• What does California show?

    A number of you have written me in the last few minutes to shout that everyone is wrong about California. Some of you are charging that a healthy 25 year old, rates have gone up more than 100%. I have a number of comments:

    1. A healthy 25 year old could have the option of remaining on their parents’ family plan. Sure, that’s not for everyone, but if you’re a low income young adult, it’s totally a viable option for many. So it’s an odd example.
    2. It’s possible that a completely healthy person out there can find a plan for cheaper than the exchanges, but I’m doubtful it’s as comprehensive. One of the things the ACA does is mandate minimum benefits, do away with annual and lifetime limits, etc. Deal with it. Attack that if you like. But don’t pretend that it’s a “RATE INCREASE!” comparing apples to apples. Crappy insurance is cheap. Good insurance is not.
    3. These arguments always ignore the subsidies. Many, many people won’t pay the full sticker price of the premium. So even if the premium goes up, the actual cost to the individual may not.
    4. I even give that it’s likely that rates will increase for some segment of the population. We’re going from an individual rating system which was awesome for young, healthy people but terrible for everyone else, to a community rating system. The young, healthy people are the ones who will get the short end of the stick. But many can go on family plans or still get subsidies. And, in return, they get the guarantee of more affordable insurance in the future as they age. That’s the tradeoff.
    5. Why are people always using the straw man of the healthy 25 year old male? Or even the nearly-apocraphyl perfectly healthy 45 year old male, who has nothing wrong with him at all?  Is that really who the system is for?

    Bottom line is that this is a huge endeavor that affects tens of millions of people. No one should be under the illusion that all of them will see awesomeness tomorrow. Community ratings and a mandate mean that some people – especially the young and perfectly healthy with no family history of illness – will see an increase in their premiums over what they paid before. But the number of people who will actually pay more out of pocket for the same insurance as before is quite small. Trying to find them, and using them as the repeated anecdote to attack the overall policy may score political points, but isn’t necessarily representative of the entire scope of the ACA.

    @aaronecarroll

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    • Another thing that is chronically missing from this conversation: the hypothetical healthy 25 year old will not ALWAYS be 25. He’s paying (slightly) higher premiums now to guarantee he can afford insurance for the rest of his life.

    • Some good points. A few responses:

      2. Creating minimum standards for insurance that make insurance more expensive is certainly a rate increase. It might not be comparing apples to apples, but people are required to pay more nevertheless (especially if the value of the extra comprehensiveness is questionable).

      3. Subsidies are still coming from tax dollars. The cost of insurance is still the cost of insurance — when we look at ESI we recognize that employees pay a fraction of the full cost, but we still factor in the full cost of the policies.

      I do agree that CA is likely not representative of the ACA as a whole for one reason in particular: the individual insurance market in CA actually exists (it’s the largest in the country). Very different from creating a market where there is effectively none.

    • All I can say is WOW!

      I have seen – but could not find it via Google today – studies that suggest that only 10-15% of those who pay for insurance EVER get a net benefit from it – they would have been better off paying for health care “the old fashioned way” and investing the money saved.

      I suspect that this will only worsen as we move to covering more things.

      Compelling the many to pay for the problems of the few is pretty close to theft IMHO.

      • I would love, love, love to see those studies.

        • I would love to see a leprechaun riding a unicorn.

          I’m guessing I have better odds.

        • Not exactly definitive – but supports the proposition that many do not have a chance of ever getting a net benefit from what they pay in…

          I also ran across a Michigan study that found to lifetime spending in 2000 dollars was about $300K – including dental and vision – very likely this has increased a lot since then – but putting the two together suggests that the distribution curve is pretty skewed – with a relatively few accounting for a relatively high amount of the total spend.

          http://www.ahrq.gov/research/findings/factsheets/costs/expriach/index.html

          Given that the raw data exists to prove or disprove my assertion, I wonder why we have not seen a study pointing out the fact that many will be getting a net lifetime benefit from the ACA – I suspect it would help settle down a lot of those of us who are nervous about this.

