October 21, 2013
A few days ago, I got a letter from Medica informing me that I have to choose new health insurance for 2014 because the minimalist plan I have for health insurance will no longer be offered due to the Affordable Healthcare Act (ACA). Currently, my health insurance costs ~$100/month, if I don’t make any changes the plan I will be enrolled in will cost me double that going forward due to the inclusion of coverage for “essential health benefits.”
Medical insurance offerings are so complex, and the average consumer knows so little about which factors to consider in making this purchase that the pre-defined policies, or coverage bundles, are an essential part of reducing the transaction costs (how much research you need to do) in the market. Also, for individuals, insurance plans are not priced a la carte since the actuarial cost to evaluate each individualized plan would be prohibitive.
After a daunting review of my insurance options, I choose my policy as a barebones, low cost way to keep from bankruptcy in the event I had a catastrophic health issue, such as an unexpected major injury or illness. My expectation was that if and when small issues arose, I would be in a position to foot those bills on my own so I didn’t need to buy insurance to smooth those potential costs. Back in April when I bought this policy, I was delighted to discover that almost to the dollar, the amount I would be paying for my private insurance policy was the same as I had previously paid through my employer’s subsidized plan – that subsidized amount served as an anchor, or reference price for me.
I could switch insurance plans without losing any of what I regarded to be the most important features of the policy at no additional cost, so I ended my search when I found that plan. There were literally hundreds of differently bundled plans from various insurers at different price levels, coverages and structures. The main tradeoffs were between monthly premium amount and annual out of pocket max & co-pay amounts.
Before I got my letter from Medica, I knew that Obamacare was designed with the intention of ensuring that all Americans had medical insurance to address the natural market failures which occur as individuals systematically underestimate their risk, forgo preventative medicine and disproportionately use expensive emergency care. I also knew that one of the controversial topics behind the current government shutdown, was the required provision of family planning services by employer health plans. Even though Healthcare is nearly a fifth of US GDP, I hadn’t been thinking about pricing fundamentals in relation to it. As a generally healthy person, I had only been considering the political and economic fall-out of the shutdown in a sort of off-hand, impersonal way. Until now, I hadn’t thought about the ACA as the vehicle which would determine the plan features in personal insurance bundles.
According to Medica, “The health care reform law requires that your policy will automatically have “essential health benefits.” This includes coverage for things like maternity and new born care, mental health and substance abuse services, prescription drugs and pediatric vision services. The law does not allow Medica to continue to offer certain “essential health benefits” as optional.”
In other, less heavily regulated markets, consumers simply wouldn’t tolerate product bundles being reconfigured in such a way that the cost doubled, but the perceived value remained the same. Although the drivers of cost within the insurance bundle are opaque, comparing my current plan and the new offering enables me to do simple subtraction to evaluate the incremental cost of the newly covered services. An old NPR article defines the “young invincible” class, who determines that the tax penalty of $95 or 1% of income, and no insurance is better than paying costly for insurance they are unlikely to use.
Insurance is all about calculated risks, the question is who has the best information upon which to make those calculations: you, the insurance company, medical providers, the government? Who should be deciding what is included for coverage and how it gets priced?