What If I'm Planning To Be Very, Very Sick Indeed?

Last time, I discussed the fact that those with mild health concerns need to be very careful, and to be willing to flex their amateur actuary muscles, when selecting an ACA-compliant insurance plan.

For the seriously, chronically ill, it seemed like the decisions should be much simpler. Because all insurance plans must now provide a maximum out-of-pocket (MOOP) cap of no more than $6350, it seemed obvious that the lowest-premium plans were likely to be the best option for people who knew as sure as the sun would rise in the east that they would be on the hook for tens of thousands of dollars (or more) in medical expenses on an annual basis.

A financial planner posted a few months ago with a similar assumption—that both the healthiest and the sickest would probably do best choosing bronze plans. The healthy won't need services anyway, and the sickest will quickly hit the statutory $6350 (MOOP) and be protected thereafter. It was a reasonable assertion. Turns out it's not nearly so simple.

As mentioned yesterday, Unity UW Health Bronze C is the lowest-cost plan in my home county. Someone my age will pay $172/mo, or $2064 for a full year of coverage. (Actually, because premiums rise with every birthday on ACA plans, this annual number would be slightly higher, but this serves well enough as an illustration.) This plan has the statutory $6350 out-of-pocket limit on combined medical and prescription charges, so the most anyone can expect to pay for medical services on this plan would be:

($172 x 12) + $6350 = $8414

“Not bad,” I said to myself. One can consume tens—nay, even hundreds—of thousands of dollars in medical services in 2014 and pay just $8414 for the privilege. I assumed this would be the cheapest route to victory for the very ill, because this plan's rather miserly $5400 deductible and lack of copay protection forces the healthy and those with mild-to-moderate health problems to take on so much financial risk. “Surely,” I said to myself, “this would be the cheapest way to obtain catastrophic coverage. Unity will cover their losses on the very ill with the premiums of those who never get out of the deductible.”

Then, on a lark, I decided to scroll down to the most expensive plan offered by Unity: Unity UW Health Platinum B w/Dental. And what I saw floored me.

For $437/mo, one gets:

$0 deductible

$1000 MOOP medical

$1000 MOOP prescription

$10 PCP visits

$50 specialty visits

$60 ER visits

Oh my, oh my, oh my. Now, suddenly our very sick person is doing rather better indeed (at least, financially):

($437 x 12) + $1000 [prescriptions] + $1000 [medical] = $7244

Our ailing friend is actually spending $1170 less than they would have on the cheapest, higher-risk plan. (And they get adult dental coverage as well, which is not easy to come by.)

Why is this? I have narrowed it down to two distinct possibilities:

1. Unity is counting on a lot of comparatively healthy people over-insuring themselves by selecting this platinum plan, then consuming far less in services than they pay out in premiums ($5244/year, in this case.) Those over-insured people will subsidize the more tragic cases.

2. Unity has made a terrible mistake.

Mind you, it turns out that under ACA, insurers are backstopped by the feds against really huge patient outlays, and that deal has been sweetened recently. But they're still on the hook for quite a lot of money when insuring the very sick. That's why I can't rule out option #2. Insurance is about risk, and risk is about making educated guesses, but ACA rules have significantly changed the risk profiles out there. It's a new world and mistakes will be made.

There are some even more interesting corner cases in which digging deeply into the details of ACA plans can save you a lot of money if you know you're going to be a costly patient. Let's say you have an expensive, chronic condition which is primarily managed through expensive pharmaceuticals. We'll illustrate with multiple sclerosis, which is often treated by a combination of a pill to combat fatigue, and a self-administered injection to combat the immune system's various malfunctions. The cash prices of these medications easily run into five figures per year, but you can do far, far better than that and come nowhere near paying out the $6350 statutory limit by locating a plan which separates the pharmaceutical maximum out-of-pocket from the medical MOOP.

Our friend from yesterday, Unity UW Health Silver E, does exactly that. With just a $950 prescription expense OOP max and a $3012 annual premium, one can have their expensive medication needs met for less than $4000—thousands of dollars better than they would have done on either the Bronze C or Platinum B plans! (And still get in the occasional neurologist visit for $110/session.) And that plan has a rather substantial $200 copay for specialty drugs, which the injections are considered to be. More aggressive searching might reveal a plan with a better combination of specialty drug copay and/or prescription MOOP. Might this be another major miscalculation on the part of the actuarial team?

