Health, Wealth and Personal Responsibility

How much is Obamacare really worth? This is an important question as we approach the incoming Trump Administration. Should he backtrack on his campaign promise to repeal Obamacare on Day One? If Trump merely instructed his HHS Secretary to drop the appeal of House v Burwell most insurers would probably bail out of the market and it would collapse. If Congress uses a Budget Reconciliation process to repeal Obamacare provisions, such as the individual mandate, employer mandate, the Obamacare taxes and the subsidies, the health insurance exchange would probably collapse.

Obamacare premiums are rising to stratosphere. Last year when my wife called her broker, she discovered her 2016 premiums would be roughly $6,000 per year for HMO coverage with a $6,750 deductible. The reason (according to Blue Cross Blue Shield) is because medical claims for other people in her risk pool are exceeding expectations.  My wife leads the epitome of a healthy lifestyle. Her health risk is very low risk. She does not expect to use $1,000 in medical care — much less exceed $6,750.  As she pointed out to me; Obamacare is basically forcing her to write a $6,000 check to Blue Cross for which she expects to receive nothing in return. That’s a significant transfer of wealth most households would find objectionable.

During the 20th Century, Americans’ life expectancy at birth increased by nearly two-thirds (62 percent), from 47 years to 77 years. Childhood vaccines were a huge breakthrough. Prior to the modern age, more than one-third of children did not live to see their 5th birthday. Improvements in motor vehicle safety played a big role. Safer workplaces helped tremendously. Better food safety and control of infectious diseases through cleaner water supplies and proper sanitation made a huge difference. Better treatment of coronary heart disease – including the knowledge that smoking is bad for you made a huge difference in longevity.  Better family planning with prenatal care has led to healthier mothers and babies — a major achievement. Finally, disease and infection control using antimicrobial therapy had a major impact on life expectancy in the 20th Century. Notice that many of the greatest public health achievements are more closely related to public health interventions than to personalized medicine.

Americans are wedded to the idea that there are miracle cures to be had in medicine. But as you can see from the above, prevention often works better than treatment. Certainly, there are some highly effective treatments and therapies. Antibiotics have rendered cuts and scrapes that once could potentially have killed you into low-risk minor problems. President Calvin Coolidge’s son died of sepsis caused by staph from a blister he developed while playing lawn tennis. Abraham Lincoln’s grandson Jack died of sepsis after a minor surgery. Heart bypass surgery extends lives. Hip and knee replacements probably extend life by years by helping seniors stay active longer. Insulin and other drugs allow diabetics to live longer and lead normal lives. Yet, for all these effective treatments, there are numerous others that are only marginally effective or ineffective. It is well known that many drugs are barely more effective than a placebo.

Moreover, many medical conditions are better treated through lifestyle modification rather than drugs or surgery. More than two-thirds of medical spending is on conditions related to lifestyle behaviors. Nearly half of premature deaths are preventable through behavior modification (e.g. proper diet, moderate exercise, tobacco cessation and alcohol in moderation).

In his Forbes column, Mercatus scholar, Brian Blase touches on a subject that most of you probably have never given much thought to. How much does medical care really matter? How much does it improve health status? The answer — according to a recent analysis — is not very much. Of the determinants of health, only about 11 percent are attributable to medicine care. Twenty-one percent relate to biology and genetics. Our social circumstances are nearly one-quarter (23 percent), while behavior accounts for 38 percent.

That raises another question: what were all the sick people doing prior to Obamacare? Were they dying in the streets? Apparently not. I have seen no evidence that the country is healthier as whole now that we are spending billions more on Medicaid and Obamacare. They were probably getting less care, but they were getting more appropriate care.

Obamacare is a bad deal for most consumers by design. It was intended as a way to help expand coverage to people too poor to afford a health plan; and to allow people with pre-existing conditions to buy coverage they otherwise would not afford. Obamacare is an income redistribution scheme from rich to poor; young to old; and from healthy to less healthy.

Of course, some people through no fault of their own drew the genetic “short straw.” Are there better, more efficient methods, to deal with the negative externalities of people who’ve made a lifetime of poor choices? Is there a better way that improves health status at a lower cost? Probably. But it would likely require a heaping serving of personal responsibility.


Comments (79)

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  1. Barry Carol says:

    I never made a claim on my homeowner insurance policy in 43 years. Were my premiums a waste of money? No. I paid an insurance company to assume the risk of a catastrophic loss. I consider myself lucky to have incurred no claims, not cheated.

    What exactly do you propose to do about people who make poor lifestyle choices in terms of health insurance aside from put them in a higher risk category that would make them pay more for their health insurance?

    People who die save the healthcare system a lot of money after they’re gone. If they could have been successfully treated, possibly at high cost, they might live long enough to get Alzheimer’s or dementia or just become unable to perform all or most of the normal activities of daily living and need expensive in home, assisted living or skilled nursing facility custodial care. That’s a big and growing burden for the current Medicaid program after people spend down what assets they have paying for care privately.

    Maybe in a totally free market either your wife could choose to remain uninsured or she could purchase a plan with a $50K or $100K deductible or whatever you think you can handle if you have to.

    As Bob Hertz noted recently, health insurance is more expensive because of guaranteed issue even if we required continuous coverage with no more than a 63 day gap between insurance plans and as John Fembup reminds us, health insurance is expensive because healthcare is expensive. The issue that healthy people need to answer is how do they propose to pay for the people who get sick and incur costs well beyond their ability to pay the bills out of either income or savings and investments? That’s what insurance is for, isn’t it?

    • Ronald Greiner says:

      Barry is right. Devon wants his wife to get “something” from her health insurance even when she doesn’t get sick or hurt. Most Americans have been brainwashed to think the same way.

      Most Americans have also been brainwashed to confuse medical treatment and health insurance. People with cancer require medical care not health insurance.

      A big problem with Obamacare was it was jammed down our throats by a lying clown. “If you like your plan you can keep your plan and you can keep your doctor too — PERIOD.”

