IRS ruling a ‘disaster for Obamacare?’ Not quite. Ruling may be ‘unfortunate,’ but it won’t leave ‘millions’ uninsured

Under the Affordable Care Act, Americans who are not offered “affordable” insurance at work can purchase coverage in the ACA’s health insurance exchanges, where many will be eligible for generous subsidies.

The law defines “affordable” as insurance that costs less than 9.6 percent of income. But the ACA doesn’t specify whether it is referring to individual coverage or family coverage, which is always far more expensive. The wording is ambiguous, an “oversight,” say many legislators.

Now the Internal Revenue Service (IRS) has ruled that the government will look at the cost of coverage for an individual – not a family – when deciding if a plan is “affordable.”

A disaster for Obamacare?

Earlier this week, Forbes ran a story about the rule under a headline that blared, “IRS Ruling to Create Millions of Uninsured Americans as It Undermines the Very Intent of Obamacare.”

Forbes’ take plays right into the conservative claim that Obamacare is a disaster. “We are now entering the crucial phase of the law’s enactment,” crows blogger Dwight L. Schwab, “and many critics are saying, ‘I told you so.’”

Whoa! Let’s look at Forbes’ argument, and the numbers.

Fear-mongering vs. facts

Forbes observes that, according to the Kaiser Family Foundation’s 2012 survey of employee benefits, on average, workers contribute $951 annually for an individual plan. But those buying family coverage fork over $4,316, “a number well in excess of the 9.5% of earnings for someone making just $35,000 a year.” Yet, under the IRS decision, “only the portion of the contribution attributable to the individual employee” can be “considered for the purpose of determining what is affordable – not the entire contribution.”

Forbes’ contributor Rick Ungar offers an example: If an employee who earns $35,000 and “is the sole breadwinner in the family” pays less than $3,325 annually for his own insurance … “nobody in the family qualifies for participation on the healthcare exchanges and nobody can qualify for the intended government subsidies.” If the employee signs up for a family plan with his employer it would cost “over 12 percent of their annual income … a crushing amount.”

“The result,” Ungar says, “will be millions of spouses and children left to go uninsured.”

Millions uninsured???

Let’s begin with that last sentence. Just how many children would be shut out? Bruce Lesley, president of First Focus, a children’s advocacy group, estimates that 500,000 children could remain uninsured.

A U.S. Government Accountability Office (GAO) report offers a similar estimate … that “460,000 children may be left uninsured if states stop funding the Children’s Health Insurance Program (CHIP) beyond 2015.” (Funding ends in 2015 because legislators assumed the ACA would protect kids.) “Federal funding could be extended,” the GAO notes. (My guess is that, if necessary, Congress would expand CHIP funding.)

But what about the mothers? If 500,000 children might be affected, that means that, at most, 500,000 mothers would be left uninsured. But in most of these cases, parents may well have have two children, sometimes more. Let’s assume that, on average, they have two children. That means 250,000 mothers (half of 500,000) might find themselves uninsured because of the IRS rule.  Add those 250,000 mothers to a maximum of 500,000 children, and 750,000 people wind up “going naked” as insurers put it.

Married couples who don’t have children also should be counted. If only one spouse works, and they cannot afford the family plan his employer offers, another adult could be left out. But, these days, few married women under 65 who don’t have children stay at home. We’re still far from “millions.”

Forbes’ example

Forbes’ example of a single-breadwinner family is the exception, not the rule. Among families earning $25,000 to $60,000, 67 percent of mothers and 85 percent of fathers work.In these cases, couldn’t each parent purchase insurance through their employer?

Note: The post originally appeared on Healthinsurance.org  To find the answer to that question, and why the Forbes Op-ed represents “fear-mongering, pure and simple”, please click here.  If you like, come back here to comment.

45 thoughts on “IRS ruling a ‘disaster for Obamacare?’ Not quite. Ruling may be ‘unfortunate,’ but it won’t leave ‘millions’ uninsured

  1. I do support the law but it is very confusing when it comes to the tax credit. How about a mom and pop business? As business owners they are not eligible for a business tax credit. You can only get a credit for employees that are not family members! Since I am 60 with health problems my business policy that covers me and my wife is just under $30,000 a year. With the ACA we may be eligible for credits but only if we cancel the business policy and buy individual policies. However, we enter into a “Catch 22″. Will we be able to purchase individual policies on the exchange while we still have a current business policy? We will have to go without insurance, (what an irony), in order to be able to purchase affordable insurance? And how affordable will it be? At age 60, we will pay 3X more for our policy as a younger individual. If Massachusetts is an example, (we live in SC), we will pay somewhere between $18,000-$26,000 a year for a policy. The only way we benefit from the ACA is to be able to obtain tax credits. And then we get into the SC issue where the legislature is voting on a bill to jail anyone who tries to carry out or implement “Obamacare”!

    It is too bad we don’t have traditional Medicare for all!

  2. Jim–
    First, welcome to HIO — and thank you for commenting.
    I understand why you are worried.

    Here are some answers to your questions:
    Mom & Pop businesses with 25 or fewer employees are eligible for large subsidies. If they offer their employees comprehensive insurance, the government will pay as much as 50% of the premiums. The employer could split the remianing 50% with his employees. . In general, among small business owners, today, as many as 60% of these owners are, themselves, uninsured.

    Under reform they will be able to go into the Exchanges and buy their own insurance where a large percentage will qualify for subsidies.

    It’s not clear from your comment whether you have any employees who are not family members. If you do, you should probably think about keeping the insurance you have through your business,covering you, your spouse and your employees and see if you qualify for a small business subsidy. You could then shop for the insurance in the SHOP Exchanges. In 2014, we’ll have Exchanges for individuals purchasing their own insurance and separate SHOP Exchanges for small businesses purchasing insurance.
    There you will find that insurance is cheaper than the comprehensive insurance offered to small businessses today because in the SHOP Exchange you automatically become part of a large pool, and so will qualify for the lower
    rates that large businesses enjoy. (Today, rates are higher for small businesses because the administrative costs of hand-selling insurance to them are higher.)

    If you don’t have any employees who are not family members, then you and your wife can just go to the Exchange where individuals buy their own insurance. There you will find that premiums are lower than what woudl be
    available to you today. Because you’re sixty, insurers selling policies in the Exchange could charge you three as much as a 25–year-old, but without the Affordable Care Act they could charge you 5 or 6 times as much.
    In addition, in the Exchange you and your wife become part of a large group, which makes premiums lower. Finally, the insurance you get in the Exchange will give you free preventive care and cap out-of-pocket costs–no matter how sick you become. The Insurers selling policies in the Exchange also won’t be able to put a limit on how much they will spend on your care in a given year or over the course of a lifetime.
    You really don’t want Medicare for all. Under Medicare
    there is a limit on how much it will pay out for your care
    over the course of your lifetime. There are also many holes in Medicare, which is why most seniors feel they have to buy a supplemental policy to fill the holes. Finally, there is much
    waste in Medicare. We couldn’t afford Medicare for all unless we first eliminated a great deal of that waste.
    The insurance you’ll get in an Exchange will be better than Medicare

    • Maggie: Thanks for you response.

      Firstly, as I described, my wife is my only employee. I have a small optometry practice. I can not claim a business tax credit for her portion of the insurance policy because she is family and that is not allowed under the ACA.

      We are in a “Catch 22″ because you are not eligible to buy as an individual under the exchanges if you receive a policy at work. Technically, as long as I still have my business policy I am insured and I will not qualify. I can qualify if I cancel my policy but I believe I have to go without insurance for a few months to be eligible. With serious heart and lung problems I can’t go one day without insurance.

      I disagree with you regarding Medicare. When I refer to Medicare I am referring to Traditional Medicare. Traditional Medicare has an overhead of 3%. Private Medicare and Private insurance have an average overhead of about 24%. They have to fund CEO multi-million dollar salaries, advertising, dividends, stock options, etc. If you are referring to Medicare Advantage being wasteful I will agree. They cost taxpayers 12-14% more than Traditional Medicare and don’t have better outcomes at all. In many cases Medicare Advantage seniors don’t have to purchase a supplemental policy but they get killed on co-payments, high out of pocket expenses etc.

      As an optometrist my reimbursement is quite a bit less for most Medicare Advantage plans. In some cases 50% less. I can show you the EOB’s. So Private Medicare costs taxpayers more and reimburses less! Where does this money go? To the middleman-the private insurance companies.

      The exchanges will be no different-private insurance companies-middlemen!!!. You may be correct in saying that insurance bought through the exchanges will be less for me if I find a way to buy it on the individual market. However, the ACA, is almost an exact copy of the Massachusetts plan. Go online. Plug in married 60 year olds trying to purchase a platinum plan. It is around $2200 a month. And, it only covers 90%. OOP costs for my heath problems and medications will be close to what I am paying now.

      I look forward to being on Medicare in five years. I will pay $99 or so a month for Part B, about $175 a month for a supplemental policy, and about $55 a month for Part D. After a $135 deductible everything will be covered.

      I don’t know where you got your information regarding Traditional Medicare having lifetime limits and holes. In 35 years in the health care field I have NEVER seen a Medicare patient being denied reimbursement because they have reached a limit. My 90 year old mother has never run into that problem with years of serious health problems paid for by Medicare.

