Musings on the ACA subsidies - House Dem, Biden, Buttigieg plans

Somewhere along the way things got complicated.

At its core, the ACA's central insurance market reform concept is pretty simple: (1) create a transparent, competitive marketplace with real prices and stringent consumer protections for people who don't have an offer of affordable coverage where they work, (2) institute a requirement to buy insurance to prevent free-riders from taking advantage of those consumer protections, and (3) scale premiums to people's incomes so they can afford premiums and deductibles of plans sold in the marketplace.

The scaling of premiums is easy enough. Calculate a flat dollar amount subsidy, based only on a family's income and the cost of insurance plans in their market, that can be applied to any plan available in the marketplace. You calculate that flat dollar amount by identifying a benchmark plan sold in the market (the second cheapest silver tier plan), identifying some premium contribution from the family based on a set percentage of their income, and setting the subsidy as the dollar amount it would take to pay for the rest of that benchmark premium. The family doesn't actually have to buy the benchmark to get the subsidy, that's just how you calculate its value.

The scaling of deductibles and other out-of-pocket spending is even simpler. If shoppers of a certain low-ish income (up to 250% of the federal poverty line) buy a silver plan, require the insurer to lower their out-of-pocket requirements--effectively making their plan more generous than a silver tier plan--and have the federal government make the insurer whole through a separate payment. Easy peasy.

We can see some of the result by combining some old data and some new:



This brings together the 2019 Marketplace Open Enrollment Period Public Use Files , a very handy 2009 paper on the actuarial value of pre-ACA individual plans the employer market,and some color commentary from a 2009 CRS overview of the concept of actuarial value.

(As a refresher, actuarial value refers to what percent of enrollees' costs for covered benefits the insurer pays out; the rest is generally paid out-of-pocket by the enrolled population).

The result--and goal--was that skimpy pre-ACA plans with high out-of-pocket spending gave way to plans that looked more like what's been available to people in employer plans for decades. Indeed, a substantial minority of marketplace buyers now has more generous (i.e., in terms of lower deductibles and lower out-of-pocket expenses) plans than the average employer plan. Notice that a substantial minority of marketplace shoppers have chosen plans that are more generous than gold plans.

But despite the successes, life--and politics--intervened. The Trump administration stopping making insurers whole for those deductible reductions, even though insurers are still required by law to provide them to eligible shoppers. That led to a big bump in premiums in 2018 as insurers had to look to the market for the cash. But it also led to weird effects like "silver-loading," in which many states allowed insurers to load the lost value of those federal payments for the cost-sharing reductions (CSR) only on silver tier plans, artificially increasing the price of those plans to bump up the value of federal premium subsidies.

The results have been odd, and certainly not what was intended a decade ago: higher premium subsidy payments, even net of the forgone federal CSR payments; places that have silver plans with higher premiums than gold plans; lots of markets with zero-premium bronze plans thanks to the increased federal subsidies (that's why you can see ~30% of marketplace shoppers in bronze plans this year--the distribution didn't look like this pre-2019); and largely unaffordable coverage for anyone who isn't eligible for a premium subsidy, like those with incomes over 400% FPL.

So what's next? The House Dems have put forth their plan, based on more generous subsidies achieved by: (1) lowering the family premium contribution used to calculate the subsidy, and (2) making subsidies available to people over 400% FPL.

Meanwhile, Joe Biden has his plan and Pete Buttigieg just released his. A quick read suggests that as far as the subsidies go, they are the same thing (though Mayor Pete has a lot of extra stuff that's interesting, like a central clearinghouse for insurance claims, a national all-payer claims database, and greater antitrust oversight of providers).

Both B's would also make the subsidies more generous, but not quite the way the House Dems would. They would make the benchmark a gold plan, instead of the current silver, while as far as I can tell leaving the contribution percentage the same, other than lowering the upper limit of it to 8.5%. (I'm pretty sure Families USA was the first to suggest rescaling the subsidies to gold plans years ago.)

