Most left-leaning health policy wonks assume everyone needs health coverage. I’ve never understood that. Insurance is a way to protect assets for people with assets to protect. Economists also sometimes describe health insurance as income protection in the event of an illness, since medical care costs money. An alternative view is that health coverage is the ability to buy highly subsidized medical care in the event of an illness. Families’ health risks, aversion to risk and family finances differs so arguments that everyone needs the same type of protection against medical bills is not particularly convincing. To cloud the issue even further, the aforementioned left-leaning policy advocates often are guilty of believing that any system that requires reaching for one’s wallet during a medical encounter is unethical, since not everyone has a wallet of the same thickness. Again, this makes no sense since the poor would benefit more than the wealthy from the savings by forgoing costly health coverage. Unfortuantely, Obamacare has caused more people to reach for their wallets after a medical encounter — not less.
Because advocates think health coverage is something that everyone should have, one of the primary goals of the Affordable Care Act (ACA) was to expand coverage to the uninsured. Their thinking was that some of the uninsured could not afford health coverage because their incomes were not sufficient, while others could not afford coverage because of health concerns that made medical underwriting costly. What difference did it make? Obamacare made it worse for many people. A few weeks ago I wrote how under the ACA, people with health coverage can rack up huge medical bills despite having insurance. Basically, Obamacare destroyed their insurance — at least the kind of coverage they once had. The only coverage many people can now afford are plans with excessively high premiums in return for excessively high deductibles — leaving few funds left over to pay for medical bills out of pocket or fund a health savings account.
Earlier this year a report from the University of Pennsylvania (gated but discussion here) found all but the most heavily subsidized Obamacare enrollees would generally be better off financially if they forgo coverage and pay for their own medical care out of pocket. The group whose incomes fall between 1.38 and 1.75 times the poverty level will spend about three times the amount on premiums for a Silver plan as their out of pocket health care spending had they remained uninsured. For those earning more than 250 percent of poverty, most will be worse off financially compared to having remained uninsured. By design Obamacare is a bad deal for most people! Basically, except for the unlucky few who experience catastrophic health complaints, the vast majority of Obamacare enrollees would be better off uninsured.
From an efficiency standpoint, paying for routine medical bills out of pocket costs less than paying bills through an insurer who is, in turn, funds medical claims from premiums. In the process of trying to make medical care cheaper for those with pre-existing conditions, Obamacare has made most enrollees worse off than prior to the Affordable Care Act. Paradoxically, they are even worse off than being uninsured.
Indeed, deductibles in the exchange have risen to the point that most enrollees will pay virtually all their routine medical needs out of pocket. With deductibles of $5,000 or more becoming common, Obamacare is becoming little more than a sickness fund tax on people who don’t expect to reach their deductibles. It’s an unofficial tax most enrollees pay to subsidize insurers and offset some of the costs of insuring the few people with health conditions. yet, that is not an efficient way to subsidize their medical care.
I’ve talked to people who say they’ve made the conscious decision to forgo Obamacare and just pay the penalty and pay cash for medical care. A few even think they can get out of the penalty. One lady I talked to suggested she’d be far better off just taking the money she would have spent on largely worthless insurance coverage and using it… (hold on to your hats, this is controversial!) on actual medical care. She is paying out of pocket for her physician visits. She is using a discount pharmacy card for her prescription drugs. She is paying for laboratory testing out of pocket. She’s even considering having some procedures done that her insurance would never have covered even if she met her deductible (procedures like lasik).
There are arguably other benefits to Americans revolting against the Obamacare sickness tax, throwing it overboard and ditching health insurance. The Rand Health Insurance Experiment of the 1970s found when people were exposed to significant cost-sharing, they consumed about 30 percent less medical services on average (without affecting their health). More recently, research by the Kaiser Family Foundation found the uninsured consume only about half the care of those with coverage ($2,443 vs. $4, 876). Most would be fine without insurance. Those who are net beneficiaries of insurance cross-subsidies would likely also benefit from conditions where providers actively compete for their patronage — rather than seek to maximize insurance billings. You certainly do not make health care more efficient (or cheaper) when you boost the subsidies available to fund other peoples medical care. You force efficiency by encouraging, coercing or forcing uncomfortable questions like Doc, what’s that going to cost? Do I need that? Is there a payment plan?
It’s rather sad when you realize the Affordable Care Act had the opposite effect of making health care affordable, and it made the formerly-insured better off with no coverage. As I’ve already explained, it’s would be far cheaper for most to just pay bills out of pocket with the money they saved by going bare. Obamacare is hardly a legacy to celebrate.
A version of this Health Alert appeared in Town Hall.