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ObamaCare Clusterfuck: Why the health exchanges will not drive prices down

Let me begin by admitting that the top-grade ObamaCare plan -- available only to the most virtuous -- is not Gold, but Platinum.* I don't know how I've been missing Platinum; I must have been thinking Olympic medals, not credit cards. Anyhow, the plan for losers for minimum coverage is still Bronze. Alrighty then. So how are we citizens hapless dupes consumers supposed to compare plans and, by making informed choices in the marketplace, do our bit to bring heath care prices down? Kaiser explains [PDF], and by "explain" I mean "embarks on a lengthy explanation that involves three studies." The paper is from 2011, but the analysis is still good:

The ACA identifies a range of services that must be included in the benefits package that all individual and small business plans must use – and requires preventive services to be covered with no patient cost-sharing – with further details to be developed by the Secretary of Health and Human Services (HHS). These requirements apply to all tiers of health insurance coverage, meaning that differences in the levels of coverage will reflect variation in cost-sharing, not differences in the underlying benefits.

The ACA specifies that beginning in 2014 insurance newly sold to individuals and small businesses in an Exchange or otherwise must be at one of four actuarial value levels: 60% (a bronze plan), 70% (a silver plan), 80% (a gold plan), and 90% (a platinum plan).

These tiers do not apply to coverage already in existence meeting certain conditions (so-called "grandfathered" plans). The ACA also requires that plans cap the maximum out-of-pocket costs for enrollees, based on the out-of-pocket limits in high-deductible plans that are eligible to be paired with a Health Savings Account.

The current limits are $5,950 for an individual and $11,900 for a family, and will be adjusted over time after 2014 based on increases in premiums.

Now, I know you're dying to know what "actuarial value" is, because last I checked, I don't have any of that in the coffee can on the kitchen table with the money, if any, in it, so I'm curious to know if ObamaCare is going to tell me what I'm going to have to actually pay, as opposed to making me set up a some kinda spreadsheet to figure out what I might pay, some day, if I can wrestle it out of the kindly call center folks if and when they ever pick up the phone:

However, the levels of coverage in the ACA are not defined using specific deductibles, copays, and coinsurance. Rather, they are specified using the concept of an "actuarial value" (AV). For example, a plan with an actuarial value of 70% (referred to as a "silver" plan in the ACA) means that for a standard population, the plan will pay 70% of their health care expenses, while the enrollees themselves will pay 30% through some combination of deductibles, copays, and coinsurance. The higher the actuarial value, the less patient cost-sharing the plan will have on average. The percentage a plan pays for any given enrollee will generally be different from the actuarial value, depending upon the health care services used and the total cost of those services. And, the details of the patient cost-sharing will likely vary from plan to plan.

Stop right there. Remember the five criteria for a successful health exchange? ObamaCare fails four of five (and the one they pass is -- and I know this will surprise you -- a "level playing field" for the insurance companies). But the criterion that matters here is this one: "[A]pplying for subsidies must be simple."

ObamaCare is supposed to empower citizens consumers by enabling them to comparison shop, right? Just like you're buying an airline ticket online. But how are you supposed to comparison shop when you can't compare the competing products*** on price, but have to use "actuarial value" instead? It's as if supermarkets started posting unit prices not by weight or volume, but by "magic points" or "arcane power."

[A]ctuarial values are not an inherently intuitive idea for most people [no shit, Sherlock], so the Kaiser Family Foundation initiated a study to estimate the deductibles and coinsurance that would meet the thresholds defined in the ACA. Because there is inherent uncertainty in actuarial analysis – driven by different assumptions and data – the study commissioned estimates from three well-established actuarial and benefits consulting firms

[At this point, we encounter Table I, which shows that there are nine levels, "A" through "I", in the four plans, with "A" at the loser and sucky (Bronze) end and "I" at the deserving and most excellent (Platinum) end. But let's move on!] So, Kaiser had the three studies done, and here's how the estimates turned out:

Apart from the specific details of any of the plan designs, one notable conclusion from the analysis is the substantial variation in the estimates. For example, the estimated deductible for a silver plan (plan B in Table 2) ranges from $1,850 to $4,200 for single coverage, with 20% coinsurance required above the deductible in all cases. The variation – which exists in spite of agreement upfront among the firms on a common set of major assumptions – is primarily due to differences in the assumed distribution of health expenses across the population, as well as how patients are believed to respond to varying levels of cost-sharing in their use of services. The actual variation in the market starting in 2014 will be affected by rules issued by HHS governing how actuarial value is to be assessed, and by how those rules are implemented in practice by state-established Exchanges.