My read of where things stand in short:


So what's the difference? Both the House Dems and Biden-Buttigieg (B-B) are silent on CSRs, so presumably that part of the law would remain as-is. (As a reminder, the Trump f-up of the CSRs and resulting market anomalies can be corrected pretty quickly by simply appropriating the payments Trump discontinued. Bring those back and the following year premiums would reset downward and silver tier premiums could be brought back to their logical perch between bronze and gold tier premiums.)

Under B-B, people eligible for CSRs would continue to buy silver plans, since they have to in order to get the CSR plans. But they would pay much less in premiums while enjoying the same benefit of lower out-of-pocket obligation they get today. For people not eligible for CSRs--i.e., those above 250% FPL--this would make it easier to buy a gold plan, with its associated lower out-of-pocket spending. And given that B-B would make premium subsidies available to people above 400% FPL, the universe of people benefiting would expand, drawing in those currently on the sidelines and potentially pulling down aggregate premiums.

So a family buying the benchmark under B-B pays the same premium as it does today under the ACA (except at the upper end of the income distribution, due to the lower cap)--but it's for a more generous benchmark plan! If you're lower income and eligible for a CSR plan, that part matters less since you're probaby already getting something more generous than gold coverage. But if you're not, this helps substantially with getting a lower deductible/OOP spending plan.

Whereas under the House Dem plan a family would pay less in premiums toward the benchmark--but it's the same benchmark as today. The result is that the subsidies are more generous and thus it's easy to buy up to the gold tier. But not nearly as easy as under B-B. I'd estimate that, all things being equal, B-B would pump at least 3-4 times as much money into affordability as the House Dem plan, meaning it would make that much more of a difference for families. Of course B-B would likely be more effective at pulling more people into the marketplaces, which has a positive feedback on premiums so perhaps some of that expense would be offset.

But as far as I can tell, neither B mentions reinsurance, which would re-set premiums downwards and thus can be more than revenue neutral by drawing into the market people currenty sidelined by high premiums. The House Dems' bill does have reinsurance.

Perhaps we'll end up with an amalgamation: the House Dems' reinsurance and B-B's gold benchmarks.

If Biden gets elected, I suspect he'll try to improve Obamacare.

If only we could keep all the special interest's fingers out of the pie.

Greenbeard said:

So what's next? The House Dems have put forth their plan, based on more generous subsidies achieved by: (1) lowering the family premium contribution used to calculate the subsidy, and (2) making subsidies available to people over 400% FPL.

Meanwhile, Joe Biden has his plan and Pete Buttigieg just released his. A quick read suggests that as far as the subsidies go, they are the same thing (though Mayor Pete has a lot of extra stuff that's interesting, like a central clearinghouse for insurance claims, a national all-payer claims database, and greater antitrust oversight of providers).


So what's the difference? Both the House Dems and Biden-Buttigieg (B-B) are silent on CSRs, so presumably that part of the law would remain as-is. (As a reminder, the Trump f-up of the CSRs and resulting market anomalies can be corrected pretty quickly by simply appropriating the payments Trump discontinued. Bring those back and the following year premiums would reset downward and silver tier premiums could be brought back to their logical perch between bronze and gold tier premiums.)

Under B-B, people eligible for CSRs would continue to buy silver plans, since they have to in order to get the CSR plans. But they would pay much less in premiums while enjoying the same benefit of lower out-of-pocket obligation they get today. For people not eligible for CSRs--i.e., those above 250% FPL--this would make it easier to buy a gold plan, with its associated lower out-of-pocket spending. And given that B-B would make premium subsidies available to people above 400% FPL, the universe of people benefiting would expand, drawing in those currently on the sidelines and potentially pulling down aggregate premiums.

So a family buying the benchmark under B-B pays the same premium as it does today under the ACA (except at the upper end of the income distribution, due to the lower cap)--but it's for a more generous benchmark plan! If you're lower income and eligible for a CSR plan, that part matters less since you're probaby already getting something more generous than gold coverage. But if you're not, this helps substantially with getting a lower deductible/OOP spending plan.

