Coyote Blog

For several years I have feared that my high-deductible health insurance would be illegal.  I am a big believer in high deductible insurance.  First, it is real insurance, requiring that I pay day-to-day expenses but protecting me from catastrophic bill.  Second, it improves the health care system by providing incentives for consumers to actually price-shop services.

Well, I was wrong.  In fact, most people see to be getting higher deductibles than they want.

My only excuse is that the Obama Administration has acted for three years as if they hated high-deductible health coverage and were planning to make it go away.  Kathleen Sebelius has said on a number of occasions that it is not "real insurance" (she believes that insurance should actually be pre-paid medical care).  Seriously, here is an example of what she was saying:

At a White House briefing Tuesday, Health and Human Services Secretary Kathleen Sebelius said some of what passes for health insurance today is so skimpy it can't be compared to the comprehensive coverage available under the law. "Some of these folks have very high catastrophic plans that don't pay for anything unless you get hit by a bus," she said. "They're really mortgage protection, not health insurance."

She is saying this all while the policies being prepared for the exchange were exactly the kind of coverage she was speaking out against.  And she had to know -- I cannot believe a former state insurance commissioner was not looking at what policies were being prepared for the exchange.  After all, her organization made the last minute decision to hide policy pricing from the public (e.g. deleted the window shopping functionality) and this almost certainly was in response to seeing the policies being prepared for the exchange and realizing the pricing and features were not going to make people happy.

By the way, there is a certain schizophrenia here that is entirely political:  These new policies have a $10,000 deductible, but they pay 100% for condoms?    They may well be creating a combination of catastrophic insurance and pre-paid medical care that has the worst of both approaches.

Politicians lie.  But what is it about this administration that lies in ways that are inevitably going to be discovered, in just a few months?  Can they really be so focused on getting through each individual news cycle that this kind of behavior makes sense?

Here is my health insurance cancellation letter, cancelling the insurance I was very happy with.  Click on any of the below to enlarge

Here was roughly what I was paying for a family of four (this is from the renewal 18 months ago but it is about the same now).  We had a couple of minor pre-existing conditions so this was rated up from the lowest possible price of $525.85, or about a 6.6% increase.

Here are the features of this plan.  It has a high deductible, but once the deductible is met, it covers 100% in network, and the network is very good.   The deductible amounts may be high to some.  I asked myself, "what level of unexpected medical cost could I handle in a year." and set the limits there.  It is NOT pre-paid medical care, which I do not believe in.

To the question of "was Obama lying or was he ignorant", I cannot get inside his head but I can say that many people, including me, who were not involved in the process saw this coming even in 2009 in his draft legislation.  It is hard to believe that if random folks like myself understand this, that the person actually sponsoring the legislation did not.

Many folks are arguing it has to have been an out-and-out lie.

None of this should come as a shock to the Obama administration. The law states that policies in effect as of March 23, 2010 will be “grandfathered,” meaning consumers can keep those policies even though they don’t meet requirements of the new health care law. But the Department of Health and Human Services then wrote regulations that narrowed that provision, by saying that if any part of a policy was significantly changed since that date -- the deductible, co-pay, or benefits, for example -- the policy would not be grandfathered. 

Buried in Obamacare regulations from July 2010 is an estimate that because of normal turnover in the individual insurance market, “40 to 67 percent” of customers will not be able to keep their policy. And because many policies will have been changed since the key date, “the percentage of individual market policies losing grandfather status in a given year exceeds the 40 to 67 percent range.” 

That means the administration knew that more than 40 to 67 percent of those in the individual market would not be able to keep their plans, even if they liked them.

Enter the lies:

Yet President Obama, who had promised in 2009, “if you like your health plan, you will be able to keep your health plan,” was still saying in 2012, “If [you] already have health insurance, you will keep your health insurance.”

“This says that when they made the promise, they knew half the people in this market outright couldn’t keep what they had and then they wrote the rules so that others couldn’t make it either,” said  Robert Laszewski, of Health Policy and Strategy Associates, a consultant who works for health industry firms. Laszewski estimates that 80 percent of those in the individual market will not be able to keep their current policies and will have to buy insurance that meets requirements of the new law, which generally requires a richer package of benefits than most policies today.

Next step for me, I get to experience the exchange.  I recognized a bunch of business losses last year, so my income was less than zero (I have a s-corp which passes earnings through to my individual tax statement).  It will be interesting to see if I get offered a subsidy.  Heck, they may offer to enroll me in Medicare.

Megan McArdle has a column I am going to excerpt at great length (sorry Ms. McArdle).  This is great article on a topic I have tried to explain many times here

After all, the insurance company has to make money.  That has to mean that the expected value of the claims they pay out is lower than the expected value of the premiums their customers pay in.  In some sense, then, the expected value of your insurance premium is negative.

