Health Care 2014 and early retirement

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
faltuk1
Posts: 99
Joined: Thu Oct 09, 2008 9:58 am

Health Care 2014 and early retirement

Post by faltuk1 »

One of the biggest unknown and hurdle for someone who is planning to retire early is the health care cost. I just wanted to know your opinion on if new health care subsidy go into effect starting 2014, won't it be wonderful for people retiring early? It looks the law will pay for premium over 9.5% of annual income (limit $88000). Since most of the early retirees will be making less than $88000/year, the law puts some certainty in predicting health care expense.

http://www.politifact.com/truth-o-meter ... uld-get-h/
zinnia
Posts: 262
Joined: Mon Sep 15, 2008 6:13 pm

Post by zinnia »

I wouldn't approach early retirement with any certainty over health care costs.
Sidney
Posts: 6784
Joined: Thu Mar 08, 2007 5:06 pm

Post by Sidney »

zinnia wrote:I wouldn't approach early retirement with any certainty over health care costs.
I agree. Too many factors - economic, demographic, regulatory ....

I have modeled my expenses using a fairly high inflation rate for medical. If it turns out better than that, I'll find some other use for the money.
I always wanted to be a procrastinator.
scrabbler1
Posts: 2797
Joined: Fri Nov 20, 2009 1:39 pm

Post by scrabbler1 »

I share the optimism of faltuk1, the caution of zinnia, and the expense modeling of Sidney (although my HI premiums have risen at 20-25% the last 2 years, far above what I budgeted for in my ER budget).
jebmke
Posts: 25271
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Post by jebmke »

scrabbler1 wrote:I share the optimism of faltuk1, the caution of zinnia, and the expense modeling of Sidney (although my HI premiums have risen at 20-25% the last 2 years, far above what I budgeted for in my ER budget).
My increases were running above my projected inflation rate for medical as well but I built my budget with an average monthly cost significantly greater than my run rate at time of retirement. I am still at a monthly cost below that level.

I am not sure why but my former employer has held the rate flat for 2011 on our HDP coverage. They did increase the deductible by $500 from $2,500 to $3,000 but they are throwing in $400 of their money to our HSA which they didn't before so by my math, my maximum increase is $100 assuming that we max out the deductible (the out-of-pocket max also increased by $500).

Part of the savings vs. original budget will be eaten up by some dental bills this year. We have no dental insurance.
Stay hydrated; don't sweat the small stuff
northend
Posts: 447
Joined: Tue Oct 02, 2007 10:28 am

Post by northend »

I am not sure why but my former employer has held the rate flat for 2011 on our HDP coverage
This is the first year our retiree health care insurance hasn't gone up, too.

My guess is that is has to do with the government subsidy this year that employers are eligible to receive under the Obama health care package.
MWCA
Posts: 2820
Joined: Fri Nov 30, 2007 3:21 pm
Location: A wonderful place

Post by MWCA »

zinnia wrote:I wouldn't approach early retirement with any certainty over health care costs.
Unfortunately, I agree with you.
We are all worms. But I believe that I am a glow-worm.
Topic Author
faltuk1
Posts: 99
Joined: Thu Oct 09, 2008 9:58 am

Post by faltuk1 »

Come 2014, if this part of the law stays as is, why not? If you are planning to retire early in 2015, how much do you plan for health care expense?
zinnia wrote:I wouldn't approach early retirement with any certainty over health care costs.
Sidney
Posts: 6784
Joined: Thu Mar 08, 2007 5:06 pm

Post by Sidney »

faltuk1 wrote:Come 2014, if this part of the law stays as is, why not? If you are planning to retire early in 2015, how much do you plan for health care expense?
zinnia wrote:I wouldn't approach early retirement with any certainty over health care costs.
There isn't a single answer to this question. You have to look at your own situation and build up a range of estimates based on insured and uninsured costs. Don't forget things like dental expenses, over-the-counter products, eye exams, eyeglasses etc. I budget an amount for all these even though there are some years where I will under-run the budget amount.
I always wanted to be a procrastinator.
User avatar
jeffyscott
Posts: 13438
Joined: Tue Feb 27, 2007 8:12 am

