Monday, January 13, 2014

Obamacare: To Buy Or Not To Buy–––An Entrepreneur Would Have Done It Differently

Now that consumers can generally make an efficient health insurance purchase at HealthCare.gov and most of the state-run exchanges, we can finally get to the real question.

Are the healthy uninsured going to buy it?

The big health insurance changes Obamacare made to the individual and small group market were arguably done in order to get everyone, sick and healthy, covered in a more equitable system.

To be clear, no one I know of wants to go back to the prior health insurance market that excluded people from being covered because of pre-existing conditions.

But what if most of the uninsured literally don't buy Obamacare?

Then people will question whether or not all of this change was worth it: Why did those who were in the old individual and small group market have to accept all of the expensive changes, narrower networks, higher deductibles, and fewer choices if the uninsured largely don't want it?

Are we moving away from a system where only the healthy could buy health insurance to a system where only the sick want to buy it? 

As I have reported on this blog before, many working class and middle class subsidy eligible people will find health insurance premiums on the exchanges, after federal subsidies, at about 10% of their after-tax income. The average standard Silver plan deductible is almost $2,600 and the average Bronze deductible is $4,300 according to Avalere Health.

More than two-thirds of Silver plans sharply reduce the number of hospitals in their provider networks over typical employer plans according to a McKinsey study. That means most of the second lowest cost Silver plans––the plan the subsidy is tied to––will be a narrow network plan.

It therefore becomes a difficult decision deciding whether to buy or not buy a health insurance policy.

A recent Washington Post article, "Health Law Provides a Comfort to Those at Risk," told one side of the story. It recounted the relief a number of people had to finally be able to buy a health plan because they could not any longer be excluded.

One fellow intended to have gall bladder surgery as soon as his coverage was effective this month. Another needs surgery for endometriosis. Another women, with high blood pressure and a congenital heart defect, signed up as soon as she could. Another lady making $11,000 a year, with a health history that put her into debt, was able to get into Medicaid and be covered for the first time in eleven years.

About the same time, there was an article at Kaiser Health News, "One Texan Weighs Obamacare Options: High Deductible Vs. 'Huge Fear." It describes a 43 year-old women who is healthy and spent only about $1,500 for minor health care services last year. The best deal she found on the federal health insurance exchange would cost her $178 a month and would have a $5,000 deductible.

She hasn't bought a policy yet.

She was quoted as saying, "I don't smoke, I'm relatively healthy, so I was pretty insulted when I saw this [the price]. I was extremely angry actually. I felt hoodwinked by the insurance companies: 'Oh, here's this wonderful insurance plan but by the way you need to come up with $6,000 out-of-pocket first before we pay anything."

Listening to people defend Obamacare I get the sense that they think this was the only way we could have done health insurance reform.

I will suggest that the Obamacare architects put most of their emphasis on deciding for consumers that they should have a mandate rich health plan. That in turn drove the cost up, which in turn drove the deductibles up and narrowed the provider networks.

An entrepreneur might have taken a different approach.

In business, this is often referred to as a market driven approach rather than a product driven approach.

A product driven approach is one where the developer tells you what is good for you because they know better. It generally does not lead to a successful business venture.

The market driven approach starts by asking what people really want and then figuring out how to deliver it.

In this case, the entrepreneur might have gone to the woman in Texas––really lots of people in her category–– and asked what she wanted. Then the entrepreneur would have recognized that the federal government was willing to pay something toward the premium in the form of the subsidy.

What kind of deductible would she consider reasonable? What kind of premium would she be willing to pay for a plan with her preferred deductible? What kind of first dollar benefits would she value? What kind of catastrophic benefit would make sense?

Then, with her premium, the federal premium, the deductible she considers reasonable, and the first dollar benefits she would value, what kind of plan could we build for her––and the many healthy people who think like her?

That plan would not have the long list of Obamacare mandates. It would not be "as good." It might even be considered "substandard" by many. But she would value it, particularly because she could afford it, and she would likely buy it.

Would having these kinds of choices lead to anti-selection? They could. But the health insurance industry has a long track record of offering policies people have liked and clearly wanted to keep because they offered lots of choice and variety. After all, Medicare Advantage and Medicare Part D offer lots of attractive choices in a regulated market and they work.

Obamacare is in trouble. The person who needs gall bladder surgery this month bought it. The person who is healthy felt "hoodwinked."

At its core, what's wrong with Obamacare? It is a product driven not market driven enterprise.

Until the people who run Obamacare start listening to the people who aren't buying it, Obamacare won't work.
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