Note that even when HHS issues the rules, they're still implementation-dependent, and so will vary randomly depending on where you have the good or bad luck to live. Here's the bottom line:

The analysis also points to the potential for substantial variation in plan designs meeting the actuarial value thresholds in the law, suggesting that the terms of coverage could vary significantly across insurers. The extent to which this is the case will depend on the degree of competition [if any] in a market, but also importantly on how much standardization is required by HHS and states in evaluating the actuarial value of insurance products. Significant variation in plan designs could make it more difficult for consumers to compare plans and dampen how much competition over price emerges in the insurance market. Exchanges could play an important role in helping consumers understand their choices by, for example, providing online tools to estimate their out-of-pocket costs.

So it's come to this. We don't know what the policies, no matter what "metal,"**** will really buy. Although they will be identical from the standpoint of AV, they will vary by health care actually delivered. (Health insurance does not mean health care. Who knew?)

Nor can we know what the out-of-pocket costs will be. First, these "online" tools are going to work only for those who have computers (and if you're really poor, you might not), and whose computers are powerful enough to handle complex sites (more might not). And that's leaving aside issues of complexity and usability in the user experience. Second, these tools are unlikely to be built at the state level (Colorado hasn't even coded up their eligibility requirement) and from the way the Feds are talking, not there either. I mean, if the goal is to "avoid a third-world experience" an online out-of-pocket calculator isn't anywhere near the table, let alone on it.***** Third, where do these out-of-pocket online calculator tools get their price data from? The marketplace in health care is notorious for its lack of transparency and arbitrary pricing. So doesn't ObamaCare really, in the words of the old joke about economists, assume a tool for price comparison?

In other words, citizens consumers are being asked to do what government, through single payer, can and should be doing: Force prices down through bargaining power. But ObamaCare sets citizens consumers up for failure: The exchanges cannot and and will not be able to translate AV into actual health care services delivered, nor will online calculators, even if they are implemented, be able to determine out-of-pocket costs. Ergo, citizens will not be able to bargain successfully.

The whole justification for ObamaCare has been that informed consumers, shopping online, will drive prices down through the magic of the marketplace. That premise lies in ruins.

NOTE * It sure is odd that all the product variation is at the top end: Platinum, Gold, Silver. Then we've got Loser** Bronze, but we don't have Tin, or Lead. Or Cardboard. Odd, that, unless all the insurance companies care about is whether you've got the lettuce, the ready, the long green, the baksheesh, the bread, the bucks, the dough, the Almighty Dollar. NOTE ** Actually, that's unfair. The real losers are forced into Medicaid.

NOTE *** Assuming an absence of collusion which, just as in the airline industry, is probably a bad idea.

NOTE **** Yes, "metal" is the jargon.

NOTE ***** HHS provides an AV calculator:

To streamline and standardize the calculation of AV for health insurance issuers, HHS is providing a publicly available AV Calculator, which issuers will use to determine health plan AVs based on a standard population, as required by law. In 2014, the AV Calculator will use a national standard population. As described in the final rule, beginning in 2015, HHS will accept state-specific data sets for the standard population if states choose to submit alternate data for the calculator. The final rule includes standards and considerations for plans with benefit designs that the AV Calculator cannot easily accommodate. Consumer-driven health plans, such as high-deductible health plans integrated with health savings accounts, are compatible with the AV Calculator. The AV Calculator is posted on the CCIIO website.

HHS recognizes that health plans need some flexibility in meeting the metal levels. Therefore, we finalized that a plan can meet a particular metal level if its AV is within +/- 2 percentage points of the standard. For example, a silver plan may have an AV between 68 percent and 72 percent. In addition, the final rule provides flexibility for issuers in the small group market regarding annual deductible limits if necessary to achieve a particular metal level.