Re: Health Care 2014 and early retirement

Post by jeffyscott »

faltuk1 wrote:I just wanted to know your opinion on if new health care subsidy go into effect starting 2014, won't it be wonderful for people retiring early? It looks the law will pay for premium over 9.5% of annual income (limit $88000). Since most of the early retirees will be making less than $88000/year, the law puts some certainty in predicting health care expense.
The $88,000 figure is for a family of 4. For a couple, 4 times poverty is about $58,000 and for a single person it is about $43,000. I would be very happy to know that health care insurance costs would not exceed $5500 per year (9.5% of $58,000), when we are retired.
Topic Author
faltuk1
Posts: 99
Joined: Thu Oct 09, 2008 9:58 am

Re: Health Care 2014 and early retirement

Post by faltuk1 »

That is exactly my point. The law does give some certainty to early retirees. I am starting to warm up to this law.
jeffyscott wrote:
faltuk1 wrote:I just wanted to know your opinion on if new health care subsidy go into effect starting 2014, won't it be wonderful for people retiring early? It looks the law will pay for premium over 9.5% of annual income (limit $88000). Since most of the early retirees will be making less than $88000/year, the law puts some certainty in predicting health care expense.
The $88,000 figure is for a family of 4. For a couple, 4 times poverty is about $58,000 and for a single person it is about $43,000. I would be very happy to know that health care insurance costs would not exceed $5500 per year (9.5% of $58,000), when we are retired.
pshonore
Posts: 8205
Joined: Sun Jun 28, 2009 2:21 pm

Post by pshonore »

I believe the limit only applies to plans bought through "exchanges" organized by the states; not to regular plans in the marketplace or continuing on employers plans, COBRA, etc. after you retire. My question who is going to make up the difference? Say a 60 yr old couple had a 40K income. Their limit would be $3800 while a decent plan (depending on location) might cost $12K - $20K. Where does the $9000+ come from?
scrabbler1
Posts: 2797
Joined: Fri Nov 20, 2009 1:39 pm

Post by scrabbler1 »

According to the online calculator I used, the subsidy does not phase out if the income exceed 400% of poverty. Therefore, if your income is barely above the threshold you get zero dollars of subsidy, meaning that a little bit more income actually makes you poorer overall.

My income (single person, early retiree) is right around the subsidy cutoff so it will be in my interest to keep it under in 2014 so I qualify for it.

http://healthreform.kff.org/Subsidycalculator.aspx
User avatar
indexfundfan
Posts: 3961
Joined: Tue Feb 20, 2007 10:21 am
Contact:

Post by indexfundfan »

pshonore wrote:Where does the $9000+ come from?
I am guessing the other tax payers.
My signature has been deleted.
User avatar
gatorking
Posts: 1495
Joined: Tue Feb 20, 2007 5:15 pm
Location: MA

Post by gatorking »

scrabbler1 wrote:According to the online calculator I used, the subsidy does not phase out if the income exceed 400% of poverty. Therefore, if your income is barely above the threshold you get zero dollars of subsidy, meaning that a little bit more income actually makes you poorer overall.

My income (single person, early retiree) is right around the subsidy cutoff so it will be in my interest to keep it under in 2014 so I qualify for it.

http://healthreform.kff.org/Subsidycalculator.aspx
The difference is huge for a family of 4. If your income is 93000, you get back 15600 as a tax credit. But if you make 94000, you get nothing!!
User avatar
jeffyscott
Posts: 13438
Joined: Tue Feb 27, 2007 8:12 am

Post by jeffyscott »

indexfundfan wrote:
pshonore wrote:Where does the $9000+ come from?
I am guessing the other tax payers.

Assuming it is not a "refundable" credit, it is not coming from anyone but yourself, it's a tax credit, so instead of paying taxes you are paying health insurance premiums.

Also, the link above indicates on top of the premiums, if you are at 400% of poverty: "The maximum out-of-pocket costs the person/family will be responsible for in 2014 (not including the premium) is $4,167."
User avatar
Cloud
Posts: 662
Joined: Wed Sep 12, 2007 12:43 pm

Post by Cloud »

WOW! Interesting post. I kept wondering how the heck I'll afford my insurance if I retired before 65. Now I know!