      And finally, what do you mean by waste in Medicare? Yes, we have to fight fraud, but the ACA is working on that. We can debate fee for service but you have to compare apples to apples. Medicare is more cost efficient that Private Insurance because there is no middleman. Fee for service is not exclusive to Medicare. As an optometrist I welcome changes. Perhaps getting a global fee for following a glaucoma patient would be appropriate. However, that fee has to reflect my expenses in purchasing a visual field machine-$30,000, and OCT scanning laser-$65,000, a fundus camera-$30,000 and I can go on and on. Twenty years ago I only had to purchase a Visual Field Machine and it was $9,000. Technology and standard of care and my desire I offer my patients the best puts me in the position where I need to make these purchases.

      One more point. Many advocates of change want to empower patients to make health care choices similar to choices they make when they buy a car. But they are not the same thing. I have seen an explosion in HSA plans with high deductibles often in the $5,000 to $10,000 range. Patients don’t make smart choices. Many are glaucoma suspects but don’t come in for testing because they have to fork out hundreds of dollars because they have not met their deductibles . Early glaucoma has NO symptoms. Instead of these patients paying say a $30 co-pay and receiving the care they need many will not get care until their disease is advanced.

      Anyhow, it is late and I have to go to bed. I enjoy your blog.

      • Jim–

        Frist, See Barry Carol’s reply to you above. The good news iss that Barry is correct—the requirement that you be uninsured applied to the high-risk pools
        that have served as a stopgap until 2014. It does not apply to someone entering the Exchange in 2014.

        There is a lot of misinformation out there about Obamacare. Those who oppose it do their best to
        try to persuade people that it won’t help them.

        There is also a lot of misinforomation out there about Medicare vs. prviate insurers.
        The “Single-payer” movement — people who would like to have one government-run health care system,
        or “Medicare for all” exaggerate the admimnistrative costs of private insurance is and
        greatly underplay the administrative costs of Medicare.

        Here are the facts: Often you will hear Medicare’s administrative costs equal only 2% of total spending. But that doesn’t count what it costs to collect Medicare premiums, which is done by the IRS. So that expense shows up on IRS’ budget, but Medicare’s. Nor does it count the cost of Medicare billing–which is outsourced to private insurers like Blue Cross Blue Shield, and as a result it’s not listed as “administration” but rather as “vendor costs.” Putting it all together, Medicare’s administrative costs equal 5% to 6%.

        Meanwhile when the Congressional Budget office looked at private insurers’ administative costs ,When the Congressional Budget Office examined this issue, it found that , when you buy private insurance , on average 12% of your dollar goes to administrative costs — including advertising and profits. But that’s an average. The percentage off premiums that go to administrative costs varies widely. . Among employer-based plans, the largest firms had the lowest costs. Plans covering companies with at least 1,000 employees had a mere 7 percent in administrative costs–that’s just 1% to 2% more than Meicare. Those covering companies with fewer than 25 employees spent 26 percent of premiums on administration. And the individual market was a mess 30% of premium dollars go to administrativve costs. See CBO report here http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/99xx/doc9924/chapter3.7.1.shtml

        That’s because “hand-selling” insurance to individuals or small groups is very expensive. The costs of marketing adn advertising while try to reach the small % of in these groups is high. Signing people up–and disenrolling them– is much more expensive than what you’re dealing with large companies and large groups of employees.

        Bottom line: size matters. As Ezra Klein (Washington Post columnist and who does extremely accurate reserach says: ” The most important predictor of administrative costs is not whether the plan is public or private, but whether it is large. http://voices.washingtonpost.com/ezra-klein/2009/07/administrative_costs_in_health.html

        Moreover, not all administrative costs are “waste.” Some pivate insurers spend more money invetigating fraud than Medicare does. The best Medicare Advantage plans spend money on “disease management,” mental health counselors who are available by phone, Nurses who use e-mail or telephones to remind patients to take their drugs. These are services that Medicare does not provide. And they all fall under the heading of a private insurer’s “administrative costs.”

        Finally, the good news is that in the Exchanges, everyone becomes part of a “large groupo’–part of the large pool of individuals or small businesses in that state that are buying insurance in the Exchanges (they only place where they will be elibigle for a subsidy and guaranteed good coverage (no Swiss Cheese plans filled with holes and suprisesthat you find out about only when you are sick. This is why the administrative costs of insurance sold in the Exchanges will be lower.s
        ]
        I’m afraid you have also been misinformed about what Medicare covers. As Barry Carol points out in the comment Submitted on 2013/02/09 at 3:50 pm, above, under traditional Medicare youo will have pay a deductible of $1,100 each time you are hospitalized. Traditional Medicare covers only 60% of the average patient’s costs because there is a 20% co-pay for part B coverage– and there is not limit to what you can be asked to pay out of pocket. If a hospital charged you $400,000 for Part B services in a given year, you would owe 20% of 400,000 — or $80,000. And Medicare does not cover long-term custodial care (ie.nusing homecare) unless you have first been in the hosital for at least three days. And Medicare only covers your first 20days in a nursing home, and 80% of the next 80 days. After 100 days, you’re on your own.

        These are the reasons why the vast majority of seniors on Medicare buy either Medicare Advantage policies or MediGap policies sold in the private sector to supplement their traditional Medicare. Both Medicare Advantage and Medigap policies fill in many of these holes–covering more nursing home care, and in some cases covering far more than 80% of part B services. They may also cover the $1100 deductible each time you are in hosptial. These policies vary, both in price and in what they cover.

        When people have only traditional Medicare they take the risk of running up high hospital bills and nursing home bills that exceed what Medicare is willing to pay. At that point, they have to spend down their own savings–and in some cases sell their homes– before they qualify for Medicaid which will then begin to papy their medical bills–though Medicaid pays significantly less than Medicare, so many doctors don’t take Medicaid.

        You should Google “traditional Medicare” and “doesn’t cover” to learn more about the gaps in Medicare.

        In terms of the waste, much reserach suggests that one out of three Medicare dollars are squandered on unncessary tests and treatments, and over-priced drugs and devices. Under reform, Medicare will begin trimming payments for over-priced services.
        For example, it has already stopped paying for many diagnostic imaging services done in a doctor’s office because studiesF show that when doctors buy or lease this very expensive imaging equipment, they do many more tests — in order to pay for th equipement. As you suggest, we need to move away from fee-for-service.

        Finally, private insurance tends to be more expensive than Medicare, not because of the administrative costs, but becuase private insurers pay doctors and hospitals more than Medicare– frequently 10% to 20% more. Because Medicare is so large, it has the market clout to refuse to pay as much as private insurers do. Much research suggests that Pirvate insurers are over-paying– and passing the cost of over-payment along in the form of higher premiums.

        I agree about high deductible plans. They encourage people to skip needed services. In the Exchanges, deudctibles will be capped at $2,0000.

        • Maggie:

          Interesting debate. Where do I start? By the way. I am wearing two hats here. One as a 60 year old with a lot of health issues who pays $30,000 for insurance, a business policy for me and my wife, who is also my only employee. Second, as an optometrist who sees EVERY day the Explanation of Benefits from Traditional Medicare vs. Medicare Advantage. I know first hand what they reimburse.

          I don’t know if you read my latest post. Let me clear up something. We are debating apples and oranges. Not having a Medi-Gap policy is like buying a car without a steering wheel. I factor that in. So when I say Medicare I mean Medicare and Medi-Gap combined. You are absolutely correct to say that a hospital stay of $400,000 would lead to $80,000 OOP without a Medi-gap policy. (I still don’t know where you get 60% from!-but let’s leave that to later) If one is a participating provider we can only charge for the allowable.

          However, for a relatively small investment, about $140 a month, a 65 year old can purchase a Medi-Gap policy which will cover the $80,000. When we are talking about $2500 a month, what I pay now, that is nothing!

          Seniors are lucky. Medi-Gap policies are regulated. You can not be denied. Yes, the policies can differ but for a modest investment you can turn your Medicare into a policy that covers a lot of healthcare after meeting a $162 deductible.

          Here is my comparison between what I would have to pay on the Massachusetts exchange as compared to what I would pay in four and a half years when I am on Medicare. I based this on patients I examined today. I asked them what they pay for the following:

          So let’s do the math:
          Medicare for two 68 year olds in NC:
          $288 for supplemental
          $80 for Part D
          $198 for B
          Total per month is: $566
          Total per year: $6792 for both of them

          After paying a $162 deductible for each of them everything Medicare allows is covered. Period.

          Now lets go to the Massachusetts connector, which buy the way on an earlier post is not a 3:1 ration but a 2:1 ratio for age: They Gold plan ranges from $1639-$2570 a month. The BCBS of Massachusetts is the $2570 a month plan and there is still out of pocket costs for medicines.

          So let’s say I take the Tufts plan. It will cost $29,380.08 for both of us before we even pay some of the out of pocket costs. It’s a no brainer. When I hit 65 and I am on Medicare I will save about $24,000 a year for my healthcare.

          Now, let me put on my optometry hat.

          Every, and I mean every Medicare policy pays me about the same or LESS than doesTraditional Medicare. In fact, Blue Advantage here in NC pays me about half for the same CPT code and same exam. I can only speak from my experience. But I do know that for years the Carolinas Medical Center here in Charlotte wouldn’t take ANY Advantage plans. Now, they take only a few. Orthocarolina, a big orthopedic practice here in Charlotte-same story.

