{"id":6314,"date":"2013-11-18T13:11:45","date_gmt":"2013-11-18T18:11:45","guid":{"rendered":"http:\/\/chcollins.com\/100Billion\/?p=6314"},"modified":"2022-08-01T07:43:10","modified_gmt":"2022-08-01T11:43:10","slug":"obamacare-part-deux","status":"publish","type":"post","link":"https:\/\/chcollins.com\/100Billion\/2013\/11\/obamacare-part-deux\/","title":{"rendered":"EraCamabo Spells ObamaCare, Backwards"},"content":{"rendered":"

EOB (Explanation of Blog)<\/span><\/h3>\n

This blog consists of three procedures, each billed separately.\u00a0 Procedure I palpates some thoughts about insurance in general.\u00a0 Procedure II diagnoses my situation with respect to ObamaCare and how various factors impact the insurance premiums I pay.\u00a0 Procedure III examines the cost of health care and the premise of ObamaCare.\u00a0 Procedure IV is the first thing they do in the ambulance but, as I said, that procedure is not part of this blog.\u00b9<\/span><\/em><\/p>\n

I. About Insurance<\/span><\/h3>\n

There are a few different ways to look at the elephant we call health insurance.<\/p>\n

The first and original view of health insurance is as a prepayment for care one expects to receive or contracts to receive.\u00a0 “In 1929, a group of schoolteachers arranged for Baylor University to provide hospital benefits on a prepaid basis.\u00a0 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.]\u00a0 Think of the extended warranty or service contract we are usually pestered to buy along with our televisions and tablets.\u00a0 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.<\/p>\n

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.\u00a0 There does not need to be a pool of people taking risks similar to yours — any risk can be evaluated on its own merits.\u00a0 Think Lloyd’s of London.\u00a0 On its website<\/a> today, Lloyd’s claims it has “issued a \u00a31m policy to the National Sea Life Centre against attack by their giant Japanese crab.”\u00a0 Obviously, marine life facilities that harbor killer crabs do not comprise a statistical risk pool, yet such uncommon risks are commonly insured.<\/p>\n

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Crabstract<\/p><\/div>\n

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.\u00a0 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.<\/p>\n

Since I do not have employer-based group coverage, this is how I have insured myself the last few years.\u00a0 Luckily, my risk profile has been reasonably low.<\/p>\n

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.\u00a0 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.\u00a0 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.<\/p>\n

This is ObamaCare, in essence, a mutual loss-sharing enterprise.\u00a0 It distributes its losses (i.e., medical costs) among the insured based on age, income, zip code and tobacco use.\u00a0 What it does not do is deliver care per se — it is an insurance program.\u00a0 A better name for it would have been ObamaShield.<\/p>\n

II. Why Did My Rate Go Up (? and !)
\n<\/span><\/h3>\n

I am an economic calculator.\u00a0 I am fortunate to have enough financial leeway to weather short-term upsets and make buying decisions that are good in the long run.\u00a0 For example, I do not buy extended warranties, ever.\u00a0 My reasoning is this: no company would sell such a warranty if it expected to lose money on it.\u00a0 It sells the warranty at a price low enough to attract worried buyers but high enough to guarantee a profit.\u00a0 Like a casino, the insurer has a good idea what the odds are and what its take will be.\u00a0 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.\u00a0 As I am just an average consumer, no less lucky than the next, I abide by logic and I stay away.<\/p>\n

I do similar calculations when buying health insurance.\u00a0 My main goal is to cap my total possible out-of-pocket cost to something financially manageable.\u00a0 I want insurance for the big ones: heart attacks, strokes, cancer, car accidents, disabling diseases.\u00a0 Misfortunes or diagnoses that can cripple financially as well as physically.\u00a0 That is why a high-deductible policy worked for me.\u00a0 I paid for the lower-cost expenses myself so that I would pay less over the long term.<\/p>\n

My current policy has a $10,000 per person deductible and $10,000 out-of-pocket max.\u00a0 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%.\u00a0 This policy costs me $156 per person per month and it expires (or will it?) at the end of 2013.\u00a0 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.\u00a0 (As it happened, I did have to pay the maximum this year, thanks to my left eye<\/a>.)<\/p>\n

I now compare this to the “closest equivalent” coverage for 2014 proposed by my insurer.\u00a0 This is the “Bronze 5500” plan with a $5,500 deductible and $5,500 out-of-pocket max.\u00a0 (High-deductible policies like what I have now can no longer be offered to people over 30. \u00a0 The Affordable Care Act<\/a> 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.<\/p>\n

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Out of Pocket Costs - Current Policy vs Bronze 5500<\/p><\/div>\n

