High Premiums and High Deductibles Going into 2016

People of all income levels, news sources, insurers, and providers have expressed frustration over rising health premiums and deductibles going into 2016. There are the grim and ominous warnings by the Congressional Budget Office (CBO) and Join Committee on Taxation (JCT) in regards to interest on national debt (and the 184 page report that goes along with it that points at healthcare as one of the star players in causing debt).

The above leads naturally to a few simple and obvious questions like:

“Why are health premium and high deductibles so expensive?” and “If people’s pocket books, both parities, health insurers, health providers, and the federal and state Governments are all stressed out over money… where the heck is the money going?”

In other words, “How is it that a law that seeks to ensure affordable accessible health insurance has managed to shock everyone with its high cost?”

Below we provide a few answers to those questions, a few tips for those dealing with the core problem on a personal level, and some suggestions for what can be done about it as a nation.

FACT: Despite the current problems with health care costs, the PPACA has created many benefits. 1 in 6 Americans got a Marketplace plan for $100 or less in 2015. The uninsured rate is at a historic low, and under the ACA health care spending grew at the slowest rate on record since 1960. Cost curbing measures are real and are working, but curbing long-term costs does little to curb the frustrations of the present day.

Reasons why Health Insurance Premiums and Deductibles are High

In it’s simplest form the answer to the above question is: The bulk of the $3 trillion dollars system is centered in a for-profit model. This means that we need about twenty cents on the dollar in profit for each middleman. At least, if we don’t hit that 20% profit, our huge health market providers and all of those who profit from the industry, including those of us who have savings, pensions, or investments are unhappy.

The healthcare sector of the economy also expects those profits to grow each year, or they are unhappy (especially stockholders, and it’s worth noting there hasn’t been an unhappy stockholder for years as the growth from 2009 to now has been staggering). This is a factor that some insurers are struggling with under the ACA due to more old and sick people enrolling than young and healthy people. This is something that doctors and hospitals struggle with: cheap ACA plans from new insurers, Medicaid, and Medicare where claims aren’t always processed at top dollar.

To make up the losses, and to keep stockholders happy, insurers and providers increase rates every year. Medicare, Medicaid, and ObamaCare subsidies pay rates that can’t be paid by people, and we borrow money as a country to make up the difference (we don’t actually have enough money to cover our projected spending over the next ten years).

If we were projecting a surplus this might be a good solution, but we aren’t. We are projecting dangerous levels of debt. We have to pay interest on debt. Over time we will need to borrow more and more money to pay off that interest. It’s not just healthcare that is to blame (think Military spending, college loans, 30 year mortgages, etc.), but healthcare is an undeniably big chunk of the fiscal problem and the focal point here.

It seems hopeless, but we are Americans and we don’t stand for hopeless, so we need to look harder. Stockholders and profits may be cogs in the wheel of unsustainability, but they aren’t the whole machine. What are we missing?

The Underlying Cost of HealthCare

Insurers aren’t the only ones who need to profit from the healthcare system, and want to see profits increasing every year. Drug companies, healthcare innovators, and manufacturers are also for-profit companies that want to see profits (as do their investors). Before insurers and hospitals know how much they have to increase prices, they have to know what the base prices of healthcare will be and compare that to the projected needs of their policyholders.

In other words, underneath the whole health insurer and provider system is another system that is pushing pressure upwards trying to ensure their 20% growth of profits.

So, healthcare companies raise rates, insurers must raise rates in return, and in order to insure near 100% coverage under the current system we must pay out-of-pocket and subsidize these increases to keep the machine rolling.

Of course there is always a bureaucracy that processes cash flow, claims, billing, and litigation.

It Was All Essentially True Before ObamaCare. The Difference is that ObamaCare Pressured the System to Include More Sick People and Poor People.

It used to be that only the relatively well off took part in healthcare. The poor received sub-standard or no care. Even without the pressure to add the sick and poor into the healthcare system, the machine was breaking down we’ll before the patient protections and subsidization of PPACA. In fact, in large part, the PPACA was a last ditch response to the rising costs of healthcare and the rising numbers of uninsured Americans.

The whole thing was completely unsustainable before the ACA, and apparently after it as well, according to many. There is data to show the existence of a happy, healthy, but less vocal, tens of millions enjoying their now affordable healthcare and health insurance.

In a sense we have a dangerous game of hot potato. The hot potato being the increasing expectation of profits from the healthcare system, when considered along with our democratic imperative to provide everyone with a reasonable level of healthcare.

What Can Be Done on a Personal Level?

On a personal level, the best thing a family can do is being smart about tax breaks and legal loopholes. Max out an HSA, consider starting a small business and enjoying the tax perks of being self employed, really shop around for healthcare (prices are all over the place), lower your premiums with the right HMO, protect against costs when traveling with the right PPO, get a Marketplace silver plan and take advantage of cost sharing reduction subsidies, the list goes on. Essentially we suggest you read the information we wrote on the topic.

What Can Be Done on a National Level?

Costs can’t rise forever; people can’t afford it. The Government can’t afford it. At some point there isn’t going to be any more juice left in healthcare to squeeze; think of the housing bubble. We can wait until we are all in boiling water, or we work on finding solutions ahead of time. Here are some ideas about ways in which we can be proactive:

Single payer Medicare-for-all with a supplemental option: In this option, insurers would move to a catastrophic public plan with private supplemental options. Supplemental options could be subsidized. This strategy caps what one can expect from insurers, but it preserves the industry.

