Trying to understand the basics of health insurance

Great Debates
1

IANASG (I am not a Smart Guy), but I’m trying to wrap my head around the pros and cons of Obamacare, and I’d like to get resolved the basic concept of health insurance.

So here is how my simple mind views how health insurance works…

An insurance company sells policies to people (either individually or in groups).
People pay premiums to the insurance company.
The insurance company now has a big pile of money, and also the promise that more money will be coming in because people have agreed to pay the premiums for the life of the policy.
When people get health services, they file a claim.
The insurance company will look at the details of the particular policy, decide if it wants to pay some, most, or none of the claim, and will then take some money from the pile and give it to the service provider.
If the company brings in more money than it gives out, it will make a profit, and can keep existing year after year.
I understand that the big pile of money doesn’t just sit there… the company can invest some of it in clever ways, making it a much bigger pile of money. Good for them.
But the pile is not infinite. The company must write policies and establish premiums in such a way as to limit payouts so they do not exceed the amount in the finite pile. They must also make the policies attractive enough to be competitive with other companies.

But I keep hearing that Obamacare will be extremely expensive, that it will increase the federal debt by zillions, that it will cost much more than was expected.

But I don’t understand why it would be true. If claims are paid from a finite pile of money, and payouts do not exceed the premiums/penalties/taxes coming in, and the details of the policies are written towards that goal (which is what insurance companies must be doing now) then what is causing the huge costs that are being predicted?

I know I’m missing something, but I’m not sure what it is.

2

It certainly won’t be any more expensive than the terribly inefficient way we used to do things.

3

Obamacare isn’t a company with a pile of money. It’s a mandate that everyone has to buy one of those policies that the companies offer. If you can’t afford the policy, I have to buy it for you. I, being the the taxpayer, you being the tax taker.

If you can afford the policy, whether I pay for it anyway depends on whether you’re young or old. If you’re young like me, you have to buy it yourself. If you’re old, we young people have to buy it for you.

So in summary, it’s expensive for taxpayers, but a windfall for insurance companies, old people, and poor people.

See how that gets expensive?

4

But, there should be savings because people should be able to not go bankrupt from even moderate illnesses/injuries, and because hospitals will not have to write off those uncollected bills as losses and thus pass those costs on to their customers who can pay.

So non-profit hospitals will probably have lower costs, but insurance companies and for-profit hospitals may be another matter.

5

Old people and poor people already have health insurance through Medicare and Medicaid. One of the goals of the Affordable Care Act is for people who aren’t old enough for Medicare or poor enough for Medicaid to get health insurance. Also, previously many people were unable to buy individual health insurance policies due to preexisting conditions. The ACA addresses that.

6

Maybe the ACA will save money because poor people will not have to use the Emergency Room as their primary source of healthcare anymore and then hospitals can get back into the business of taking care of real emergencies in the ER and not some poor persons kid with a fever while I am waiting for a doctor to diagnose and treat a possible appendicitis.

7

There is also a rule under ACA that payouts must be at least 80-85% of the “pile of money”, so there is a requirement that the pile not be too big either. Previously there were plans offered where the total amount of premiums paid was much, much larger than the amount paid out in claims (called the Medical Loss Ratio), which were really great deals for the insurance companies. Those plans have been basically eliminated.

8

I want to reset your scenario a little, if I may…

People currently purchase (either on their own, or thru their employer) a health insurance policy. They are purchasing access to the network of providers and hospitals the insurance company has negotiated with for set, discounted rates on services provided. If you do not have a policy with an insurance company, then you will likely pay a lot more for accessing services (or nothing, if you don’t have the money and do have a medical emergency – the cost is passed on to everyone else). If you use a provider not in the insurance company’s network, you will also pay more than using their network. Your choices are usually limited to what your company purchased thru group insurance, but you are free to decline that and go ahead and purchase your own individual policy (which will probably cost you more). If you do not have a job, or are poor, the current system does not really provide health insurance for you – if you are unemployed and have a medical emergency, you need to become poor (by draining your bank account) in order to access state-sponsored health care (like Medicaid).

The customers of an insurance company are called a risk pool. They want a large pool of people that spreads out the risk – some people may be sickly and cost more, while others may be healthy and continue to pay their premiums. This is why it is called “Insurance” - healthy people buy insurance “Just in case” something happens to them. If the risk pool has a few sick, expensive people, and a lot of healthy people who do not access services very often, then the model works. Competition keeps the insurance companies from ratcheting up rates too much, as well as regulations. Old, expensive people do not have to participate in this game because they are covered by Medicare, so this relieves the insurance companies from having to cover them.

