina 41, I soon entered the town of Andrews, population 2,831, and birthplace of Chubby Checker. At the main crossroads, I noted these fine establishments: Andrews Insurance Associates; Twice as Nice – New & Used; Andrews Cleaners; and The Faith Life Ministries Center, painted a vibrant combination of sea green and robin egg blue, with turquoise trim.
Willie's Machine Shop
But my favorite place in Andrews was Willie’s Machine Shop. I liked the sign lettering and the interesting roof line. Sadly, I did not get a look inside, but I hope there were metal shavings on the floor, an oily rag on the counter, and a Ridgid Tool calendar on the wall above the sink. This appears to be a going concern, so if you need machine work, do call Willie at (843) 264-5823.
It wasn’t until I entered the outskirts of Hemingway (population 446) that I saw my GPS had somehow lost my destination and caused me to miss the shortcut to Scott’s. But no big deal — I knew it was on the main road heading west out of town, so it could not be terribly hard to find. I turned left at Hemingway’s one traffic light, crossed the railroad tracks and got there in a couple of minutes.
Scott's Bar-B-Que, Hemingway, SC
I walked into Scott’s ten minutes after twelve. Some people call it lunchtime. But I called it — oh, stop, this is starting to sound like an episode of Guy Noir.
The order counter was to my right, and I headed that way as if I were a regular and knew exactly what I wanted. But when I saw the menu (taped to a pole in front of the counter) I was a little disappointed. Ribs: Saturday only.
So, pulled pork it would be. I ordered the barbecue plate with coleslaw and baked beans, to get the full experience. While I waited, I walked over to the cooler to figure out what to drink. There was no beer, unfortunately — but among the bottles of sweetened iced tea, Coke, and Dr. Pepper were two rows of Red Rock Strawberry Soda. I took the cue and decided to do as the locals must do — I carried my bottle of strawberry soda to the counter and paid for my meal.
Moments later, the woman behind the counter walked out to the eating area (comprised of three 30-inch square formica-top tables and nine or ten chairs) and put my lunch plate on the table along with two slices of plain white bread in a sandwich bag. On the tabletop were salt, pepper, paper towels and a plastic squeeze-bottle of sauce. So here we go.
I had to try the barbecue without sauce first. My first impression: the pork had a kick to it, on the peppery side, and parts of it were a bit crispy. (It reminded me how my mom would put a tray of heavily salted-and-peppered roast pork pieces in the oven on New Year’s Day, to make them crisp and chewy, the perfect accompaniment to her sauerkraut.)
But back to Scott’s. I liked the pork on its own — the peppery tang was great, it left some heat on the palate, and I enjoyed the mix of tender and crisp parts. The sauce, however… it tasted like a pleasant but uninspiring blend of vinegar, tomato, sugar and some pepper. I prefer our own mixture of sauces from Asheville’s own 12 Bones Restaurant: 3 parts of Sweet Tomato to 1 part of Spicy Vinegar. But to Scott’s credit, the pork hardly needed a sauce. Its beans and its slaw, meh, not distinctive or memorable. Scott’s might want to do some work on their sides in their spare time.
After lunch, I put my empty plate in the barrel to the right of the counter, bought a pound of pork to go, grabbed my bottle of Red Rock soda (goes very nicely with BBQ by the way) and got back on the road, heading west to Sumter and eventually home.
From Hemingway to Sumter along the back roads of South Carolina, I saw cotton plants in bloom for the first time. I understand that cotton fields are nothing special to locals, just as cornfields in Pennsylvania and grapevines in New York barely turned my head when I lived there. Nonetheless, the tufts of cotton in the roadside gullies, blown there by breezes and held there by entanglement, tempted me to stop and gather some. But I kept driving. I enjoyed the day, but it was time to bring this three-hour tour through gun-and-barbecue country to a close. There will be other adventures.
______________
Thanksgiving is upon us. Time for Americans to name all the things we are thankful for. (This is so much effort, Americans need a holiday for it.) But consider, what is this ritual really about? For example, I am glad I live in America (as opposed to Congo, say) but who should I be thanking for this? Why don’t the Congolese get to live in a place like America, with plentiful fresh food and peaceful streets? Are they not thankful enough?
For one to give thanks for having something (like the ability to eat barbecue on a whim) that others cannot enjoy, through no fault of their own, strikes me as self-absorbed.
I am able to enjoy life as I do, not because I did anything others have not done, and not because some higher power decided to bestow blessings upon me while neglecting others. If you follow this reasoning to the end, you see that “life is good” only by dint of chance, and chance is neither kind nor just nor equitable. Chance should not be thanked. To wit, I suggest that Thanksgiving Day should be renamed, Try Not To Be So Arrogant Day.
Happy TNTBSA Day to all my readers.
____________________________________________________________
* I know. They do not serve breakfast at Tiffany’s. Only lunch. And no barbecue.