So the amount I am 100% certain to pay for health care goes up from $1,872 in 2013 to $6,132 in 2014.\u00a0 The most I will have to pay stays the same, $11,872 now vs. $11,632 next year.\u00a0 The chart at left (click to zoom<\/a>) shows what I would pay for various levels of billed expenses.\u00a0 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?<\/p>\n

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Highmark Bronze Plans - Premium vs Deductible<\/p><\/div>\n

One possibility is that the low deductible is driving up the premium.\u00a0 To see how\u00a0 deductibles affect premiums, I looked at\u00a0 the rate guide published by Highmark of West Virginia<\/a> for its 2014 Bronze Plans. The chart at right (click to zoom<\/a>) shows the monthly premium for the average 60-year-old for Highmark Bronze Plans with various deductibles.\u00a0 Note that the\u00a0 monthly premium actually goes up with the higher-deductible plans!<\/p>\n

In the past, the deductible amount had a strong effect on the premium one paid.\u00a0 With the plans offered under the Affordable Care Act, things are a bit more complicated.\u00a0 The Bronze Plans in the chart above not only have different deductibles but different coverage levels and co-pay amounts for selected services.\u00a0 All Bronze Plans are designed to cover 60% of one’s expected medical expenses<\/a>, and while different plans go about this in different ways, on average they all provide about the same economic benefit.\u00a0 That is why the premiums for the plans in the chart above are all in the same range.<\/p>\n

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.\u00a0 The best match is the 2013 Blue Advantage Saver with a $3500 deductible, $7,000 out-of-pocket maximum, and 60% coverage on services.\u00a0 If I were to sign up today, this plan would cost $187 a month.\u00a0 The Bronze 5500 policy BCBS is offering me for 2014 costs 2.7 times that.\u00a0 So the deductible is not the issue here.<\/p>\n

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Highmark Bronze 5000 Plan - Cost by Age<\/p><\/div>\n

What about age?\u00a0 I’m now 60 — is that the reason my rates suddenly shot up?\u00a0 Not really.\u00a0 This chart<\/a> shows how the cost of a Highmark Bronze 5000 plan increases with age.\u00a0 Yes, a 60-year-old pays more than a 28-year-old, but not much more than a 59-year-old pays.<\/p>\n

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.<\/p>\n

If it’s not about age and it’s not about the deductible, then what?\u00a0 Could it be where I live?\u00a0 Does it have anything to do with whether my state uses federal funds to expand Medicaid?\u00a0 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.<\/p>\n

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Highmark Bronze 5000 Plan - Cost by County Group<\/p><\/div>\n

Highmark has divided West Virginia into five rate groups.\u00a0 The group you belong to and the rate you pay depends on the county you live in (see chart<\/a>).\u00a0 This effect is larger than I had imagined.\u00a0 Example: a 60-year-old man living in Circleville, WV, will pay $5,304<\/span> for the Bronze 5000 plan next year.\u00a0 If he lived in Hillsboro, 67 miles to the south, his total would be $5,880<\/span>.\u00a0 If he lived in Renick, another 15 miles down US 219, his annual cost would jump to $6,468<\/span>.<\/p>\n

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Cost of Bronze 5000 Plans - Various States<\/p><\/div>\n

There is also wide variation in premiums on a nationwide basis.\u00a0 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<\/a>).\u00a0 It doesn’t look like a state’s participation (or lack of it) in Medicaid expansion can explain a 300% increase in insurance premiums.<\/p>\n

As Sherlock Holmes said, “…when you have eliminated the impossible, whatever remains, however improbable, must be the truth.”\u00a0 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.<\/p>\n

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.\u00a0 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.\u00a0 So that explains that.\u00a0 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<\/a> have access to care regardless of their income or health status, and for the possible intangible benefit of living in a more healthy society.<\/p>\n

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.\u00a0 This is rather more than I had been led to believe.<\/p>\n

III. What Was the Premise (and Promise) of ObamaCare<\/span>?<\/h3>\n

The main goals of the Affordable Care Act (as reported by the HHS website<\/a>) include:<\/p>\n

\u2022 Prohibit insurance companies from rescinding coverage
\n\u2022 Eliminate annual and lifetime limits on benefits
\n\u2022 Prohibit discrimination due to pre-existing conditions or gender
\n\u2022 Free preventive services such as colonoscopies and mammograms
\n\u2022 Extend dependent coverage up to age 26
\n\u2022 Close the Medicare prescription drug “donut hole”<\/p>\n

I endorse every one of these goals.\u00a0 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.\u00a0 (Prior to ObamaCare, you should never, ever have told your insurer you saw a physical therapist.\u00a0 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.)<\/p>\n