      • Do you feel the same about 3rd party liability auto insurance as well?

        • Ken,

          Now we are in apples and oranges country – auto insurance is more like catastrophic coverage – it doesn’t provide first dollar coverage in most cases – and it doesn’t cover “preventive care” like oil changes and new windshield wipers.
          I firmly believe – and have lived this way since starting my own business that self-insuring for the first $100,000 was the smart way to go – catastrophic plans will be harder to find – and harder to afford as we move towards full implementation of ACA – at least that is what my insurance agent is telling me….

      • The way insurance works is that on average, minus administration costs, net income = net payments. If only 10-15% of people get a net benefit, that’s suggesting that 10-15% of the population gets a phenomenally expensive health problem, which, unless we let them die, has to be paid for by someone. Take your pick: mandatory insurance, taxes, “free” care at hospitals the cost of which is tacked on to everyone else’s bills.

        The other possibility is, of course, that insurance is quite inefficient and rakes off far too much in admin fees and profit, an argument for gov’t action, IMHO, given that it’s a fairly free market.

        • Actually 5% of the population consumes about 50% of the spend – see below
          http://www.ahrq.gov/research/findings/factsheets/costs/expriach/index.html

          And I think Austin put together some studies a while back on how hospitals have used the “uninsured” to game the system – moving costs to the emergency room that might more properly be spread across the entire hospital.

          So I don’t think I have seen anything reliable on what we are being charged for those uninsured who do use the healthcare system AND DON’T pay their bills – I suspect MANY of these folks DO pay their often very inflated bills – or a portion of them that probably is close to the true cost of their care.

      • Insurance is a hedge on future risk. Simply having that hedge is the benefit, isn’t it? Now there might be some cases where the hedge isn’t worth the premium to begin with, but you can’t look at it after the fact- after the person has lived their lives and then say, oh they didn’t use their insurance much because that isn’t the point of insurance.

      • Another observation assuming the 10-15% figure is correct – the 10-15% figure is pretty much in line with the Pareto principle. The issue for the insurance purchaser and probably the reason why he would buy it is because he isn’t sure if he is that 10-15% at the time when he is buying the insurance.

        The larger issue in the conclusion drawn here (and based on your description of the study) is that they aren’t accounting for the hedge as part of the net benefit and it certainly is.

    • “But don’t pretend that it’s a “RATE INCREASE!” comparing apples to apples. Crappy insurance is cheap. Good insurance is not.”

      I don’t get this line of reasoning at all. If you require that someone purchase something they do not want and are unlikely to ever use (or would prefer to pay for in a different way), it is indistinguishable from a rate increase.

      Also, Debra’s point above is not correct. A healthy 25 year old is subsidizing older and sicker individuals right now, not participating in a same-individual cost-shifting exercise. Insurance that accomplishes the latter would protect against related loss of income as well, which we somehow seem to forget when we focus on health insurance.

    • “And, in return, they get the guarantee of more affordable insurance in the future as they age”

      umm, given the current CBO trajectories, forgive me if I totally disagree that this same option for cheap care cross-subsidized by younger generations will be available to me in 2050. Pretty sure I’m getting fleeced by my parents generation, no matter what.

      sigh.

    • California is offering a “catastrophic care” option for folks under 30. So the healthy 25 year old in the above example will not be forced to buy more comprehensive coverage if he or she doesn’t want to.

    • “And, in return, they get the guarantee of more affordable insurance in the future as they age”

      But one has nothing to do with the other. Under ACA one has the option of delining coverage now, paying a penalty, but retaining the right to buy insurance in the future at the same rates paid by those who signed up as soon as they were eligible. In other words, one gets the ability to buy insurance in the future whether or not one pays now. Whether the future insurance will be affordable depends on a lot of demographic, social, political, and scientific factors that no one can predict. But an individual buying now has no impact on his/her ability to buy affordable insurance in the future.