Thanks for the post.
User avatar
norookie
Posts: 3016
Joined: Tue Jul 07, 2009 1:55 pm

Post by norookie »

zinnia wrote:I wouldn't approach early retirement with any certainty over health care costs.
Me either.....unless you like emergency room waits.
/^/The difference is huge for a family of 4. If your income is 93000, you get back 15600 as a tax credit. But if you make 94000, you get nothing!! /^/ isnt that wonderfull, must be magic! :evil: I'll not get political, those are the rules!
" Wealth usually leads to excess " Cicero 55 b.c
Topic Author
faltuk1
Posts: 99
Joined: Thu Oct 09, 2008 9:58 am

Post by faltuk1 »

This is not a tax credit. This is a direct subsidy. A family of 4 making $50000 would not be paying enough taxes to get enough tax credit.
jeffyscott wrote:
indexfundfan wrote:
pshonore wrote:Where does the $9000+ come from?
I am guessing the other tax payers.

Assuming it is not a "refundable" credit, it is not coming from anyone but yourself, it's a tax credit, so instead of paying taxes you are paying health insurance premiums.

Also, the link above indicates on top of the premiums, if you are at 400% of poverty: "The maximum out-of-pocket costs the person/family will be responsible for in 2014 (not including the premium) is $4,167."
User avatar
indexfundfan
Posts: 3961
Joined: Tue Feb 20, 2007 10:21 am
Contact:

Post by indexfundfan »

I posted some suggestions before on how to reduce your income during retirement to qualify for healthcare subsidy. I don't want to say more, otherwise it will be deemed political.
My signature has been deleted.
floydtime
Posts: 413
Joined: Sat Feb 26, 2011 9:09 pm
Location: A book

Post by floydtime »

Wow, so to make sure I understand all of this as I continue my long-held plan for early retirement in 2015...

1 - During the early years of my retirement, as I bridge the time until I can draw income from my 401k, I will live off of capital gains and some little interest income. This means that my income is virtually zero, correct?

2 - If I choose my insurance from one of the government exchanges after 2014, then I would receive a tax credit covering virtually 100% of my premiums each tax year (because of #1). Correct? EDIT - or would I just be getting Medicare in this case?

3 - If I start taking some actual taxable income, say, 30k a year, then according to the calculator linked earlier, I'm paying around 1k per YEAR, and the government is covering the rest?

4 - This would be true regardless of how much I have in savings and assets?

That seems to good to be true, but it IS the current law, right? IF nothing changes, then this goes into effect in 2014. That's a big "if", I know - I just want to be sure I understand the current law today, as it would effect my retirement.

Thanks,
User avatar
VictoriaF
Posts: 20122
Joined: Tue Feb 27, 2007 6:27 am
Location: Black Swan Lake

Post by VictoriaF »

floydtime wrote:Wow, so to make sure I understand all of this as I continue my long-held plan for early retirement in 2015...

1 - During the early years of my retirement, as I bridge the time until I can draw income from my 401k, I will live off of capital gains and some little interest income. This means that my income is virtually zero, correct?
If your income is virtually zero in early years of retirement, you could do some other things, too. For example, every year you could convert some amounts of your traditional IRA into Roth IRA calculated so as to keep you in a lower tax bracket or under the medical coverage threshold discussed above.

These conversions would reduce your RMD when you turn 70.

Victoria
Inventor of the Bogleheads Secret Handshake | Winner of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
floydtime
Posts: 413
Joined: Sat Feb 26, 2011 9:09 pm
Location: A book

Post by floydtime »

Yep, that's a great point. I just (re-)read that part of the Bogleheads' Retirement Guide for my own education. I should be able to get a tax of about 10-15% on small Roth conversions during those years.

Back to the insurance laws - since I am hoping to retire in 2015, I should have a much better idea by then if it will really be as good a deal for retirees as it currently seems.
linuxizer
Posts: 1783
Joined: Wed Jan 02, 2008 6:55 am

Post by linuxizer »

pshonore wrote:Their limit would be $3800 while a decent plan (depending on location) might cost $12K - $20K. Where does the $9000+ come from?
Some of it is subsidy, and a lot of it is through a reduction in the inefficiencies of the individual/small group market. Those efficiency gains come from:
-The individual mandate (should nearly eliminate adverse selection, at least on the extensive margin--the choice to participate in insurance at all rather than how nice a plan to choose)
-The exchange (should reduce search costs considerably, thereby increasing competitiveness of price quotes)
-Statutory limits on the MLRs allowed

In short, there's enough inefficiency in the current individual/small group market that driving out a substantial portion of it as the law attempts to do can substantially improve pricing even without subsidies.
Radiohead
Posts: 36
Joined: Wed Sep 17, 2008 9:01 pm

Post by Radiohead »

