By Michael Olenick, a regular contributor on Naked Capitalism. You can follow him on Twitter at @michael_olenick
“If you wish to be a success in the world, promise everything, deliver nothing.” – Napoleon Bonaparte
After months of analysis I can objectively conclude that Obamacare is, to ordinary middle-class people, worse than worthless.
Under Obamacare, those not covered by their employers or Medicaid – a subset of the public consisting mainly of the self employed and people working for small businesses – wind up paying enormous subsidies to help the sick. In the case of my three-person Floridian family the subsidy rate – the difference between the cost to insure ourselves and the cost to insure sick people – is about 10.5% of gross earnings. That is not the cost for insurance; that is the cost over-and-above insuring one’s family. That cost will be lower for those on subsidies, approaching non-existent – because they are the ones receiving the transfer – but for my specific family, in my specific circumstances, my calculations show that figure is 10.5%, which is obscenely high.
No similar financial sacrifice is asked for nor required from people employed by companies with over 50 employees, or government workers, or from those who make slightly less income. Businesses also spread risk but, obviously, virtually everybody in the risk pool for a business is healthy enough to work, or they wouldn’t be in that pool. Conversely, the pool for the employed but under/uninsured includes all uninsurable people, which is almost the exact opposite.
I calculated the 10.5% subsidy figure by purchasing a private policy for my family while comparing rates and coverage to the Obamacare plans. I have researched the Obamacare plans extensively and, make no mistake, this new coverage is much better than the lowest cost Obamacare plans, even with its vastly lower cost. In fact, it is comparable to Obamacare plans that cost almost 3x as much. Let’s repeat that because it refutes the latest Big Lie: these plans, in the real world, for most people, are less expensive and oftentimes better than the “Affordable” Care Act plans.
But here’s the Big Lie from Obama in his press conference of November 14, 2013:
We will continue to make the case, even to folks who choose to keep their own plans, that they should shop around in the new marketplace because there’s a good chance that they’ll be able to buy better insurance at lower cost.
No, Mr. President – if they earn an ordinary middle-class income and they are reasonable health they will not find more affordable insurance on the exchanges – that’s just not true.
Once more, because the lie has been repeated so often: the more expensive Obamacare plans are not always, or even often, better insurance.
Let’s unpack the Big Lie a little. Nancy Metcalf of Consumer Reports sums things up well by vilifying a predictably lousy $54/month private plan while misrepresenting the benefits of a $485/month lousy ACA plan. Metcalf gets right to the point in the headline, “That Florida woman’s canceled Blue Cross policy? It’s junk insurance.” Next she brings out the pompoms for an ACA plan, “She can get a real plan for only $165 a month.” Got that, one is “junk” and the other is a “real plan.” Metcalf beats us over the head with the idea that “[Ms.] Barrette’s expiring policy is a textbook example of a junk plan that isn’t real health insurance” and the ACA plan is “only $165 a month.” Later she goes further, quoting an “insurance expert” who says “She’s paying $650 a year to be uninsured.” If anybody besides Consumer Reports made a claim like this, Consumer Reports would jump on them.
Let’s check out Metcalf’s attack on Barrette’s predictably lousy $54/month plan, which conveniently omits a comparison to an ACA plan on a point-by-point basis. In the interest of clarity I’ll add the cross-references to the $485/month “real” Humana plan they reference later.
Before the analysis let’s pick up on piece of analysis Metcalf forgot: affordability. For the sake of argument let’s ignore that the subsidy is still real money being paid out and focus on the net-after-subsidy $165/month premium, three times what this woman is used to paying. Each year she will be expected to pay $1,980 in premiums for insurance that is worthless unless she pays another $4,600 in deductible costs. That is $6,580 or 22% of this woman’s $30,000/year gross take-home pay.
In contrast, housing costs that exceed 30% of gross take-home income are considered unaffordable, so affordable healthcare is supposed to cost more than 2/3rds what families pay for housing. Further, Consumer Reports curiously omits that the $320/month subsidy is for health insurance and not health care which, as the following analysis shows, are entirely different. Let’s get to the points that Metcalf’s article in Consumer Reports does address.
First, Metcalf argues, the “junk” insurance pays “only the first $50 of doctor visits.” She doesn’t clarify whether that is for every doctor visit, one per month, or one per year, the latter which seems extremely unlikely so I’ll assume one per month or every visit. My wife just went to the doctor for strep throat; her GP charges $65 per visit for his uninsured patients. My daughter and I have both visited specialists who charge $90 and $100 respectively without insurance. So by paying “only” the first $50 the “junk” plan has $15 primary care doctor visits and $40-$50 specialist visits, presumably with no deductible or they would have raised the point. In contrast their “real” ACA Humana plan has a $4,600 deductible so the bulk of regular patient visits cost whatever the network Humana doctor charges. Of course, almost all Humana plans are tightly controlled Soviet-style HMO’s, so not only will those doctor visits be to a Humana clinic but charges will be at Humana pre-deductible rates, and there will be no specialists without referrals. It’s fair to conclude the “real” health insurance doesn’t cover routine doctor visits that the “junk” insurance does cover, particularly since I saw that routinely in the plans I analyzed extensively.