          Let’s be clear. When I compare I am looking at the allowable. I don’t care if 80% comes from the Medicare and 20% comes from the Medi-Gap. At the end of the day if I charge someone for a Comprehensive Eye Exam established patient 92014, Traditional Medicare will reimburse me $125 (80% from Medicare and 20% from either the patient or the Medi-Gap policy) and Humana Advantage will reimburse me $79.00. The patient with Humana has to pay a $35.00 co-pay. So here they are almost paying one half on their visit out of pocket. In the case of the Traditional Medicare patient with a Medi-Gap policy who has met their deductible, they pay nothing and I get reimbursed $125.

          This patient who has Humana costs taxpayers more. I get less. The CEO’s, advertising firms, etc. get what’s in the middle.

          Other points about Medicare Advantage:

          1. Patients can not go to anyone they want. They are essentially in an HMO. Yes, there are some that allow them to go elsewhere, but they are more costly.

          2. Co-pays add up. For office visits like the example I just gave-patients pay about half of the allowable charge. So patients that chose this option to avoid paying for a Medi-gap policy often find that if they use the health care system a lot, wind up paying more on the back end.

          3. There is very little oversight for Advantage plans. We have one in NC, Blue Advantage that will not accept 92 codes. They make us use 99 codes for medical visits which reimburse less. They also will not let us charge the patient for refractions which is a non-covered charge for Traditional Medicare. With Traditonal Medicare we charge the patient $35.00 with Blue Advantage we have to do it for free.

          They also can discriminate against optometrists, where we have parity with ophthalmology and we are protected by regulation. We can be dropped from panels. We can be reimbursed less. They can pretty much do what ever they want. There is very little oversight.

          4. Hidden costs-and this is for Medicare Advantage but also for any private plan.
          I can not tell you how complicated it is to run a small practice trying to negotiate all the different plans, co-pays, deductibles, rules, exceptions etc. with our incredibly fragmented system we have today. Medicare is easy. Each Advantage plan or private insurance plan has a different story. What are the co-pays? Do they have Traditional vs Medicare Advantage. BTW, most patients that have Advantage plans that we see don’t even know there is a difference. Someone sold them a plan and they have no idea that this is different from Traditional Medicare. I can’t tell you how many times we have gotten a rejection from the Traditional Medicare claim only to find out later the patient has an Advantage plan.

          Now to private insurance-We have had an explosion of HSA’s. Has the patient met their $5,000 deductible? You may think they have, send in for reimbursement only to find out that you have to bill the patient. We have about a 10% collection rate when that happens. That forces us to spend as much time on the phone confirming benefits as we do examining the patient. What a waste of time!!! But if you don’t do this you risk working for free!

          And finally, I want you to know that I have an open mind. It would be wonderful if we could do a study and really compare reimbursements all over the Country for all the codes both for private insurance and government insurance. There is very little transparency here. The only way I find out my reimbursement for various carriers is when I file a claim.

          I have heard the same thing you have said about private insurance paying more than Medicare during the health care debates and I cringe when I know up front this is not the case in my practice. I know when a patient comes in with Humana or Blue Advantage and the other private Medicare Advantage plans I will be paid less for the same work. I can only speak first hand and I am open to hear from other providers and hospitals. (But they have to compare apples to apples)

          Let’s do a study! Let’s compare!

          Have a good day.

  3. Jim –

    The requirement to be uninsured for a period of time before you can buy insurance under the ACA applies to the current high risk pools which are intended as a stop gap approach until the new law takes full effect at the start of 2014. Even for those who qualify, though, they are quite expensive for people in your age range as insurers are allowed to charge older folks 4 times as much as younger people. For policies sold through the exchanges starting next year, the age band limit is 3 to 1. I believe state regulators can require a lower band limit if they want to. In Massachusetts, the current limit is 2 to 1 while in Vermont, it’s 1.2 to 1. Lower limits, of course, will make insurance much more expensive for young people.

    Beginning 1/1/2014, you should be able to go to the exchange and shop for a policy. If it turns out to be considerably less expensive than what you have now, you can drop your current coverage and buy the new policy on the exchange. If you don’t like that policy, there will probably be an open enrollment period like there is for Medicare to buy a different policy toward the end of 2014 to take effect at the start of the next year. If you don’t qualify for a subsidy, you will also be able to shop outside of the exchange where there is likely to be a lot more choices. Subsidies can only be used to buy a policy through an exchange as I understand it.

  4. It’s also important to point out that the bronze, silver, gold and platinum ratings refer to the percentage of costs estimated to be covered for a standard or average risk population, not for any specific individual. So, a platinum policy with a 90% rating should cover 90% of the medical claims cost for its covered population but any particular person might have 100% of cost covered if all he or she needs is preventive care or something considerably less than 90% in certain cases. Standard Medicare, by the way, if rated this way, would come in slightly below 60% because of its 20% Part B coinsurance with no out-of-pocket maximum, a deductible of over $1,100 for each hospitalization and no coverage of long term custodial care except for upon discharge from a hospital after at least a three day inpatient stay and then it only covers the first 20 days in full and 80% of the next 80 days.

    Medicare appears relatively inexpensive to the individual beneficiary because Part A is completely funded by the so-called Medicare trust fund financed by the combined 2.9% payroll tax paid half by the employee and half nominally by the employer though the employee really pays both halves as most economists will tell you. Part B is paid 25% by beneficiaries and 75% by general tax revenue as is Part D. Total Medicare spending, including Part B beneficiary premiums, totaled a bit over $11,500 per beneficiary in 2012. Spending by commercial insurers and self-funded employers for the under 65 population averaged just under $4,700 per member in the same year according to an article in the January, 2013 issue of Health Affairs.

    When the exchanges start up, there is a lot of uncertainty around the risk profile of the population that will participate. There is also still a lack of clarity concerning the rules governing risk adjustment, reinsurance and risk corridors for insurers. Charlie Baker, former CEO of Harvard-Pilgrim Healthcare, tells us that health insurance is what he calls a 5-50 business which means 5% of the members account for 50% of the claims in any given year. At the same time, the healthiest 50% of members account for 5% or less of claims (4% in standard Medicare). So, a relatively small number of high cost cases can easily affect the premiums for the entire insured pool.

    • Barry: To be honest I really don’t know until next year what the exchanges will look like. I am certainly rooting for them to bring down my $30,000 yearly cost for insurance for me and my wife. I am pessimistic based on what it would cost if I lived in Massachusetts. For the Gold plan it would be at least $25,000 a year before any out of pocket costs. I have heart and lung problems so my visits would not be considered a non-copay screening.

      About Medicare. Yes, if you did not purchase a supplemental policy there could be unlimited expenditures for the 20% and hospital deductibles. But not buying a supplemental policy is like buying a car without tires! I factor that in. (Yes it would be nice if Medicare built the supplemental policy in but as you will see below I would gladly take that opportunity if it were available)

      I had a patient today who was on Medicare and I asked him what his supplemental policy costs him and his wife. At age 68 they pay $288 a month for a supplemental policy that covers both of them. This coverage takes care of the 20% and the hospital deductibles. He pays $80 a month for both of them for the D plan for drugs. And of course $99 a month is taken out for Part B for each of them.

      So let’s do the math:
      Medicare for two 68 year olds:
      $288 for supplemental
      $80 for Part D
      $198 for B
      Total per month is: $566
      Total per year: $6792 for both of them

      After paying a $162 deductible for each of them everything Medicare allows is covered. Period.

      Now lets go to the Massachusetts connector, which buy the way on an earlier post is not a 3:1 ration but a 2:1 ratio for age: They Gold plan ranges from $1639-$2570 a month. The BCBS of Massachusetts is the $2570 a month plan and there is still out of pocket costs for medicines.

      So let’s say I take the Tufts plan. It will cost $29,380.08 a year for both of us before we even pay some of the out of pocket costs. It’s a no brainer. When I hit 65 and I am on Medicare I will save about $21,000 a year for my healthcare.

    • Barry –

      Thanks for giving Jim so much information. (See my new reply to him.)

      Just one thing regarding who will sign up for the Exchanges: Most will be very healthy. Keep in mind that 16 percent of today’s uninsured are children, 55 percent are under 34; and 73 percent are under 44. That means that 71% will be under 34–and in that cgroup are very healthy. (Just one exception– the very poor. But they won’t be in the Exchanges; they’ll be covered by Medicaid)

      Ninety percent of those in the Exchanges will qualify for subsidies, which is why so many 20-somethings and 30-somethings will join the exchanges. They woudl be crazy not to–the deal is too good to turn down. (Polls show that very few uninsured 20-somethings or 30-somethings that they they are invicible and don’t need insurance. The vast majority say they just can’t afford it.) The CBO says this “influx” of new, younger customers should slice average premiums in the individual market

      But what about iolder people suffering from chronic disease that require care for many years (such as heart disease, diabetes, cancers that don’t kill you qickly, asthma arthritis or dementia)? These are the most expensive
      patients in any pool. Reserach shows that they make up 93% of the 5% who consume 50% of health care dollars– just 7 percent of people in the high-spending “five percent” had no previous chronic condition, in other words, they were stricken without warning by cancer or suffered a bad accident.

      But the vast majority of the chronically ill have employer-based insurance, and so will not wind up in the
      Exchanges.

