Geez. This is not that complicated. Catastrophic insurance isn’t really about the day to day medical expenses we all have. It’s about the huge, rare expenses that most people cannot afford.
Insurance is a market. In order for that market to function, a company in that market cannot routinely take in less money than it pays out, nor can it charge more than people are willing or able to pay. The catastrophic coverage market works because few people in the group are likely to experience catastrophes. The likelihood (in general) of those types of things happening (eg. heart attacks, strokes, cancer, etc.) increases with age, thus certain age groups are eliminated. Allowing them to enter that market only raises costs for others in the market, likely prompting many to leave, raising prices even further…
Predictability mitigates the chances of seeing that death spiral happen. It’s perfectly reasonable for the government or a company to restrict the parameters of who can enter the market based on relevant factors like age.
Why yes, I’m familiar with the idea of a “death spiral” in insurance prices.
But you know what? There was a market for catastrophic coverage in many states before the ACA went into effect, and it managed to function decently without the government stepping in to ban people over age 30 from participating. Insurance companies used actuarial science to determine the likelihood of a given individual facing an expensive health catastrophe and set prices accordingly. This was a solution to the problem that you describe.
Then along came the Democrats with their new health care law, which severely restricts the use of actuarial science in setting prices. Insurance companies are now severely limited in the price difference they can offer between the oldest and youngest customers. (As well as being unable to charge different prices by gender and so forth.) So now the problem that you describe would probably be a serious problem, but that’s entirely the government’s fault.
Instead of banning older people from buying catastrophic coverage, why not just make it legal for insurance companies to sell them catastrophic coverage at prices determined by actuarial science?
I agree that it’s perfectly reasonable for a company to restrict the parameters of who can enter the market.
In the hypothetical situation that I presented, Bob makes his own decision about what sort of health insurance he wants.
Is there any factual reason to believe that if Bob had only catastrophic health insurance coverage, then taxpayers would have a significant likelihood of getting stuck with the bill for his visits to the doctor and the dentist and other routine items? (I am, of course, aware of the problem of people going to emergency rooms for medical treatment and then not paying because they can’t afford it, thus driving the costs of running an emergency room. But the people who did so would generally be those with no insurance at all, not those who have insurance. Can you demonstrate that before Obamacare, there was a problem with people who had catastrophic coverage still passing on costs for routine doctors and dentists visits to the taxpayers?)
The real reason why the creators of the ACA chose to ban almost everyone from purchasing catastrophic coverage is pretty simple, and well know at least among policy wonks. They wanted to guarantee their friends in the insurance industry that after the law passed, the industry would make sizable profits. (And it’s worked; profits and stock prices for health insurers have soared since the law was passed.) In order to have an insurance pool be profitable, you need to have a lot of healthy people paying in a lot more money than they’re taking out. This allows the insurers to cover the high costs associated with the smaller number of sick people and still rake in large profits. The ACA was designed to help the insurance companies by forcing healthy people to pay for expensive insurance that they don’t want or need, while outlawing the option of cheaper and more sensible plans for them. Banning anyone over 31 from purchasing catastrophic coverage is one way of doing that, and thus driving up insurance company profits.
They don’t do that because the best catastrophic insurance before the ACA was no insurance. If you have no seizable assets and don’t care about your credit score, there were few reasons to have any kind of insurance. Any catastrophe will be treated by a hospital who will eventually have to pass the costs on to someone else. Free riders essentially have the best insurance; no premiums, and no way for anyone to make them pay the bill.
Once you require people to have insurance as the ACA did, you need to take steps to make the market work cost wise. You cannot do that by offering catastrophic insurance to everyone at any age because it raises premiums for younger, healthier people to the point where it becomes unaffordable, or where subsidies would kick in. Actuarial science has nothing to do with it because the primary goal to to create a market where the greatest number of people willingly participate without subsidies. They could create a separate pool of older people who want catastrophic insurance, but smart people determined the math wouldn’t work to incentivize people.
Yes, the democrats, using a plan often supported by conservatives before Obama’s name was attached to it, changed the incentives. That was the goal. You clearly don’t agree with those aims but they appear to be working so far. More importantly, it has nothing to do with your original question or subsequent comments.
You shouldn’t say need when you mean want. They’re very different, and playing word games won’t help anyone. A lot of people don’t want to pay for health insurance at all and are OK with sticking the general public with the bill when they do need health care. The problem is that not good for anyone (except maybe the person in question in the short term). That’s one of many reasons this law was created, but there’s little sense in re-explaining it.
As Bob ages, it becomes more likely that catastrophic coverage won’t do the job.
Perhaps you should find a real policy wonk saying so - and by wonk I mean someone knowledgeable, not a partisan hack with an axe to grind.