As someone who is dedicating years and years of effort to learn how to practice medicine, these threads about people wanting to consume healthcare services and not pay for them is really starting to scare me. :shock:
"Trying is the first step towards failure" -Homer
User avatar
shyguy
Posts: 10
Joined: Mon Nov 29, 2010 5:15 am

Post by shyguy »

As someone who also practices medicine, these threads about people who want to use healthcare services and not pay for them makes sense. The health care system has been ripping people off for years.
Radiohead wrote:As someone who is dedicating years and years of effort to learn how to practice medicine, these threads about people wanting to consume healthcare services and not pay for them is really starting to scare me. :shock:
pshonore
Posts: 8205
Joined: Sun Jun 28, 2009 2:21 pm

Post by pshonore »

linuxizer wrote:
pshonore wrote:Their limit would be $3800 while a decent plan (depending on location) might cost $12K - $20K. Where does the $9000+ come from?
Some of it is subsidy, and a lot of it is through a reduction in the inefficiencies of the individual/small group market. Those efficiency gains come from:
-The individual mandate (should nearly eliminate adverse selection, at least on the extensive margin--the choice to participate in insurance at all rather than how nice a plan to choose)
-The exchange (should reduce search costs considerably, thereby increasing competitiveness of price quotes)
-Statutory limits on the MLRs allowed

In short, there's enough inefficiency in the current individual/small group market that driving out a substantial portion of it as the law attempts to do can substantially improve pricing even without subsidies.
My half-asleep mind is having trouble understanding this. I agree there are market inefficiencies but in effect you're saying there are going to be significantly fewer $ "flowing" into the healthcare system. Which group will be getting less? The insurance companies, hospitals, doctors, drug companies, etc? And are the fines for not having coverage large enough to make a difference? I don't know what an MLR is so perhaps I misunderstanding the whole problem.
BruDude
Posts: 4203
Joined: Wed Dec 29, 2010 11:28 pm
Location: Las Vegas

Post by BruDude »

pshonore wrote:
linuxizer wrote:
pshonore wrote:Their limit would be $3800 while a decent plan (depending on location) might cost $12K - $20K. Where does the $9000+ come from?
Some of it is subsidy, and a lot of it is through a reduction in the inefficiencies of the individual/small group market. Those efficiency gains come from:
-The individual mandate (should nearly eliminate adverse selection, at least on the extensive margin--the choice to participate in insurance at all rather than how nice a plan to choose)
-The exchange (should reduce search costs considerably, thereby increasing competitiveness of price quotes)
-Statutory limits on the MLRs allowed

In short, there's enough inefficiency in the current individual/small group market that driving out a substantial portion of it as the law attempts to do can substantially improve pricing even without subsidies.
My half-asleep mind is having trouble understanding this. I agree there are market inefficiencies but in effect you're saying there are going to be significantly fewer $ "flowing" into the healthcare system. Which group will be getting less? The insurance companies, hospitals, doctors, drug companies, etc? And are the fines for not having coverage large enough to make a difference? I don't know what an MLR is so perhaps I misunderstanding the whole problem.
You are having trouble understanding it because it is wrong. :wink:
User avatar
jeffyscott
Posts: 13438
Joined: Tue Feb 27, 2007 8:12 am

Post by jeffyscott »

Yes, among the 30 OECD countries, only the US, Turkey, and Mexico had gotten it right.

Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, South Korea, Luxembourg, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Spain, Sweden, Switzerland, and the United Kingdom all got it wrong on health care. :roll:
SP-diceman
Posts: 3968
Joined: Sun Oct 05, 2008 9:17 am

Re: Health Care 2014 and early retirement

Post by SP-diceman »

faltuk1 wrote:the law puts some certainty in predicting health care expense.
You must be kidding?



Thanks
SP-diceman
linuxizer
Posts: 1783
Joined: Wed Jan 02, 2008 6:55 am

Post by linuxizer »

pshonore wrote:My half-asleep mind is having trouble understanding this. I agree there are market inefficiencies but in effect you're saying there are going to be significantly fewer $ "flowing" into the healthcare system. Which group will be getting less? The insurance companies, hospitals, doctors, drug companies, etc? And are the fines for not having coverage large enough to make a difference? I don't know what an MLR is so perhaps I misunderstanding the whole problem.
First, it's important to note that the individual/small group market is not the bulk of health spending. That honor goes to the Medicare and employer-sponsored insurance markets, and to a lesser extent to Medicaid. So changes to this market should have a much bigger effect on individuals purchasing insurance than on doctor salaries.