Far from being able to put their decision on autopilot, as it turns out the chronically ill are also well-motivated to be vigilant shoppers—at least, if they're actually on the hook for their own premiums, copays, and coinsurance. The heavily subsidized have less financial incentive to distinguish between plans. They are also more likely to be loyal to a particular network of doctors, clinics, and hospitals if they feel their conditions are under the best control. These factors may also have gone into the analysis done by the professional actuaries at each insurer. Time will tell.

But for now, it turns out that everybody shopping for health insurance should set aside several quiet hours with a calculator, lest they leave a very large pile of cash on the table.

How Sick Do You Plan To Be?

As I've mentioned earlier, this exercise is only academic for me at the moment because I'll be able to keep my current, non-compliant policy until December 31, 2014. I'll be repeating the exercise next autumn, however, so this is good practice.

Because I have no known chronic health issues, I really only care about two things:

1. Minimizing my costs for occasional, acute conditions,

2. Protecting myself against calamity.

The ACA does a good job with part #2, giving everybody a $6350 out-of-pocket maximum (beyond premiums, that is.) So that frees me up to focus on minimizing my costs for occasional, acute conditions. With dozens of plans to choose from and no helpful Medicare Part D-style calculator to analyze costs, people are on their own to figure out the best deal for their situation. We must play a fun game of “How Sick Do You Plan To Be?”

I do occasionally require some medical attention. In 2013, I've made two non-preventative visits to my PCP, which is typical enough. The most recent was a brief trip because of a lingering cough, for which I was prescribed a quick course of antibiotics. Under my current plan (which some consider “junk insurance”) I paid a $25 copay for the visit, plus $7 for the generic antibiotics. (I have a $10 generic Rx copay, but the cash price was less.)

Let's look at the underlying cost of that visit, which is a good exercise for everybody but is especially important in the post-ACA world:

Procedure	Charge Amount	Allowed Amount	Not Covered	Copay/ Coins/ Deduct	Paid	Reason Code
99214-EST, LEVEL IV OFFICE VISIT CPT(R)	254.00	225.92	0.00	25.00	200.92	3, 45

So, the office billed the insurance $254. The insurance company in turn scoffed and said “That was only worth $225.92, nice try.” I chipped in $25, the insurance picked up the remaining $200.92. (And, as noted, I paid 100% of the cost of the antibiotics.)

This is relevant because in many markets, including my home, the lowest-cost ACA plans will not cover any services until the deductible is met—not even providing this type of copay protection for perfunctory office visits. And this phenomenon is not limited just to “bronze” plans—there are a few higher-tier plans with similar limitations. Typically, but not necessarily, these plans are linked to HSAs.

With this in mind, our search becomes fairly straightforward. If I'm paying full fare out-of-pocket until I reach my deductible, I can expect to pay about $225 every time I have to see my PCP. (Charges will doubtless vary a bit from HMO to HMO, but with four of them operating in my county, let's assume a relatively competitive marketplace in which that figure won't be off by more than 10% or so.)

The lowest-cost plan available to me in 2014 would be Unity UW Health Bronze C, at $172/mo. With a $5400 deductible and a $6350 max out-of-pocket, there's not a lot to love about it, but it definitely does job #2: if a piano falls on me and I'm hospitalized for weeks, I won't pay more than $6350 to have my body repaired. I pay the full amount for all services until the deductible is reached, and then in that narrow window between $5400 and $6350 I pay 50% coinsurance.

One has to browse quite a way down the list in order to find the first plan which provides bona fide copay protection: Unity UW Health Silver E. For $251/mo, one gets $35 primary care, $110 specialist care and $300 ER visits. There's a $4300 deductible and a $5400 max out-of-pocket, plus separate $950 drug max out-of-pocket bringing us to the magic $6350. But for the occasional nasty cough or sore throat, I'm not worried about those. I only care about the $35 PCP charge.

Let's review annual costs.

The cheapest, bare-bones ACA plan (Unity Bronze C) would cost me $172 x 12 = $2064.