Oh, the twists and turns. First the ACA was going to destroy the insurance industry so the government could take over health care in the US. Now it’s a conspiracy to make money for health insurers. Whatever it is, it’s definitely bad- trust us! The truth here is a little more complicated. There were times during the ACA debate that insurance industry stocks did quite poorly because the law restricted their ability to dump sick people, required them to spend more premium dollars on coverage, etc. They’re doing better now, and yes, that’s partly because they expect to have a lot of healthy people enroll. They’re also finding profitable new markets (some types of Medicare coverage) and the overall market is also doing very well these days.
Congratulations. You’ve just figured out what health insurance is. Maybe this will help resolve some of your many, many concerns about this law.
Then I suppose I should put ITR Champion on ignore, since I’m not allowed to speak the truth if the truth is considered “insulting”. Thanks for clarifying my course of action, tom.
Once again, that is not the real problem. The issue is that a pool that includes Bob makes in more expensive for the twenty somethings. Let’s make this easy to understand. Say I have 100 twenty-five year olds paying $100/month in premiums. Insurance companies must spend 80-85% of premiums on care, so let’s say they pay out $8000 on care on average/year. Now, let’s say 100 Bobs join the group and they used about $12000/year on care in total. In order to maintain the same profit margin as before, premiums must rise to $125/month. Even to just keep the same total profit as before, they need to raise premiums to $110/month. That doesn’t even take into account the increased costs involved with handling twice as many customers. This math is further complicated because the “Bobs” who sign up will be people who know they will use more health care, thus the delta between the under 30 folks and the Bobs might be even higher.
Now you may say, well so what if young kids need to pay more. The problem is that young people also have lower incomes on average, so making them pay more means more will either go without (paying the fine) or will need to be subsidized by the government. Additionally, it skews the prices the market must charge because there are fewer healthy people participating. Along the same lines, telling Bob to pay an amount commensurate with the risk he poses has many of the same issues.
No insurance was, functionally speaking, catastrophic insurance for many people.
You have a cite for that? Not for increased profits as that is a function of higher enrollment, but that wonks proposed these policies to guarantee sizable profits to their friends in the insurance world?
This is just wrong. Insurance company profits are limited because they HAVE to spend 80-85% of premiums on claims. They can charge the Bobs of the world exorbitant premiums if they want, but if they don’t spend enough on their collective care, Bob (or his company) get a refund. Their primary goal is to increase enrollment. They do that by pricing what the market will bear, delivering a product that people want to buy, and creating products that the greatest number of people can afford. Banning older folks from purchasing certain products only drives up profits insomuch as they tend to allow insurance companies to increase enrollment.
Okay, so what about people who do have assets or care about their credit score, and for whom it makes financial sense to purchase catastrophic insurance rather than a more expensive insurance plan? Is the ACA’s answer simply “screw 'em”?
Once you require people to have insurance as the ACA did, you need to take steps to make the market work cost wise. You cannot do that by offering catastrophic insurance to everyone at any age because it raises premiums for younger, healthier people to the point where it becomes unaffordable, or where subsidies would kick in. Actuarial science has nothing to do with it because the primary goal to to create a market where the greatest number of people willingly participate without subsidies.
Really? Who exactly are these “smart people” and where can I get a copy of the mathematical calculations they did do determine this? Or am I simply expected to accept on faith, with no evidence, that smart people did this math?
I’ve already addressed this objection. Prior to passage of the ACA, health insurers in most states could sell the same plan to different age groups at different prices, using actuarial science to determine the sensible price for each age group. So in the scenario you describe, if we assume that the 100 Bobs are older than the 100 twenty-five year olds, the 100 Bobs would also be charged more money. Allowing the Bobs into the pool for catastrophic coverage therefore does not change the price of catastrophic coverage for the twenty-five year olds.
The ACA does indeed restrict insurance companies’ ability to use actuarial science for pricing different age brackets. If I recall correctly, the price for the oldest can be at most 300% of the price for the youngest. In reality, to make financial sense, the price difference between the oldest and youngest must be much larger than that. This case of meddling by the government puts guarantees quite a bit of financial pain for people at the younger end, but its a problem entirely of the government’s making. There is no inherent reason why a catastrophic health insurance plan, free from such government meddling, couldn’t be offered to all ages at reasonable prices.
Well if you’re going to nitpick over language, can I ask what you mean by “do the job”? Something more precise might make your answer a little more satisfying, but even with that you haven’t answered my question.
Recall that you implied that by having the government ban Bob from purchasing the catastrophic health care plan that he prefers, “other taxpayers are less likely to get stuck with the bill” for his doctors visits and other routine items. I asked whether there’s the slightest bit of factual evidence for the claim that people who have catastrophic coverage often stick taxpayers with the bill for routine doctors visits. Factual evidence would generally be expected to be a study or survey of people who have catastrophic coverage. Thus far, none seems forthcoming.