Next Metcalf complains that “only the first $15 of a prescription is covered” and that “some prescriptions cost hundreds or even thousands of dollars a month.” Guess what: many, many prescriptions – especially under negotiated insurance rates – cost $100/month or less. Remember, we’re comparing a $485/month plan to a $54/month plan. People who take a generic prescription or two are better off paying the difference, assuming the generic costs more than $15, which many do not (my local grocery store gives away a large number of generics for free while the big box retail pharmacies sell a laundry list for a few dollars). In contrast to the “junk” plan the “real” plan pays nothing until the $1,500 drug deductible is met.
Next Metcalf moves on to complain that “junk insurance” pays only for “complications of pregnancy” and then only covers the first $50. Metcalf notes that the woman is past childbearing age so this issue is irrelevant. However, by raising it as a public policy issue I think they have a valid concern, though they largely brushed it off because the ACA is almost equally atrocious. ACA plans do cover delivery but the lowest cost plans pay only about $1,500 so people are better buying the lower-cost higher-quality plans and banking the money if the stork comes calling. Every other country recognizes that children are the lifeblood of civilization and that woman already carry an extraordinary burden birthing babies and provides for free or low-cost childbirth. Even many other species of animals protect and support birthing females; this is a core instinctual responsibility of being an adult. I’m not sure how the US Government, with Obama and Pelosi in charge, managed to blow off providing for a right so basic, safe childbirth, that it’s recognized by nonhuman species. By now I’m sure you’ve guessed the pattern but the “real” Humana plan pays nowhere near the full cost of childbirth (see my earlier piece for an exact breakdown).
Metcalf then moves onto mammography, noting the “junk” plan pays $50 for a mammogram. Healthcare Blue Book tells me (customizing the results to my zip, which is fair because the woman in the article also lives in Florida) that a bilateral digital screening mammogram costs $259. Therefore, noting the savings from the “junk” plan, mammograms are affordable under the old plan (the $400 a month in lower premiums alone covers the single mammogram upcharge, which most women aren’t advised to get annually till the age of 50).
Metcalf also complains about a $50 limit for MRIs and CT scans for osteoporosis screening. Healthcare Blue Book tells me a CT spinal scan costs $597 and a pelvic MRI costs $843. Both are arguably affordable though given that doctors diagnosed osteoporosis for years without this technology, and continue to do so in developing countries, it is unclear if these procedures are even necessary.
In any event, without meeting that deductible the Humana plan would pay nothing except that this woman would be stuck with Humana’s provider network, which might have higher cost than clinics advertising on the Internet. After the deductible is met she would require a referral and somehow I’d bet would be put off until the first of the year, when the deductible resets.
Towards the end, Metcalf plays her trump card: “[L]et’s imagine that Ms. Barrette’s luck runs out and she receives a diagnosis of breast cancer that will cost $120,000 to treat.” They claim that under the junk plan she will receive “no more than a few hundred dollars” and end up with $119,000 of unpaid medical bills whereas under the Humana plan “those bills will top out at $6,300 a year, no matter what.”
I don’t know enough about Barrette’s old plan to offer an opinion but under Humana there’s that narrow provider network issue where, during a surgery, if a single non-network doctor or nurse sneaks in, she’ll get a big bill. Add a few more of those, some visits when Humana’s HMO will not give her the meds she wants, and maybe a few second-opinions when she’s worried about the conflict of interest for HMO’s to treat high-cost conditions, and – if she survives physically – she’s probably bankrupt. I worked with many bankruptcy lawyers while I was focused on foreclosures and can definitively say that $30,000 of medical bills vanish exactly the same as $300,000 of medical bills with the bang of a bankruptcy judge’s gavel. Finally, all this is irrelevant because Barrett earns only $30,000 a year: cancer treatment will leave her job, unable to work, and Medicaid will pay the bills.
By providing access to early healthcare at low cost from a wide array of providers – apparently, almost anybody – the $54 plan isn’t doing such a bad job taking its cost into consideration. Consumer Reports’ Metcalf refers to the woman’s health as “luck” but, maybe, by not worrying about showing up to the doctor for little things small low-cost issues do not become big high-cost problems so the “junk” $54 plan isn’t doing such a bad job keeping this woman healthy. You wouldn’t know it from these high-deductible plans but it’s cheaper to keep people healthy than cure them when sick – and a lot more pleasant for patients too – and her plan was successfully doing that.
