I have been looking at health plans with an eye towards January 1, 2014 and the birth of the insurance exchanges. I have been doing the numbers this last weekend, calculating what America’s health care costs will most likely be in 2014 when anyone who doesn’t have a corporate or public health care program will become free agents and will buy health coverage on the exchanges. Since I went through it all, I thought I would distill my thoughts for anyone who is confused on the issue. Maybe this will make you more confused! But it might point you to where you need to do more research.
First off, if you have a grandfathered plan (a plan you had before March 2010 and you haven’t and won’t ever change out of it), you probably know by now that your plan is in the “death-spiral” of premium payments. In March 2010 when your plan was closed, 100% of people with coverage were grandfathered. The government’s plan is to force the weak hands to concede and move to exchange plans by 2014, and this interest matches insurance companies’ interest of raising premiums. By 2013, it seems that grandfathered plans only have 45% of the pool they had in 2010. That means they are comprised of older, sicker, costlier people – and since there are no new enrollees, the premiums keep going up 20% per year. I’m sure this will go on indefinitely. At some point, you will have to see the fork in the road and decide to keep the grandfathered plan or switch to an exchange plan.
You have to expect that next year your grandfathered plan will increase another 20%. If you are happy paying that, then you can wait. If you are not happy paying your current premium or you won’t be able to pay next year’s grandfathers premium increase, then you might as well change to a cheaper plan NOW that will cost less. Why? Because there are new people signing up daily. New plans aren’t closed and have been growing since March 2010. Bigger pool, healthier and younger people = less premiums.
When the exchange plans happen next year, everyone in American will get to pick what I call a “Precious Metal Plan.” Bronze, Silver, Gold or Platinum. Sounds like picking a wedding video package huh? It doesn’t matter what health insurance company you choose, it will be the same deductible, co-pay, drug rate, everything across the board. Only the premiums and the actual insurance company will be different. I will be able to ask my neighbor what plan they are on, and I will know exactly what’s covered. That’s interesting. I’m not sure how the coverage will match between PPO type plans and HMO type plans since they are apples to oranges in the way they deal with deductibles, premiums and types of doctors and hospitals.
The trick in figuring out whether you should stay in your grandfathered plan or what plan you should pick this year if you are shopping, depends on what you predict your premiums will be under the exchange plans. Companies like Anthem Blue Cross are merging and acquiring new subsidiaries across the country so they will have larger pools for their actuarial tables. In 2014 every person in America will technically have to get health coverage through work or the exchange. That means everyone: sick, healthy, 30 to 64. This will have a larger pool of healthy people to pay in, but also since there will be no preexisting conditions, people with all levels of sickness will get paid out. It will definitely change the rates. It might average out to nothing changing….probably not. There are many extra taxes and new fees to consider. Doctors are scrambling to find ways to deal with a huge new influx of patients. Hospitals are barely ready. It will be interesting.
I think the unfair part of health care the past decades has been that most insurance companies are publicly traded for-profit enterprises. They provide insurance, but, as we all know, will drop you if they don’t like your new health problems, won’t give you coverage if you have preexisting conditions, etc. There is a conflict of interest when you have human health vs. profit for shareholders. That has been the real problem from what I’ve seen. Of all the problems the new health reform act is creating, I give them credit for forcing the insurance companies to spend 80% of their premium intake on medical services. There are all kinds of ways to get around that for them, but at least the program acknowledges that providers can’t rip people off to the degree they have been trying to. In some ways, only non-profits like Kaiser Permanente have a real interest in keeping people healthy, keeping costs inline and improving the welfare of their customers. Which type of coverage anyone likes will for the first time get to be a personal choice and not just whoever would take you if you had preexisting conditions. There won’t be any applications on the exchange, all they really need is your contact info, some personal info and your credit card. Your medical history has no place in signing up for health plans anymore.