But insurance does make everyone better off, because it covers very large costs that most people would have trouble paying.  Even most really good savers would have a hard time replacing the value of their house, or paying off a $250,000 judgement for an auto accident.  The expected value of those incidencts is very, very negative--more than just the value of the cash, you have to factor in the horror of being homeless or bankrupt.  When you factor in the homelessness, the bankruptcy, and so forth, the slighly negative expected financial value is more than outweighed by the positive value of being protected against personal catastrophe.  Not to mention the peace of mind one gets from not having to worry about homelessness, etc.

This is the magic of risk pooling.  But notice that it's the catastrophe which makes insurance a good deal.  You wouldn't get much value from buying "grocery insurance".  At best, you'd be paying an extra administrative fee to route your routine expenses through an insurer, rather than paying them directly.  At worst, you'll end up with bills skyrocketing as all sorts of perverse incentives appear.  After all, if the insurer is paying all your grocery claims, why not load up on filet mignon instead of ground turkey?

But insurers try very hard never to sell insurance for less than the cost of your expected claims.  If you expect to buy $10,000 worth of groceries next year, it will not charge you less than that for a "grocery policy".  And if we all drive up the costs of grocery insurance by consuming more, the insurer can do one of two things: raise everyone's "insurance premiums" to cover a filet mignon budget, or create a list of "approved groceries" that it will cover, and start hassling anyone who tries to file an excessively expensive claim.

Sound familiar?

This is why you should always have liability insurance, but should think twice about collision damage coverage.  It's why high deductibles are a good idea--for small expenses, it's better to self insure.  And it's why "catastrophic" health plans, which only cover the sort of extremely expensive events that most people would have difficulty financing, are a much better deal than the soup-to-nuts plans that most people get through their employers.  Those plans are expensive, both because they're paying for a higher percentage of your expenses, and because they drive up utilization--which means that they drive up next year's premiums even more.  Imagine what your car insurance would cost if it covered gasoline, routine maintenance, and those little air freshener trees you hang from the rearview mirror.  Then stop asking why health insurance costs so much.

But Kathleen Sebelius, the Secretary of HHS, thinks that catastrophic insurance isn't really insurance at all.

At a White House briefing Tuesday, Health and Human Services Secretary Kathleen Sebelius said some of what passes for health insurance today is so skimpy it can't be compared to the comprehensive coverage available under the law. "Some of these folks have very high catastrophic plans that don't pay for anything unless you get hit by a bus," she said. "They're really mortgage protection, not health insurance."

She said this in response to a report from the American Society of Actuaries arguing that premiums are going to rise by 32% when Obamacare kicks in, as coverage gets more generous and more sick people join the insurance market.  Sebelius' response is apparently that catastrophic insurance isn't really insurance at all--which is exactly backwards. Catastrophic coverage is "true insurance".  Coverage of routine, predictable services is not insurance at all; it's a spectacularly inefficient prepayment plan.

The last two lines are why I knew from the very beginning that the promise I would get to keep my health insurance was a lie.  Because I have true insurance, rather than a pre-payment plan for incidental health-related expenses, and the folks who wrote Obamacare think of insurance as pre-paid medical care (in fact, I believe they think of private insurance as a Trojan Horse for all-inclusive single payer government health care).

The act of shopping is often denigrated by the literati as shallow and self-indulgent.  But shopping is at the very heart of why a free market works.  It enforces discipline on suppliers because they buyers will be comparing their price and quality and feature set to their competitors.

In health care, we have all but ended the act of consumer shopping.  Most of our medical expenses are paid by third parties, and we are just not very careful when spending other people's money.  These third parties sometimes try to be diligent about what we pay, but it is a losing task and in doing so they end up irritating everyone.

And thus, we get this:

You can find it on the Internet for $250 or less. But if Medicare is paying, a standard-issue brace for back patients costs more than $900.

In a report expected Wednesday, federal investigators say Medicare paid an average of $919 for back braces that cost suppliers $191 apiece, providing a window on how wasteful spending drives up health care costs.

“The program and its beneficiaries could have paid millions of dollars less if the Medicare reimbursement amount … more closely resembled the cost to suppliers,” says the report from the inspector general of the Health and Human Services Department. The Associated Press obtained a copy.

I discuss the phenomenon in health care more in this part 1 on a three part series I wrote at Forbes

Further proof that the only cost control idea the Obama administration ever had was service cuts and price controls.

