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Health Care: Arbitrage Obama And The Dems
When the fines and pre-existing coverage "stop-out" go into effect (now for kids, in a couple of years for the rest) drop all coverage for those affected.
I have not had health insurance for roughly 10 months. It has not been by choice. I've been paying all my expenses out of pocket. It has cost me roughly $60 per month on average. I don't have any prescriptions. I have no known long-term health conditions. In hindsight, not having health insurance has saved me money. I've been lucky so far.
The government apparently plans to fine me 2% of my annual income should I not want health insurance. I expect to earn roughly $40k to $50k per year in taxable income based on modest inflation expectations. Since I am in inflation protected treasuries, this could be either higher or lower but let's call it that. That means it will cost me $800 to $1,000 per year in fines.
That is actually a very good deal for me though. That may be my new catastrophic health plan and it should meet my needs quite nicely. It's actually a lot cheaper than the plan I wanted. It's roughly $75 per month and I will sleep well knowing that if I get a long-term health condition that I cannot be denied coverage at that time.
My biggest concern was getting a health condition that had long-term costs associated with it. I'm not that worried about a two day emergency event that lands me in the hospital. That would certainly hurt, but it would not be catastrophic. I am taking a risk here, but that's life. It's a constant balancing act between risks and rewards.
So let's compare the plan I wanted vs. the one I'll probably be getting and let's assume at first that nothing else changes. I just did a rate quote on one such plan.
A $7,500 deductible plan with up to $2,500 in prescription benefits per year would currently cost me $235 a month at the insurer I have used in the past. It's a pretty lousy plan clearly. Prescription drug costs could hurt me. The high deductible could seriously hurt each year too.
The same plan with a $1,000 deductible costs $414 per month. That's $2,148 per year more. However, if I am truly sick then I more than make up for it in the $6,500 per year in deductible savings.
So here I will most likely sit. I'll have neither plan. I'll be fined each year, but it will only cost me $75 per month. If a long-term catastrophic event occurs (my biggest fear), then I will instantly buy the best coverage I possibly can. They cannot deny me for pre-existing conditions. They must take me. Although I might have serious upfront costs by being uninsured, my lowered long-term costs will more than make up for it.
I'm being given a free lunch by doing it this way. Or am I? How long will it take before health insurance companies see what I'm doing and raise rates to compensate?
I fully expect 20-50% premium increases immediately, and for the next three years sequentially, in all existing policies. This is precisely what the banks did in front of the CARD act becoming effective, and it will happen here as well. That is the cause of the short-term rocket shot in the health-related stocks this morning.
Let's say that is at least partially true. I tend to believe it is.
I have shown that the new system appears to be a win for me. I'm relatively healthy. I can also afford the fines. I will sleep well knowing that if I get an expensive long-term health condition, then I will not be denied health insurance.
So who is the loser in this? Unless you believe that Congress can provide free lunches for all, then somebody must be a loser. You are not allowed to say that it is the insurance companies. Their margins are actually pretty thin. If they lose money then...
This, by the way, will bankrupt the insurance companies in the end. Nobody will buy until they have HIV, Cancer or some other serious illness - then they will buy, and the companies will have to pay - with no lifetime caps or exclusions for pre-existing conditions.
I am not quite as dire as he is. Most people will still buy insurance. However, he does clearly have a point.
As my final thoughts, please consider this.
Last year I really wanted catastrophic health insurance. I was willing to pay relatively high premiums to get it, if only to sleep better.
This year, thanks to the new health care reform that's designed to see people like me actually have health insurance, I no longer seem to want any health insurance at all.
Isn't that just a hoot? Way to go Congress! Unintended consequences for the win!
Real Estate Newsletter Articles this Week: Existing-Home Sales Increased to
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At the Calculated Risk Real Estate Newsletter this week:
[image: Existing Home Sales]*Click on graph for larger image.*
• NAR: Existing-Home Sales Increase...
11 hours ago
12 comments:
Maybe you should become a Christian Scientist just so you can avoid paying the fine. Religious persecution.
Charles Kiting,
I think you jest. I couldn't but I bet some will.
When it comes to taxes, I do try to pay every cent I owe, if only so I can sleep better. It's just not worth it to me. I have no offshore bank accounts. I paid 28% tax rate on my gold and silver capital gains. My idea of a tax shelter is simply government approved I-Bonds.
That said, if indeed it ends up being cheaper for me to only use insurance when I need it then I will only use it when I need it. I don't think that's how insurance should work, but I'm not the one writing the rules. Sigh.
Unintended consequences for the win!
Stag,
I been questioning the "unintended" CONsequences thingy of late.
More an more, I think it's actually intended (but usually unstated) CONsequences and expected collateral damage.
When you look at it in that light, you can really appreciate the importance of having a lender of last resort.
Inflationary monetary policies are a wonderful thing for those that capture more than their share of the inflation.
"Although I might have serious upfront costs by being uninsured, my lowered long-term costs will more than make up for it."
I think that statement should be question. Will upfront costs of the uninsured with preconditions more than make up for long-term lowered costs of preconditions? What's to prevent insurance companies from jacking up the price somewhere to make up for this cost? I'd do just what you described, myself. Is there something in the bill to prevent it? Sounds too good to be true...
Ed G.
Mark,
you make some good points. My aversion to all things government related is due to the seen and unsees "unintended consequences". The problem with a bill liek this is that it becomes like FNM/FRE: what if the costs skyrocket up 3 fold? 5 fold? 10 fold? Too bad, it will have to be backed by the taxpayer, no other option. Anytime that is out there is becomes reality.
Do you have trouble sleeping a lot?
mab,
"When you look at it in that light, you can really appreciate the importance of having a lender of last resort."
Last resort? Lost resorts? It's all just casino action.
Hard Rock Considers Atlantic City Casino Development (Update1)
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Ed. G.,
What's to prevent insurance companies from jacking up the price somewhere to make up for this cost?
Should they do this, then I will be rewarded even more (or punished even less, depending on how you look at it) by simply paying the fine each year and only using the insurance when I actually need the insurance.
GYSC,
"Do you have trouble sleeping a lot?"
Yes. I have had insomnia all my life. I can't ever seem to stop thinking. I can't even count sheep any more, because the remind me of something else.
Sheeple
The term is also used for those who are inordinately tolerant, or welcome government intrusion and regulation. In a column entitled "A Nation of Sheeple," columnist Walter E. Williams writes, "Americans sheepishly accepted all sorts of Transportation Security Administration nonsense. In the name of security, we've allowed fingernail clippers, eyeglass screwdrivers and toy soldiers to be taken from us prior to boarding a plane."
Mark - if I remember correctly, I believe companies on the exchanges are allowed to have open enrollment periods. In other words, you couldn't necessarily get insurance within even six months after you learned you were sick. I think this might be in the regulatory discretion bin, though.
MOM,
That would certainly change things a bit.
I don't recall any waiting period or open enrollment period. I am guessing the Democrats would have trumpeted a waiting period to overcome the objection of people not buying insurance until they needed it. One major idea was to not deny preexisting.
That said, the real potential hole in the theory is that you may have a catastrophic event that prevents you from buying the "insurance" just before you need it. An example would be a stroke that renders you unconscious and you wake up in the hospital.
Rick Caird,
Life is full of risks. I can afford to pay for a fairly lengthy stay in the hospital without insurance, but a coma would no doubt completely ruin me financially.
You are right. I can't exactly sign up for the insurance if I am not conscious or in full control of my faculties.
If I could rule out the vast majority of serious long-term medical risks while still being uninusured, I would probably take that risk though.
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