The cheapest copay ACA plan (Unity Silver E) costs $251 x 12 = $3012.

I save $948 in 2014 by buying the cheapest plan. But on the cheapest plan, a plain-jane PCP trip will run $225. On the nicer plan, I'll pay merely $35.

So from here, it's just a matter of playing with the numbers to see how many PCP visits it would take in order to tilt the balance in favor of Unity Silver E... and it turns out that number is five.

Unity Bronze C: $2064 + (5 x $225) = $3189

Unity Silver E: $3012 + (5 x $35) = $3187

Could I need five PCP visits in a single year? It's certainly plausible, although it's never happened to me before. (That's excluding a basic physical, mind you, which are zero-copay even on the cheapest, barest-of-the-bare-bones plans now.) If I expect 2014 to be like 2013 and I have just two non-preventative office visits, I save hundreds of dollars on Unity Bronze C.

There's another wildcard in my decision matrix here, which is that having been in the UW Health network for years in the past, I can't say I was terribly impressed by access to my PCP, who often could only make appointments several months away. So I may not actually be able to see my PCP in a reasonable amount of time for a cough—and if I go to urgent care, that's considered a $110 specialist trip, skewing the math considerably. It's difficult to predict exactly what's going to happen to the demand for a particular HMO's services in the upcoming year, although as the low-cost leader, I expect UW Health patient base will be growing, not shrinking.

I could also further complicate the math if I chose to pay for my PCP visits in Unity Bronze C out of an HSA, because then I could consider those visits paid for with untaxed income. That would probably shift the breakpoint out to a sixth PCP trip.

And, of course, even one lousy trip to the ER could well shift the balance in favor of Unity Silver E, since racking up far more than $300 in charges is easy to do in that setting. And if I planned to see some specialists, I'd likely be looking at a completely different set of plans. But controlling for unknowns is a full-time job, after all. The kind of thing insurance companies want to be compensated for doing. (Except when their profits are capped, that is.)

The ACA has done a lot of valuable things. But it certainly hasn't freed individual insurance buyers from the tricky responsibility of predicting how sick they'll be.

Goofy Tax Treatment of Healthcare Spending

Arguments along the line of “The IRS shouldn't be involved in health care” seem like a sensible reason to be uneasy about the ACA. That is, until you realize that the tax code is already very involved in the business of health care, with loads of loopholes, clauses, interjections, and exemptions with regard to health care spending. And, surprise! They don't actually make a lot of sense. (That's not the IRS's fault, of course. They just do what they're told by the people passing tax legislation.)

The IRS carefully explains the various ways in which you might be eligible for tax breaks based on your medical spending in Publication 502, a scintillating read. I will neither try to catalogue nor criticize all of these methods here, because that would take forever and wouldn't be very rewarding. But I will point out some of the more egregious corner cases which the ACA hasn't done anything about.

(The tl;dr version of everything I'm about to say is this: If the feds truly think that spending on healthcare should be done with pre-tax dollars, then just rule that all spending on healthcare is done with pre-tax dollars and be done with it.)

Flexible Spending Arrangements (FSAs): Truly, a product designed by actuaries. In a nutshell, FSAs allow employees to set aside pre-tax dollars which can then be spent on a variety of healthcare products and services, as well as a wide swath of child care. But you have to designate the amount you want to set aside before the year begins, you can only change it under limited circumstances, and if you don't use up all the money within about 15 months, you lose it. (Of course, there are also fun ways employees can game the system, because you can spend your FSA allocation on January 1, then quit your job before you actually endure the payroll deductions to fund the FSA account, and there's nothing anybody can do about it.)

The ACA capped annual FSA allocations at $2,500 for some reason, and eliminated coverage for many (but not all) over-the-counter medications and products. (So you can't stock up on ibuprofen pre-tax anymore, but you can still buy saline solution pre-tax.)

Incidentally, the self-employed cannot have FSAs because... well, I don't know why, we just can't. (This guy speculates that it's because we don't have salaries, but that fact doesn't make us ineligible to establish and fund 401(k)s, so I am pretty sure the answer really is “You just can't. Nyah!”)

