David R. Henderson  

Higher-Cost Health Insurance for Older California Resident

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One thing that pretty much everyone expected if he/she had paid attention during the ObamaCare debate is that the new law would impose a huge cost on young people. That seems to be happening.

But what do we make of the following situation. An economist friend in California received this e-mail from a friend who lives in Oakland, California:

I thought you might appreciate my rage after I came home just now with information from Kaiser about 2014.

They "matched" my previous high-deductible plan to the CA Bronze HSA plan allowed under Obamacare. Here are the highlights:

• Deductible increasing from $4,000 to $4,500
• Annual out-of-pocket maximum increasing from $5,600 to $6,350

But here's the really fun part. My monthly premium is going from $302 to $625.73.

I will of course have to look at switching providers, so I get to experience the "Exchange" I thought I could avoid. I'm also eligible for subsidies, of course, so I could leach off taxpayers. I had considered honorably not doing so, but that may have flown out the window.

Could this be ObamaCare at work? That's my most likely guess. But why? This guy is 63 years old and he's one of the people who presumably should have benefited because of the forced wealth transfer from the young that ObamaCare intends. So why didn't he benefit?

In a follow-up e-mail, here's his further information, including his speculation about why his rates increased:

The Kaiser packet announcing my premium of $625.73 also included this, of interest:

"The difference between your 2014 monthly health coverage rate and your current health coverage rate is . . . 107.2 percent.
This difference is due to:
• General costs associated with the administration and delivery of health care.
• New benefit and enrollment rules under health care reform."

I just received my November Consumer Reports, by the way, and Kaiser has the highest rating among California health plans. Blue Shield has the lowest, and also the lowest prices (though not by much) at coveredca.com.

One last thing that just came to mind: I had been a Kaiser member for a while, and they knew I had a very good health record. I can't help thinking that one HUGE factor in the premium increase is of course that now they have to cover any 63-year-old who walks in the door. Lifetime smoker? No problem. Have cancer? Come on in.

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COMMENTS (28 to date)
Tom in Miami writes:

This is a perfectly predictable outcome of the new system. In the old system, an insurer could discriminate based upon health condition. That is now illegal under Obamacare. This guy whose premium went up was no doubt previously in a class of people in particularly good health for their age. It is still legal within some limitations, however, to charge older people higher premiums than younger people. Since age is inversely correlated with health condition, this older guy is now included in a cohort that is probably much less healthy than the actuarial class in which he was previously included. Much of the idea of Obamacare is to transfer wealth from people who are healthy to people who are not. That will adversely affect all healthy people. to the benefit of the less healthy, regardless of age. Before you and the writer totally blame the Democrats for this problem, you should in fairness also note that it was the Republicans who fought nearly every attempt to allow insurers, including Medicare, to offer plans that did not cover care that is not cost effective. Giving the government the ability to say what it would not pay for with taxpayer money was deemed "interfering in the doctor-patient relationship" by Obama's "death panels".

Yancey Ward writes:

If I had to guess, he had a catastrophic coverage policy which are basically null with the new law- i.e. the new policy has coverage for procedures that the old one didn't.

David R. Henderson writes:

@Yancey Ward,
You don't have to guess. Read the first email from him that I quoted.

Yancey Ward writes:


That e-mail doesn't describe what is covered by the two policies, it only describes the deductibles and other out of pocket costs. If he had a catastrophic policy, he would have had to cover the entire deductible first before getting anything covered by the plan. Bronze plans, however, even with higher deductible values, don't work that way- you do get some first dollar coverage, but you have co-pays for the mandated services like, for example, mental health, contraception, preventative care, etc. The second e-mail, quoting Kaiser's explanating suggests this is the reason, but it isn't completely clear in reading both of the e-mails.

Daublin writes:

It's not just the young and healthy. Also the old and healthy will tend to get a worse deal under Obamacare. The short of it is that there's no "free" health care; someone must pay.