Here are links to the calculator, which is an Excel spreadsheet. I'm sure there's nothing wrong with it. Needless to say, an AV calculator is not the same as a price calculator.

Average: 5 (1 vote)


Submitted by jawbone on

particular health care device or treatment reminds me of why I chose to go with regular Medicare and a Supplemental plan which covers copays and deductibles*.

It was impossible to learn from any of the Medicare Advantage plans just what would or would not be covered, how much I would be paying out of pocket.

So, I swallowed hard and paid up front for the supplemental plan, for the peace of mind so I could decide on health care on its merits, not on how deeply in debt it might put me.

That, btw, is exactly why Obama wants to make seniors pay through the nose for supplemental plans. He thinks they lead to over use, while I, a health care user, see it as the only way I can afford to make my health care decisions based on my health needs. But, I also hate going to doctors, so I sure try to not over use 'the system." It's not like going to a doctor is some kind of fun. Albeit I have a couple doctors I do genuinely like.

Now, if I had to to do it Obama's way, I probably would go for the higher cost, but quicker treatment time, of surgery up front. As it is, I'm being conservative to avoid possible bad outcomes of surgery(ies).

*How long I can afford it is another issue....

nihil obstet's picture
Submitted by nihil obstet on

So, if you get a silver plan, which turns out to pay only 50% of your medical expenses, the insurance company can say that it's not screwing you. You just don't have the same expectations as the standard population. There are so many ways to enter different data and expectations into spreadsheets, and no serious way to track the medical expenditures of consumers that any notion of actual enforcement of any standards is farcical.

Submitted by jawbone on

insurance companies and other big health industry players.

But I thought they were getting enforced purchase of their products. I didn't realize Obama/Baucus/the industry officials sent to help write the plan/the Corporatists in the Administration and Congress would be quite so openly nefarious in their plans for bamboozling the public.

Gee -- it was all about setting us up to be sucked dry, wasn't it? By Banksters, health insurers, communications giants. Yikes.

I also knew I immediately lost any trust I'd had in Obama during the primaries when he called out the Hillary team for trying to bamboozle the public. It seemed to be so clearly projection on his part....

Submitted by lambert on

So much pointless complexity. And then whole industries layered on top of the complexity that shouldn't exist in the first place, to "explain" it and "justify" it. Thing is, once people fight their way through the crap to find a solution, they then become invested in it, so it's hard to argue for something better. I don't do well in RL with this.

beowulf's picture
Submitted by beowulf on

I can't believe the politicians are so stupid not to realize that all four levels of coverage does is test for price sensitivity.

If money is no object of course you'll get the platinum plan for the convenience of just "paying at the office". If you're living hand to mouth, the lowball bronze plan may be all you can afford (and not everyone will be able to afford that).

Submitted by lambert on

I'm just trying to figure this out as I go along and I'd welcome more expertise (and also, as a single payer advocate, I hate the entire model with the hatred of a thousand burning suns, and the tactics of the career "progressives" who got it passed don't leave me with warm and fuzzy feelings either). I haven't had health insurance since around 2006, and the thought of trying to "navigate" this system makes my back teeth ache. Even though it will work out fine for some, it won't for all, and it's not even designed for that purpose.

Rainbow Girl's picture
Submitted by Rainbow Girl on

And the only thing that this migraine-inducing abortion of an insurance-company-feeding program Final Solution -- it's FrankenCare after all -- that is apparent as the triple-migraine from deciphering this s**t wanes, is that the (albeit completely and intentionally obscured) actual prices (the only item that matters to citizens consumers) will be stacked One Billion to Zero against citizens consumers.

This Clusterfuck has got to be torn down NOW.

P.S. Thanks Lambert for suffering the exponentially greater migraines (physical and psychic) of plowing through, and admirably laying out with great clarity, what this monster really looks like (and is programmed to do -- viz., make us die trying to "navigate" or signing up for Secret Door for Losers (Bronze), and/or Secret Door for Total Losers (Medicaid).

"Marchons, aux Battaillions!"

Rainbow Girl's picture
Submitted by Rainbow Girl on

I picture Mr. Barack Obama every morning waking at dawn, kneeling at a prie-dieux facing two life-sized portraits of Mrs. Thatcher and Mario Draghi and praying:

"Make me a channel of your cruelty,
That where there is light I may bring dark,
That where there is kindness I may bring cruelty,
That where there is hope I may bring despair,
That where there is a social contract I may smash it,
That where there is life I may bring death."