      • Devon Herrick says:

        Ron, my wife does not have problem paying for own medical care. Indeed, she is doing that now — as are most people with high deductibles. Her complaint (as I have said numerous times) is that she is expected to throw $6,000 to Blue Cross for $6,750 deductible rather than $1,500 for a $6,750 deductible or $3,500 for a $3,500 deductible like she used to have. Her health risk is negligible. A risk pool full of women like my wife would be a great risk pool. But she is an instrument of a blunt public policy known as Obamacare, that tries to solve a policy problem by mandating she spend, say, $4,500 more than her coverage is actually worth..

  2. Allan says:

    I suspect that the 11% (improvement in health status) through medical care is distributed fairly well throughout the population in the US and that if there is a drag, social circumstances and behavior account more for the drag than their economic status.

    Therefore the drain on the economy and individual pocketbooks imposed by Obamacare is causing more harm than good for it impoverishes people and doesn’t permit them to advance to a better life. The collectivists keep pushing for government healthcare, not to improve the health of the nation, rather to better their control over the population. Paraphrasing what has been said many times (the only question being who said it) ‘Gain control over the person’s healthcare and you have gained control over the person”.

    • Lee Benham says:

      I think it was Hitler! ill concede it might have been Hillary.

      • Ronald Greiner says:

        Hillary also said, “young people don’t mind paying more.”

        • Devon Herrick says:

          In her defense, Hillary probably assumed all young people have connected parents who can get their kid a strategic planning job (making six figures) straight out of Stanford with only a history degree.

          • Ronald Greiner says:

            The presidential leader in the polls in France is saying, “I’m no Hillary Clinton.”

            Hillary will go down in history as — LOSER.

      • Allan says:

        I’ve heard Bismark said something like that as well, but who knows. The fact is if you are dumb enough to socialize medicine you are dumb enough to go all the way. The Pied Piper of dumbness, Hillary Clinton, led quite a few off the cliff and now they have to swim ashore and live without their maniacle princess.

  3. Lee Benham says:


    Thank god its Friday we are all going to need a drink:)

    you said:”I never made a claim on my homeowner insurance policy in 43 years. Were my premiums a waste of money? No. I paid an insurance company to assume the risk of a catastrophic loss. I consider myself lucky to have incurred no claims, not cheated

    Where your home owners premiums 4 times the annual cost of typical upkeep?

    Did your home owners policy cover to paint your house?
    did your home owners policy pay to shovel the side walks?
    Did your home owners policy pay for a cleaning person to come once a week?

    No insurance is for covering an unforeseen catastrophic loss that can not be personally financed.

    guaranteed issue is a very small part of why health insurance premiums are high. the minimum essential benefits have more to do with the high cost. first dollar coverage for preventative care is nothing more than pre-financing a guaranteed claim along with sales fees and administrative costs. It is not what insurance is for.

    • Barry Carol says:

      Lee, we’re in agreement that health insurance should be designed to cover catastrophic costs, not routine predictable expenses. Car insurance doesn’t cover oil changes or tire rotation nor should it. There may be a divergence of opinion, however, on how to define catastrophic healthcare costs. I would say a reasonable deductible might be $2,500 for single coverage and $5,000 for family coverage with no carve out for first dollar coverage of preventive screenings. For people who can afford it, they should be able to buy a policy with as high a deductible as they are comfortable self-insuring for. My only caveat is that they should be entitled to the insurer’s contract reimbursement rate for care within the deductible and not be expected to pay full list price for those services.

      • Devon Herrick says:

        I agree as well.

        • Allan says:

          But do you agree that your *premium payment* or anyone else’s should be raised to support those that are high risk patients and those that are older?

          That is what I believe to be Barry’s problem in dealing with health insurance. He wants to add a bit of socialism which raises the premium so that more people don’t find the risk worth the price.

          • Devon Herrick says:

            Rather than ask me or my wife to pay higher premiums so someone who is older or unlucky gets a cross-subsidy, I prefer a payroll tax like Singapore where individuals accrue funds while young (and healthy) so they have them available later on in time of need. Pooling your own health risks over your working life is more efficient than pooling risks across people who have unequal risks. Raise the cost on me when I’m young but assure me the excess is accumulating in MY account is different than assuring me I should pay more so I will be cross-subsidized 30 years from now.

          • Barry Carol says:

            So raise the tax dollars needed to provide subsidies to help pay for insurance for high risk and older people with either general tax revenues or a dedicated tax like a VAT that’s independent of the private underwritten insurance rate setting process.

            Or are you suggesting that we just tell them they’re on their own and they should seek out ad hoc private charity or just show up at the hospital and hope they can get treatment regardless of their ability to pay? Hospitals can then factor in the cost of uncompensated care when setting their rates that people with insurance will pay and have those costs built into their insurance premium.

            • Allan says:

              Society determines whether or not taxpayer funds should be spent on other individuals. Charities do the same thing, but they are voluntary.

              In a dictatorship the dictator makes the judgement as to who society’s money goes to. In a Constitutional Republic like ours such expenditures are determined legally. If society doesn’t wish to fund your program or finds such funding illega or unnecessary you can make a difference by starting a charity to fund such needs.

              Not accepting the legal decisions of society and calling for government to act unilaterally is the mindset of a dictator.

              • Devon Herrick says:

                It’s not hard-hearted to point out society’s resources are limited. Just look at the cost of coverage in the exchange. Millions of people are now the recipient of taxpayer funds costing $4,000 to $7,000 apiece every year. About 11.5 million new enrollees are on Medicaid. Per enrollee costs are 49% higher than expected. A similar amount of people are expected to enroll in exchange plans, although 18% to 23% will drop before this time next year.

                We provide highly subsidized health coverage for the elderly; the disabled and nearly free coverage for children and adolescents in poor households. The tax expenditure for employer coverage is another $350 billion annually. And, then there’s Obamacare. Taxpayers fund more than $1.5 trillion worth of health care per year. The question becomes: when is it enough?

                Health coverage is costly and does not improve health status except in a minority of cases. Is it required in a free society to spend thousands on people who are unwilling to spend their own money on medical care because of other priorities? Is the answer still true when accounting for perverse lifestyle choices?