      Why do I say the vast majority have empoler-based insurance? If you are part of an employ eeplan, neither your employer nor the insurer is allowed go charge you more becuase of a “pre-existing condition.” So if you suffer from, say diabetes, you would probably do your very best to get a job with an employer who offers insurance. You know you’re going to be paying medical bills for a long timee–you don’t want to be unemployed. Moreover, a 1986 law protects people with pre-existing conditions who change jobs. Neither their new employer, nor his insurer, can charge them more for insurance. http://www.nationalaffairs.com/publications/detail/how-to-cover-pre-existing-conditions

      In addition, it’s worth remembering that the majority of people suffering fron chronic conditions are over 65. (People over 65 make up 40% of the 5% most expensive patients.) They won’t be in the Exchanges becuase they are covered by Medicare. (Or Medicaid)

      So the sick people who might join the Exchanges are the ones who are now in the individual market– some are payng a huge sum for insurance. Others can’t afford the premiums and are uninsured. How many of them are there? “Estimates range from 2 to 4 million, out of a total population of about 260 million people under the age of 65″ http://www.nationalaffairs.com/publications/detail/how-to-cover-pre-existing-conditions

      Two to 4 million just won’t hike premiums that much-not when they join a pool in which the vast majority are under 45.

  5. Jim –

    I hear you on Medicare. I’ve been on it for about a year now and my wife has since last June when she aged in. We both chose standard Medicare + a supplemental plan + a Part D drug plan. We have United Healthcare / AARP for the supplemental and drug plans. Our costs are roughly as follows:

    Part B standard premium — $104.90 per month each (rose from $99.00)
    Supplemental Plan F (most comprehensive) – roughly $330 per month for both of us.
    Part D drug plan – Approximately $80 per month for both of us.

    That comes to $629.80 for both of us or $7,557.60 per year.

    In addition, we are also subject to one of the four Income Related Monthly Adjustment Amount (IRMAA) surcharge tiers because of our income. That adds $216.10 per month each or $432.20 for both of us. That’s another $5,186.40 per year bringing our grand total cost of health insurance under Medicare to $12,744 per year in premiums.

    I often joke by saying that it costs a lot of money to make healthcare feel free – no out-of-pocket copays or deductibles under Part B as they are covered by the supplemental plan. Even my drug copays for the five generic drugs that I take are only $32 per quarter altogether now that Plavix has gone off patent.

    By the way, we chose standard Medicare + the supplemental coverage even though it’s more expensive than an MA plan in order to maximize provider choice. Finding care outside of a hospital setting can sometimes be problematic with an MA plan when traveling outside of our home region which we do a fair amount.

    The key point though that I tried to explain in one of my prior comments is that Medicare premiums are a lot less than what you are paying now because they are heavily subsidized by taxpayers and current workers / taxpayers, not because Medicare is more efficient. While Medicare reimbursement rates are lower than commercial insurer rates for the under 65 population, they are roughly in line with rates paid by the Medicare Advantage plans. A recent article in Health Affairs pegged the MA plan reimbursement rates at 102% of standard Medicare on average.

    Maggie –

    Please don’t get me wrong. I really hope the exchanges work as planned and lots of previously uninsured people can get insurance at reasonable cost with a lot of help from the subsidies that they qualify for based on income. You can correct me if I’m wrong but I think that those who make more than 250% of the federal poverty level (FPL) will have to contribute 9.5% of income toward their premiums and the subsidy will pay the rest. I don’t know how many of them will view that as too much and choose to pay the penalty instead. We will find out soon enough as the law takes full effect at the start of next year.

  6. Maggie –

    I want to mention one more thing about the health insurance exchanges. I’m also concerned that a sizeable number of the young healthy people might opt to pay the penalty at first because they know that they can buy insurance later if they get sick because they can’t be turned down due to a pre-existing condition.

    To deal with this, I hope CMS implements an annual open enrollment period and also charges applicants who delay signing up for insurance a penalty which is the way Medicare works for Part B and, I think, Part D unless they qualify under one of the valid exceptions in the law.

  7. Two questions come to mind:

    a. It is hard to see how a current insurance company can charge a couple $30,000 a year for health insurance. Is the pool of insureds like 20 people? All of whom have cancer?

    I used to be in the Minnesota High risk insurance pool. Every single person in that pool is unhealthy. There are a few state subsidies, not a great deal. The maximum premium for two
    60 years in that pool was about $16,000 a year with a $2,000 deductible.

    Maybe $30,000 a year is an East Coast effect. I am kiind of stunned.

    2. One of the comments cited the threat that Medicare Part B could be hit with charges of $400,000, and if one had no supplement then the coinsurance would be $80,000.

    I am skeptical that anyone could actualln run up charges of $400,000 in Medicare Part B. I remember reading the Part B fee schedule, at least most of it, and very few items were priced over $250. Hospital room and board is the most expensive item in most cases, and that falls under Medicare Part A which has no coinsurance for 60 days.

    There is nothing wrong with Medicare supplements, but sometimes they are sold with scare stories.

    If I am wrong please let me know. Thank you.

  8. Bob –

    A couple of years ago, I attended a health policy conference in Washington D.C. that included a session on high risk pools. One of the presenters was a state insurance commissioner. He noted that, on average, the medical loss ratio on these high risk policies ranged from 200%-300% on average which means that insurance premiums only covered 33%-50% of medical claims costs without even factoring in insurer administrative costs. The rest of the cost was paid for by a combination of general state tax revenue and assessments on insurance companies.

    A friend of mine here in NJ is in his early 50’s, in good health and a sole proprietor of a business. He has a wife 10 years older than he is with significant health issues and a college age child. He was paying $24,000 per year for a comprehensive Blue Cross family policy and they told him that the following year his premium would increase to well over $30,000. He switched to a plan with a $10,000 deductible from a very small deductible but still pays around $25,000.

    When I retired at the end of 2011, I needed COBRA coverage for my wife for five months until she aged into Medicare. My company plan would cost $437 per month for her which wasn’t bad. I suggested, though, that she call Horizon Blue Cross to see if she could get a better deal. They quoted $722 per month for a policy that was not as good as my employer plan which was with Highmark Blue Cross.

    The main reason, I think, that these policies are so expensive is adverse selection. The only people willing to tolerate these costs are those who really need the insurance and can scrape together the money to pay for it. NJ is a community rated state so a healthy person in his or her 20’s coming out of college and trying to start a career would be charged over $600 per month in the individual insurance market under our community rating approach. Medical costs in NJ are also high by national standards due to both high medical input costs and a culture of aggressive treatment. Not surprisingly, very few healthy people voluntarily buy the insurance. If they can get a job with an employer that offers health insurance, that’s great but the individual market is dysfunctional at least in NJ and, I think, numerous other states.

  9. Good points, Barry.

    I assume that we have tolerated this repulsive individual market for older persons because our legislators never have to face it themselves. They and almost all their staffs are covered by generous government plans.

    There is also no treasure trove of votes in those who suffer from the individual market.

    To that extent, the ACA deserves some historical credit for at least making some effort at reform. We have seen how the Republicans have cynically stirred up secure seniors on Medicare against a reform that would help 55 year olds,

  10. Bob Hertz–

    In many states, insurance companies are now allowed to charge someone in their 50s or early 60s up to 5 times what they charge
    a 30-year old for Exactly the Same Policy. This goes a long way toward explaning how a 60 year old couple could pay $30,000.

    Under the ACA, insurers will be able to charge that couple “only”
    three times as much in the Exchanges where individuals buy their own insurance.

    Just one state (New York) now has a law that prohibits insurers from charging older customer and just a handful of states limits age-rating so that insurers cannot charge more than three times as much. (Minnesota is one of them.) See my post on insurers charging older Americans more here http://www.healthinsurance.org/blog/2012/05/21/does-your-state-protect-older-baby-boomers/

    In this area state law trumps the Affordable Care Act. In other words, under the ACA insurers in New York State still will not be able to charge a 60-year-old any more than they would charge a 30 year old.

    On how higih a Part B bill can go: Part B covers doctors’ bills, lab tests and outpatient care. If you have cancer, your part B bill can run up quite quickly. Medicare pays just 80% of the Medicare-approved amount for chemotherapy that you receive in your doctor’s office. And the doctor can charge up to 15% more than the Medicare-approved amount. You are expected to make up the difference–while also paying 20% of the Medicare approved amount.

    If you receive cancer drugs in a hospital setting, Medicare will reimubrse only if the drug is “Medicare-approved.” If it isn’t, you pay 100% of the cost. (If you have Medicare Part D, that private insurance may or may not pay for part of the drug. It depends on whether it’s on your Part D insurer’s list. When you buy the insurance , of course, you don’t know what cancer drug your doctor is going to tell you you need-. Some cancer drugs now cost $100,000 a year.

    If you are in a bad auto accident or suffer a severe stroke and wind up partially paralyzed, needing a year of rehab 3 times a week .it could easily cost $150 per sessoin–or $450 per week. ”*****And in a given year Medicare will pay only $1880 toward physical therapy that you receive in a physician’s office, a rehab facility or a nursing home. This is a huge hole in Medicare.

    If you receive rehab in a hosptial’s outpatient facility , Medicare will pay 100% of its approved cost. But the hospital is allowed to charge you as much 15% more than Medicare would pay) and you are responsible for the difference.

    All of the above is explained here: http://www.medicare.gov/Pubs/pdf/10116.pdf

    You can buy a Medigap plan that, as AARP puts it, “will help pay for some” of what Medicare doesn’t cover. But Medigap will only pay part of the cost. There are 11 plans, labeled “A – N” The most expensive cover more.
    But you’ll pprobably have co-pays, a deductible , and Medigap policies generally don’t pay for nursing home care (Medicare pays for only a certain number of days) prescirption drugs, private-duty nursing, vision care, dental care or long-term care.