Submitted by lambert on

Is it a parody of something and if so what?

Rainbow Girl's picture
Submitted by Rainbow Girl on

Lord, make me a channel of thy peace--that where there is hatred, I may bring love--that where there is wrong, I may bring the spirit of forgiveness--that where there is discord, I may bring harmony--that where there is error, I may bring truth--that where there is doubt, I may bring faith--that where there is despair, I may bring hope--that where there are shadows, I may bring light--that where there is sadness, I may bring joy. Lord, grant that I may seek rather to comfort than to be comforted--to understand, than to be understood--to love, than to be loved. For it is by self-forgetting that one finds. It is by forgiving that one is forgiven. It is by dying that one awakens to eternal life.

(Adopted as the "11th Step Prayer" in AA)

Rainbow Girl's picture
Submitted by Rainbow Girl on

I see it as an open-source kernel ... inviting anyone to add a line or lines ... spanning dualities of experience at the highest levels of generality (moral, ethical, principled) and specificity (concrete experience(s) as humans enduring this historical phase of viciousness by the Peter Pinguid Society against the 99.9%).

But yes, I'll work on my version of the second half!

quixote's picture
Submitted by quixote on

Forget writing it. I couldn't have done it. I would have drooped like a tired lily and given up about half way through.

What a pig's breakfast.

And I thought the whole deal was that since everybody has to be in (I know, I know, but bear with me) that'll keep premium's down. But if we have all these different metals (pardon me while I scream a bit AAAAAAUUUUUGGHHH) then we're right back to the young and healthy paying less which puts the wise and aged into an AV where the "A" will stand for "Astronomical."

You know, I wasn't sure before whether this whole schmear would get tossed or not. Surround anything with enough circus and you can sell it to anyone. But this is so bad I'm pretty sure we're going to get an update on the old saw about a conservative being a liberal who's been mugged. A Republican will be an Obama voter who had to pay through the Exchange.

Rainbow Girl's picture
Submitted by Rainbow Girl on

Perfect. And fitting, too -- I imagine that towards the end of the degradation spiral deliberately engineered by the ObamaFrankenCareClusterfuck (following Cat Food, then Offal) -- just before an American's last breath -- there comes Pig Slop (a truer description than "health care" of what an 'Insurance Exchange Product' will deliver to its victim consumer.)

Submitted by lambert on

Yes. My favorite quote is from Henry Chao, CMS Deputy CIO: "Let's just make sure it's not a third-world experience." Then again, I've been to Bangkok, and frankly, I'd welcome a third world experience. Can you imagine, their hospital didn't feel like a jail!

Anyhow, as to the movie:

NOTE Now, I really should be fair. ObamaCare, as a policy, is a Clusterfuck. But that doesn't mean that it won't actually help some people, and if experience is any guide, those people will be only and exactly those who the Democrats need in 2016, just as the people the first round of ObamaCare helped were young people (Obama voters) and professionals with some health insurance already (Obama voters). They will be extremely tenacious in defense of their status as a privileged class. I was not able to break through on this issue with them at all in 2012 (though granted I am too pissed off to be a really good RL advocate). So the politics of all this, as opposed to the policy, are dicey.

katiebird's picture
Submitted by katiebird on

Maybe I'm too wrapped up in what I've learned throughout this series but, I USED to think it would help some people (and in spite of my loathing for it, thought it might help my family) but I'm starting to wonder.

The stuff about the subsidies and estimating income and perjury and paying back subsidies gives me pause. How well will they integrate the exchanges with the IRS data? Or will they? Does it work the other way? With the IRS integrating with the Exchanges? Do you HAVE to get subsidies in advance (the whole, "guess next year's income" game kind of freaks me out)? Or can you get them as tax credits for the previous year? And how does that work? Would they still go to the insurance company? Do you ever get caught up so you get that first year of payments back?