Each of those goals has a cost, however.\u00a0 Each should be viewed as an additional piece of insurance that will now be included in our plans.\u00a0 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.<\/p>\n

I get this.\u00a0 I understand that the health insurance structure needed to be overhauled for everyone’s sake.\u00a0 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.\u00a0 Still, I feel that I have only been fed the benefits of reform while the expenses, in my case, have been glossed over.<\/p>\n

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.\u00a0 It is as if people in my situation —\u00a0 relatively healthy people buying private insurance but not eligible for federal subsidies — did not fit the narrative and so did not exist.\u00a0 As one White House blog<\/a> proclaimed, “…\u00a0families who purchase private health insurance through state-based exchanges … could save up to $2,300 each year on their health care spending.”\u00a0 But factcheck.org<\/a> says such assurances were “misleading”\u00a0:<\/p>\n

Families counting on a $2,300 savings thanks to the exchanges may be disappointed come 2014.\u00a0 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.\u00a0 Second, this figure touted by the White House is savings compared with what premiums would have cost otherwise \u2014 so it\u2019s not $2,300 in savings from what families are spending now.\u00a0 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.\u00a0 The White House, after all, did say \u201ccould.\u201d <\/em><\/p>\n

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.\u00a0 Rep. Frank Pallone (D) of New Jersey, for example, has objected to any continuation of the so-called “low-quality 2013 plans” into 2014.\u00a0 He may be right, but I will be one of those paying substantially higher costs.\u00a0 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.<\/p>\n

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.\u00a0 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.\u00a0 But guess what.\u00a0 That would have meant exposing two inconvenient truths: one, that doctors\u00b2<\/span><\/em>, 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 costs\u00b3<\/span><\/em> and what taxpayers can expect to pay for it.\u00a0 That would never fly in this political environment.<\/p>\n

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.\u00a0 But with the Affordable Care Act, President Obama avoided any mention of sacrifice.\u00a0 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.\u00a0 And so my calculations began.\u00a0 And so this blog came to be written.<\/p>\n

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.\u00a0 But that is the reality of politics.\u00a0 It reminds me again (as if I needed reminding) why I dislike politics.\u00a0 It always gets things backwards.
\n_________________________________________________________________<\/p>\n

Notes:<\/h5>\n
1: Yes, that was a Roman Numeral pun.\u00a0 When it comes to wit, I have no shame.\u00a0 (Or, perhaps, wit.)<\/h5>\n
2: From the September 8, 2011, New York Times: “Doctor Fees Major Factor in Health Costs, Study Says<\/a>.” This is a surprise? \u00a0 The study found that \u201cU.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.\u201d\u00a0 Specifically, among primary care doctors, “those in the United States had the highest annual pretax earnings after expenses \u2014 an average of $186,582 in 2008.”<\/h5>\n
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.\u00a0 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.”\u00a0 The Economix blog of the New York Times, in a post titled “How Wider Coverage Affects Health Spending<\/a>“, cited a specific example: “The Oregon Health Study<\/a> found that getting Medicaid significantly improved [the group’s] self-reported mental and physical health, as well as their finances.\u00a0 But the Medicaid-insured group on average accounted for $778 more in annual medical expenses than the uninsured, a 25 percent difference.”<\/h5>\n","protected":false},"excerpt":{"rendered":"

EOB (Explanation of Blog) This blog consists of three procedures, each billed separately.\u00a0 Procedure I palpates some thoughts about insurance in general.\u00a0 Procedure II diagnoses my situation with respect to ObamaCare and how various factors impact the insurance premiums I … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-6314","post","type-post","status-publish","format-standard","hentry","category-commentary"],"_links":{"self":[{"href":"https:\/\/chcollins.com\/100Billion\/wp-json\/wp\/v2\/posts\/6314","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/chcollins.com\/100Billion\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/chcollins.com\/100Billion\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/chcollins.com\/100Billion\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/chcollins.com\/100Billion\/wp-json\/wp\/v2\/comments?post=6314"}],"version-history":[{"count":180,"href":"https:\/\/chcollins.com\/100Billion\/wp-json\/wp\/v2\/posts\/6314\/revisions"}],"predecessor-version":[{"id":28319,"href":"https:\/\/chcollins.com\/100Billion\/wp-json\/wp\/v2\/posts\/6314\/revisions\/28319"}],"wp:attachment":[{"href":"https:\/\/chcollins.com\/100Billion\/wp-json\/wp\/v2\/media?parent=6314"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/chcollins.com\/100Billion\/wp-json\/wp\/v2\/categories?post=6314"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/chcollins.com\/100Billion\/wp-json\/wp\/v2\/tags?post=6314"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}