    For prescription drugs you can buy a stand-alone Part D private plan that covers drugs–in addition to your supplemental Medigap plan.. Which drugs it covers and what the deductible and co-pays are vary.

    Instead of buying a Medigap plan, you can buy a Medicare Advantage plan which will cover some–but again not all–of what
    Medicare doesn’t cover Again, each Advantage plan has its own rules. But good (more expensive) Advantage plans tend to cover more than MediGAp– for instance, many cover prescirption drugs. (Though they won’t cover all prescirption drugs. And co-pays for
    very pricey drugs for cancer and MS patients may require 30% to 50% co-pays. )

    And, as Jim points out, in an Advantage plan you are in an HMO, and must stay within its network of doctors and hospitals.

  11. Barry–
    I* really wouldn’t worry about young people not signing up.
    In Massachusetts (where premiums are higher than in any other place in the country) young people signed up.

    Secondly, the vast majority of the unisnured are either children or 20-somethings of 30-something. 85% of the 20-somethings and a hiuge chunk of the 30 somethings will be eligible for fat subsidies.
    As for the children, when children are uninsured this is almost always because the parents are lowi income to low/middle income.
    Parents don’t want ot leave kids uninsured. Almost all of these families will qualify for subsidies .
    The subsidies are good enough that insurance becomes a bargain.And particualrly with preventive care free (including contraception) it’s a no-brainer. Today, contraception alone can cost a young woman a thrid of what she may wind up paying in premiums after her subsidy. (Contraception has become surprisingly expensive, which is why many middle-income women skip buying it when money is tight. By giving them contraception we’ll save a fortune in unplanned pregnancies)

    But Massachusetts is reallly the best test case. Young peoplwein Mass. are, on average, wealthier than young people in almost any other state. So fewer probably qualified for subsidies. Yet they almost all signed up.

  12. Barry–
    P.S.– I think there may well be fines if people don’t sign up during enrollment peridos. But we won’t bar people from getting insurance if they missed the enrollment period. We don’t want to leave someone just diagnosed with breast cancer untreated for 9 months until the next enrollment period rolls along. .

  13. Jim—
    For more information on what Medicare doesn’t cover– and what MediGap doesn’t cover– see my reply to Bob Hertz above.

    Most importantly, Medicare limits payment for rehab to $1880 a year. If you need more than that, MediGap won’t cover all of it. (What your patient pays for MediGap doesn’t tell us which of the 11 plans he has. The more costly plans cost more, but he still has co-pays and deductibles.)

    Also, MediGap plans don’t cover prescription drugs at all.
    And Medicare covers only 80% of it’s approved price for chemotherapy. In addition, your oncologist can charge up to 15% more (and probably will) and you’re responsible for that extra 15%. So you wind up paying 20%of Medicare’s approved price, plus an extra 15%. The newest cancer drugs can cost $100,000 a year.

    Medigap also doesn’t pay for presciption drugs at all.

    If you wnat drug coverage you can sign up for a Part D private sector plan. (Now you’re paying premiums and co-pays to 3 plans:
    traditional Meidicare, MediGap and a Part D plan.)

    Or you can sign up for Medicare Advantage –many Advantage plans do include Part D prescription drugs. But as you point out, you’ll be in an HMO and limited to its network. IF the network is good, this isn’t terrible. But you should realize that for pricey cancer drugs or drugs for MS some Advantage plans charge
    co-pays that are as high as 30% to 50%.

    If you choose a MediGap plan, you should know that it doesn’t cover private duty nursing. For an older person who is in the hosptial an overnight private duty nurse can be essential– unless you have a spouse who is healthy enough and strong enough to care for you on a 24-hour basis. (In our hosptials, nurses are multl-tasking, and hospitals have two few nurses. You really want to have someone with you–particuarly if you’re over 65 or very sick.)

    Finally, for solid information on what Medicare does and doesn’t cover see http://www.medicare.gov/Pubs/pdf/10116.pdf

  14. Maggie: The question is does Advantage cover Rehabiliative Care, private duty nursing, chemotherapy beyond what Medicare pays? Of course it depends on the Advantage policy but I find that when I talk with patients who have a typical Advantage plan it does not cover things traditional Medicare does not cover. (Maybe they cover some of their eyeglasses-but rarely do I see them eager to cover additional things) Also, the co-pays and out of pocket expenses can be enormous when they use the system. And, as I pointed out earlier, my reimbursements are almost always less with Advantage when I bill services as an optometrist. It is hard for me to believe that I am any different than say a cardiologist. I get paid based on the Medicare allowable vs the Advantage allowable. I never get paid more from a Medicare Advantage plan.

    Medicare is not perfect. And as I pointed out earlier it is designed to work with a Medi-gap policy. Without it there are huge holes.

    There is a debate depending on who you read regarding the overhead of Medicare vs. the overhead of private insurance. We should be careful on both sides of the issue as to who is doing the writing. Are they financed by the health insurance industry? Are they connected to a right winged organization like the Heritage Foundation and the Association of Health Insurance Companies.

    I just look at this whole issue as math. Aside from Lasix eye surgery or cosmetic surgery health care does not obey the laws of economics and supply and demand. When I purchase a car the dealer wants the sale. When I purchase health insurance the carrier wants to know my health condition and age. The insurer would prefer insuring Michael Phelps. Their bottom line gets hurt when I use the health care system.

    Medicare is not perfect, and only works well with regulated Medi-gap policies. But it does not involve paying a lot of middlemen. When a CEO, like McQuire of United Health Care gets close to a billion dollars in compensation those are dollars that are diverted from paying for care. Whenever you see advertising for Blue Cross or Humana those are diverted dollars.

    Let’s push to improve Medicare. I would love to avoid having to buy a Medi-gap policy. I was very upset in the health care debate when the option for those over 55 to purchase Medicare was taken off the table. I am not expecting it to be free. But it has to be less than the $30,000 I am paying now. And, I am not convinced that the exchanges will be any less. Have you gone on the Health Connector website for Massachusetts. Plug in how much it will cost for a 60 year old couple. For the Gold Plan it is about what I am paying now. I hope and pray the exchanges will be less but it is hard for me to believe it will be much less than what is the case in Massachusetts.

  15. One more point-I did read the Ezra Klein article you mentioned-and thank you for that. One point he misses is the cost not to insurance companies but to doctors like me. Do you know who complicated it is to deal with all these different insurers and all these sets of rules? Most offices could hire less insurance people and more staff to help deliver care. I also laughed about the Advantage plans helping with disease management. The only management I see is when they shift a patient to a cheaper (for them) alternative medicine. That’s like saying the pizza shop owner is helping me with my nutrition counseling and management. (The was meant to be lighthearted) But seriously, do you want your disease management done by the insurance company who has a vested interest in greater profits or your primary care physician.

  16. Jim –

    It sounds like you practice solo or in a very small group. Since such practices lack market power, insurers usually present them with take it or leave it contracts. Large physician groups and salaried doctors employed by hospital systems are paid more because they have more market power. Overall, including hospital based care; Medicare Advantage plans pay 102%-103% of Medicare rates on average. There is no doubt, however, that they pay less than Medicare for some care including that performed by you.

    Starting in 2014, Medicare Advantage plans will have to spend at least 85% of their premium revenue on medical claims or provide rebates to customers if they don’t. That rule is already in effect for large commercially insured groups. It’s 80% for small groups (2-50 people) and individuals. You should also be aware that CMS assigns every person on Medicare a risk score. An average risk score is 1.0. Medicare Advantage is most attractive to healthier seniors who like the payments toward gym memberships and the like. My understanding is that the individuals in the largest MA plans have average risk scores in the range of 0.80-0.85. The insurers’ premium payments are also risk adjusted by CMS vs. a benchmark level in each county that they participate in.

    With respect to executive stock options, the former United CEO you referred to is the most extreme case. In any event, most executive compensation is in the form of stock options and restricted stock awards which are not paid for by policyholders. They are paid for by shareholders in the form of additional dilution caused by the issuance of new shares to cover the options when exercised and the stock awards when they vest. I’ve said several times before that if the 25 most highly paid executives of all these insurers all worked for free and the savings used to reduce premiums, the price reduction would be a fraction of one percent at most. It makes for a nice sound bite but it’s meaningless in the scheme of things that drive health insurance premiums.

    Finally, regarding administrative costs, you should not to listen too carefully to single payer zealots either. These are the folks who claim that insurer administrative costs consume 30% of healthcare dollars. It’s just not true. The large self-funded plans, as Maggie noted, spend no more than 8% of their healthcare dollars for administrative costs. Medicare, for its part, has numerous services performed for it by other government agencies and private contractors. When you first apply for Medicare, you do it through the Social Security Administration. The IRS collects the money. Blue Cross usually administers the claims. Overall Medicare’s true administrative costs are at least 6%, not 3% and could be as much as 8%. Moreover, there is lots of fraud in the program that can’t be quantified precisely. It always bugs me that the more Medicare loses to fraud, the lower its administrative costs appear as a percentage of total spending. Taxpayers would be better served if CMS spent more on sophisticated analytics to catch more of this fraud before it pays the claims. Of course, that would raise its administrative costs.

  17. Barry & Jim–

    Barry– Again, thank you for providing so much good information in your reply to Jim

    Jim–
    As Barry notes, the so-called “debate” about Medicare’s administrative expenses vs. private insurers’ administrative
    expenses is not really a “debate” between two groups with different opinions.

    Administrative costs are not a matter of opinoin. They are facts that can be checked.