The insurance company does not usually decide what to pay on a case-by-case basis – they disclose to you what they will cover and how much you will have to pay for specific services at the time you sign-up (but it seems most people do not ever read their policy). Insurance companies generally do not try to limit their payouts – they will meet their obligations agreed to in the policy. Many of them have been caught doing unscrupulous things to affect their payouts – but have been caught and paid sizable penalties – there is not a big incentive to cheat their own customers, although that perception exists. If you want a better policy that covers more stuff, you are free to purchase one, but it will cost you more.

The current system is in a run-away cost structure that is unsustainable. The costs the insurance companies are charging is based on them making some profit, but is also due of out-of control doctor and hospital costs, as well as expensive drug treatments.

The Affordable Care Act (AKA Obamacare – yes, they ARE the same thing), was developed to try to curtail the runaway costs, and ensure most everyone has access to health care by making everyone purchase insurance. One key aspect is that insurance companies can no longer turn away sick people, or people with pre-existing conditions, but for them to be able to accept this, they need to increase the risk pool (spreading the risk) – this is why there is an individual mandate for everyone to purchase health insurance.

In theory, the ACA will (eventually) end up costing less than the current system because uninsured people will not keep mooching off the current system whereby their health issues are foisted onto the insured (and increasing costs – in theory, healthy people will cost less). If everyone SHOULD be insured this way is a philosophical question.

I think where you are coming from is if all the subsidies being offered to the poor are going to end up costing more than the system brings in. I think it remains to be seen how that will work out. I will point out that there are other government programs that give out more than they take in, but in those the benefits are percieved to outweigh the costs.

9

I’ve heard this often but wonder how true it will be in reality. ISTM that most of the plans that the poor can afford are high deductible/catastrophic type plans. Since they’d likely be paying for the doctors visits themselves, why would they change their tactics?

10

Because the ER will tell them to go to eleswhere for non-emergencies. Maybe not at first hospital market forces will drive it that direction because it will save them money.

11

It’s simple. The politicians who tell you there will be huge costs are lying.

Just look at all the countries that already have universal health care. They have two things in common:

  • tremendous support for the system (from taxpayers and ill people alike)
  • no Tea Party :smack:
12

The question is “save money for whom?” Certainly not young, healthy people.

…which are extremely expensive.

That says nothing about what it costs. The ACA did a lot of things that aren’t relevant to the OP’s question.

This seems to be the first post in this thread that even wants to discuss the subsidy balance sheet. Everyone else, predictably, reads like a PR pamphlet from the DNC.

There’s tremendous UHC support in other countries, so therefore it doesn’t cost anything? Ah, yes, that makes sense. Likewise, the US military is tremendously popular, so it must not have “huge costs” that “increase the federal debt by zillions.” I swear I heard a certain political group arguing otherwise…

13

Currently most* hospitals are required to triage patients and to treat all true emergencies without regard for ability to pay. The ACA does nothing to change that requirement.

So a non-emergent patient showing up at the ER for a (insert trivial non-emergency condition here) at 3am on a Friday night still has to be assessed before the hospital can send him on his way. Perhaps the hospital can bill for, and recover, something for their time spent on such patients.

The hope is that such patients, now that they have insurance, will wait until Monday morning to see a primary care doctor and will not present themselves at the ER. Perhaps the PCP can bill for his services here.

And if the patient does go to the ER first and then the PCP, insurance may end up paying for both.

Time will tell if this happens or not.

As to whether Obamacare will raise costs… yes it will and no it will not. It depends on who you are.

Suppose you are a 24 year old healthy person. Under Obamacare you must buy insurance or pay a fine. Assuming your insurance premiums + deductibles + copays are more than the out of pocket costs you have been paying then your costs may be higher under Obamacare. Maybe much higher. But you will have insurance.

Suppose you are a 58 year old uninsured person with a chronic health condition. Under Obamacare you can buy insurance now without regard for your pre-existing condition. Assuming your insurance premiums + deductibles + copays are less than the out of pocket you have been paying before then you will save money. Maybe lots of money.

IMHO, there are a lot more healthy people than sick people with chronic conditions. Insurance wouldn’t work if we all had chronic illnesses. So I think there will be more people seeing an increase in their out of pocket expenditures by a modest amount for every person who sees a savings (possibly a savings of a huge amount).

  • If your hospital does not accept Medicare/Medicaid then they don;t have to do this. Almost all hospitals in the US do accept Medicare and/or Medicaid.
14

ACA provides subsidies (i.e. federal spending) in 2 ways:

  1. Those between 100% and 400% of poverty line get some subsidy to help pay for their insurance premiums. The ACA makes sure that those people don’t need to pay more than 10% of their income on health insurance premiums; if their actual premium is more, the government pays the difference.