A bit of background helps here. Health insurance serves to cover the financial losses associated with getting sick. Most people are risk-averse, which is to say they prefer getting $1 with certainty to $0 half the time and $2 the other half the time. If someone is risk-averse, it implies she will purchase insurance even if there is a load*. The question is how big a load will they tolerate before dropping out of the insurance market. 45% of individual market's insurees are in plans with MLRs below 75% (and therefore loads above 25%). Therefore there's quite a bit of inefficiency to be driven out.

Price decreases from a reduction in search costs and the limits on MLRs will come mostly out of insurer revenue. Adverse selection is a bit trickier to figure out. One way to think about it is that there is implicit insurance provided by bankruptcy law and EMTALA, which means that currently healthy folks are not as willing as they should be to purchase insurance. By bringing these folk into the market, they pay their fair share, and therefore insurer profits might be increased by this provision (a major reason the insurers pushed for a mandate, although the other effects likely more than cancel this out).

* For a simplified definition, think of a load as (1-MLR). In other words, the load is the portion of insurance premia that doesn't get paid out as medical spending, whereas the MLR is the portion that does.
User avatar
bottlecap
Posts: 6906
Joined: Tue Mar 06, 2007 10:21 pm
Location: Tennessee

Post by bottlecap »

Contrary to popular opinion, there is no free lunch (still).

JT
BruDude
Posts: 4203
Joined: Wed Dec 29, 2010 11:28 pm
Location: Las Vegas

Post by BruDude »

linuxizer wrote:
pshonore wrote:My half-asleep mind is having trouble understanding this. I agree there are market inefficiencies but in effect you're saying there are going to be significantly fewer $ "flowing" into the healthcare system. Which group will be getting less? The insurance companies, hospitals, doctors, drug companies, etc? And are the fines for not having coverage large enough to make a difference? I don't know what an MLR is so perhaps I misunderstanding the whole problem.
First, it's important to note that the individual/small group market is not the bulk of health spending. That honor goes to the Medicare and employer-sponsored insurance markets, and to a lesser extent to Medicaid. So changes to this market should have a much bigger effect on individuals purchasing insurance than on doctor salaries.

A bit of background helps here. Health insurance serves to cover the financial losses associated with getting sick. Most people are risk-averse, which is to say they prefer getting $1 with certainty to $0 half the time and $2 the other half the time. If someone is risk-averse, it implies she will purchase insurance even if there is a load*. The question is how big a load will they tolerate before dropping out of the insurance market. 45% of individual market's insurees are in plans with MLRs below 75% (and therefore loads above 25%). Therefore there's quite a bit of inefficiency to be driven out.

Price decreases from a reduction in search costs and the limits on MLRs will come mostly out of insurer revenue. Adverse selection is a bit trickier to figure out. One way to think about it is that there is implicit insurance provided by bankruptcy law and EMTALA, which means that currently healthy folks are not as willing as they should be to purchase insurance. By bringing these folk into the market, they pay their fair share, and therefore insurer profits might be increased by this provision (a major reason the insurers pushed for a mandate, although the other effects likely more than cancel this out).

* For a simplified definition, think of a load as (1-MLR). In other words, the load is the portion of insurance premia that doesn't get paid out as medical spending, whereas the MLR is the portion that does.
I think you do not understand the individual health insurance market very well. MLR does not decrease the cost of health insurance, it only makes the customer service and administrative tasks worse because that is where spending gets cut. Think about it this way:

1. Company ABC has a 75% MLR and 500 customer service reps located in the same state as the insurance company. When you call because of a claim or service issue, they answer immediately.

2. Company DEF has an 80% MLR and 100 customer service reps that are located overseas because they cost less than American workers. The money for the other 400 reps was spent on medical care. Now you wait for an hour on the phone to get an answer for anything. The economic benefit of 500 tax-paying American workers that buy US goods and services has also been lost.

That is a very general example, but you get the idea. If anything, the new laws will substantially increase the cost for all people buying health insurance that do not fall in the subsidized category. A family of 4 will no longer be able to get a good policy for $350/month. In 2014, their policy will be $1000+ per month if they are not subsidized. Not only that, but all individuals who are NOT subsidized must pay a share in taxes to subsidize those who do qualify (along with businesses that will be required to pay new taxes also).