                As a society we could spend our entire GDP on medical care; but that would leave nothing for housing, food, clothing, transportation, entertainment, etc. A trade-off has to be made. When consumers willing go without health coverage, they are essentially saying they have other priorities. Society steps in and refuses to allow that choice due to the free-rider problem when the uninsured become sick and beg for charity care. There are hard choices to be made. But I think we need to reallocate the resources currently being spent rather than throw more taxpayer dollars at plugging the holes in the current system.

                • Barry Carol says:

                  Devon – My bottom line is that I would like to see us get as close to universal coverage as possible without breaking the bank. I certainly get that resources are finite.

                  I think we could free up healthcare dollars with strategies like sensible tort reform, a better approach to end of life care and better use of data analytics to combat fraud in the Medicare and Medicaid programs. I would love to eliminate, phase out or at least cap the employer provided health insurance tax preference as part of broad based tax reform.

                  There are lots of people who can’t pass underwriting that are unhealthy or sick because they drew a bad genetic hand, are poor but make too much to qualify for Medicaid, or are just getting older and find that illness and disease is starting to occur despite having done everything right from a lifestyle choices standpoint. Not every unhealthy person is an undisciplined eating machine, a heavy smoker, excessive drinker or drug abuser. Some people are just unlucky. I think we can subsidize them through high risk pools while requiring them to contribute up to 10% of their income toward the premium. I think Ron’s idea of making them pay three times what healthy people pay is unreasonable.

                  As for young healthy people who don’t want to pay up to 10% of their income for health insurance before qualifying for a subsidy, I would put them in the category of being able to buy insurance but choose not to. If they want to exercise free choice and remain uninsured, fine but recognize that there are potential adverse consequences in terms of being able to access care if something goes seriously wrong for you. They may have few assets or not care about filing for bankruptcy but they should care about being able to get care when and if they need it.

                  The vast majority of uninsured people prior to the passage of the ACA were uninsured because they couldn’t afford the premium often even if they could pass underwriting which many could not. I think the society can do better on this issue though whatever we wind up doing, if anything, needs to go through the normal political process and hopefully be able to garner bipartisan support to produce the votes needed to pass a bill.

                  • Allan says:

                    “The vast majority of uninsured people prior to the passage of the ACA were uninsured because they couldn’t afford the premium often even if they could pass underwriting which many could not. “

                    That is not so. I would guess closer to 15% of the reported uninsured could not be insured through no fault of their own.

                    • Devon Herrick says:

                      I forget the exact percentage of “uninsurable” policy guys used to cite. I want to say 2% to 4%. Of course, many were insurable, but not at a price they thought made coverage a good buy. What is a good buy is relative to one’s priorities. Many of the uninsured could afford some type of coverage but again not the coverage that made spending money on it a priority for them. Someone with modest income is not interested in a $10,000 deductible that would only benefit them if something catastrophic occurred. To some degree it is about priorities.

                    • Allan says:

                      Devon, If I remember correcly in the video you did with Stuart Browning out of 45 million uninsured 8 million or 18% were uninsured through no fault of their own.

                • Allan says:

                  “when is it enough?”

                  It’s never enough and people who think like Barry would like to take even more so that a person who has higher costs can keep more of his income and wealth despite the fact that others paying for children or parents are doing so while earning less money.

                  We need a freer marketplace and if we were to do something like that we would save a tremendous amount of money.

  4. Jimbino says:

    Besides being “an income redistribution scheme from rich to poor; young to old; and from healthy to less healthy,” it is a redistribution scheme from males to females, from non-breeders to breeders and from the risk-seeking to the risk-averse. It is also an affront to those, like the Amish, who do not believe in insurance at all.

  5. John Fembup says:

    Devon: “She does not expect to use $1,000 in medical care — much less exceed $6,750.”

    Or much more less exceed $12,750 – which is the true extent of your wife’s self-funding if she were to choose this particular policy.

    • Lee Benham says:



      I ask every client the same question. Why are you buying insurance?

      I explain it to them this way: buying Insurance is understand what you are getting for what you are paying for.

      Risk Factor is taking your annual premium and adding it to the max out of pocket to get the total of what might be spent in any given year.

      If you had a crystal ball and knew the future and knew you would never have a claim for more than $5 or $10 grand would you even bother buying insurance?

      Every client I have ever asked that question to has answered no!

    • Devon Herrick says:

      Yes, if something really bad were to happen, she’d be out $12,750 before insurance began covering the cost. As Barry suggests, she too is glad that she is very unlike to reach that threshold. But to avoid a fine that exceeds the cost her insurance, she has to buy insurance. The cheapest of which is nearly $5,500 and sold by an insurer that is best known for Medicaid managed care.

  6. Lee Benham says:

    Just for argument sake. What if your wife told your tax preparer that she wanted to claim the 8.16% affordability exemption?
    How will the tax preparer know how or where to find the least expensive ACA compliant plan available to her last year? Rates for the upcoming year are posted November 1 for the new year but no longer show up in an easy to find way for previous years premiums.
    If you don’t file taxes until April how does the tax preparer know she had access to affordable ACA compliant insurance?
    I know where to find them and you may know but how many people you think might know where or how to find last year’s rates for every zip code in the country?
    If every person claimed the exemption what kind of auditing problem would that create for the IRS or could they even prove you had access to affordable ACA compliant insurance.

    • Devon Herrick says:

      Interesting question. I have read the one of the most powerful weapons Trump will have against the PPACA is to instruct his appointees to not enforce the provisions. I wonder if he tells his IRS appointees to forgo fines or expand exemptions. Is that even possible?

      • Allan says:

        It appears where the IRS is concerned anything is possible. Under Obama the IRS was politicized, the worst thing possible for an entity that is supposed to be totally neutral. I have been involved in groups where significant numbers have been harrassed by the IRS and denied tax exempt status.

        He could probably make an executive order. What a lousy way for government to behave brought to you by Obama and the Democratic party.

  7. I D says:

    How come that the enormous cost of US healthcare and complete lack of transparent pricing are not even discussed?