Whereas under the House Dem plan a family would pay less in premiums toward the benchmark--but it's the same benchmark as today. The result is that the subsidies are more generous and thus it's easy to buy up to the gold tier. But not nearly as easy as under B-B. I'd estimate that, all things being equal, B-B would pump at least 3-4 times as much money into affordability as the House Dem plan, meaning it would make that much more of a difference for families. Of course B-B would likely be more effective at pulling more people into the marketplaces, which has a positive feedback on premiums so perhaps some of that expense would be offset.

But as far as I can tell, neither B mentions reinsurance, which would re-set premiums downwards and thus can be more than revenue neutral by drawing into the market people currenty sidelined by high premiums. The House Dems' bill does have reinsurance.

Perhaps we'll end up with an amalgamation: the House Dems' reinsurance and B-B's gold benchmarks.

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Good information.

The problem is that the subsidy has been flawed from the get go. The minute that the taxpayer was put on the hook for subsidizing patients healthcare insurance, was the minute that insurance companies realized they could charge more with Uncle sam on the hook. No politician, for how much even republicans gawk about Obamacare.. want the people in their district to be mad that they got dropped from Obamacare because the subsidy doesn't cover enough.

At the end of the day.. OBamacare needs to be buttressed by finishing the job of creating more competition in the marketplace.

jaeger19 said:

Good information.

The problem is that the subsidy has been flawed from the get go. The minute that the taxpayer was put on the hook for subsidizing patients healthcare insurance, was the minute that insurance companies realized they could charge more with Uncle sam on the hook. No politician, for how much even republicans gawk about Obamacare.. want the people in their district to be mad that they got dropped from Obamacare because the subsidy doesn't cover enough.

At the end of the day.. OBamacare needs to be buttressed by finishing the job of creating more competition in the marketplace.

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Agreed on the final sentence. The competition is what keeps the insurers from charging more just for the sake of it. It constricted premium increases in the early years of the marketplaces, it can do it again.

Greenbeard said:

(snipped for length)

The results have been odd, and certainly not what was intended a decade ago: higher premium subsidy payments, even net of the forgone federal CSR payments; places that have silver plans with higher premiums than gold plans; lots of markets with zero-premium bronze plans thanks to the increased federal subsidies (that's why you can see ~30% of marketplace shoppers in bronze plans this year--the distribution didn't look like this pre-2019); and largely unaffordable coverage for anyone who isn't eligible for a premium subsidy, like those with incomes over 400% FPL.

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Just shopping for myself I've Excel-graphed the total OOP expenses (including annualized premiums) across metal tiers and for a full range theoretical health care expenditure needs and repeatedly found that either 1) the bronze plans leave us better off across all possible levels of need or 2) if there is ever a level of health need at which another plan is different, it's maybe one silver plan, only by a few hundred dollars at most, and only within a narrow range of health expenditure. And that's before factoring in the long-term upsides of greater HSA participation with the savings from the bronze premiums relative to the others. In short, my calculations repeatedly make the bronze plan a no-brainer, regardless of possible health needs. Maybe this is partly an effect of these issues you just described.

But if this has become the norm, then 30% bronze participation actually suggests pretty widespread consumer irrationality, i.e. if consumers wee rational you'd think we should be seeing vastly greater bronze and HSA participation. Why don't we? Just baked in (but nonetheless irrational) expectations that insurance should cover all our bills and deductibles should be low regardless of premiums? I don't know.

Up until very recently I've always "enjoyed" ESI with $1,000 deductibles. But I was working in Alaska and over about 10 years' time, I would say about $80,000 was spent on my (and only my) premiums relative to about $1,500 in medical coverage payouts and maybe another $1,500 in dental coverage payouts. If rather than this "gold" level of coverage over 10 years I instead had a bronze level of coverage with the difference going into an HSA, I personally would be way better off.

