“The first step is admitting you have a problem”[1]. We have created a system that is not sustainable and it is time we admit it.
The government needs to get out of the health insurance mandating business and into the health care facilitating business. What we did was mandate that people buy insurance. According to data provided by the Center for Disease Control (the CDC), for individuals between 18 and 64, health insurance companies only pay out about $600 per person per year. The rest of the money you pay in premiums is spent on CEO salaries, administration, and, what little is left is called profit. We should take a lesson from the automobile industry; people are required to have insurance or post a bond in the event they get in an accident. Under this strategy, those who are insured are covered. Those who post a bond use that money to pay for their healthcare in the event of a catastrophic incident.
Remember, every time the government mandates insurance companies provide you coverage for something for free, your insurance premium goes up to cover the cost. You are not getting a free benefit. You are paying for it.
What can be done to make healthcare affordable? First, we need to revisit health savings accounts (HSA); allowing everyone to contribute provides a tax-free way to put money away to use for medical expenses and to save for medical emergencies. Removing the requirement that an HSA be tied to an insurance policy and increasing the contribution amount will make this a much more effective tool. The higher the deductible, the lower the cost of the insurance policy. Putting aside money greater than one’s deductible is a win-win. A family’s ability to pay for medical expenses is increased, the cost of their insurance goes down significantly, and any money left over in their account can be used to cover future care. If historical data is any indication, catastrophic coverage typically cost less than the deductible for a family plan.
Just as important, we need to recognize that the exchanges we built are not necessary. It is time to deconstruct the infrastructure. The federal government only needs to provide two functions; to verify income and to verify citizenship. The government doesn’t need to provide the mechanism to purchase health policies. Insurance companies are already doing that, and paying for it. There is no reason we have to spend tax dollars to duplicate functions insurance companies offer. The government doesn’t need to pay for setting up the exchanges, they don’t need to pay for exchange employees or consultants, when brokers can get paid commissions. Insurers charge the same price for a policy whether or not a broker is involved. If a broker is not involved, the insurance company makes a greater profit on the sale of that policy; that is all. The solution is simple. The exchanges could offer links to the sites of qualifying providers. Those who have trouble working out the comparisons between policies can use the services of a licensed broker. Selling subsidized policies could provide a very good living for a lot of people. They don’t need to be employed by the government.
Declining enrollment numbers are just a hint of the disaster to come. We have taken away the incentives to sell policies to the exchanges and to buy policies from the exchanges.
Face it, the exchanges never were going to and never will see large numbers of healthy young people purchasing exchange policies.
First, young people with jobs that provide health insurance never needed to participate in the exchanges. Young people with independent incomes got much better coverage by obtaining their own private policies. If their kids didn’t fall into the first two categories mentioned, most parents added those under 26-year-old children to their family plans. No exchange policies were needed.
Second, healthy young people earning less than $35,000 a year ultimately are better off paying the penalty. If they get injured, they will have to pay the bills; but, since the cost would likely be less than their deductible, they would have to pay those bills anyway. If they get seriously ill, they are likely to have a significant decline in income, or worse, face unemployment. That being the case, they would become eligible for Medicaid.
Thus, the exchanges were only going to see large numbers of unhealthy young people who needed subsidized policies because it only made sense for a young person to buy a policy if he or she had on-going health issues that required continuous monitoring and/or care. This means that the young people who purchase exchange policies are likely to be a high-risk group. To make money, insurance companies will have to consistently and significantly increase premiums — premiums that taxpayers will have to continue to subsidize.
We have to acknowledge the dirty little secret that has made the system work so far—the significant financial incentives paid to insurance companies to participate.[2] For the first two years, in addition to the premium subsidies paid for lower income participants, the government paid insurance companies $7.9 billion in 2014 and $7.8 billion in 2015 to cover losses on policies and unanticipated operating costs. The subsidy amount for 2016 has yet to be determined. Since the government’s agreement to cover insurance company costs and loses ends in 2016, without the additional billions of dollars of funding each year, surprise, surprise, insurance companies are not as interested in participating in the exchanges in 2017.[3]
Even with individual subsidies to pay for the cost of coverage, paying for the care covered by those insurance policies has proved burdensome for the people who continued to pay their premiums. Deductibles are generally $2,500 for an individual and $6,600 for a family. With the average income for an American family equaling about $54,000[4], the likelihood of that family having $6,600 to pay for medical expenses, before their insurance kicks in, is small.
Exchange policies are no bargain. Though exchange policies are generally priced lower than policies sold to individuals, they provide significantly less coverage. Exchange policies offer very narrow networks and generally only cover care in the state in which they are issued. If you travel to visit your relatives and you get sick or injured, you are out of luck. Since only a small portion of those having insurance meet their deductibles, the true benefit of being insured is the ability to get medical services at a reduced price negotiated on your behalf by your insurance company.
The system can be fixed. A thoughtful and concerted effort is all it would take.
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Minda Wilson, J.D., is an author and a corporate attorney, specializing in healthcare. A recognized expert on the Patient Protection and Affordable Care Act, she consults with clients regarding its proper implementation. She is founder of Affordable Healthcare Review, an educational organization providing information about healthcare legislation, its application, and impact. Her book Urgent Care was recently published and covers the reimbursement for losses issue.
[1] Alcoholics Anonymous
[2] http://healthaffairs.org/blog/2016/07/01/aca-round-up-premium-stabilization-programs-effectuated-enrollment-and-more/