Most families struggle to pay the current cost of health insurance. What will happen to our economy when middle class families just lost another $5-10,000/year to health insurance? They will either make the economic decision to go without it, or the economy will suffer because those dollars are now spent on insurance instead of other consumer goods or services. When the healthy families go without health insurance, the premium death spiral begins.

As bottlecap said above, there is no free lunch.
Jack
Posts: 3254
Joined: Tue Feb 27, 2007 1:24 am

Post by Jack »

BruDude wrote:1. Company ABC has a 75% MLR and 500 customer service reps located in the same state as the insurance company. When you call because of a claim or service issue, they answer immediately.
More typically what you have are 100 customer service reps and 400 medical loss reduction workers whose job it is to figure out ways to deny claims and keep the MLR below 75%.
linuxizer
Posts: 1783
Joined: Wed Jan 02, 2008 6:55 am

Post by linuxizer »

BruDude wrote:I think you do not understand the individual health insurance market very well.
Some of what you say is true in perfectly competitive markets, but these markets are mostly oligopolies. Therefore you cannot assume that the entirety of the load represents useful services like customer service or even authorization management.

The rest of your post is simply an emotional argument about what happens when premia rise. Unfortunately, no where do you show the mechanism by which that will happen.
User avatar
bottlecap
Posts: 6906
Joined: Tue Mar 06, 2007 10:21 pm
Location: Tennessee

Post by bottlecap »

linuxizer wrote:[
Some of what you say is true in perfectly competitive markets, but these markets are mostly oligopolies.
.
A small number of large firms in a market does not create an oligarchy, nor does it prevent competition. Except in rare cases true anticompetitive oligarchies can't exist without regulation. There is no reason why the health care industry would become such, except through force of law.

JT
cubedbee
Posts: 312
Joined: Tue Aug 04, 2009 11:13 am

Post by cubedbee »

Jack wrote:
BruDude wrote:1. Company ABC has a 75% MLR and 500 customer service reps located in the same state as the insurance company. When you call because of a claim or service issue, they answer immediately.
More typically what you have are 100 customer service reps and 400 medical loss reduction workers whose job it is to figure out ways to deny claims and keep the MLR below 75%.
Complete BS. I work for an insurer. Customer Service is at least 100 times as big as Fraud & Abuse, they fill several buildings as opposed to half of a floor.
linuxizer
Posts: 1783
Joined: Wed Jan 02, 2008 6:55 am

Post by linuxizer »

bottlecap wrote:A small number of large firms in a market does not create an oligarchy, nor does it prevent competition. Except in rare cases true anticompetitive oligarchies can't exist without regulation. There is no reason why the health care industry would become such, except through force of law.
The economic definition of oligopoly is simply based on the number of firms, not on what effect that concentration has. The paper I linked to primarily used an alternative measure anyway, the HHI, which is the standard for measuring concentration and is based off how much of the market each firm controls. By either measure, health insurance markets are extremely concentrated.
BruDude
Posts: 4203
Joined: Wed Dec 29, 2010 11:28 pm
Location: Las Vegas

Post by BruDude »

linuxizer wrote:
BruDude wrote:I think you do not understand the individual health insurance market very well.
Some of what you say is true in perfectly competitive markets, but these markets are mostly oligopolies. Therefore you cannot assume that the entirety of the load represents useful services like customer service or even authorization management.

The rest of your post is simply an emotional argument about what happens when premia rise. Unfortunately, no where do you show the mechanism by which that will happen.
The mechanism by which it will happen? Guaranteed issue coverage + minimal penalty for not enrolling + no open enrollment period limitation + "mandate creep" (I can explain this if you want) + adverse selection = ridiculously high premiums. Here are the five states with the highest health insurance premiums:

New York, Massachusetts, New Jersey, New Hampshire, Maine

I'll give you a guess as to what all of those states have in common. Blame the laws and regulations put in place, not the insurance companies. They don't make the rules, they just abide by them.

You should try selling health insurance for a while...then you might see that I am right. :)
User avatar
bottlecap
Posts: 6906
Joined: Tue Mar 06, 2007 10:21 pm
Location: Tennessee

Post by bottlecap »

linuxizer wrote: The economic definition of oligopoly is simply based on the number of firms, not on what effect that concentration has. The paper I linked to primarily used an alternative measure anyway, the HHI, which is the standard for measuring concentration and is based off how much of the market each firm controls. By either measure, health insurance markets are extremely concentrated.
The link you provide includes both definitions. Regardless, your suggestion was that there was an oligarchy and therefore the market was not competitive. A market can be competitive even just two sellers, which I would think is extremely concentrated.

