October 25, 2014

Editor's Page

Calculations and choices for health insurance

Mark R. Howard | 9/5/2013

With key provisions of the Affordable Care Act kicking in this month, my own family will have to make some calculations.

My daughter, 22, was graduated from college this spring and will enter the full-time workforce by the end of the summer. Her employer offers good health insurance, but the ACA has thrown some wrinkles into her choices.

She's healthy and would be well served simply by picking her employer's lowest cost option. But the ACA allows her to stay under my health policy until she's 26, and if the marginal cost of keeping her on my plan is cheaper than what she'd pay to be insured at work, she may choose to stay on my plan for a few years (and pocket the savings after reimbursing dad for what it costs to retain her on my policy).

If it turns out that the premiums offered by my daughter's prospective employer cost more than 9.5% of her income or pay less than 60% of the cost of covered benefits, then she can go to Florida's health exchange and shop for an individual policy at subsidized rates.

She has other options, however. While the law requires her to get a government-approved health care policy, the penalty for not complying is small — $95 in the first year. Even without coverage, she can still get treated at an emergency room. The ACA also guarantees her the ability to buy health insurance, after the fact, if she gets sick or injured.

Those last options aren't real considerations for my daughter, who will have access to a good group plan and understands the importance of having health insurance. Philosophically, she's eager to participate in a system she thinks will be good for the country.

But the calculation for many young working people, particularly those with lower incomes and those whose employers don't offer good group insurance, is dicier. They'll need to buy one of the individual policies sold on a health exchange, and the lowest-cost individual policy, even with subsidized premiums, will likely cost between four and 10 times the cost of the penalty for not being insured.

So those healthy young people must choose between the more expensive option of buying a policy and supporting the system vs. the less expensive option of gaming the system by paying the penalty and continuing to be uninsured.

It's an interesting state of affairs. The success of the law depends largely on getting uninsured healthy young people to participate; the fewer that sign up, the higher the rates for those who do. Meanwhile, however, the law itself is, in purely economic terms, replete with incentives for them not to get insured. Behavioral economists — those who study how people incorporate non-economic factors into their economic decisions — will have a field day with this one.

There's evidence to support the belief that young people want to be insured: Nationally, about 3 million formerly uninsured young adults are estimated to have gained health insurance by taking advantage of the opportunity to get on their parents' plans. In addition, the majority of young adults — about the same percentage as older people — take health insurance when they're offered it by their employers. Some suggest that young people tend to see health insurance as an essential part of becoming an adult.

But then there are those perverse economic incentives. And with health exchanges supposed to open next month, some surveys show nearly eight of 10 uninsured people are unaware of the opportunity to buy insurance there.

There's also evidence to suggest that simply making insurance more available won't do the trick. In Minnesota, despite the end of the recession and a number of initiatives to expand and subsidize coverage, the percentage of uninsured has remained at more than 9%, with the highest rates of uninsured among those ages 26 to 34 with lower education and income levels, Hispanics/Latinos and the foreign-born.

The Minnesota Department of Health noted that "nearly three-fourths of the uninsured have some potential access to coverage but don't take advantage of it. About 60% of the uninsured were eligible for public coverage and about 17% were eligible for coverage through their employer."

Meanwhile, it's becoming clear from evidence in California, Florida and elsewhere that the ACA is driving up the cost of individual policies.

So how will this play out — will young, uninsured people flock to the exchanges or pay the penalty? Will we fail to have universal coverage and instead just change the composition of the uninsured population? The administration's decision this summer to delay provisions of the ACA appears to recognize that the law needs tweaking.

Meanwhile, all of us will begin experiencing other big trends in health care. Regardless of how the ACA proceeds, insurers are focusing on ways to nudge us to take better care of ourselves and consume less "treatment." In tandem, reimbursement is shifting toward payment for an outcome rather than individual procedures. Physicians who now prescribe certain tests, procedures and medications reflexively will have incentives to order them less routinely.

It's an unsettled time. In health care as in education, the healthiest dynamic involves creating a delicate but productive balance between the government's direction-setting and what the market has to say on how things move forward. It's rarely a tidy process.

Tags: Editor's column, Healthcare, Insurance

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