Get Weight Loss Back -Let’s Check the Math on Health Subsidies – The Health Care Blog | uxa2.com

Author: KIM BELLARD

It’s December 3rd, and to no one’s surprise, Congress still hasn’t taken action to extend the ACA’s expanded health care tax credits. According to Congress, the subsidies don’t expire until the end of the year, so they think they have at least until then to act, or maybe sometime after, given the way they handled the recent government shutdown.

On the other hand, consumers renewing or purchasing ACA plans have a more immediate deadline; they have until December 15th to register on January 1st^St. They are already seeing huge increases due to the normal increase in renewals as well as the loss of generous subsidies; The Kaiser Family Foundation estimates their insurance premiums will more than double without them. They can’t wait for Congress to play politics.

There seems to be a consensus that something will be done about subsidies, but less clarity about what that will be. Some centrists argue for continued increased subsidies, but with certain adjustments, such as lowering upper income levels and/or requiring everyone to pay at least some minimum contribution. I think that would be a reasonable compromise. But some Republicans, including President Trump, are calling for a more radical change: Instead of giving expanded premium tax credits to those “fat cat” insurers, give them directly to consumers through health savings accounts (HSAs). Put individuals before insurers, they argue.

I’m here to tell you: math doesn’t work.

I’m not an actuary, but I was a group insurer a long time ago, setting employer group health insurance rates, and also a long time ago I was involved in the early days of so-called consumer-directed health plans (CDHPs), including HSAs and high-deductible health plans. I don’t disagree that health services and high deductible plans can matter, but one needs to understand the math that drives health care spending.

A key fact of health care spending is that it is not evenly distributed. It’s a perfect example of the Pareto principle: 80% of spending comes from 20% of people. The flip side here is that about 15 percent of people have no health care expenses for any year. Insurance takes money from everyone and uses it to finance expensive people’s expenses. That’s what all insurance does.

OK, I’ve avoided counting as long as I could, but here goes. One proposal calls for depositing $2,000 into each enrollee’s new HSA. Let’s keep it simple and say there are 1,000 of these people and their average annual health care costs are $2,000 (which of course is way low). So we have 1,000 x 2,000 = $2 million in both subsidies and spending. Works perfectly, right?

Not so fast.

Of this $2,000,000 expenditure, 80 percent – $1.6 million – is accounted for by just 200 people. They only have $400,000 in HSA funds ($200 x $2,000) so they are really out of luck. $1.2 million for bad luck.

The 800 people being reminded only have $400,000 in expenses ($2 million – $1.6 million) but have $1.6 million in HSA funds ($800 x $2,000), so they just got a big surprise. They can use it for non-covered services, such as dental or vision care, or carry it over to the next year tax-free. They pay $1.2 million.

Of course, at some point the insurance kicks in, but the unlucky 200 people hit high deductibles and deductibles, while the luckier folks sit pretty with their new HSAs mostly intact. That’s a big deal for them (and for the financial institutions that get to manage these funds, let’s not forget that aspect).

Are we trying to protect expensive people or benefit the most people?

It makes it worse. Let’s say the ACA premiums are also $2,000 per person, not including the insurance administrator or profit. So we have $2,000,000 in fees and $2,000,000 in expenses. But now let’s take the 15% of people without expenses. They pay $300,000 ($150 x $2,000) in insurance premiums but get nothing back. Now that they’re losing the extended subsidies and seeing their premiums double, they might decide that with insurance, I’m done.

It is disastrous for the insurance risk pool. Its premiums now drop to just $1.7 million ($2 million – $300,000), but its claims remain at $2 million. It then requires an 18% rate increase ($2 million divided by $1.7 million) just to keep up, which will probably cause more people to drop coverage, which will cause rates to rise again, and soon we’re in an ominous death spiral.

The ACA required insurance companies to cover anyone without medical insurance and no exclusions for existing coverage—neither of which were true before the ACA—and it only worked because of subsidies. Without enough healthy people, there cannot be a viable health insurance market.

Republicans seem to think that insurance companies are making too much money from ACA plans, which they think justifies not paying them increased subsidies. I doubt this is true. I can see insurers benefiting from Medicare Advantage, but I suspect that ACA plans will continue to teeter on the edge of profitability. Insurers need to get and keep this enrollment mix just right: enough healthy people, not too many sick people.

I’m trying to figure out if Republicans really just don’t understand the math, or if they understand it well, but are using the HSA gimmick to continue their efforts to undermine the ACA. So are they ignorant or cynical?

The expanded subsidies were the response to COVID and no one should have ever expected them to be permanent. It’s fair to look at those and the original subsidies to see what they might be like (eg, the original subsidies never thought states wouldn’t expand Medicaid, so don’t go very low-income at all). But let’s not kid ourselves that HSA’s approach is an attempt to improve anything.

Kim is a former e-marketing manager for the Blues big plan, reporter late and complained Tincture.ioand now a regular THCB contributor