And that whole complicated formula for deciding which bucket we each belong to..... I still can't tell if I qualify for an exchange or not. And I consider myself pretty well informed about it. Considering.

quixote's picture
Submitted by quixote on

Wait, as they say. There's more. I followed jo6pac's link above, and in comments someone linked to a Kaiser calculator:

So, for the hell of it, I plugged in a 62 year-old making $59,000 and no employer insurance. An IT drone, say. Or perhaps a fancy restaurant manager. Expected premiums: $12,206. Help with the premium: $0 ($59,000 is 513% of poverty level...). After taxes, someone making $59,000 will have maybe $50,000 or so, so they're expected to spend

nearly 25% of their income on health insurance. Cool.

Now comes the kicker. That hasn't bought any actual health care. Should you need any, and at 62 that's not out of the question, that comes on top of the 25% you're already forking over. According to that calculator, maximum out of pocket would be another $6250.

$18456 in payments for someone living on $50,000.

And it's not clear from the calculator whether maximum out of pocket really means maximum out of pocket. There's also something about how the insurance company only has to pay out up to the percentage it's responsible for: 60%, 70%, 80% or 90%.

So which is it? Is there an actual cap or isn't there?

quixote's picture
Submitted by quixote on

Reinhart-Rogoff wrote a paper in 2010 that's been much-cited by Powers-That-Be to justify austerity. They said high debt results in low growth so it's vital to reduce debt. It turned out recently that they'd made an Excel calculation error. Without the error, and without their shall we say unusual way of weighting the data and leaving out some countries, their results actually show the opposite of what they said. Low growth produces high debt, and what's really vital is to promote growth. Countdown to the Austerians not changing a thing in ... 3 ... 2 ... 1 ....

quixote's picture
Submitted by quixote on

Sorry. Misunderstood. R-R shows up as real GIGO. And all the ACA boosters with their "Oh but we'll have more coverage," "Oh but it will be cheaper because Mandate!" similarly seem to have left some calcs blank, misweighted other stuff, and left things like no cap (??) totally out of their optimism.

Rainbow Girl's picture
Submitted by Rainbow Girl on

... thanks for this.

But caution: "After taxes, someone making $59,000 will have maybe $50,000 or so ..." I don't know what state you live in, but in mine (NYC) at $59,000 gross per annum, take home is closer to $35K-$45K. Which of course just makes the calculations that much more hideous -- or the *lack of a cap* (as you point out) that much more insidious and terrifying.

Rainbow Girl's picture
Submitted by Rainbow Girl on

... and the actual NYC take home pay doesn't include the high-frequency-acceleration of inflation for all the other basics that compete for large chunks of net pay -- e.g., rent, food, transportation, utilities. All these categories already eat up everything people take home (and then some). The negative hole created by the massive payments forced by the ACA "bucket scheme" can spell only personal bankruptcy or worse for all those affected (the supposed "beneficiaries").

quixote's picture
Submitted by quixote on

I'm in CA, and yes, the official tax is higher here too. But I'm trying to apply favorable assumptions to make the Obamacare deal look as good as possible. (Maybe this IT drone takes a mortgage interest deduction?) And even with those assumptions, $18,000 a year is what comes up. Christ on a fat-free cracker.

(I'm one of the vanishingly lucky ones with good health insurance from a state job. The few thousand a year I have to pay buy me actual health care. So far.)

Rainbow Girl's picture
Submitted by Rainbow Girl on


I'm happy for you that you've got HI from your Cal. job -- that's the only remaining configuration that seems humane (HI offered through public employers -- at least some of them.) Hold on to that!

Rainbow Girl's picture
Submitted by Rainbow Girl on

... about making the most generous assumptions re. what take home pay would look like. But I would "asterisk" that and mention as a note what the "aggravating factors" (and ultimate net income outcome) could very well be. I'm noting this only because the way you went through the steps (how many people are doing that and posting?!) could really help people see through the smoke.

Rainbow Girl's picture
Submitted by Rainbow Girl on

When you lay out the figures as you did:

With the Elusive Cap under the calcs you did yielding "$18456 in payments for someone living on $50,000."

I mean, no wonder none of the crony-media coverage or HHS edjamacation/'splaination campaigns (richly funded by us paying fri**n' contractors) about this horror show don't discuss the actual numbers. If the Outreach Efforts were to email everyone a schedule of what their actual payments (not including a "shifting cap") would be it's clear what would happen -- there would be a mass revolt, for real.