    • Jimbino says:

      Right! The way to deliver good medical care to Amerikans consists of two major reforms:

      1. Forcing all healthcare providers and pharma to publish all prices on the Web, just as Amazon, Walmart and Home Depot do.

      2. Allowing healthcare dollars, whether cash, HSAs, insurance, Medicare or Medicaid to be spent overseas, in places like Cuba and Costa Rica, who have long offered very low-priced medical care with outcomes similar to those in the USSA, and where life expectancy is equal or better.

      All these mandates and tax breaks for insurance are an affront to liberty and the civil rights protections guaranteed Amerikans.

  8. Ronald Greiner says:

    Making America Great Again

    “Just got a call from my friend Bill Ford, Chairman of Ford, who advised me that he will be keeping the Lincoln plant in Kentucky — no Mexico,” Trump wrote in a Twitter post.

    Lee Iacocca said, “No company can have a $1,500 [per vehicle] health-care albatross around its neck. That’s wrong.”

    Lee Iacocca did further assert, “The most successful businessman is the man who holds onto the old just as long as it is good, and grabs the new just as soon as it is better.”

    Poor Mexicans

  9. Ronald Greiner says:

    Making America Great Again — 2 New AG

    Judiciary Committee Chairman Charles E. Grassley (R-Iowa) called Sessions a respected member who “has worked across the aisle on major legislation. He knows the Justice Department as a former U.S. attorney, which would serve him very well in this position. With this background, I’m confident he would be reported favorably out of the committee.”

    If I was Chairman Grassley I would ask Sessions, “Do you promise to treat all Americans equally under the law, men and women, and do you further promise to go after the Clinton Crime Family and put all those who belong in Prison exactly where they belong?”

    Of course Hillary said that they were all going to hang if she lost. She also said, “We came – we saw – he died.”

    Maybe Hillary will be taking some of her own medicine.

    • Allan says:

      Ron, don’t gloat. We are in a very dangerous period with a lame duck President and some other very nasty things taking place. Take note how now Trump is a model of professionalism.

  10. Bob Hertz says:

    Lee, I really like that question you ask clients about whether they would buy insurance if their largest claim was $5K or $10K.

    This gives me the opportunity to present a reform idea of my own.

    (I am working on an article to push this idea.)

    Let’s say that anyone without health insurance would really have to pay the penalty, no exceptions.

    But the penalty dollars would buy them a $10,000 deductible health policy, underwritten and administered by Medicare.

    I have run the numbers based on the fact that every year, about 2 million uninsured persons are hospitalized. If you compare the tax receipts from a real penalty versus an average of $20K-$25K per hospitalization, the numbers seem to work out.

    This would expose the current ACA policies for the crap that they are.

    Why would anyone spend $1200 a month for a $6850 deductible — as a 62 year in Nebraska pays now —
    when they could get a $10K deductible policy from Uncle Sam?

  11. Bob Hertz says:

    Allen, I think you are referring to the contentious issue of whether the ACA penalty is really a tax, and if so is it constitutional?
    I do not have a mastery of that question, but I would propose the catastrophic coverage as a default, kind of a play or pay approach. If you not buy insurance, you are assigned catastrophic coverage for a per cent of your income.

    If this is legally a tax, I am OK with that. We have an expensive system of emergency care in the US that serves all citizens in time of need. All citizens should pay for this, and the ACA penalty is one way to accomplish this.

    • Barry Carol says:

      First, I’m wondering what the definition of didn’t have insurance through no fault of their own prior to the ACA means. Are we talking about insurability, affordability or both?

      Second, I’ve been told in the past by insurers that prior to the ACA, if you added up the first $5,000 of claims, including the first $5,000 for the very expensive cases, for those who get their health insurance either through an employer or in the private individual market, it would account for 25%-33% of medical claims for that population which suggests that a policy with a $5,000 deductible would only be 25%-33% less expensive than first dollar coverage ignoring utilization effects between high and low deductible plans. The implication that is well established in the health insurance field is that medical claims are highly concentrated in a very small percentage of the population in any given year though the patients are generally not the same people from year to year though some are.

      Third, if we are going to let healthy young people either choose to remain uninsured and perhaps try to join a high risk pool after they get sick, buy a mini-med plan to handle a few doctor visits a year and maybe up to $25K for hospital based care, then the premium for those who want more comprehensive coverage even if they are healthy will be more expensive than it would have been if everyone had to buy at least a catastrophic coverage plan.

      Finally, my understanding is that including maternity benefits in health insurance coverage roughly doubles the cost vs. not including them at least for younger people. This implies that if men could buy policies that excluded maternity benefits, the women of childbearing age who need or want those benefits would pay three times what men would pay for a policy that excludes them. This seems inequitable to me.

      Maybe Bob, Ron, or Lee can provide some perspective about how much a $10K deductible catastrophic plan in today’s market would cost vs. a plan with a $1K deductible with an otherwise comparable scope of coverage and maybe Bob Hertz could tell us what a catastrophic plan would cover and what the deductible might be under his definition of the term. I agree with the thrust of his comment above.

      • Allan says:

        “medical claims are highly concentrated in a very small percentage of the population in any given year though the patients are generally not the same people from year to year though some are.”

        When it is a one time event, over time many can pay for the cost themselves and others can pay a large bulk. We have many “poor” in this country that pay for their cars and homes in this manner. That reduces premiums making them more affordable. We could also have a three year insurance deductible combined with HSA’s which provide most with the time to finish treatment of those diseases.

        “if we are going to let healthy young people either choose.” There is nothing wrong with choice except for the fact that you assume insurance is based upon different classes of people supporting another by having higher premiums. That is destructive to the function of any insurance policy. If risk determines the premium it doesn’t matter to the pool who refuses insurance.

        “excluded maternity benefits … This seems inequitable to me.” That is your problem. Your policies are based upon egalitarianism and when taken to this extreme become collectivist in nature. The cost of taking care of a child is far greater than maternity costs. If one cannot afford the cost of maternity care which need not be in a hospital with an MD (think midwife) then one can’t afford the cost of bringing up a child.