Health Savings Accounts (HSAs) and Health Reimbursement Accounts (HRAs): These are the rather more sensible cousin of the FSA. Individuals can set aside some pre-tax money ($3,300 in 2014) and park it in a variety of interest-bearing or investment accounts. That money can then be spent at any time in the present or future on health care expenditures. That means you can pay for your healthcare pre-tax today (which, depending on your marginal state and federal tax rates could mean an effective "discount" of 20% or more, just like an FSA). But the ability to let the funds ride indefinitely also makes it a useful pseudo-retirement vehicle for people already maxing out other types of investment accounts. The first problem with this strategy is that HSA/HRA accounts either have terrible interest rates, horrendous fees, or both.

The other problem is that people are only allowed to fund these accounts if they have “qualified high-deductible” (HDHP) insurance plans, which generally means that they cover no services (except the relatively limited range of mandatory preventative care and other zero-copay/coinsurance items) until the deductible is completely satisfied. It is not at all clear to me why funding and maintaining such an account is incompatible with having more generous copay/coinsurance protection than the HDHP model.

The ACA imposed the same sorts of limits on HSA/HRA spending as were made to FSA spending (no more pre-tax Tums). There was a lot of weird handwringing going on that HSA/HDHP plans would be targeted for elimination under the ACA, but I've seen no sign of that. The 2014 ACA policy lists are full of HSA-eligible Bronze plans.

Medical Expenses Above 7.5 Percent of Adjusted Gross Income: Now we're just getting silly. People can take Schedule A deductions for medical and dental expenses, but only if they spend kind of a lot, and even then they can only deduct the amount they spent above and beyond 7.5% of AGI.

Individual Health Insurance Premiums are Deductible... Maybe: As a self-employed individual, I get to take my premium costs off of my AGI (meaning I still paid out 13.3% in Social Security and Medicare on it in 2012, but didn't pay state or federal tax), which isn't a bad deal. The “conventionally” employed get similar advantages when paying for typical employer-sponsored health insurance. Certain types of unemployed individuals can take a partial credit (the Health Coverage Tax Credit), and everybody can count premiums towards the 7.5%-of-AGI calculation in an absolute pinch. Why do only some people get to pay for health insurance pretax? Totally unclear.

So, to recap, we like tax forgiveness if some or all of these are true:

• You spend tons of money on healthcare--but we'll only give you a break on the amount above one ton,
• You're willing to take on more risk, be it the risk that you won't spend all the money in one year (FSA) or the risk that comes with high deductibles and no copay protection (HSA/HRA)--but this privilege only extends to a few thousand dollars per year,
• You have a job, preferably one from a “proper employer” and not a one-man band.

Governing by exception is wasteful and confusing. If it is a social good to let people pay for medically necessary healthcare services on a pre-tax basis, then just let everybody do all of their healthcare spending on a pre-tax basis. If it's not a good idea, then by all means, let's stop doing it. Building more corner cases into the system just further obscures the true costs of care and makes the whole mess more difficult to fix.

Annual Insurance Shopping Will Be the New Normal

There will be frequent parallels drawn to Medicare Part D on this blog because the post-ACA market for individual health insurance is very similar. Both are clearly drawn from the same general concept—federal oversight, standards of care, and (to some extent) underwriting, but executed by third-party companies who collect premiums and administer benefits. Both have autumn open-enrollment periods for a calendar-year benefit program. And smart people will shop both of them aggressively, on an annual basis.

This autumn is the third year I have served as a volunteer, helping senior citizens enroll in the best Medicare Part D program for them. As I've mentioned before, Medicare provides a very easy-to-use tool that tells people taking maintenance drugs exactly what their best annual value is. (Unfortunately, there isn't a similar tool for health insurance shoppers who have a pretty good idea how many primary care, specialist care, urgent care, ER, scans, surgeries, and labs per year they're likely to need.)

Because I've been at this for three years, I've seen people with a variety of drug requirements come through the office, and I've also helped the same people more than once. Here a couple of important trends I've observed, and how I think they'll apply to the post-ACA world.

* The best deals change from year to year.

Each year I've done Part D enrollment, there have been one or two plans notable for some extremely aggressive, competitive moves which set them apart from the rest of the field. And each year, they are different plans. Behind the scenes, the plans are making all sorts of maneuvers with pharmacies and manufacturers in an attempt to cut costs and lure customers—and at the same time, trying to figure out how many of their customers are loyal and locked-in, and will absorb higher premiums and copays for the convenience of not changing plans. As a result, people do considerably better when they change plans every year.