Maybe propagating real dollar figures for different salary scenarios would start making inroads into the mass apathy/ignorance?

I mean, a lot of people might understand what's coming down the pike if it was presented in dollars and cents terms -- most Americans probably would get it if they realized that getting an ACA "exchange policy" would be like taking out a mortgage that requires monthly payments of 30-60% of their take home pay before expenses like food and utilities and transportation?!

Rainbow Girl's picture
Submitted by Rainbow Girl on

Can you imagine if when people went to (1) buy a house, (2) sign a lease, (3) buy/lease a car, they would be required to sign a contract without fixed financial terms? For example, in (1) "your mortgage may be 20 years or 30 (can't say at this point), and your payments will vary somewhere between LIBOR + 5 basis points and LIBOR + 15 basis points as announced bi-weekly, bla bla; (2) "your rent over 12 months will not be less than $1,500 per month but the cap is variable and could be as much as 35% more on any given month, as determined on the 29th of each month by Landlord"; (3) "thanks for buying this car -- you will know what your monthly payments are when you receive our bill on the 15th of each month for the next 72 months -- in no event will the total amount you pay in principal and interest be less than $12,000, but we can't say how much more than that it will end up costing you."

This is basically how credit cards work -- rates, penalties, etc. subject to change without notice at any time by credit card issuer.

Eureka! This is why the ACA uses credit card nomenclature (Platinum, Gold, Silver, Loser) to classify the "insurance exchange products"! Because these "policies" are just like credit card contracts -- no caps, AVs instead of prices, 1000 variables unknown at the outset, etc. etc. -- a completely unpredictable financial liability.

[Face palm -- and I thought the Precious-to-Base-Metals categories were simply a function of the industry bias (and associated metaphor capability) of the drafters of the law. Meanwhile, therein has lain the Big Clue to what ACA Clusterfuck is all about -- not only force all health coverage into private insurance markets, but make private insurance policies even worse than they are now -- i.e., turning them, effectively, into credit-card adhesion contracts.]

Rainbow Girl's picture
Submitted by Rainbow Girl on

with terms grossly favoring the issuer and which consumer must sign on "take it or leave it" basis. (Abusive instruments of kleptocracy.)

Here's Definitions from a Legal Dictionary Site.

A type of contract, a legally binding agreement between two parties to do a certain thing, in which one side has all the bargaining power and uses it to write the contract primarily to his or her advantage.

An example of an adhesion contract is a standardized contract form that offers goods or services to consumers on essentially a "take it or leave it" basis without giving consumers realistic opportunities to negotiate terms that would benefit their interests. When this occurs, the consumer cannot obtain the desired product or service unless he or she acquiesces to the form contract.

There is nothing unenforceable or even wrong about adhesion contracts. In fact, most businesses would never conclude their volume of transactions if it were necessary to negotiate all the terms of every Consumer Credit contract. Insurance contracts and residential leases are other kinds of adhesion contracts. This does not mean, however, that all adhesion contracts are valid. Many adhesion contracts are Unconscionable; they are so unfair to the weaker party that a court will refuse to enforce them. An example would be severe penalty provisions for failure to pay loan installments promptly that are physically hidden by small print located in the middle of an obscure paragraph of a lengthy loan agreement. In such a case a court can find that there is no meeting of the minds of the parties to the contract and that the weaker party has not accepted the terms of the contract.
[This is obviously an opinion (cough) of the writer.]

West's Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. All rights reserved.

adhesion contract (contract of adhesion) n. a contract (often a signed form) so imbalanced in favor of one party over the other that there is a strong implication it was not freely bargained. Example: a rich landlord dealing with a poor tenant who has no choice and must accept all terms of a lease, no matter how restrictive or burdensome, since the tenant cannot afford to move. An adhesion contract can give the little guy the opportunity to claim in court that the contract with the big shot is invalid. This doctrine should be used and applied more often, but the same big guy-little guy inequity may apply in the ability to afford a trial or find and pay a resourceful lawyer. (See: contract)

Copyright © 1981-2005 by Gerald N. Hill and Kathleen T. Hill. All Right reserved.