        There are many other things that raise the cost of medicine and premiums. Insurers need a cap otherwise they have to prepare for the worst. There is nothing wrong with a $1Million cap where the individual has the ability to purchase even more coverage. There is nothing wrong with limiting very expensive new drugs and procedures especially among those that caused their own problems. For instance should a drug addict get treatments that cost so much that premiums rise above affordable rates for those working families that then go without insurance? My belief is it would be nice, but not at someone else’s expense and certainly not out of premiums which incentivize exactly the thing you don’t want, uninsured. There is also nothing wrong with specific co pays for certain services. Then again we could rid ourselves of most of the bureaucracy that has grown around healthcare and probably reduce the cost of healthcare by a significant percentage.

        If you want people to continue to be insured in the years to come you have to reduce the cost of delivering care thereby reducing premiums. Your method might make you feel good, but it is driving healthcare to unaffordable costs while at the same time it is dummying down healthcare for the future.

    • Allan says:

      Bob, Justice Roberts opinion of a tax excluded rates that would make it appear as if it were a penalty.

    • Bart I says:

      Penalty aside, other provisions of ACA are equally a tax. Overpaying for a policy is a tax, which I agree with Bob is not in itself necessarily bad. But I would rather see taxes collected above board through a fair tax system, and not as a head tax embedded in the purchase of health insurance or health care.

  12. Bob Hertz says:

    Here is a partial answer to Barry’s question.

    Nationwide, about 4% of nonseniors (12 million persons) are admitted to a hospital each year.

    Not every admission costs $10,000 but most of them do. Plus there are high cost cases that do not involve hospitalization – i.e a shattered hand that may require multiple outpatient surgeries to correct.

    Anyways I am going to use 4 or 5 percent as my estimator for catastrophic cases.

    According to national insurance data, the largest claims in health insurance average $28,500 each. (I will have to find that cite again.)

    With a $10K deductible, a catastrophic policy would be paying a lot of $18,500 claims. (I realize that some persons would exhaust their deductible earlier in the year, and the insurer would be paying a full $28,500.)

    For 40 million uninsured adults, a 5% claim incidence would be 2 million claims times $18,500. Total claims cost of $37 billion.

    Add in 15% for admin, reserves, et al and you are a little north of $40 billion in costs. This is about $1,100 per person per year in premiums, not a heavy lift.

    One thing to note — the uninsured are by definition a healthy group (they don’t think they need insurance!)
    A different group would cost more.

    Also my program would have upper limits like insurance policies used to before the ACA, such as $500,000 per person per year. My program would also require price controls on the most expensive drugs.

    • Barry Carol says:

      Thanks Bob.

      Insurance executives told me in the past that their overall medical claims break down roughly into three buckets. Approximately 40% of claims are for hospital based care, both inpatient and outpatient with ER visits and overnight or multi-day stays under observation status counting as outpatient care along with outpatient imaging, same day surgical procedures, etc. Another 40% is for physician and clinical services including physician fees related to work performed within a hospital setting. This includes specialists like surgeons, anesthesiologists, radiologists and ER doctors as well as assorted specialists like hospitalists and others who care for patients, at least some of the time, within a hospital. It also includes labs, imaging, physical therapy, rehabilitation, etc. The other 20% is for prescription drugs. Specialty drugs, which are defined as those costing $600 per month or more account for only 1% of prescriptions written and used by only 2% of patients in any given year but they now account for 30%-33% of total drug costs and rising.

      Interestingly, looking at Medicare’s overall spending breakdown for Parts A, B and D, the same 40-40-20 distribution holds assuming Medicare Advantage payments are allocated similarly to standard FFS Medicare. Medicare probably spends a lot more on in-home and skilled nursing facility care but that also counts as clinical services in this context.

    • John Fembup says:

      C’mon Bob . . .

      1. You say “about 4% of nonseniors . . . are admitted to a hospital each year.”

      2. Then you say “Not every admission costs $10,000 but most of them do.”

      3. Then you say “I am going to use 4 or 5 percent as my estimator for catastrophic cases.

      True catastrophic medical events are few in number and involve unusually high cost. What is your logic for selecting a cost level which “most” admissions reach, as your threshold for “catastrophic cases”? And it appears you are using a “nonsenior” statistic extended to the entire population I.e., the population that includes seniors. Or, if that’s not what you are doing . . . what are you doing?

      4. Then you say “the largest claims in health insurance average $28,500 each. (I will have to find that cite again.).”

      Yes, you will, and please post it when you find it. I think that is a very dubious factoid. Note you are attempting to reason from an “average” that by definition consists of a small number of unusually high-cost claims. Seems to me you’re walking into that notorious statistical river whose average depth is 2 feet.

      5. Then you say “the uninsured are by definition a healthy group (they don’t think they need insurance!)

      Whiskey Tango Foxtrot? I though you were just goofing on us – but you actually seem to suggest the definition of “good health” = “don’t think you need insurance”.

      And if you seriously believe the uninsured are a healthy group, then what the hell do you think the national debate has been all about the past 25 years?

      6. Then you say “my program would have upper limits like insurance policies used to before the ACA, such as $500,000 per person per year.”

      You advocate cutting off benefits December 31 for someone in the midst of a million-dollar medical event? Rilly?

      As someone involved in insurance, you know – should know – that prior to ACA, large company-sponsored insurance programs commonly included lifetime limits of $2 million or more; my company’s LTM was unlimited. My LTM in Medicare Advantage is also unlimited. ACA mandates there be no limit to lifetime or annual benefits. You show no facts or special insight that $500,000 per year is adequate.

      7. Then you say “My program would also require price controls on the most expensive drugs.”

      Actually I might – might – consider this kind of historically uninformed, top-down management provided that I – and I alone – will have the sole right to define the specific price controls, define the most expensive drugs, and set all the other rules; and provided further that disagreement or appeal of my decisions is prohibited. I doubt anyone would be so foolish as to trust me with such powers. Well, I don’t trust YOU. And I trust a nameless, faceless cadre of government bureaucrats influenced by political ciphers even less.

      Soooo . . . Aside from that, Mrs. Lincoln, how did you like the play?

  13. Bob Hertz says:

    Here are some responses, John.