    What Barry (and I) have said about administrative costs can be checked. (I should add that when it comes to oinions & politics, Barry and I often disagree. He is a more of a right-leaning libertarian. I ama left-learning liberal.

    But we do agree that facts are facts–particuarly when you are talking about numbers. When we agree on the numbers–despite our different political perspectives– you can be pretty sure that
    we are right.

    Also, as an optometrist in a small or solo practice you will inevitably be paid less by Advantage insurers. You just don’t have enough market clout (i.e. enough patients) to force insurers to pay you more. If you are not in their network, they are not going to
    lose many cutomers.

    By contrast if you were part of a vision center with 300 doctors, optometrists, people doing tests, etc. that had thousands of patients, insurers would have to negotiate with you and pay you more–or they would lose customers.

    Medicare Advantage plans vary. But from personal experience (a relative is on an Advantage plan that I picked out for him) I know that Advantage plans can–and do- offer richer benefits than Medigap plans.

    For example, his plan covers eye exams and new eyeglasses every two years.
    (MediGap doesn’t). Private nursing is covered if medically needed. Rehab is fully covered–if certified by a doctor gate-keeper for a certain period of time. Even dental is covered.
    His Medicare Advantage costs him less than $200 a month (above what he would pay for traditional Medicare)–
    Co-pays are pretty low– $15 to see a primary care physician,
    $35 for a specialist, $65 if you go to an ER.
    The physican network and hosptials network is excellent.
    When he had knee surgery the surgeon who did it (and is part of the network) does orthophedic surgery for the New York Giants team. Park Avenue specialists are in his network. Manhattan’s brand-name hospitals are in his network. (They’re not all equally good, but these are the expensive academic medical centers that most people want.

    Finally, on disease management: as an optometrist you don’t see the disease management that happens for patients suffering form
    heart disease, diabetics, smokers, etc. etc. These are the areas where disease management is crucial. And some Medicare
    Advantage plans do a very good job (Peugot Sound comes to mind. Kaiser Permanente does a good job. Many Advantage plans
    dodn’t do a good job, Under the Affordable Care Act, the government is slashing payments to Advantage plans with
    poorer outcomes.

  18. Maggie and Barry: Interesting discussion. You may be right but until I see what eye care specialists get paid in big groups vs. what I get reimbursed I will still have my doubts and consider this issue your opinion and Barry’s opinion vs. my opinion-a debate.

    But, I am open. I just need to see the facts. It’s hard for me to believe that Humana reimburses me $79 for a 92014 and at the same time they would reimburse an optometrist working for a large group more than the Traditional Medicare amount which is at least $125. (Traditional Medicare may reimburse even more. I charge $125 and they pay me the full amount so it be a greater amount.) But I need to actually see those numbers.

    I must point out an interesting fact. You mentioned that some Advantage plans cover routine vision exams. It is very rare a Medicare patient is routine. They almost always have a chief complaint and a medical diagnosis. In that case Medicare covers the eye exam. The Advantage plans love to advertise that they cover routine vision but few ever are considered routine. (Medicare will not cover routine eye care-patients must have a medical diagnosis). Some do cover eyeglasses but generally not the whole amount.

    And finally, as an optometrist I see plenty of pathology involving cardiac problems and diabetes. I see diabetic retinopathy, hypertensive retinopathy, macular degeneration etc. on a regular basis. Optometrists treat eye disease and work very closely with Ophthalmology, Primary Care doctors and other Specialists. I saw a patient the other day with a branch retinal artery occlusion and promptly referred her to a cardiologist and she had carotid surgery shortly thereafter. Every one of my patients gets their blood pressure checked and I frequently refer them back to their PCP for care. To be eligible for the stimulus funds for EHR I am required ask each patient whether or not they smoke and if they do I must counsel them to quit. I also counsel all my macular degeneration patients regarding nutrition, UV exposure, Omega 3′s, smoking etc. I think many optometrists would take issue with your tone regarding our role.

    You said that administrative costs can be checked. Facts are facts. Let’s see them. I am open. Let’s pick 92014, a comprehensive eye exam for an established patient. Pick a rural and urban area, and compare three of the largest Advantage plans vs. Traditional Medicare. Also lets compare the difference between a large group vs. small groups. I have the numbers for a small group, just me, in Charlotte. I would be very interested.

  19. Jim –

    In the last paragraph of your most recent comment, you are asking for reimbursement rate comparisons which have little or nothing to do with insurer administrative costs. Transparency around reimbursement rates in healthcare has long been non-existent outside of Medicare especially for hospital based care. The actual contract rates are subject to confidentiality agreements so providers can’t legally reveal them and insurers won’t. Artificially high list prices are a different matter but they are meaningless to all but the uninsured. If you know anyone in your specialty who works for a large group, you might be able to ask them off the record roughly what they are reimbursed as compared to Medicare in your city.

    The historical philosophy driving Medicare’s reimbursement rates is to cover the costs incurred by efficiently run hospitals and physician practices as well as other providers. As you probably know, to reimburse doctors, Medicare uses a system called RBRVS which stands for resource based relative value scale. The value of one relative value unit actually consists of three pieces. The first covers the doctor’s technical effort and expertise. That’s 52% of the equation. Another 44% is intended to cover practice expenses. The final 4% is targeted to cover malpractice expenses. Regional differences in medical input costs are also factored in. This is all from a past blog post by Princeton professor, Uwe Reinhardt.

    In negotiating with hospitals, which generally have the most market power, MA insurers know how much Medicare pays. They have countervailing power against hospitals because they can say that if you demand that we pay too much, we won’t have a product that we can sell at a reasonable price and the patient will wind up on standard Medicare and you, Mr. CFO, will have to accept the standard Medicare rate. We’ll pay you 2% or 3% more which adds up over a large number of patients.

    In dealing with solo and small physician practices, the question becomes how little can we get them to agree to accept? I suspect that this varies a lot by specialty. I have no idea, for example, how much Humana pays a surgeon for a hip or knee replacement in Charlotte as compared to standard Medicare. I do know that in the NYC metropolitan area, many surgeons accept no insurance at all including Medicare.

  20. Barry: Points well taken. And you are right about the lack of transparency. That’s why I get so frustrated. I would really love to see a balance sheet for an Advantage company and compare it apples to apples to traditional Medicare. The overhead, reimbursement rates etc. All I see is that I get paid quite a bit less as compared to Traditional Medicare. And at the same time I know that Advantage receives more money from the taxpayers per patient than does traditional Medicare.

    I was just trying to look at one part of the equation-what providers are paid. I agree there are other aspects to figuring out the administrative costs.

    It’s funny, but I have BCBS of NC insurance. I did not receive a rebate because BCBS of NC claimed they met the 85% criteria. I called and asked for a prospectus. I went through five people on the phone and I got nowhere. How do they come up with that figure? And who determines what is considered administrative? Are commissions to sales agents administrative? There is very little transparency.

    Why were the private insurers so threatened about the “public option”? Let’s go head to head and see which system works better. In Germany everything is private but non-profit. Private companies compete against each other and get paid based on how well they provide this service.

    Well, I better get back to work. I have to pay for my health insurance. By the way, have you looked at the Massachusetts Health connector site? Did you plug in what it would cost for me and my wife at age sixty? (About $30,000 a year for the Gold plan) Do you feel that the ACA exchanges will be less costly than what we have now in Massachusetts?

  21. Jim –

    I can’t give you much precision in answering your questions but I can offer the following thoughts:

    When the rules covering minimum medical loss ratios were established, an expert group called the National Association of Insurance Commissioners spent a lot of time debating what should count as medical vs. administrative costs with lots of input from the insurance industry and other interested parties. After digesting all that information, it developed a set of rules. One thing I know for sure is that brokerage commissions count as administrative costs and they are virtually certain to fall considerably after the start of 2014. Medical underwriting is currently another large administrative expense which will largely disappear once insurers can no longer turn people down based on pre-existing conditions.

    The medical loss ratio that an insurer must meet is determined for each legal insurance entity. United Healthcare, for example, has several dozen of these. Separate calculations are made for the individual book of business, small groups and large groups for each entity. While I don’t have specifics on this, my understanding and impression is that the Blue Cross plans are often the insurer of last resort for higher risk clients and their premiums are higher than their competitors as a result.

    Insurance industry opposition to the public option was based on a lack of trust that the public entity would be required to compete on a level playing field with private insurers. The fear is that it could offer more competitive rates because it would be subsidized by taxpayers and might be allowed to use Medicare’s dictated prices rather than negotiate them with providers like the insurers have to. While Maggie probably disagrees with me on this, I think the industry’s fears were warranted given the hostility toward private insurers among the Obama Administration’s regulators within CMS and HHS. I would also note that in Germany and Switzerland, there is no such thing as a public insurer, including our equivalent of Medicare and Medicaid, even for the elderly. Everyone gets their insurance through a non-profit private insurer.

    In the U.S. Medicare Advantage market, Humana, for example, has long told investors that it targets a 5% pretax profit margin on this business. Since it will be required to spend at least 85% of premium revenue on medical claims starting next year, its administrative costs, excluding pretax profit, cannot exceed 10% of premiums if it is to meet it’s return targets. Moreover, over the next several years, the extra money that MA insurers are paid vs. standard Medicare will be phased out. The MA plans also offer additional benefits beyond what standard Medicare offers. Enough people perceive value in these so that about 27% of all Medicare beneficiaries are now in MA plans and, I’m told that approximately 40% of the newly eligible Medicare beneficiaries (those aging into the system now) are choosing MA plans.