I would also emphasize Kaiser's insistance that there is an increase in the "General costs associated with the administration and delivery of health care.".

While we debate the Rube Goldbergism of Obamacare, we forget to ask, what's all this doing to American medical care. You know, the thing that is actually important.

Has Obamacare put more doctors and nurses afoot among us? More medicine and medical technology?

blsdaniel writes:

There's another issue at work here as well. Being furloughed, I don't have access to the link, but there seems to be a a sort of "cell" structure in insuring people, even in the individual market. That is, you get placed into a cell with other people, and your insurance costs depend on who else is in that cell. The cells are constructed so that each cell is representative of the population as a whole, but if large numbers of people drop out of your cell, they may not restructure the cells for some time. So if the people who dropped out were healthy and the people who stayed were not, you're going to see your premiums shoot up. This was the explanation I read concerning the mammoth premium hikes in California a few years back. They weren't the average cost increases but the increases of a few, atypical cells.

This is not to say that Obamacare isn't also a factor, and likely the largest. Many stripped down plans simply aren't going to be allowed any more.

LD Bottorff writes:

The Republicans have often been guilty of supporting positions that are economically unwise (but politically popular). However, I thought that they were not allowed any input into Obamacare. I thought that when they suggested that they be allowed some say in it, they were told, "Elections have consequences." Of course, that was before the 2010 congressional elections.
That is not to say that they didn't take a position against "death panels" under Obamacare. However, I don't recall that they took a position against "death panels" that were administered by private insurers prior to Obamacare.

Anonymous of Kaiser writes:

I'm the anonymous source of David's post, and in response to Yancey Ward, I'd be interested to know the source for Bronze plans that "don't work that way." PREVENTATIVE CARE was completely free (routine physicals, mammograms, etc.) under the previous Kaiser catastrophic/HSA-compliant plan, and is under Bronze. I don't know about contraception, but that seems like a small item anyway. As for MENTAL HEALTH, I have to assume Kaiser's information is compliant and accurate, and it lists mental health visits as "40% after deductible."

I do see there's slightly more coverage for that as well as outpatient surgery and hospital stays, 40% coinsurance under Bronze vs. 30% under the old plan. So I lose a bit less money if I have big medical problems.

But I lose a lot more money for the more routine, everyday things. There used to be flat-rate co-pays for, for example, office visits ($40), X-rays ($10), Emergency visits ($150), Ambulance service ($150) and prescriptions ($10 for generic and $35 for brand name). Under Bronze, every one of those items is now 40 percent co-pay, so a lot more money out of pocket.

And again, for the chance to pay all this extra money, my monthly premium more than doubled.

R Richard Schweitzer writes:

What seems to have been missing from the conversations about the effects being noted is:

1. Who determined the "benefits structures" of the statutorily permissible healthcare contracts?

2. How were those determinations made; what factors were considered?

3. Why were the specific "benefit structures" selected?

4. In the light of "fairness to consumers" why are "deductibles" (non-insured costs) not fixed as part of the "benefits structures;" or, included in the pricing (premiums) options, providing lower deductibles in exchange for higher premiums?

5. Why is there no requirement for "truth in pricing" to disclose that expanded schedules of benefits (many not applicable to the insured) result in an actual decrease in benefits as a result of higher deductibles?

6. Who did all this; why did they do it in this fashion; what were the motives, economic or political?

John Thacker writes:
It's not just the young and healthy. Also the old and healthy will tend to get a worse deal under Obamacare.

Yes, but the young and healthy have it worse. There are several factors going on:

1) No pricing by medical condition-> transfer from healthy to sick

2) Pricing by age limited to 64 year old 3x as much as 21 year old (instead of the roughly 5x without the rule)-> transfer from young to old

3) Income subsidies.

4) Pricing by sex banned-> generally transfer from men to women (for individual insurance; matters less for family) (the coverage of mandated sex specific ailments generally favors women as well)

5) Pricing by tobacco allowed but limited to a 1.5:1 ratio-> unclear if that's small enough to have an effect, but may be a transfer from nonsmokers to smokers

Exactly which categories you fall into determines whether or not you're better off, though people with a severe preexisting condition are almost always better off.