    1. I arrived at $10,000 for a catastrophic claim, because for most persons that would be a financial catastrophe.

    2. I get phone calls all day from uninsured people, and I ask them if they have any health problems. The answer is always no.

    The reason is this: the uninsured who were unhealthy jumped right into the ACA in 2013 when it opened up to them. The remaining uninsured do not feel that health insurance is worth the money, because they are healthy.

    3. I would indeed like to see maximum annual or lifetime limits. I have studied a small number of million dollar cases, and in almost every instance I have studied the issue is the cost of drugs.
    (in a very few cases, bloated hospital or surgical bills). If we control the cost of specialty drugs, the max limits will hardly ever be an issue.

    4. Every other advanced nation controls drug prices at some level. It is not done by one individual.
    There is no reason other than pharma greed for any drug to cost $84K a year as for Hepatitis C.

    • John Fembup says:

      1. So Bob, you still say that virtually all hospitalizations – even some normal deliveries – generate catastrophic cost. I think that means you accept that the fundamental obstacle to obtaining medical care in America is the cost of medical care.

      2. And now you say you have determined that America’s remaining uninsured (still at least half of the number prior to ACA, btw) have no health problems – because none of them who call your office seeking insurance tells you they have a health problem. That seems wholly anecdotal to me. I notice you switched your criterion from healthy “by definition” to healthy because you kept a count of uninsured people who called your office seeking insurance and claiming over the phone to be in good health.

      3. And you say “in almost every instance I have studied the issue is the cost of drugs”. My response: you have not studied nearly enough cases.

      You say “I would indeed like to see maximum annual or lifetime limits”. I did not challenge the concept of adequate calendar year limits. I did challenge your proposed $500,000 annual limit but I’ve since lost interest.

      4. And you say “Every other advanced nation controls drug prices at some level” and then cite the price of a Hep C drug. It’s my understanding economists are not impressed by arguments from prices and even I try to stay away from them. As for “Not done by one individual” I think you missed the point there, and also missed my next sentence “I trust a nameless, faceless cadre of government bureaucrats influenced by political ciphers even less.”

      • Allan says:

        “America’s remaining uninsured (still at least half of the number prior to ACA, btw)”

        How have you drawn this conclusion. Can you provide some numbers and dates?

          • Allan says:

            OK, but what does that mean? The number of privately insured patients has just recently reached the level of 2006 and the population has increased. Forgetting about all the other problems, Is that deserving of a medal? The ACA has decreased the number of “uninsured”, what does that mean? Are Medicaid patients insured or are they recipients of entitlements not deserving to be counted as uninsured. Would 100% “insured” be a good thing if all were on Medicaid?

            • Barry Carol says:

              If providers treating Medicaid patients accept the Medicaid reimbursement rate as full payment, they are accepting INSURANCE. Health insurance is health insurance even if it’s crappy insurance in this context. In other words, it’s a lot better than nothing for the people who have it.

              • Allan says:

                It’s OK not to be precise if you don’t have a good understanding of the issue or if you intentionally wish to be unclear so that you can bend statistics.

                Medicare is an entitlement as is Medicaid. We call it insurance for many reasons, but when creating policy we want to deal more precisely with issues for the type of inpreciseness you are pushing leads to very bad decisions. You like the ACA, therefore, in this case you want to stretch the meaning of the world insurance as it meets your needs. It just isn’t terribly accurate in the context of the discussion.

            • John Fembup says:

              “Is that deserving of a medal?”

              I have awarded no medals.

              • Allan says:

                I’m not saying you awarded any medals. I am just trying to figure out what you are saying. When the reply is a bunch of citations without any quotes or explanation things become even more confusing.

                The tone of your statement to me (right or wrong) sounded as if you supported the ACA and that was what I was trying to figure out.

    • Allan says:

      Bob, is $10,000 paid over two years financial catastrophe? How do people buy cars?

      “There is no reason other than pharma greed” AT the same time those investors were investing in producing a drug to cure Hepatitis C other investors were afraid of the risk and decided to produce porn movies. Were those other investors greedy?

      Which investment was better?

      The price is probably a lot higher than expected, but its level of cost is more a reflection on our system of payment. The individuals paying for it are not paying based upon their individual risk.

  14. Devon Herrick says:

    John and Bob, you have touched on the notion that the cost of medical care is the problem. If routine medical care is more than most families can afford, no insurance product will make it affordable. (Of course, the definition of affordable is debatable.)

    Part of the problem is Do-Gooders (and self-interested providers) want there to be a limited number of tiers for health care. I have had reporters call me and say “are we becoming a two-tiered health care system?” I tell them, we already have a multiple tiers. The problem is we don’t have enough tiers. The poor (who probably would not want to pay for the service) should be able to easily consult with a provider, but that provider does not necessarily have to be a doctor. That provider just has to know more than the person he or she is consulting with to be of some benefit. The same is true of other medical services.

    • John Fembup says:

      “If routine medical care is more than most families can afford, no insurance product will make it affordable.”

      Yes, Devon, exactly. Which makes the continual attempts to find some magical, optimal insurance solution to the medical cost problem so misguided and fruitless.

      Even if one makes a distinction between primary care and specialty / hospital care, your statement remains true.

      There is one sure-fire way to reduce medical costs. Eliminate all medical, technology, and pharmaceutical advances since, say, 1960. I doubt many people would go for that. I’m sure the plaintiffs bar would not go for that. What people want is today’s medicine at yesterday’s cost. Our leaders aren’t exactly doing a stellar job helping Americans understand the value of today’s medical care vs its cost (nor are physicians, for that matter.)

      • Devon Herrick says:

        I believe we can have cheaper medical care without going back to 1960. Medical care is unnecessarily expensive due to a lack of price competition and regulation. Any time medical care is provided through a highly regulated environment with state barriers to entry and paid for primarily with third-party payment there can be little competition of the type that reigns in runaway spending.

        • Barry Carol says:

          I’ll bet there wouldn’t be much demand for futile or marginally useful (at best) care at the end of life if the patient, the family or the patient’s estate had to pay with their own funds, especially if those funds could otherwise be used to pay for, say, a grandchild’s college education.