Health and Human Services is once again playing freelance actuary, demanding that the health insurers hold down increases in the premiums for their Medicare Advantage plans.  As far as the administration is concerned, this is a two-fer.  When people have to pay more for their insurance, they tend to ask what the hell good this gargantuan new health care bill is doing--not the question you want them asking as they head to the polls.  But in the case of Medicare Advantage, there's another benefit.  The health care reform bill mandated a substantial cut in payments to Medicare Advantage providers, which everyone expects will translate into cuts in the extra services that Medicare Advantage plans now provide.  If they make those cuts a year early, maybe the administration gets to claim that the cuts don't have anything to do with the new health care bill.

Of course, for the insurers, it's not such a good deal.  The administration doesn't seem to have offered any evidence that insurers are overcharging; basically, they're saying that they ought to underprice their product, even if that means losing money.  Which is what has happened in Massachusetts, where the state insurance regulator refused substantial rate increases, even though as far as I know they never found an actuary to sign off on their orders.  The insurers posted big losses shortly thereafter.

Remember all that BS about the Obama administration only being ruled by facts and science?  This is a mythology at the core of the progressive movement, that it is possible to have a wise dictator who uses the heavy hand of government coercion only for the best interests of the country, driven only by science and not by political influence.

This is of course a crock.  It was a popular point of view in the early 20th century, and at the heart of efforts like Mussolini's fascism, which in turn was much admired by FDR and emulated in US efforts like the NRA (the blue eagle, not the gun organization).  Over time, history has demonstrated folks like Hayek right on the knowlege problem (no one can possibly be smart enough to make optimum decisions for everyone, particularly when everyone has different preferences) while we have plenty of evidence to demonstrate the incentives for politicians are skewed so badly as to make good decisions almost impossible.

But the myth persists, even in the face of obvious counter-examples, like this (emphasis added):

The economic report released last week by Health and Human Services, which indicated that President Barack Obama's health care "reform" law would actually increase the cost of health care and impose higher costs on consumers, had been submitted to the office of HHS Secretary Kathleen Sebelius more than a week before the Congressional votes on the bill, according to career HHS sources, who added that Sebelius's staff refused to review the document before the vote was taken."The reason we were given was that they did not want to influence the vote," says an HHS source. "Which is actually the point of having a review like this, you would think."

The analysis, performed by Medicare's Office of the Actuary, which in the past has been identified as a "nonpolitical" office, set off alarm bells when submitted. "We know a copy was sent to the White House via their legislative affairs staff," says the HHS staffer, "and there were a number of meetings here almost right after the analysis was submitted to the secretary's office. Everyone went into lockdown, and people here were too scared to go public with the report."

In the end, the report was released several weeks after the vote -- the review by the secretary's office reportedly took less than three days -- and bore a note that the analysis was not the official position of the Obama administration.

Wouldn't want to influence a vote with actual facts.

Henry Payne has an interesting tidbit:  The government is now concerning itself with what cars its employees purchase.

Your tax dollars at work. The U.S. Department of Health and Human Services last week sent an email urging its 67,000 employees not to buy SUVs, lecturing that fuel efficiency should be their "top priority" when buying a car.

 

"Every
new sport utility vehicle on the road produces 60 percent more climate
threatening CO2 emissions than a smaller vehicle," said Energy News,
a quarterly newsletter from a department that has nothing to do with
energy, but everything to do with energy morality apparently.

 

"The
toll that vehicles take on the environment includes air pollution, oil
spills, pollution of our water supplies, and damage to natural
habitats," continues the HHS sermon. "In order to really cut CO2
emissions, higher fuel efficiency in all vehicles will be essential."

American auto makers were not amused by the recommendation to buy Toyotas or Hondas. 

This surprises me not at all.  A few weeks ago, I had an EPA audit of a marina and store I operate in Colorado (the report in all its glory is here).  In that audit, the Environmental Protection Agency recommended that we begin selling fair trade coffee in our store.  What that has to do with emissions into the lake, I have no idea.  They also recommended that I put an environmental message on our shopping bags, replacing the current boating safety message.  The audit did say that they could not require these two things.  Well, give them some time, they will probably make it a requirement soon.

Frequent readers of this site will know that I support the legalization of most illegal narcotics for adult use, not because I am a secret user who wants to come out of the closet, but because prohibition and efforts to save people from themselves always result in failure.  In particular I remember the old joke that communicates so well the inherent contradictions embodied in the drug war.  It goes: "What is the worst thing that can happen to a teen who smokes marijuana?  Answer: He can get thrown in jail."

Whenever I make the argument for drug legalization, 100 out of 100 times the first response is "what kind of message does that send to kids."  They argue that even if kids under 18 are not allowed access to drugs, legalization for adults will send the message to kids that drug use is more acceptable, and their use of drugs will increase.

What is most surprising about this statement is how easy it is to test.  The approach was suggested to me by something I read in Reason the other day.