JT
cubedbee
Posts: 312
Joined: Tue Aug 04, 2009 11:13 am

Post by cubedbee »

BruDude wrote:
linuxizer wrote:
BruDude wrote:I think you do not understand the individual health insurance market very well.
Some of what you say is true in perfectly competitive markets, but these markets are mostly oligopolies. Therefore you cannot assume that the entirety of the load represents useful services like customer service or even authorization management.

The rest of your post is simply an emotional argument about what happens when premia rise. Unfortunately, no where do you show the mechanism by which that will happen.
The mechanism by which it will happen? Guaranteed issue coverage + minimal penalty for not enrolling + no open enrollment period limitation + "mandate creep" (I can explain this if you want) + adverse selection = ridiculously high premiums. Here are the five states with the highest health insurance premiums:

New York, Massachusetts, New Jersey, New Hampshire, Maine

I'll give you a guess as to what all of those states have in common. Blame the laws and regulations put in place, not the insurance companies. They don't make the rules, they just abide by them.

You should try selling health insurance for a while...then you might see that I am right. :)
You are 100% right. Also, for the 2014 exchanges, age rating is limited to a 3:1 ratio. Actual cost for a 60-64 year old vs a 26-30 year old (we'll assume everyone yiounger stays on parents policy) is closer to 6:1, and current premiums reflect that. The "young invincibles" are one of the biggest segments opting out of insurance today, and the tiny tax penalty will not change that when premiums double.
linuxizer
Posts: 1783
Joined: Wed Jan 02, 2008 6:55 am

Post by linuxizer »

BruDude wrote:The mechanism by which it will happen? Guaranteed issue coverage + minimal penalty for not enrolling + no open enrollment period limitation + "mandate creep" (I can explain this if you want) + adverse selection = ridiculously high premiums.
Open enrollment is irrelevant if there's a mandate. Adverse selection will decline post-mandate, not increase. Either the penalty is minimal or there's mandate creep, not both. There's no consistency to this argument at all.

Look, it's very clear that you're not interested in having a discussion about this, so I'm out. I suggest you read Long et al (2009), Yelowitz and Cannon (2010), and Kolstad and Kowalski (2010) if you're actually interested in learning what health economists have to say on the subject.

I doubt I will reply to this thread any more.
BruDude
Posts: 4203
Joined: Wed Dec 29, 2010 11:28 pm
Location: Las Vegas

Post by BruDude »

linuxizer wrote:
BruDude wrote:The mechanism by which it will happen? Guaranteed issue coverage + minimal penalty for not enrolling + no open enrollment period limitation + "mandate creep" (I can explain this if you want) + adverse selection = ridiculously high premiums.
Open enrollment is irrelevant if there's a mandate. Adverse selection will decline post-mandate, not increase. Either the penalty is minimal or there's mandate creep, not both. There's no consistency to this argument at all.

Look, it's very clear that you're not interested in having a discussion about this, so I'm out. I suggest you read Long et al (2009), Yelowitz and Cannon (2010), and Kolstad and Kowalski (2010) if you're actually interested in learning what health economists have to say on the subject.

I doubt I will reply to this thread any more.
I think you are living in a fantasy world, no offense. If open enrollment is irrelevant with a mandate, why did Massachusetts just now implement an open enrollment period after 5 years of allowing people to apply any time? Maybe it was because of the number of people that would sign up for a policy right before they needed surgery or childbirth and then dropped it immediately afterward.

I am surprised that you think adverse selection will not be a problem post-mandate. The penalty for not having insurance is so small relative to the cost of having it that many people in good health will choose to not pay for the insurance until they need it. A mandate only works if the marginal cost of the penalty exceeds the marginal benefit of not having the coverage. EX: If coverage is $10,000 per year and penalty is $7500, people would likely buy it. If coverage is $10,000 per year and penalty is $500, many will not buy it. The minimal penalty written into the law is much too small for insureds to even begin thinking that it will effect their decision whether to buy coverage or not.

I don't care what health economists have to say. Economists' opinions are like you know what...learn from experience, not a theoretical standpoint.
mark500
Posts: 392
Joined: Sat Oct 11, 2008 8:37 am

Post by mark500 »

We may be headed for a two tiered health care system. One affordable with centrally decided limitations on care, wait times, cronyism...and the other with minimal rationing but much costlier.
Post Reply