      • Allan says:

        From my experience as a physician, which is anecdotal, Devon is totally correct. AS an Internist I see the patient enter the system and leave the system along with all the care in between. I am amazed at the amount of money racked up along with how much would never need have been rendered. I am not blaming physicians though they are a part of the problem. However, their job is to treat the patient, not deny care based upon cost which is the problem of the system and the bureaucrats. The sytem and bureaucrats are to blame for most of this wasted money and the expansion of industries surrounding the entire healthcare system.

    • Barry Carol says:

      I’ve used my insurer’s nurse hotline numerous times including as recently as a couple of weeks ago. I’ve found it useful and helpful. They’re basically using algorithms based on how you answer their questions about your complaint in a cookbook medicine like approach which doctors hate but for a lot of relatively minor things works pretty well. They’re also not afraid to tell you that you need to see your primary care doctor or even go to the hospital ER to address the issue you called about if they conclude that’s most appropriate course of action.

      • Allan says:

        Without referring to your particular nurse hotline I have seen patients discouraged from going to the hospital when they should have been there. I also saw patients so intimidated that they forced the ambulance to pass a hospital with total cardiac facilities only to end up at one that had to transfer them.

        Those that live can tell nice stories. Those that die reside 6 feet under along with their stories.

  15. Barry Carol says:

    I’ll offer an anecdote about healthcare tiers. It comes from a woman from Australia I met a number of years ago. She had Australian Medicare which is the public healthcare system there. Australian Medicare has a network of public hospitals that every citizen can access. There is also a separate network of private hospitals that are accessible to only those who purchase a private supplemental insurance plan entitling them to access the private network. The supplemental plan is an underwritten product and it’s not cheap. Only about 20%-30% of the population buys that coverage.

    Anyway, this woman went to the hospital complaining of pain in the stomach and lower chest area. She did not have a supplemental plan. It was ultimately determined that she needed to have her gall bladder removed and was told that it could probably be done in about three weeks. NINE MONTHS LATER she got a call to be at the hospital the following morning for the surgical procedure. By that time, significant complications had set in and a more complex operation was required.

    For better or worse, that’s what two-tier or multi-tier healthcare looks like. We can make a judgment that Medicaid is good enough for poor people and for others who can’t afford regular private sector insurance or are uninsurable whether through no fault of their own or not. Or we can try to do better. Resources are finite though and tough choices have to be made. The egalitarians want everyone to have the same access but it’s unrealistic at least in this country in my opinion. I also think a single payer Medicare or Medicare Advantage for all system would create more problems than it solves.

    I come back to the University of Chicago economist, John Cochrane, who tells us that healthcare for the poor should be good enough to discharge our moral obligation to help them but bad enough so that nobody who is able to make a choice would choose it. At the end of the day, it’s a lot better than nothing and better than nothing probably needs to be considered good enough under the circumstances. That said I also prefer high risk pools for those who can’t pass underwriting with premiums determined on a sliding scale basis capped at 10% of MAGI.

    There is also a financing issue that surrounds Medicaid. For most states, Medicaid is the 2nd largest item in their budget after K-12 education and growth in Medicaid spending is crowding out other worthwhile priorities. There are wide differences among the states in both wealth and tax base and the percentage of the population that qualifies for Medicaid under ACA income rules. There is a limit to how much the states can afford to contribute toward this program and some would claim that they’ve already exceeded that limit. Now what?

    • Devon Herrick says:

      “For better or worse, that’s what two-tier or multi-tier healthcare looks like.”

      No, that’s what a two-tiered health plan looks like. I was referring not to insurance, but medicine. Bill Gates can pay cash to see the team of the most skilled academic physicians in the country and get care at an academic medical center. Other people can afford to choose a reputable physician. Some people in HMOs get the luck of the draw about whether their physician is better or worse than the average. To some degree the poor have Medicaid and may get run through a Medicaid mill and not have access to the most skilled person or the provider who has the time to really manage their condition. Even though there are tiers, they are still subject to the same regulatory regime. We don’t allow a poor person to see a RN who works with an Indian physician in a corporate Healthmart.

      The poor can shop at Dollar General and Walmart; while the rich can shop at Nordstroms. But there really isn’t a Healthmart where decenet quality medicine can be practiced economically. I bet most poor people would go for that rather than wait in line at the Emergency Room.

    • Allan says:

      I think Medicaid should be upgraded, but society’s costs are already very high. Therefore, I want those that are getting extra care whether it be high risk or others and even those with regular insurance to pay for that care to a greater extent than you seem willing to do. It is that unwillingness that takes money from the system and permits moral hazard to flourish. Stop trying to tax the family more and more for the tradeoffs aren’t worth it.

      You seem to want to impose a lot of things on physicians and others that cost a lot of money, but don’t provide better care. That too comes out of the pockets of taxpaying citizens and those that need additional help.

  16. Barry Carol says:

    “But there really isn’t a Healthmart where decent quality medicine can be practiced economically. I bet most poor people would go for that rather than wait in line at the Emergency Room”

    Devon – In places like NYC, the poor often lack adequate transportation. They can’t afford to take time off from work to first see a primary care doctor, then, if they need to see a specialist, take more time off for that appointment and then still more time if they need imaging.

    Many of these folks perceive the ER as offering a one stop shop. They can get what they need in one visit, including imaging, even if they have to wait some time to be seen and they can do it at night after work. Moreover, since it’s a hospital and perhaps even a teaching hospital, they perceive that they are getting higher quality care than they would have gotten if they went to a little clinic in a retail store for something that may be a minor issue or may not be.

    You and I might be perfectly willing to go to a retail clinic for something we think is probably a minor issue but that middle class and upper middle class mentality doesn’t necessarily translate to lower income people because of life circumstances they face that we don’t.