You have probably heard that health care PREMIUMS will be capped at 10% of your income. Not all of your costs, your premiums. A family making $40,000 per year will pay $4,000 for premiums. The actual plan on the exchange will definitely cost more, but somehow the family will get tax credits or coupons to bring their cost to $4,000. I’m not sure if it happens the following year with tax credits or month to month with a program connected to the insurance company. It goes both ways though, it seems. If your family makes $150,000, you will end up paying $15,000 for the same plan. It will be accomplished through higher forced rates, the new Medicare surtax, new dividend taxes, or some other method.
Question: If there are 4 plans offered, Bronze, Silver, Gold and Platinum, will they all just be 10% of your income?
No. That wouldn't make sense.
The 10% figure is based on the Silver plan. It seems like the Silver plan will also be set at a $2,000 deductible. I have read that all of the plans will be set at $2,000 or less, so for sure the Silver will be. That is your standard plan. The rule has also been made that the most expensive premium in each Precious Metal Plan category can only be 3x more expensive than the lowest premium in that commodity. That’s interesting. That will either help 64 year olds or 30 year olds. Since it is a narrow band of premium differences, someone will have to eat it. It has to be skewed one way or the other. The reason I have been using 30 year olds for the base age is that there will be plan for those under 30 which will be cheaper and have less coverage than the Precious Metal Plans. It will be for huge problems only, like the Tonik plan at Blue Cross.
The other factor is the “Cadillac Plan” tax. In 2018, if you are paying a yearly premium of more than $10,200 for an individual and $27,500 for a family, you will pay a 40% tax on that to the government. This Cadillac Tax is what throws me the most. I am very afraid of this tax for myself and almost anyone with a good health plan in the country. I know that in 2009 during the Feller-Freed case, the husband and wife were paying $1,500 per month individually for a $1,000 deductible plan. That would be much more now. That means that being older age, they were in 2009 paying individually $18,000 per year. That is a regular PPO style plan, nothing all inclusive and CEO about it. They paid that much because Anthem charged them that much. That means they would be paying a 40% tax because their plan is overpriced. If the Cadillac Tax takes effect, anyone with high value plans, like public servants, teachers, or low deductible plans will probably end up paying this. The problem is – why tax the individual for having the plan? They should tax the health insurance company the 40% for charging too much for the premiums. It’s not the public’s fault they couldn’t find a lower cost health plan to keep their family insured. We’ll see how this goes when we get there.
So, knowing all of this, how can we figure out the cost of health care in 2013? Since the whole system will revolve around the Silver plan as the median, we will base our costs on that. The mandated deductible for the average plan is $2,000, so we at least know one detail about what will be included.
- The exchange and insurance companies wouldn’t want to throw the average person, with an average 10% of income premium with the average plan into something that will invoke the Cadillac tax in the first few years. We also know that an older person can only pay 3x more than the youngest. Based on that, you would think that a 64 year old with the basic plan will pay $10,200 annually, or $850 per month. Any more than that would automatically trigger the 40% Cadillac tax in 2018. A 30 year old then, you would think, would pay $3,400 per year, or $283 per month. I’m not sure how the $3,400 would be reconciled through taxes to be 10% of the younger person’s income. $283 per month is pretty close to PPO plans that currently have a $5,000 deductible. It is less than an HMO, which is around $450 for the same sort of plan.
Looking at the problem this way, it is likely that health care premiums will go down or stay the same if you have a good plan now. If you have a $2,000 deductible PPO style plan now, you will probably pay less for the same plan, since your plan will now be average. If you are on a higher deductible type of plan, and you are currently paying less than $283 per month, you will be paying more. That looks like it will be the absolute minimum for a reasonable health plan at the youngest age bracket. Get ready for that. Also, if you plan on getting health care, be prepared to pay 10%+ of your income on it. Otherwise, you will pay the microscopic fine. If you are older, be prepared in the coming years to pay at LEAST $10,000 per person for your exchange plan premiums. Of course you could get subsidies depending on your income. But that's between you and the government.
Those were just ideas from my notes as I was reading around, let me know how wrong I am!
Enjoy 2013.
