Insuring The Routine

As I've written here and elsewhere, Obamacare furthers a public misconception of what "health insurance" is meant to be. The law requires plans that are sold on health insurance exchanges to cover a vast array of benefits ("Essential Required Benefits") that include basic, inexpensive preventive care with no cost-sharing. And by doing so, the law mistakes what insurance actually is - a financial instrument to help individuals pay for costly, unexpected, events.

You want insurance that covers everything from an annual doctor's visit to the $9-a-month birth control pill? Then be prepared to pay more.

Ultimately, however, the insurance exchanges are likely to affect a relatively small share of Americans - at last count, about 25 million according to the CBO.

The majority of Americans - around 160 million - will continue to receive insurance through their employers (whether this is desirable or not is a whole different question - hint: most economists believe it isn't). But even here, Obamacare's miscalculation of what insurance should be, is creeping in.

Perhaps what's most noteworthy about Obamacare is that it offers a case study for Econ 101 students in unintended consequences.

Obamacare's major change to employer-sponsored coverage is that firms with 50 or more (full-time equivalent) employees will be required to offer health insurance to their full-timers, else pay a per-worker penalty of $2,000 (there is a separate penalty for workers who are offered "unaffordable" health coverage).

Because one goal of the health reform law was to disrupt as little as possible existing coverage (remember that "you can keep your coverage if you like it"), requirements for employer-sponsored insurance are significantly less onerous than those for plans sold on the exchanges. The only real requirement is that employer-sponsored plans have to cover preventive services with no lifetime benefit limits.

As can be expected, we've already seen employers discuss cutting hours and employment as ways of avoiding this mandate. But a WSJ piece out on Sunday offers insight into a third strategy: cutting benefits.

As the WSJ article points out, a number of businesses including two food-chains in Texas will offer "skinny," mini-med plans - relatively inexpensive form of health insurance. These types of policies have been around well before Obamacare and typically don't include coverage for surgeries or hospital stays, and when it comes to drug coverage, tend to only cover generics - they can often be priced at under $100-a-month.

For those of us concerned about health care costs and waste in the health care system, this is a mixed blessing. Perhaps few employers will embrace mini-med plans; maybe many will. The big picture, however, is what deserves attention. There appears to be a growing industry-level move that focuses more on insuring routine health events like doctor's visits along with (or, as in the case of mini-meds, instead of) expensive events like surgeries and hospitalizations.

This is exact opposite of what you'd want to see.  We should be encouraging people to pay for more routine costs out of pocket, rather than relying on insurance.  For really big ticket items - like hospitalization or expensive chronic illnesses, insurance should bear the cost.

Such is the law of unintended consequences that Obamacare is extending coverage for many services where the evidence on value is actually pretty weak.   

Before Obamacare, the American health care system was bifurcated (trifurcated, really - but that's a discussion for another day): those with health insurance and those without.

Underpinning the law was unambiguously a belief that when someone wants to see a doctor, they should be able to do so at minimum cost to them - costs to others be damned! That regular doctor visits are cheap (and getting cheaper courtesy of companies like Wal-Mart!), or that annual physical exams (that will now be effectively free) have not been shown to improve health outcomes was never a concern to the drafters of the law. But they missed something potentially worse - further fragmentation of the health care system.

Those receiving health insurance as a result of the employer mandate (or those whose employer-sponsored insurance will change its benefits package) might end up becoming "second-class" policyholders who can see a physician at no cost to them, but god forbid they land a kidney infection that requires a weeklong hospitalization. We know that this wasn't the intention of Obamacare's backers, but their preferences blinded them to another set of problems. It's understandable that the authors of the law missed such potential market shifts - after all, it's hard to see the forest for the trees when you're layering regulations on a market with very few signals thanks to other regulations.

"Reformers of the reform" should take heed and remember that insurance doesn't need to be comprehensive - covering the most unexpected events is all that's necessary. Direct Primary Care memberships - like Primary Care 1 in West Virginia - can be cost-competitive with mini-med plans, while offering a far wider range of services. Layering catastrophic insurance on top of that would help cover rare but expensive events that mini-meds don't. And in a bit of good news, Obamacare allows such plans to be sold on the exchanges and they even qualify for federal subsidies (albeit with a requirement that the DPC plan provide a "medical home" as well).

Those in Congress concerned about how the implementation of the law will play out should focus their energies on making the law more friendly to catastrophic plans on their own (for those who are healthy enough and don't need an annual doctor's visit, for instance) by allowing the use of premium subsidies for these low-cost plans.


Your article was right on and very astute in calling attention to the Healthcare emphasis on every day expenses that we could all pay out of pocket. And I agree whole heartedly with your feeling that we ought to eliminate employer's involvement with employee's health care. I have always thought that it was ridiculous and more expensive to have employers in control of people's health insurance than to have people get their own insurance. I do it for my homeowners insurance and for my car insurance. Additionally it is unfair to the many self employed who have no way to get a tax free bonus with their health insurance. Thank you for writing such a spot on article.

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Rhetoric and Reality—The Obamacare Evaluation Project: Cost
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