  17. Barry Carol says:

    There’s an interesting article in the WSJ this morning about the cost of ACA exchange plans in Alaska. Specifically, premiums were projected to rise by 40% for 2017 in large part because of the enormous cost of caring for the 500 sickest individuals out of a total group of over 23,000 policyholders. Many of these sickest people have cancer or advanced diabetes. The state came up with a novel approach, at least for 2017. It will kick in $55 million of state funds to pay the cost of caring for those 500 sickest people. As a result, premiums are now slated to rise “only” 7.3% instead of 40%.

    That $55 million state contribution works out to $110,000 per patient. This reinforces my long held contention that high risk pools would be extremely expensive to finance even if they serve no more than 5% of the population which makes it probably the biggest impediment to reform of the ACA assuming president-elect Trump wants to continue to prevent insurers from denying coverage based on pre-existing conditions. Supplemental financing will probably have to come from somewhere to keep premiums for healthy and mildly sick people reasonable.

    • Devon Herrick says:

      Thanks, I will read the WSJ article.

      On the one hand, insurance is about pooling risk among numerous people. Yet, our society is not very good at deciding when subsidies are enough.

      I too have come to the conclusion we will never get a handle on health care costs until we provide better care for the sickest patients. But one caveat is that at the point where patients require care that costs more than a nice house they would have to pay on for 30 years, they should begin to lose discretion and their care management be taken over by a patient centered medical home. At the point where you need $300,000 in medical care you are likely not in a position to manage the process on your own.

  18. Bob Hertz says:

    Alan, you raised a good point when you questioned whether $10,000 was really a financial catastrophe, given that people buy cars every day and finance them without any federal government fuss.

    I would not mind seeing more use of financing for at least some expensive care. I do wonder if we need some federal help though, because financing health care through credit cards and 28% interest rates is a horrible scenario. Of the persons who have no health insurance and get sick, some of them (maybe a lot of them) are bad credit risks, unlike the people who buy cars.

    I also wonder if hospitals can make it financially if more and more of their patients are without insurance and paying their bill over 5 years. I just do not know this answer.

    • Devon Herrick says:

      The current hospital model is unsustainable. I was an accountant for a big hospital years ago. Too much admin., too much equipment purchased because doctors wanted it (but never used it). Much of the equipment was costly because the med tech manufacturers know there is money to be had. Equipment is leased so that it can be exported when the lease is up rather than enter the used remanufactured market.

    • Allan says:

      Bob, take note how we are willing to pay for care give subsidies for insurance etc. Covering a loan is much less expenisve.

  19. Bob Hertz says:

    John and Devon, you agreed that if routine medical care is unaffordable, then insurance will be unaffordable too.

    I would posit that routine medical care is NOT unaffordable to most Americans. By routine I mean office visits, generic drugs, most diagnostic tests.

    What is not affordable is hospital care. I am not sure if hospital care has ever been “affordable” to most Americans. According historian Rosemary Stevens, finding ways to help the middle class pay for hospital care was a challenge throughout the 20th century.

    Even in the Medicare program, I would not mind seeing Part A kept intact and Part B being shrunk over time.

    • Devon Herrick says:

      One of our proposals to reform Medicare is to convert it into a $5,000 deductible. Workers would have to save 4% of payroll into an account that (upon eligibility) would be converted into an annuity. Seniors would use their annuity payment towards their deductibles amd co pays. Seniors would have patient-centered medical homes to coordinate their care for high-cost procedures.

  20. Lee Benham says:


    Not sure there will be an annuity market left to invest in with the DOL making the same kind of Draconian changes to annuities that the ACA did to individual health.

  21. Bob Hertz says:

    Barry, I noted your comments about the Alaska health plans and their problem with 500 large claims averaging $110,000 each.

    I am not sure now that the problem is the size of the claims alone. The problem is the small size of risk pool also.

    The firm that insures my home (Allstate) certainly paid a lot of $110,000 claims last year for fires, et al. But my home insurance premium went up only $18.

    I assume that is because Allstate insures a heck of a lot more than 23,000 persons, as was the case in Alaskan exchange health insurance.

    So the answer might be a better national reinsurance program, where every health insurance policyholder in the country pays a few dollars to build up a fund for the insurers who do get the largest claims.

    The ACA had such a program, at least the start of one, but it terminated after three years to the delight of the Congressional Republicans. And the Obama administration did not fight for it at all.

    I will say it again — stable insurance premiums often need some form of government assistance, and this is true all over the world including for Medicare Advantage. A federal reinsurance program is about as low-key and non-disruptive as you can get.

    • Barry Carol says:

      Bob — On average, a homeowner files a claim about every nine years which implies that in any given year, 89%-90% of policyholders don’t file a claim. Moreover, quite a few of those who do file a claim, don’t file an especially large claim. This is probably why one can insure a $300K home for about the same premium as a $20K-$30K car.

      If only 10%-11% of health insurance policyholders filed a claim In a given year and many of those claims were not particularly large, health insurance premiums would be less than half of what they are even with guaranteed issue. Also, if we had a less litigious society and a more sensible approach to end of life care, they would be lower still. Wouldn’t they?

  22. Bob Hertz says:

    Quick note to Lee:

    The DOL rules on annuities are not changing the content of annuities at all. They would make it more difficult for agents to sell them and reduce commissions a lot, but unlike the ACA
    the DOL is not transforming the product.

    Not a big deal, and I do not like the DOL rules, but thankfully they are not really Draconian.

  23. Bob Hertz says:

    No one commented on my suggestion of a national reinsurance program, to protect insurers from very large claims that force them to raise premiums.

    My whole idea is that the risk of these claims should be spread among all taxpayers, rather than transmitted only to the other buyers in the individual market.

    Anyways, I am pleased to report that one person heard my plea if you will. That person is Tom Price.

    Note this comment from the estimable Richard Mayhew:

    “the second is to create re-insurance pools where the states agree to pay claims above a certain level and taking the high cost tail risk off of private insurers.”

    Of course the more devious Republicans in Congress were righteous;y outraged against risk adjustments and other bailouts when their opposition could cripple the ACA.

    When they actually have to run things, reinsurance does not look so bad.

    I have great contempt for most Congressional Republicans. They caused millions of unsubsidized Republican farmers and entrepreneurs to be damaged by high ACA death spiral premiums – just to get at Obama.