    There are quite a few non-profit insurers in the U.S. including most of the Blue Cross plans. Their pretax profit margins generally fall in the 1% to 3% range. Health insurance is not a high margin business unlike the drug and device business, for example. Whether an insurer is profit or non-profit, it won’t make much difference in the premium it charges. BCBS of NC, by the way, is non-profit as is BCBS of MA. There are, I think 38 Blue Cross and/or Blue Shield plans nationwide of which the 14 owned by Wellpoint are for profit. The other 24 are non-profit.

    I haven’t looked at the Massachusetts Connector site but I did look at the Kaiser Family Foundation subsidy calculator site. At a given income level, the subsidy that an older person subject to a higher premium will be eligible for is quite high because everyone at or below 400% of the federal poverty level (FPL) of income will not have to pay more than 9.5% of income toward the health insurance premium. For a lot of younger people, 9.5% of income may be enough or almost enough to pay for a single coverage policy without subsidies and, as a result, the subsidy those folks will be eligible for will be small and, in some cases, zero. The subsidy, by the way, will be calculated based on the cost of a silver plan (70% actuarial rating) in each market.

    • Barry–
      You write: “Whether an insurer is profit or non-profit, it won’t make much difference in the premium it charges.”

      But up until now, it has made a difference in terms of the value that the insurer offers for the dollar.
      The best not-for-profits (Kaiser, Geisinger, Peugot Sound, to name just a few) are much more concerned about keeping patients healthy. So they offer extras like FREE tobacco cessation clinics, cardiac surgery that comes with a warrantee (Geisinger), medical homes that work (Peugot Sound).
      If you look at Medicare Advantage plans, you will find that the best– and those that have lasted– are mainly non-profits. (Again, Peugot Sound comes to mind.)

      In 2011 Consumer Reports ranked some 830 insurers using research done by the National Committee on Quality Assurance (NCQA), an independent non-profit organization that accredits and measures the quality of health plans. The ratings reveal how well the plans perform when it comes to preventive care and management of chronic conditions (which account for 60 percent of the score); patient satisfaction (25 percent); and whether the plan is accredited by the NCQA (15 percent (I wrote about this for TIME.
      http://business.time.com/2011/10/17/health-insurance-surprises-smaller-is-often-better-and-patients-prefer-hmos/#ixzz2KteZ7eF2
      Consumer Reports’ national rankings for some 830 insurance plans are available online, with detailed scores based on research done by the National Committee on Quality Assurance (NCQA), an independent non-profit organization that accredits and measures the quality of health plans. The ratings reveal how well the plans perform when it comes to preventive care and management of chronic conditions (which account for 60 percent of the score); patient satisfaction (25 percent); and whether the plan is accredited by the NCQA (15 percent

      : http://business.time.com/2011/10/17/health-insurance-surprises-smaller-is-often-better-and-patients-prefer-hmos/#ixzz2KteZ7eF2

      Here are the results:
      In general, ” plans offered by non-profit insurers scored better than products sold by for-profit insurers;
      When it comes to patient satisfaction, Health Maintenance Organizations (HMOs) received higher marks than Preferred Provider Organizations (PPOs) even though HMOs require that patients remain “in network;”

      Kaiser Permanente, a non-profit that insures some 8.8 million Americans nationwide, stands “head and shoulders” above the other large insurers.
      Read more: http://business.time.com/2011/10/17/health-insurance-surprises-smaller-is-often-better-and-patients-prefer-hmos/#ixzz2KtfPjuy7

      The rankings showed : “l wide variations in quality—and mixed results for many of the nation’s largest insurers. The industry’s giants, Aetna, Cigna, Humana, Kaiser Permanente, and UnitedHealthcare—together with the 60 mostly state-based Blue Cross Blue Shield Plans—account for three-quarters of the 390 HMOs and PPOs that NCQA ranked. Yet only 17 of their offerings made the list’s top 50—and six of those were Kaiser Permanente plans.
      In other words just 11 of plans offered by the big for-profit insurers who you are defending made the top 50.
      Little wonder that the Obama Administration’s regulators within CMS and HHS are not big fans of these privat e plans

  22. Barry: Just out of curiosity are you working in the health care industry or are you just interested in this topic? I enjoy reading your posts.
    Regarding the subsidies, I did read that the subsidy would by calculated base on the “individual” rate and not the “family” rate. This may make the insurance unaffordable especially for older folks. See the following article: http://www.medpagetoday.com/Washington-Watch/Reform/37161

    • Jim–
      No, this rule will not make insurance unaffordable.
      As I explain in this post, the rule applies only to families where just one person works –and works for a large corporation–while the other spouse stays at home–and the cost of the “family plan” that the company offers to them exceeds 9.5% of the working spouses income.
      This turns out to be a fairly small group of people.
      (You will find the longer version of this post here–
      http://www.healthinsurance.org/blog/2013/02/05/irs-ruling-a-disaster-for-obamacare-not-quite/

      • Maggie: Thanks for the article. I do think the subsidy is complicated and the devil is in the details. What is considered as income? Is it gross income? Is it the adjusted gross? Is it the modified adjusted gross? For those who are self employed it would be smart to buy equipment to reduce income to make sure they are eligible for the credit especially when the insurance premiums for the over 60 crowd will be in the 20-30 thousand range for a husband and wife for the Platinum plans.

        More about insurance still being unaffordable with the ACA. According to the Berkely Labor Center Subsidy Calculatory a family of two, (husband and wife), must make between $22,000-$62,000 a year to be eligible for subsidies. http://laborcenter.berkeley.edu/healthpolicy/calculator/

        Let’s say a 60 year old husband and wife make $61,000 a year. They will receive a subsidy of $7200 to pay for the premium. That will help but they still may have out of pocket costs of $12,800 added to premiums of about $6,000 a year. (Assuming they purchase the silver plan)

        Now, if they make $63,000 a year they will get no subsidy, have premiums of $13,000 a year with out of pocket expenses that could approach $12,800. Because it is the silver plan there is a greater chance of higher out of pocket costs.

        My point is that this would be a burden on older folks who still will have very expensive premiums.

        That said, it is better than what we have now. No one can be denied, no lifetime limits etc. But, it can still be unaffordable especially for older people who live in areas where the cost of living is high. $63,000 for a family of two doesn’t go very far in NY, Boston, LA, and San Francisco.

        • Jim–

          On how they calculate the subsidies: They use your “modified adjusted gross income”–
          which is different from you “adjusted gross income.” See this IRS publication http://www.irs.gov/pub/irs-pdf/p590.pdf,
          go to p. 63 and you’ll find a worksheet that lets you calculate you modified adjusted gross income.

          You write: “For self-employed people it would be smart to buy equipment to reduce income”
          You’ll have to look carefull at the MAGI worksheet to see if that would work.
          Even if it does, I’m not sure I’d call buying equipment that you don’t necessarily need “smart”. . .

          Yes people in their early 60s who earn just a little too much for a subsidy
          could face pretty high premiums. (Though $13,000 for a couple at that age is not too bad.
          I pay close to $7,000 for my own individual insurance. That’s quite a bit of money, but
          I want very good comprehensive insurance. My policy is pretty close to what you would get in amn
          Exchange.

          And, as you say, by and large, people will be better protected under the ACA with no lifetime or
          annual limits. There will also be a cap on out of pocket expenses. Even if you and your wife are
          in a car accident and spend 2 or 3 weeks in a hospital, you won’t wind up with a owing $20,000 as your co-pay on the hospital bill. Finally, free preventive care is a bonus.

          • Maggie: Thanks for the info. I did look at the IRS publication. I will have to read it some more. It deals with the Modified AGI for IRA’s. My question would be: Will contributing to an IRA Simple be added on as income or not in figuring eligibility for a subsidy. The publication was used for determining the modified AGI for IRA deduction purposes. Certainly, we need to wait for the IRS publication that pertains to that in 2014.

            For self employed people like me this is my only pension plan. By counting that as income for subsidy purposes would be equivalent to anyone who has a pension including that amount as income as well.

            You only pay $7,000 for an individual plan! Wow, that’s great. You would not have much of a policy for that amount down here in NC unless you had the health of an olympic athlete. You must be very young!!!

            The subsidy calculator had $13,000 for the amount a couple would pay on the silver plan. I doubt it will be that cheap but I have my fingers crossed. The subsidy calculate for the Kaiser Foundation seems to predict much higher rates.

            As for buying equipment, I never said I would buy equipment I didn’t need. Maggie, I have a bucket list a mile long. I love going to continuing education meetings and visiting the exhibit halls. There are so many neat things I would like to buy for my practice. Like any business owner I have to weigh the cost and benefit. Certainly if purchasing a $12,000 corneal topographer lowered my income enough to put me in the subsidy bracket this piece of equipment would pay for itself with the subsidy I would obtain. And, then I wouldn’t have to send my patients to my friendly ophthalmologist when one of my patients needed a topography. It is just common business sense.

            Additionally, what motivation would a 60 year old have to work more hours if it meant losing the subsidy? I read an interesting piece by a woman in Oregon. It illustrates how the ACA subsidy will not help middle class folks like herself. She is very negative about the ACA and I don’t agree with all of her negativity as I really think there are a lot of good things in the law, however she does make some good points. http://www.thelundreport.org/resource/the_aca’s_paradoxically_negative_impact_on_middle_income_oregonians

  23. Jim –

    I was a securities analyst for 40 years until my retirement at the end of 2011. For the last 18 years of my career, I worked for a large corporate defined benefit pension plan. Since 2006, my responsibilities included covering the managed care insurance companies and the drug retailers and wholesalers along with several other industries unrelated to healthcare or health insurance. I’m very interested in the subject of healthcare and health insurance and have participated in several healthcare blogs as a commenter since 2006.