Limiting the age adjusted and the tobacco pricing seems least warranted to me.

Bob Hertz writes:

This was a thoughtful post and deserves further review.

What seems to be kind of lost in the comments is this:

- the protagonist has individual not group coverage;

- These individuals have wide swings in claims experience, and I speak as a former actuarial student;

- throughout the insurance industry, carriers sometimes lose big money on older insureds, and sometimes they are forced to raise rates rapidly. This has been true of Blue Cross, Aetna, all of them.

- Kaiser may have just wanted to raise this person's rates. Their excuses may be worthless, just something they felt they had to say.

It will be interesting to see if this person gets better rates from the ACA. The whole point of the ACA was to protect the holders of individual policies from wide rate swings.

RickC writes:

I believe I've found the quote of the day regarding the O-care roll out in an article from the San Jose Mercury News.

"Of course, I want people to have health care," Vinson said. "I just didn't realize I would be the one who was going to pay for it personally."


Ms. Vinson is 60 and discovered she would have to pay $1800 extra per year. Another gentleman interviewed in the piece, a 52 year old engineer named Waschura stated that he would see a $10,000 increase for a policy to cover his family of four.

John Thacker writes:

Bob Hertz--

The person had individual insurance. The exchanges, modified community rating, and individual mandate are supposed to in effect convert all individual policies into a type of group policy. Community rated individual policies are no longer really individual policies-- everyone with the same age (and smoking status) is charged the same amount.

The new policy being offered is under the ACA, so I'm not sure I understand your last point. This is the expected outcome under the ACA (at least in the short term; I understand that supporters hope for long term effects.) It protects holders from wide rate swings by putting everyone in a group so that the sick pay a lot less, but the healthy pay more in order to cover the sick. The effect on the older but healthy is mitigated somewhat by the age rating spreading the costs to the young, otherwise it would be worse.

Yancey Ward writes:

Anonymous of Kaiser,

With the new information, my first comment was inaccurate, it appears. I cannot now explain your premium increase since you don't appear to have had a catastrophic only coverage plan.

Mike W writes:

I'm also eligible for subsidies, of course, so I could leach off taxpayers. I had considered honorably not doing so, but that may have flown out the window.

"...we've already established that, now we're just negotiating the price."

Jack writes:

I'd like to see more price transparency in the healthcare provider space. My mechanic gives me an estimate before I give him my car, why can't my doctor give me an estimate before he gives me a procedure?

Because the doctors charge different people different prices for the same service, depending on their insurance plan. That's why.

If representatives want to legislate healthcare, they should legislate price transparency by requiring estimates pre-service, and requiring hospitals, et al. charge the same price for the same service.

Charley Hooper writes:

Another data point:

A 50-ish male associate of mine received a letter that his current individual insurance health plan would be discontinued. His existing plan costs $587 per month. The replacement bronze (lowest) plan costs $900 per month, or 53% more.

"If you like your health insurance, you can keep it." As we can see, that's just not true.

Aaron writes:


This may be anecdotal, but I've had success in this area. My son is scheduled for a minor surgery next week. When I asked the hospital for a cost estimate in advance, they not only provided one, but had a system set up to do so that included obtaining all of the necessary information from my insurer (re: that insurer's negotiated discount with the hospital).

My sense is that it's probably true that many providers would not provide an estimate, but it's also true that we've been conditioned not to ask for one.

ThomasH writes:

I'm no expert,but this sounds like how we thought it would work.

Lots of folks who were too expensive to insure before ACA are now going to be able to buy insurance. Some of the increase cost is going to come from relatively healthy people who already have insurance (including some who will not know it because the think employers "provide" health insurance). Some will come from still relatively healthy people who will get insurance for the first time. Some will come from taxpayers. Was there a Republican plan that insured all these people but did not cost anyone more? If there was, they should have proposed it in 2012 and won the Presidency. But I suspect there was no such Republican plan; as an economist once said, there is no such thing as a free lunch.