Check out this press release from the Department of Health and Human Services on youth drug use:

The Substance Abuse and Mental Health Services Administration today
announced that current illicit drug use among youth ages 12-17
continues to decline.   The rate has been moving downward from 11.6
percent using drugs in the past month in 2002 to 11.2 percent in 2003,
10.6 percent in 2004 and 9.9 percent in 2005....

The  rate of past month cigarette use among youth ages 12-17 declined from 13.0  percent in 2002 to 10.8 percent in 2005.

The counter proof to the "what about the kids" argument is right here in these two paragraphs.  Tobacco today, which is illegal for teens while legal (but frowned upon) for adults, is a good proxy for post-legalization narcotics.  Note therefore that illicit drug use among teens is 9.9 percent, while tobacco use is 10.8 percent.  There is virtually no difference!  The legal-for-adults substance is used by teens at only slightly higher a rate than illicit drugs, and this from the drug warriors' own figures.  At most, the"message" sent by legalizing tobacco seems to be no different than the "message" sent by making narcotics illegal. Tobacco is legal for adults, does not carry nearly the same stigma as illegal drugs, is far easier for a teen to obtain, and carries much lower penalties for its use, and still it is used by teens at about the same rate as illegal drugs.  In fact, in the figures you can see the legal tobacco use falling faster than illegal drug use.

So what has prohibition, prohibition-related drug violence, and hundreds of thousands of people in jail for drug use achieved?

I was fooling around with a great web page run by the Sunlight Foundation linking earmarks from a recent Health and Human Services bill to Google maps.  Here are some of the earmarks in the Phoenix area:

1. $ 400,000 -- Midwestern University for a rural postgraduate educational program at Sierra Vista Regional Medical Center
2. $ 150,000 -- St. Joseph's Hospital for facilities and equipment for its mobile maternity outreach program
3. $ 750,000 -- Translational Genomics Research Institute for facilities and equipment
4. $ 250,000 --  Arizona State University Institute of Civil Rights, for dropout prevention and other education projects
5. $ 125,000 --  Mesa Community College for nursing recertification curriculum
6. $ 175,000 --  Mesa Community College for the Enfermeras En Escalera program
7. $ 200,000 -- Marc Center for job training for adults with disabilities
8. $ 500,000 -- Scottsdale Healthcare for an electronic medical records system
9. $ 100,000 -- Arizona Dental Foundation to provide dental services to low-income residents of Arizona

Note that this is just from one narrowly focused bill and for one single metropolitan area.  For this one post, I will not be a libertarian and wonder why the government is spending money on some of this crap.  Instead, for one post, I will be a good little technocrat and assume that the government should be doing all these things and criticize the process.

If I were a technocrat, I would argue that Congress already funds an ENORMOUS beauracracy to route federal money to theoretically the most productive spots.  I mean, that's the whole technocratic argument for all this government spending, isn't it?  That the government run by experts in the field can top-down allocate resources better than some bottom up market process?

Ideally, in any budgeting process, you look at your goals for a pool of money - say to cure breast cancer or to provide worker retraining, and you rank projects and allocations against this goal.  I believe this to be an impossible task for a variety of reasons, some of which are described here.  But even if you buy into this theory of technocratic fascism, you STILL have to be appalled by these earmarks.  Because each and every one are an override of any kind of prioritization and thoughtfullness that might exist in the budgeting process.

Take #9.  So the government has a goal of providing dental services to low-income people.  Fine.  Then shouldn't it take its dental services budget and allocate it on the best cost per patient served basis?  Does the Arizona Dental Foundation fit into this picture?  I bet no one in Congress knows.  In fact, I bet it DOESN'T fit this efficient allocation of funds criteria, because otherwise someone in Congress wouldn't have overrrided the funding process to push $100,000 their way in an earmark.  And even if this is a non-profit, shouldn't this kind of thing be bid on -- say ask for proposals of who can do the most with $100,000?

Some of these others are pretty obscure, and say something in and of themselves about the reach of the federal government these days.  But take #3.  Is the Translational Genomics Research Institute the best place to spend 3/4 million to get the most bang for our health research dollars?  No one probably knows, but what I can tell you is that it is the darling of our local political establishment (just read its history, all about political namedropping, new facilities, and whoring for taxpayer funds without mention of any actual research).  It has political figures such as our current governor on the board, so you might be able to guess how they got their earmark.

Or look at #8.  Scottsdale Healthcare is a private company, though a not-for-profit.  It is a large provider of private, paid medical services in our area.  It, out of all of its competitors in town, both non-profits and for-profits, was chosen by Congress to get its medical records system upgraded by the US taxpayers, why?