Straight up single payer: In this option, all insurance would be public. We remove one 20% profit margin, but also absorb the entire burden. If this doesn’t come with super charged bargaining power with healthcare manufacturers and innovators, the implications are a potentially frightening.

Reduce claims, billing, and litigation: The GOP wants to reduce bureaucracy in healthcare. All their repeal rhetoric aside, the GOP idea a strong one at it’s core. We can’t pay our bills. Finding reasons not to pay them is a poor solution… it just makes the private companies jack up their rates further to pad their profits. We’ve seen the need for this in our increasing oversight of Medicare.

Let Medicare negotiate drug prices: There is a strong argument for government regulation of the amount of profit that the drug companies make on pharmaceuticals. 70% of Americans take prescription drugs. How many take drugs they don’t actually need? Why do they take them? Are people taking highly advertised drugs when simple generics would work as well? How much do those drugs really cost? At some point the rain must come, even at the best of parities.

Focus on HMOs: HMOs can be really lackluster, but in general, by being focused on a certain area, an insurer can shave off some premium pricing by negotiating solid rates with a small group of providers for a small subsection of policy holders. The fewer middlemen between the patient and doctor the more room there is for reasonable profits.

Limit Premiums for everyone: “The group making over 400% of FPL but less than the rich” (I’m not sure there is a catchy name for this group that we tend to call “middle class”, but they are frustrated if our blog is any indication). These people, many with employer coverage, are getting the raw end of the deal. Some pay considerably more for healthcare than we should ask… and yet they also face the mandate if they aren’t covered. Solid though needs to be given to giving this group a fair deal.

Reform the employer mandate: The 9.5% for self-only coverage from employer rule is a nightmare. Who decided this was a good idea? It must be 9.5% for family coverage (maybe based on a family of 4 to be fair). Even better, let family members opt out and use the exchange. Or let the employer provide the subsidy the Government would have provided. It’s not rocket science. This part of the system obviously needs a review.

Limit Deductibles Even Further / Mandate HSA: Another GOP idea is the establishment of compulsory HSAs. Part of the healthcare tax system might be revised to include compulsory HSAs for those who can afford to set money aside for healthcare in order to ease the burden of high deductibles. Few people have $13,000 for a deductible. This means, without an HSA savings account, the current high deductible plans just don’t work. For many of us health coverage unworkable because having to meet a high deductible without the padding of an HSA essentially means that this group cannot afford to use health insurance, or uses it and faces bankruptcy. For some there is no point in having catastrophic coverage with a catastrophic deductible. That only works for those with money in income or savings to fund an HSA. We need to figure out the deductible issue a little better, and curb premiums (which will need to be higher the more they are expected to cover) with subsidization. Again, single payer may sound attractive when it comes to the catastrophic coverage, but only if we fix the issue of high deductibles.

Forget Insurance and Single Payer and Just Have HSAs with New Rules and Tighter Regulations on HealthCare: The whole reason we have insurance is because a single person can’t absorb the costs of a catastrophic accident, chronic condition, or illness. We need is to know that American families are covered in an emergency, and that they have access to affordable preventive care. That is the part that should be a right, and the part that the ACA has worked toward. There could be a plan in which everyone who can afford to pay taxes has a mandatory HSA that is funded in exchange for a tax break, and paired with a small healthcare tax that covers people in catastrophic accidents and offers basic preventive services for free. All other stuff could be paid out-of-pocket. If we focus our attention on regulating the rest of the healthcare system, the end result might be that people are protected in an emergency, get basic preventive care, and buy everything else out-of-pocket (with HSA as padding) if their wallet and the market allows it.

One Single Solution Given all of the Above

Above we have opinions for problems and possible solutions. This is (in this authors opinion) one overall solution:

• Public Single Payer catastrophic coverage with Private Supplemental options (which would be trying to do a better job than Medicare, and so is not Medicare-for-all).
• A general push toward limiting what is expected from profits. Catastrophic coverage and life saving drugs need to protect America as much as they need to have profits that incentivize innovation. If you can sell a drug for $1 in Canada, then you can sell it for $1 in the U.S., if you already made back your profit and you can afford to sell a drug for $30, don’t sell it for $3,000. Have some consideration for your fellow Americans.
• Giving the government more power in negotiating and regulating supplemental plans and private healthcare industries. It should be done out of the interest for fairness and affordability and not used as a tool to cripple the private industries.
• A focus on HMOs and coordinating healthcare locally.
• Even more focus on preventive care. Hidden costs of related procedures could be done away with as they scare people off from actually getting preventive care.
• Compulsory HSAs. Money that would have gone into premiums and deductibles of ObamaCare could be put into HSAs.
• Reduce litigation, billing, and claims by simplifying rule sets without sacrificing quality.
• Focus on curbing profits rather than ramping up taxes. We need a strong healthcare system, not an overly bloated and unsustainable one. We want to incentivize a cancer cure, not incentivize delaying a cancer cure or monopolizing one.

Lastly, we as America need to come together and fix the problem and leave a better world to our children. We should ideally do this without instituting radical change and without crippling an existing industry. But more importantly, we must improve our healthcare system without crippling the American people.

How many more price increases can the market, the people, or the nations bank ledger stand before we start having larger economic problems? We need to act to further the progress that began with the Patient Protection and Affordable Care Act and make the healthcare system sustainable.