Now that we have expanded coverage we can turn our attention to the hard part, reducing the costs of health care. I hope Republicans will be of more help than they were with expanding coverage.

Charley Hooper writes:


Every time someone says that we need to reduce the costs of health care, I stop and ask why. Why should we even care about this issue? Also, why are we not actively reducing the costs of almost every other product or service we purchase?

The answer is obvious (to me, at least). Health care was broken before Obamacare and is more or less just as broken now. Patients are so isolated from the true cost of their medical care that they are careless customers. And with customers not making wise purchase decisions, someone else needs to step in for adult supervision. But most of the solutions are from the supply side instead of the demand side. It seems easier to address the root of the problem and make consumers wiser customers.

liberty writes:

Am I the only one shocked by the prices and coverage of the plan as described above? The deductible seems to be enough that only the already quite sick, or in the case of a real catastrophic incident will it not all be out of pocket--it's catastrophic coverage only because the deductible is so high--and then it costs hundreds per month and you still have to pay for 40% of mental health visits, part of even surgeries, and - just to slap you in the face - pay the ambulance and for (part of) even emergency care!

It just seems incredible - between what you have to pay in deductibles, co-pays, and uncovered portions, only the rich and the perfectly healthy could possibly have a better deal with such coverage than they would have if they were stuck with the higher taxes that people face in countries with taxpayer-funded medical coverage (e.g., single-payer)

Note that this is coming from someone quite sceptical of public provision and a believer in markets and competition. It is just that the existing system, with or without Obamacare, has the worst of each, without the benefits.

John Thacker writes:


The problem is the President presented it as a free lunch that would lower premiums for everybody. Hard to see how the Republicans could have competed without equally lying.

McCain had offered a plan to cover people being honest about the tradeoffs-- candidate Obama promptly attacked him for it whilst promising the impossible.

With the combination of those two things, it was entirely reasonable for the Republicans to not cooperate.

Nick Karr writes:

Quoting from yesterdays San Jose Mercury News:

"I really don't like the Republican tactics, but at least now I can understand why they are so pissed about this. When you take $10,000 out of my family's pocket each year, that's otherwise disposable income or retirement savings that will not be going into our local economy."

The subject of the piece goes on to say:

"Of course, I want people to have health care," Vinson said. "I just didn't realize I would be the one who was going to pay for it personally."

Calls to mind the old adage, that there's no shortage of great things people are willing to do with other peoples money.


steep writes:

Your friend's new plan likely includes maternity care as a covered expense now. Whether he needs it or not.

Hazel Meade writes:

The ACA doesn't just shift costs from the old to the young, it shifts them from the relatively sick or high risk to the relatively healthy and low-risk.

My guess is that your friend is of above average health for the typical 62 year old. Since premiums are no longer matches to his relative healthy and risk, he's basically in a big pool with other people in the 60-70 age group. So he pays the same as they do.

Linda writes:

Howard Dean tried to get community rating into the Affordable Care act, but he wasn't listened to. The law was written allowing insurers to charge the older age levels a maximum of three times what they charge the young. Thus insurance companies are doing it because they can. The law was designed for younger people to have lower rates. The rates for those in their 60s are comparable to the rent for a senior citizen apartment. Clearly, people age 60 can't pay duplicate rent. Those with incomes below $45,900 can get a subsidy, but people age 60 and earning $45,000 are being charged the same rates as people earning $500,000. It's not leeching off the government to get a subsidy. The subsidies are, technically, tax credits, which means it's part of progressive taxation. But it's still not progressive enough, as an individual without children earning $45,000 is being charged too much. The real solution is that Medicare should start at age 50. That would also help Medicare become infused with some modest premiums from healthy 50 year olds. Concerning smoking - I can't speak for other states, but in WA smokers are being charged a higher premium than nonsmokers.

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