  2. For those below the poverty line (i.e. less than 100% of poverty line), the Medicaid program is being expanded to cover them. Medicaid is a state program, but the federal government is paying for most of it in the first couple of years, and the federal subsidy tapers off after that. At least this was the intention; the Supreme Court decided that the federal government cannot force states to do this, so now it’s optional. If you live in a state that decided not to expand Medicaid, and you are below 100% of poverty line, you can still buy a health insurance through the exchange, but you get no subsidy at all.

Of course these both cost money. Which is why the ACA also included a tax on medical devices which is supposed to help pay for it. Also, there is a penalty (tax) on employers who decide not to provide insurance, and for individuals who decide not to buy health insurance. These also help pay for the subsidies.

Also, providing health insurance to more people is thought to have a stimulus effect on the entire economy, which should increase revenue from other taxes. For example, ACA already calls for young people up to age 26 to be covered by their parents’ health insurance, and this has reduced unemployment in that age group.

It’s unclear whether these new revenues and expenses will balance out, or one would win over the other. The Congressional Budget Office has analyzed this and concluding that repealing the ACA would result in an increased deficit, which would imply that the revenues would be greater than the expense.

15

Most of the Fox news points the OP is re-hashing are long dis-proved.

“Will be expensive” - go to healthcare.gov and look at policies and prices.
my policy is being withdrawn (does not comply with ACA) - the new one for which my thoughtful insurance company wants me to pay is $641/mo.
Deductible: $4000. The only things NOT subject to the deductible are a few doctor visits and (most*) scripts…
Lab, X-Ray, Urgent care, ambulance, outpatient surgery, etc. ARE subject to deductible

The ACA plan I’m looking at is, WITHOUT subsidy, $748. $1500 deductible. Not subject to deduct.: all office visits, all scripts, all lab, X-Ray. etc, etc.

About all that is subject to deductible is hospital, ER, Urgent care, etc.

I heard from a person on another thread that the MD plans do subject nearly everything to deductible. I’m in CA (and, once again, congratulate myself for moving 2000 miles to get here :smiley: )

Which sounds like the better deal to you?

    • not the one I can’t afford, and am risking OD every night just to get to sleep - how’s that for scary?

“young, healthy people pay for” - guess what? EVERY INSURANCE SCHEME which has ever existed has worked only because the majority of subscribers DO NOT submit claims.
Health care is predicated on people enrolling a couple of decades before they hit the high-usage years.
Fire insurance is a real nightmare for anyone trying to run a single-locality company (unless it is a desert with no flammable structures) - a single wildfire could get then hit with 50% claims for total value. No, there aren’t young, health houses to pay for the old, burning ones - I’ll leave it to you to figure out how that kind of insurance works.

Increase the debt! I will point to the Office g Management and Budget (Fed non-partisan group whose job it is to determine the net effect of money bills. IIRC, it was determined to be neutral.

16

Agree. I want to point out that the states electing to opt-out of the Medicaid expansion are mostly red states with governors wishing to spite Obama. Ironically, they may be helping the ACA balance sheet by saving the program money at the expense of their own citizens - Obamacare may come out smelling better than it otherwise would have thanks to these red state governors.

17

I believe ER care is subject to the deductible under the ACA which will make it more expensive than going to a primary care provider first. Still many people who never had insurance before may not grasp some of the concepts and finer points until they actually are expected to pay where they did not before. Many people still believe that the health care will be free and don’t grasp the affordible part of the name. The other aspect is that more people will need to accountable for their bills once they have insurance.

18

Having been in a few emergency rooms, I think the hope is actually that such patients will see a PCP Friday morning or Thursday afternoon rather than hoping the condition resolves itself and ending up in the hospital at 3am when it doesn’t.

It will absolutely raise the cost for some people, probably more than you think- that 58 year old uninsured person with the chronic condition may not be paying anything for medical care now , either because he’s getting treatment at a free clinic or because she’s not getting treatment at all. The healthy or unhealthy regardless of age who currently have insurance through their employer probably won’t see a much of a change in price at all. I don’t think most of the savings is going to be at the individual level. I think the savings is going to be at the taxpayer level , when people are treated earlier, less expensively and more successfully instead of allowing the equivalent of a rotten tooth to turn into a 6 week hospital stay, a $250,000 bill and a dead kid.

19

Perhaps a badly-chosen example. Medical insurance typically doesn’t cover dental (or not much), and I don’t know that Obamacare is going to change that very much. (My own Medicare Advantage plan includes an optional extra dental/vision plan for a few extra dollars [$20/month], that seems to be marginally better than nothing, and I suspect probably covers enough to pay for itself.)

20

Not badly-chosen so much as what came to mind quickly - but I did say the “equivalent of a rotten tooth” (emphasis added) precisely because health insurance typically doesn’t cover dental care. Make it untreated cellulitis that leads to sepsis and it’s the same point.