The hypothetical Bob who’s causing all this trouble needs routine doctors visits. Obviously he can pay for them in one of three ways. (A) By paying for them directly with his money. (B) By having an insurance policy that covers them, though obviously most insurance policies will require a copay. (C) By somehow getting taxpayers to cover the bill.
Now if Bob has catastrophic coverage, B is ruled out. One would expect A to become the norm. Yet you’re somehow jumping to the assumption that Bob won’t do A and will instead do C, or at least that there’s a significant likelihood he will. Why should I believe that?
It wouldn’t necessarily be more expensive in the long run. The example was what happened before the ACA mandated coverage. Besides, even if I accepted your logic, why is someone getting screwed a huge concern if the net effect is positive? EVERY policy is gonna have some winners and losers.
You probably could find much of the underlying data and assumptions made if you bothered to look. Given our discussion, I am not sure you would understand it anyway. What difference does it make if YOU personally have not seen the numbers? Do you honestly think people on both sides haven’t thought this through? Wouldn’t someone else have raised your objection if it had ANY merit?
Yes, and once again, you ignored the fact that the market that existed before raised costs for everyone because of free riders. Sure, an insurance company could sell any product they wanted, but they also routinely rescinded policies on shaky grounds, denied reasonable claims, and priced their products such that many people chose to go without insurance. That is not a better situation.
It does because the costs of the coverage for the Bobs alone is too high for many people in that group. Yes, it might work for 70 or so of the Bobs, but the others will just not be able to afford insurance. Those 30 or so people still cost us money, and are a liability that often must be covered by others or the government. The whole reason a comprehensive overhaul was necessary was because policies like you seem to be championing are not actually protecting people. What often happened was you got some chronic disease, paid a bunch out of pocket, then found out your insurance was a piece of shit that didn’t cover anything.
It wasn’t. Why is this so hard for you to understand? Do you honestly think a someone with an expensive chronic disease could get ANY health insurance, let alone an affordable one, pre ACA? This utopia you imagine didn’t exist. If it was gonna happen, it would have happened. There are only really two choices here: spread costs unevenly amongst participants to maintain viable markets or allow price sensitive (or irrational) people to game the system, pushing costs onto the government and other entities. Does it suck for some young people? Probably, but it’s better for society as a whole. Those are the breaks. You don’t have to like them, but please stop repeating these spurious and illogical arguments.
Though I may have only a Master’s degree in math and have only passed one actuarial exam, I am not afraid of statistics. I am pretty sure that I could understand the statistical reasoning for not creating a separate pool of catastrophic insurance for older people if such statistical reasoning actually existed and if it was made available to me.
Someone once said that the US was distinguished by “government of the people, by the people, and for the people.” If this is still the case, one would expect that when passing a huge piece of legislation that radically affects the lives of almost everyone, they would at least provide us with a clear explanation of why that legislation does what it does, in its entirety. Has the President, or any person involved with shaping the ACA, ever explained why he chose to ban people 31 and older from purchasing catastrophic insurance? If so, I’m not aware of it.
As for “wouldn’t someone else have raised your objection if it had ANY merit”, many people have objected to the fact that the ACA bans those over age 31 from purchasing catastrophic coverage. If you only read liberal sources, you might never see anyone doing so. But if you read libertarian and conservative sources, you’ll encounter a large number of people who have raised this objection.
In any case, the notion that I should blindly trust, without seeing “the numbers”, that the government did the correct thing because “smart people” were making the decisions, is not very convincing. Remember that this is the same federal government which has waged a failed ‘War on Drugs’ for decades, invaded Iraq because of fictional weapons of mass destruction, gave zillions in bailout money to the same banks that caused the financial crisis, spent vast sums of money on high speed trains without ever getting any track built, tried to build a bridge to an uninhabited island in Alaska, and did all kinds of other notoriously stupid things. So much for the “smart people” in Washington.
My understanding of the limit on high-deductible plans is that it’s intended to guard against the case where someone pays low premiums on a high-deductible plan for many years, then is diagnosed with something that requires expensive ongoing treatment and switches to low-deductible (traditional) insurance.
This would result in major adverse selection for the LD insurance pool. People who are healthy and generally have low medical expenses would opt for HD plans and people who needed lots of care would opt for LD plans.
The reason HD plans are allowed for younger people is presumably that there are few enough of them that will require expensive long-term treatment that they don’t cause too much of an adverse selection problem, and that they’re poor enough that they have a harder time affording the higher premiums of a traditional LD plan. It’s pragmatic, not necessarily ideal.
The government has a long history of deciding that age-based discrimination is often allowable since over the long term all are affected equally by it. I don’t necessarily buy that argument, but it’s hardly new with respect to the ACA.