Conversely, with the high deductibles and narrow network the “real” Humana plan that Metcalf loves puts financial hurdles in the way towards early low-cost intervention. Humana’s $485/month plan is predictably better for catastrophic care than the $54/month plan but it’s a lie to call one, that pays for basic medical care and is working “junk” while labeling the other, which does not pay for basic medical care, as a “real plan.”
Big Lies need to be repeated lots so we see these plans, which millions want to keep – a case of mass delusion I suppose – attacked ad nauseam. “.. [P]eople forget how terrible many of the soon-to-be-abandoned plans were. Some had deductibles as high as $10,000 .. and required large co-pays after that, and some didn’t cover hospital care” writes the New York Times Editorial Board on Nov. 2, 2013, in Insurance Policies Not Worth Keeping. I dunno but paying one amount for a high-priced plan with a $6,350 deductible – that provides nothing until the deductible is met – doesn’t sound that much better than a plan which costs a fraction as much but has a $10,000 deductible, though provides many medical services before the deductible is met.
In my case, which I expect is like many others*, the pre-ACA plans are simply better; there is better coverage at lower cost. I just signed up for a $400 per month plan with a $10,000 deductible and a $12,500 annual out-of-pocket limit for my family of three. There is accident insurance which covers up to $5,000 of that deductible if the charges are caused by an accident. Doctor and specialist visits cost $35 and do not have a deductible. Generic prescriptions do not have a deductible; non-generics have a $500 annual deductible. There is out-of-network coverage at double my deductible. There are some exclusions – I’m not covered for drug-rehab (though could buy coverage by paying more) – but that’s OK because we can easily avoid that health hazard. There is even extremely low-cost term life insurance, presumably to be used as a supplement to ordinary life insurance to pay end-of-life medical bills. The only potentially meaningful exclusion is pregnancy but prenatal and postnatal office visits are covered, as are complications, and deliveries are at the negotiated rate.
Let’s compare that to the Obamacare plans. For my familiy, lower end plans cost $550-650 per month; they’re more expensive though carry slightly lower annual out-of-pocket caps. These plans pay little or nothing until the deductible is met; there are no cheap office visits, no inexpensive generic drugs, and accidents that required a few $500 stitches are paid for by the insured. This is catastrophic insurance at premium prices: it is worthless unless a person develops either cancer or severe hypochondria. As I’ve said before the only difference between this insurance and the “bankruptcy by sickness” insurance is that the ACA plans will bankrupt both healthy and sick people.
This contrast leaves no question whatsoever that Obamacare is a regressive tax on the middle-class and, specifically, on those who have gained enough financial traction working for themselves that they are making 200% more than the poverty rate, which is where meaningful subsidies begin to evaporate. Taking my family of three as a benchmark. I’ll keep a tiny bit of my privacy on real earnings though, as a benchmark, if we earn a combined gross income of $39,060 we are wealthy and $78,120 marks us as Warren Buffet rich, 400% the poverty rate, where all subsidies disappear. Only Obama, who promised hope and delivered Bush’s worthless Hope Now program for foreclosure relief, could disguise a scheme that requires self-employed families who earn 200% above the poverty level to subsidize those who earn less.
Before the end-of-year window closes I’d urge anybody in my position – middle-class people with healthy families – to shop for and purchase private non-Obamacare plans. I know that doing so might cause the infamous insurance “death spiral,” where the healthy wage-earning middle-class opts out of being screwed, leaving only high-risk/high-cost people in the plan. Quoting an anonymous commenter when I first pointed out the immoral foundation of Obamacare, “cry me a river.” It is immoral to willfully subject one’s family to this 10.5% surcharge on income which, let’s face it, is really just a regressive tax levied on a tiny minority – the self-employed – who, coincidentally I’m sure, are the only group without lobbyists. I am not going to happily accept the burden of caring for strangers at the expense of my own family’s health when that burden is not shared by the “vast majority” of Americans, a fact the Administration appears proud rather than ashamed of. Further, I urge anybody in my position to do exactly the same.
This is not to say that the old system is a panacea. Single payer Medicare For All, where everybody is put into one risk pool and costs are contained through bulk purchasing power, is clearly the only sustainable health insurance system. This is an economics blog and nobody seriously makes the case that the US healthcare system, especially with the collusion exemption the industry receives, is in any way economically efficient. But until we come to our senses and adopt Medicare For All it is time that the self-employed middle-class force the ACA into a death spiral by purchasing private insurance. It won’t take long; I’m sure the insurance companies will release projected rate increase information before next years elections even if they need not do so.
America seems only to function in a crisis lately and, whether they mean to or not, politicians turned over the ability to spark such a crisis onto a very small group using economic means. If the healthy Just Say No we are likely to force the genuine “hard discussion” about healthcare the White House has been avoiding, how to get to universal coverage with meaningful cost containment.
* We are a three person family. I am in my mid 40’s, my wife is in her mid 30’s, and we have a child. At the worry of putting a hex on I’m thankful that everybody is healthy. Our ZIP code is 33405.