A valued reader e-mailed me his situation and I think it highlights a signiifcant problem with choice in the insurance markets:
I’m responsible for figuring out my partner’s Medicare, and we just got the “annual notice of changes” from Big National Carrier for the “BNC Rx Secure(PDP)” plan. The monthly rate is going from $35.80 to $60.50, the annual deductible is going from $0 to $250, the Tier 1 “standard cost-sharing” is going from $4 to $15 (the “preferred” remains $1), the Tier 3 goes from 22% to 25%, and so on. Obviously, we’ll be switching… again. Last year, it was Another National Carrier that tripled its rates, which is why we have BNC now.
It’s annoying, but the Medicare plan-picker is easy to use and we’ll find something else. But I’m a young(ish) tech-savvy guy on top of things. Most Medicare recipients are older and may not be as aware of the impending doom. I shudder to think of the old folks in the retirement home down the street with piles of unread mail.
Do you think that BNC and their ilk do this on purpose, drawing people in with good rates when they’re cogent, and counting on them being unable to react when they shoot up?
I think there are a couple of things going on here. The first is the prescription drug space is getting really wierd actuarially speaking. Hep-C and cholesterol have both seen very expensive specialty drugs introduced in the past eighteen months. There are a couple of other drugs that can routinely run $15,000 or more per course of treatment per member per year where the target population is fairly large. The actuaries are having a very hard time figuring out who will be on the high cost specialty drugs (especially as there is a push for Hep-C treatments to be made available for people with F-2 damage to their livers instead of F-3/F-4 damage). That is one of the reasons why pricing on prescription drug plans is a bit funky this year as the actuaries are trying to guess what the strategic interaction effects of different pricing strategies will be.
More basically, the last sentence hsa some truth to it, but I don’t think it is particurly malicious. Most people make satisficing choices where they choose something that is good enough. We don’t optimize our health insurance choices. People consistently choose profoundly sub-optimal health insurance plans. Usually good enough is good enough as there is a cost of switching. It takes time to figure out if another carrier will cover the three prescriptions that you know you need, it takes time to rebuild a relationship with a pharmacist if you have to switch pick-up locations, it takes energy to grok the difference between which pills are 30 day pick-ups and which pills are now 90 day mail prescriptions. It takes time and energy to switch from a good enough plan to an optimal plan. There aren’t too many good decision support tools that can help people make better choices at fairly low cognitive costs.
This means that people are fairly sticky. Once they choose a decent plan, they tend to stick. Every insurer knows this, and they definately try to frontload the benefits of their products to build a large initial membership base as that large initial base will stick with what they know even as the product degrades in its comparative attractiveness. I don’t think BNC is specifically targetting old people for exploitation, it is just a fact of life.
As a side note, one of the interesting things in the Exchange has been that people aren’t acting particurly sticky. It may be that the Exchange population has a large number of healthy and very cost sensisitive individuals on it who have not invested time to build relationships with their providers and their systems and are willing to save $15 per month in switching from ANC to BNC to Big Blue.
Matt McIrvin
I’d guess that narrow networks increase stickiness by increasing the cost of switching. Speaking personally, one of the things that has probably hurt my care of my own health the most is that every few years, I change jobs and I have to get a new doctor, which I don’t necessarily get around to doing immediately. The amazing shortage of primary-care physicians around here doesn’t help.
gussie
I’m sorry for the very basic question. My income fluctuates from $120k (once every few years) to more like $30k/mostyears. Last two years have been good, so my premium just went up to $850/month (starting in January). Next year will probably be quite lean. I freelance, so I never know my income until the end of any given year. Is there no provision for ‘income smoothing’ or some such? I need to re-apply to the ACA every year, with a new wild-ass guess of my upcoming income? During open enrollment?
If I don’t pay, am I still covered, and am just fined at the end of the year? Or am I not covered, and I die in a ditch, and -then- pay the fine at the end of the year?
richard mayhew
@gussie:
Good questions. There is no income smoothing (that would be a good idea as a technocratic tweak in a rational political environment)
You need to re-estimate your income every year. You can estimate whatever it is. Healthcare.gov IIRC baselines the estimate as your last reported income on your tax return. You can change that. If there are big swings, be able to justify them as good faith estimates. If you think 2016 is going to be a tight year, but you get a massive gig in July, you can restate your income estimate and have the subsidy recalculated. I
If you know that a given year should be a “good” year you can decline the subsidy and pay directly to the insurer the full premium and get any subsidy as part of your following year income tax refund so there will be less guessing involved.
Starfish
What’s with all of the HSAs when we still do not have good price transparency? A large computer company is phasing out it’s PPO after next year. For the upcoming year, they did a comparison of what we paid for the PPO with what they presumed we would pay for the HSA, and they made an assumption that despite spending $300+ on prescription copays this year, we would spend $0 on prescriptions for the HSA.
Mnemosyne (iPhone)
I may have to add the spouse to my employer-based insurance this year since he’ll be a grad student starting in January and I was a little surprised to see that I’ll pay the same premium for the PPO and HMO plans even though the HMO has much lower deductibles, copays vs percentage payments, etc. The one potential downside is that the HMO pays nothing for out of network, but I’m pretty sure I’m already in the network for just about everything.
gussie
Thanks so much, Richard. We’ve actually been paying the insurer directly, and I wasn’t sure if there was any way to get the subsidy ‘back,’ so that’s a huge relief. Can’t tell you how much I appreciate it!
Eric S.
I had just finished grooming my unicorn when I read this
and I am once again mad we cannot have single payer.
I’ve got nothing constructive to add or any questions. Just a thank you to Richard for all the posts. It has been a good education.
Richard Mayhew
@gussie: That advice only applies to insurance bought on Exchange. The same policy bought off exchange is not subsidy eligible.
benw
@Eric S.: I thought I bought a unicorn once, but it turned out to be just a purity pony with a lollypop taped to its forehead. :(
pseudonymous in nc
@Eric S.:
Doesn’t need to be single payer. Just needs to be a highly-regulated environment with visible price tariffs for reimbursement, where the differentiation is at the edges and not the core.
Choice in health insurance plans is mostly bullshit: it is designed to make people feel responsible for what subsequently fucks them over. If it was not mostly bullshit, people would not consistently make bad choices.