I expect this to be true under ACA as well. The relationship between many insurers and health care providers is tighter than it is in the pharmaceutical world (although there are certainly exceptions, such as CVS/Caremark, which is both insurer and pharmacy.) Still, I expect there to be a lot of internal wrangling to minimize costs, particularly for must-cover, zero-copay services such as basic preventative care, and I expect a lot of fluctuation as insurers decide which types of customers they want to attract in the new market.

For example, in my area one provider has clearly staked out a position catering to those willing to pay high premiums to minimize per-visit expenditures, with relatively generous copays and low(-ish) deductibles. Two are making a concerted play for the healthiest consumers, willing to take on the most financial risk by accepting very high deductibles in exchange for low premiums—by ACA standards, anyway. (More about the Dane County market's interesting segmentation in 2014 in a future post.) This situation could easily reverse itself in 2015 and beyond, depending on the financial performance of the plans.

* Some people are leaving money on the table because they're too inflexible.

Most of the people I see are willing to change insurers, and a good chunk of them are somewhat flexible when it comes to changing pharmacies. That's very helpful for them, because that flexibility can save them hundreds of dollars (or more, if their drug needs are nasty enough.) That's also not too shocking, since it's a self-selecting population: these people are making an effort to come and spend up to an hour with a volunteer who is helping them find the best plan, rather than just answering an advertisement once and then blindly renewing every year. So naturally, they're predisposed to change because they're coming in with an open mind and an aggressive attitude. (They are apparently in the minority, according to a Kaiser Foundation study showing that only about one in eight change plans. My personal experience works with smaller samples, but well over half of my “customers” benefit from switching every year.)

That said, there are still some who deliberately leave money on the table because they are not flexible enough—notably, because they insist on seeing a particular pharmacist at a clinic pharmacy (rather than a lower-cost retail chain pharmacy) and/or refuse to use mail order fulfillment. It's true enough that pharmacists can provide value-added input, advice, and understanding of one's complex health conditions. But the rising cost of healthcare in the US is not something that can just be waved away as the product of greedy (pick your villain: doctors, insurers, lawyers, some or all of the above.) Patients deliberately making choices which cost the system more, for highly commoditized products like generic cholesterol drugs, also play a role.

ACA backers have spoken with great hope and optimism about “competition.” The slate of essential health benefits established by the ACA does create a somewhat more level and predictable playing field for such competition, but consumers must play their part in the competitive market as well. Insurers will have little incentive to compete if a significant percentage of their customers demonstrate that they are unwilling to change providers—if they show that their demand for a given set of doctors is inelastic.

The reality is that this is going to require people to get very, very mercenary about their insurance carriers. Some people out there undoubtedly feel that they have sufficiently complex health conditions that their chosen specialist(s), and only their chosen specialist(s), can adequately help them. But for competition to work, the majority of us are going to have to swallow our pride and acknowledge that our healthcare needs are not so special that they cannot be adequately handled by any suitably trained professional, whatever network he or she might be in during any given calendar year. Electronic records will hopefully make it easier for a new PCP to pick up where the last one left off every time we switch carriers. But we're going to have to cope. If we all insist that only our preferred doctors and hospitals will do, “competition” will go nowhere.

It's not yet clear how many people will actually benefit from switching plans on an annual basis—we are, after all, just inching our way into Year 1 of the full-bore, ACA-governed marketplace. But Part D teaches that many beneficiaries do best when they are willing to switch plans and pharmacies on an annual basis. So, for the good of your fellow citizens and your own bottom line, get used to showing your bottom to a different doctor every year.

Don't Blame States for Healthcare.gov's Suckage

Healthcare.gov's rotten launch and poor performance has been blamed on a great many people, places, and things. I don't know for certain who deserves that blame, but I do know who doesn't: states which chose to rely on healthcare.gov instead of setting up their own marketplace sites. Luminaries such as former presidential candidate Howard Dean have blamed the 36 states which rely on healthcare.gov for somehow overburdening the system.