      This is insurance. It only works if the premiums at least cover the expenses, including administrative costs and a required level of profit for the for-profit companies in the market. So, collectively, participants HAVE to pay more in premiums than they collectively receive in benefits. If not, the insurance companies go bankrupt. Investment retuns on premiums could in principle bridge a small gap, but I don’t know that any health insurance companies actually have substantial long term investments. They would need even highter premiums to make that possible.

      For an individual, whether this appears to be a good investment depends on their health. If they think they are unlikely to need expensive care- true for most young healthy people- then it is a bad deal. If they are fairly sure they will need expensive care, then it is a good deal. The real problem revolves around whether paying for care for all sould be a societal obligation. If so, it would make far more sense to fund it with our progressive tax system, than to isolate the costs and benefits for this particular part of life.

    • Anyone who contemplates skipping insurance because they are healthy ought to look at the ‘rack rate’ for a broken leg or an appendectomy at their local hospital. If you insure a $25 K car, or a $150 K house and skip health insurance you are an actuarial idiot. You have way more control over whether someone hits you or your house catches fire than you do whether you fall down a staircase or get caught in a rockslide or get bit by a rabid dog.

      If you want cheaper insurance, Medicare for all is the answer.

      • But I have never paid “rack rate” – all health care providers have eagerly offered discounts – up to 50% for prompt cash payment when we have had to use the health care system – which we have – our total spend over the past six years has been just over $30,000 – about a 1000 a month – the best we could get in insurance was just over $2500 for the two of us – we are both in our 60s with mild hypertension – I was morbidly obese – now just overweight…

        Health savings accounts couple with high deductibles make a lot of sense for A LOT OF PEOPLE. They are going away because the beast needs to take in more revenue.

    • Hmm, affecting “tens of millions” of people? And here I thought that ACA meant placing more like 315 million people under the thumb of a central authority.

      The attitude about 25 year olds seems a bit cavalier. Treating adults like children doesn’t show a lot of respect for the individual. Yet that’s where big government is taking us.

      • @Alsan –

        You said “Treating adults like children doesn’t show a lot of respect for the individual. Yet that’s where big government is taking us.”

        Disagree on this – the purpose for requiring the purchase of insurance is to correct for market failure, not to treat adults to children.

        You imply that the decision of a healthy adult to forgo insurance is a rational, individual choice. I agree that it can be a rational choice, but that is only true *because* we as a society serve as a backdrop and step in and pay for catastrophic health care. The purpose of the law is to prevent this type of freeloading.

        I suppose the alternative is to let the uninsured suffer and die if they gamble and lose. I don’t see how we could ever actually do this and consider ourselves a civilized society…

    • I think we can simply relate this back to the old ideological/party divide. At it’s core, the point of community rating is to redistribute wealth in ways that income taxation cannot (since the government cannot directly observe health risk). Hence, low-risk types pay more, high-risk types pay less, and we end up with slightly more equal marginal utilities across risk types. Democrats like that kind of redistribution, Republicans hate it. That’s all there is to it.

    • “I suppose the alternative is to let the uninsured suffer and die if they gamble and lose.”

      This happens now, to most of the uninsured. Society does NOT step in and pay for catastrophic care. It pays for emergency care. If you are uninsured, and have diabetes, cancer, heart disease, or many other severe, eventually fatal, diseases society will NOT pay for your care. If you deteriorate to the point of an ED visit, then the hospital will care for you, and the costs will be allocated somehow to the rest of society. BUT once discharged from the ED, your underlying disease will remain untreated.

      One might say that a person anticipating the need for expensive care would chose to buy insurance under ACA. But that would leave the typical young health person still making a rational choice to forego insurance.Such a person would be foregoing not only insurance, but most of the care she/he might need. The logic is not that society will pay for it, it will not, but that the care will not be needed in the first place.