    The article you linked to about the subsidies relates to employer plans only. For people who are either unemployed and not eligible for Medicare or Medicaid or work for a company that doesn’t offer health insurance at all, I believe they can qualify for a subsidy that would help pay for family coverage if that’s what they need.

    The Kaiser Family Foundation has a subsidy calculator on its site that estimates premiums and subsidies for either single coverage or a family of four and for moderate cost as well as high cost areas. The bottom line is that the subsidy amount, as far as I can tell, would cover the difference between the estimated premium for a silver plan (70% actuarial rating) and 9.5% of the family’s income if it is above 250% of the federal poverty level (FPL). Between 139% and 250% of the FPL, the maximum required individual contribution is a lower percentage of income. For those with income of 138% of the FPL or less, they will qualify for Medicaid if they live in a state that agrees to expand Medicaid eligibility to comply with the ACA’s eligibility criteria. Some states may opt to decline to participate which the Supreme Court ruling allows them to do.

  24. Barry: I went to that website. Interestingly, it doesn’t have an option for a husband and wife, family of 2. Secondly, it appears if you have insurance through work, and being self employed I do, I would not qualify. That’s the catch 22 I referred to earlier. As long as I am paying for my expensive policy and it is a business policy that covers me and my wife it appears I would not qualify. I am wondering, and maybe you know, but will I have to go without insurance for a while to qualify to buy an individual policy on the exchange? Being a mom and pop business, we can’t get a tax credit if the policy is bought through the business.

  25. Barry: Got one more question for you which is right up your alley. Suppose my wife and I make $85,000 but we maximize our IRA Simple which is $14,000 each for a total of $28,000. For the purpose of the subsidy is our income $85,000 or $57,000? My taxable income would be $57,000.

  26. Barry: One final question. In what year is the income used? For instance people who are self-employed don’t know their income until the year is over. Is it based on the previous year?

  27. Jim –

    I’m afraid I won’t be able to definitively answer your questions. Since these rules don’t affect me because my wife and I are on Medicare and we wouldn’t qualify for subsidies even if we weren’t, I haven’t paid as much attention to them as I would have if we were more directly affected.

    That said I think you and your wife as a family of two will be viewed as two individuals for this purpose. At the population level, two adults of roughly the same age should cost twice as much to insure as one adult. Family coverage is cheaper per person because children are very inexpensive to insure, again at the population level, not in each and every case.

    I think the tax year to be used will most likely be the immediately preceding one though there will probably be a mechanism to use the current year if your income is likely to be significantly lower than in the prior year.

    I also suspect that income will be quite broadly defined and will not allow most or all of the normal deductions. This is the way the CMS calculation for IRMAA surcharges on high income Medicare beneficiaries works. CMS also looks back two years to determine the income level that the surcharge will be based on but there is an opportunity to apply to use a more current year if you qualify for one of their exceptions including life changing events like retirement.

    Maggie –

    Why do you think the insurers scoring well on the measurements you cited aren’t growing market share significantly? Maybe they aren’t doing a good job of getting their message out. Maybe there are a lot of people that don’t like narrow network and staff model HMO’s because of the limits on provider choice. Maybe millions of people just don’t need much healthcare and choose a plan based on other criteria from price to provider choice and proximity. Paradoxically, the new members the high quality plans are most likely to attract are those with expensive chronic conditions that need to be carefully managed. Even with risk adjustment payments, the highest rated plans could wind up with higher costs as they serve more than their share of the most expensive to serve population. At the same time, United Healthcare reduced its Medicare hospital inpatient bed days per thousand members for four straight years now. They must be doing something right.

  28. Will income for a couple be considered joint income? For instance, if a family of two applies for tax subsidy they will have to apply separately for insurance but the income threshold for a subsidy will be considered from the joint income. If that is the case an income of $46,000 for a couple would be the cut off point for the subsidy, yet the insurance could cost close to $10172 each for a silver plan-(according to the Kaiser Family subsidy calculator). That would leave about $26,000 dollars before taxes to live on after paying the health insurance bill.

  29. Jim –

    I can’t answer your last question definitively either. My guess is that if you file a joint tax return, for subsidy purposes, I think you would be considered a family of two with the joint income you reported though you could well wind up with two individual insurance policies each with separate policy numbers. I suspect that once the exchanges are up and running, there should be people available to answer all of the subsidy related questions including how income is defined and which year is used. There may be a site now that does this within CMS but I’ve never looked into it.

    As for my own coverage, I think I mentioned in one of my earlier comments that my wife and I have standard Medicare plus a supplemental policy to cover the Part A and Part B gaps and a separate Part D policy for prescription drugs. Both are with United Healthcare co-branded with AARP. We had a choice of 10 supplemental plans and chose Plan F which is the most comprehensive and also the most expensive. For the two of us, the supplemental plus the Part D plans cost about $410 per month while the standard Medicare Part B premium plus our IRMMA surcharge costs $321 per month for each of us or $642 for both bringing our total premium for standard Medicare plus supplemental coverage to $1,052 per month for the two of us. The IRMMA surcharges account for $432.20 of that amount. Only about 2% of Medicare beneficiaries are subject to it so far but the income threshold is frozen through 2019 so more will have to pay it over the next several years.

    Since I have coronary artery disease (CAD) and had other medical issues over the last 20 years, I wanted maximum provider choice and maximum protection when traveling in the U.S. outside of my home region. I’m sure I could find MA coverage for less but my wife and I can easily afford the option we chose and I like the peace of mind it gives us. Then again, I’m also the type of person who always buys the expensive trip insurance when we go on vacation, especially when traveling overseas. It’s a bit of a belts and suspenders mentality but it makes me feel comfortable.

  30. Barry–

    Non-profit insurers are not growing national market share because they are not in most markets.

    In the markets where they exist, they tend to capture huge market share. (Check the ones I mentioned.)

    Even Kaiser–the biggest–is only in 5 or 6 states. When it tried to
    establish a base in Texas, doctors fought hard to push it out.
    (Texas doctors , who are more conservative than most, objected to the idea of doctors being employees in an integrated health care system. By contrast, California, Washington State, Col.
    Hawaii, D.C. and one or two other states that I can’t remember at the moment have accepted Kaiser. )

    In most of these states, both patient satisfaction and physician satisfaction with Kaiser is very high.

    But if you look at the states and regions where health care is most “money-driven”–as measured by Dartmouth’s research–you will
    find that Kaiser and other non-profits have a much harder time
    establishing a base.

    That said, I think that you and your wife are wise to pick the best
    MA insurance that you can afford.

    I recall that you live in New Jersey, and as far as I know, there is no really good non-profit plan in N.J. (Hospitals, doctors and lobbyists there would fight any strong non-profit plan.)

    In NYC, where I live, there also is not a really good non-profit plan.
    When I am eligible for Medicare,I too,will probably sign up for an Advantage plan. (We do have at least one excellent Advantage plan here, with very good networks and coverage— much like the coverage that insurers will have to provide in the Exchanges under the ACA..)

  31. My husband is 64 and I am 63 (him 7 months older than me). He is on a medical leave (injured at work but being fought by workman’s comp – claiming pre-existing conditions – so we are suing for workman comp payments). Therefore, we are paying 100% of our company health insurance since his surgery in February. Before he was injured, we were paying 70% of our health insurance (family plan that covers both of us). Will Obamacare give us a subsidy for the family plan, nearly $9600 a year on income of $46,000 year? I don’t understand something I read about “single” coverage being covered at work if premiums are more than 10% of earnings but not for families. This is very confusing to me.

    • Hi Susan–

      You need to find out what you husband’s employer would ask you to pay for individual coverage (just to cover him.)

      If the cost of an employee’s individual coverage is more than 9.5% of household income, his employer’s coverage would be considered “unaffordable.” That meansthan you both can go to the state Exchange, buy your own insurance, and
      get a subsidy that will help cover the premium.

      Some people think that if family coverage costs more than 9.5% of household income, people should be able to go to the Exchanges and get subsidies.

      But employers are not required to cover spouses (and never have been.) They are only required to cover their employees and their employees children. (Under Obamacare they are required to cover children up to their 26th birthday.)

      Lawmakers assume that adults under 65 can work, and under the law, their employer is supposed to provide them with “affordable” comprehensive insurance that pays at least 60% of their insurance.

      If you choose not to work, that is your choice. If you can’t work, you can apply for disability. If you can’t find a job, you should be able to get unemployment (assuming you worked in the past.)

      Finally–here’s a possible solution: try to find a part-time job. Even if you are only working 10 hours a week, if your employer doesn’t offer you affordable insurance
      you can go to the Exchange and qualify for a subsidy.

      The good news is that in only 1 year your husband will qualify for Medicare. Good luck with your worker’s comp suit.

  32. I thought you got a SUBSIDY for work place insurance if you paid more than 9.5% of your income for premiums – not that you would drop your insurance from work (because it’s considered too high) and get it from an exchange instead. And since only an individual plan would be eligible for the work place subsidy, I would have to pay for my own insurance with no subsidies. Do I have this wrong? Thanks for your comments.

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