That argument is extremely silly. The idea that state-by-state sites would somehow be a better solution, instead of wastefully duplicated effort, is extremely silly. Even the idea that one single government website cannot serve the vast insurance needs of millions and millions of Americans is silly.

How do I know? Because the Feds have already created a sophisticated insurance marketplace site which serves many millions of Americans. It's called Medicare.gov—specifically, the Medicare Plan Finder. It works really, really well. And it is designed to serve a population of approximately 50 million Americans—which, coincidentally, is also about the number of uninsured Americans.

(According to data compiled by the Kaiser Family Foundation, there are over 49 million Medicare beneficiaries. Meanwhile, the ACA is trying to enroll what the Department of Health and Human Services has determined are 49 million uninsured Americans. So, the size of the market does not seem to be the problem here.)

I've seen Medicare.gov in action, many times. It manages to elegantly pull data from both federal and private-sector sources, including low-income subsidy eligibility. It also offers extensive functionality to guests. It automatically calculates the best available Part D plan based on user-defined constraints, including drugs which may be purchased on different schedules, and preferred pharmacies. (Imagine if healthcare.gov let you price out the best plan for you based on the number of urgent care visits, MRIs, and physical therapy trips you expect to have in a given year.)

And it cleanly takes people through the Part D enrollment process with private insurers. Yes, it can be a little clunky during peak enrollment times, but it works.

In fairness, I do not know how rocky the Medicare.gov site may have been after the launch of the Part D program last decade, but its successes today should have served as a blueprint for a masterful, comprehensive, 50-state version of Healthcare.gov. I am at a loss to understand why that didn't happen. Regardless, Medicare.gov's capabilities clearly prove that a single, nationwide marketplace site is not only viable, but very effective and desirable.

Cancelation with a Silver Lining!

Nobody likes negativity, right? But there's been a whole lot of negativity around the ACA lately, now that people better understand that millions are going to be booted from their existing health insurance plans.

My insurer, the possibly-doomed Physicians Plus, has struck upon a clever way to turn that frown upside-down. Rather than just brusquely telling people that their plans are going away, they're offering affected customers an interesting deal: to bump up their current plan's renewal date to December 31, 2013. That way, customers can keep their current coverage through all of 2014, staving off cancelation as long as legally possible.

See, the new wave of ACA requirements (community rating, unlimited expenses, mandatory maternity benefits, all that jazz) kick in for any plan renewing in 2014, but even those plans which don't qualify for grandfathering are allowed to operate for one final year. Meaning that someone like me who would rather not pay for those services can kick the can down the road one more year and see what happens in 2015.

Takeaways:

1. I'm totally doing this. In fact, I cannot think of a single reason not to do this.

2. This is very clever on Physicians Plus's part and I would recommend that people in similar situations contact their insurers and see if they'll go for this maneuver. Try it even if you've received a cancelation notice. What's the worst they can say?

3. This is a pretty clear signal that at least one insurer would prefer to sell their old plans rather than do business under the ACA care guidelines—even though the profit limits have already kicked in. That suggests to me that they expect to lose a lot of business under the 2014 system. (Having seen their 2014 rates, I'm inclined to agree with them...)

4. This also highlights just how many more unreported and unrealized cancelation notices are lurking out there. Not all individual plans renew on January 1st, and insurers are only required to give 90 days notice of termination. People who established their plans in spring, summer, and autumn may not even realize what's coming yet.

Welcome to $6350 Or Fight!

I've been boring my friends and family with my observations on the Affordable Care Act (ACA) for the past couple of months, so I've decided to catalog my thoughts in a semi-permanent archive.

There's a lot of disinformation and mystery out there, so I've decided to try to make sense of the ACA through my own lens--as a historically healthy, self-employed person who nonetheless thinks health coverage is a pretty good idea.

This blog's title, "$6350 Or Fight!" refers to the new, legally-mandated out-of-pocket limit of $6350 for individuals. (Families get an even better deal, at $12700 for the entire family, regardless of size.) In my view, that $6350 limit is the single most important feature of the ACA... but more on that in a future post.

My current health insurance plan (which is not a "bare-bones" arrangement, by any means, but more on that in a future post) is among the millions which will be terminated in 2014 because of new ACA requirements. Join me as I figure out what to do about that!