So even though I'm venturing off into self-coverage, I still am relatively happy with the bronze offerings. Of course I'd rather not have to drop $7,900 in individual OOP max if something happens, but compared to spending $8,000 in premiums straight away just so that the deductible I might have to spend is lower, the bronze is a screaming deal. And frankly if more of the population started seeing insurance this way, rather than assuming what they've had all along is so inherently "good," I don't think I'd see that as a bad thing.

Greenbeard said:

Agreed on the final sentence. The competition is what keeps the insurers from charging more just for the sake of it. It constricted premium increases in the early years of the marketplaces, it can do it again.

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It could do an even better job if we can bring back more coops.. and use the exchanges to force insurance companies to compete across state lines.

Neomalthusian said:

Just shopping for myself I've Excel-graphed the total OOP expenses (including annualized premiums) across metal tiers and for a full range theoretical health care expenditure needs and repeatedly found that either 1) the bronze plans leave us better off across all possible levels of need or 2) if there is ever a level of health need at which another plan is different, it's maybe one silver plan, only by a few hundred dollars at most, and only within a narrow range of health expenditure. And that's before factoring in the long-term upsides of greater HSA participation with the savings from the bronze premiums relative to the others. In short, my calculations repeatedly make the bronze plan a no-brainer, regardless of possible health needs. Maybe this is partly an effect of these issues you just described.

But if this has become the norm, then 30% bronze participation actually suggests pretty widespread consumer irrationality, i.e. if consumers wee rational you'd think we should be seeing vastly greater bronze and HSA participation. Why don't we? Just baked in (but nonetheless irrational) expectations that insurance should cover all our bills and deductibles should be low regardless of premiums? I don't know.

Up until very recently I've always "enjoyed" ESI with $1,000 deductibles. But I was working in Alaska and over about 10 years' time, I would say about $80,000 was spent on my (and only my) premiums relative to about $1,500 in medical coverage payouts and maybe another $1,500 in dental coverage payouts. If rather than this "gold" level of coverage over 10 years I instead had a bronze level of coverage with the difference going into an HSA, I personally would be way better off.

So even though I'm venturing off into self-coverage, I still am relatively happy with the bronze offerings. Of course I'd rather not have to drop $7,900 in individual OOP max if something happens, but compared to spending $8,000 in premiums straight away just so that the deductible I might have to spend is lower, the bronze is a screaming deal. And frankly if more of the population started seeing insurance this way, rather than assuming what they've had all along is so inherently "good," I don't think I'd see that as a bad thing.

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Well..the problem you see here is the inability of people to save and handle money. I have patients that pay 400 for a supplemental plan per month. So they can avoid paying 20% copay that translates to 20 dollars a month.

But that's because they are unable or unwilling to save incase they have a couple of thousand in outpatient bills. Saving is not done well in the US.

The HSA idea of having people save so that over time.. they could say reduce a plan.. from silver.. to bronze.. ONCE they had enough saved would make sense. BUT.. that's not how HSA's are designed. They are designed so that you have to have crappy insurance in the first place to qualify.

In addition.. the way to make HSA's work.. would be to use peoples inertia.. or difficulty changing.. to advantage.. .for example.. HSA should be set up that future pay raises would go directly to the HSA and retirement. .. and you have to OPT OUT.. of the money going to the HSA.. to get the money into your checking account. RATHER than have to opt in.. to save that money.

jaeger19 said:

Well..the problem you see here is the inability of people to save and handle money. I have patients that pay 400 for a supplemental plan per month. So they can avoid paying 20% copay that translates to 20 dollars a month.

But that's because they are unable or unwilling to save incase they have a couple of thousand in outpatient bills. Saving is not done well in the US.

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The only rational explanation for choosing a gold plan is if you absolutely know you're going to need tens of thousands of dollars in health care and would rather pay premiums over the course of the year than come up with the OOP maximum in January and February. That's not the norm. And even in these cases, providers almost always accept payment arrangements that let you pay it off over time all the same.

I'm not necessarily disputing what you're saying, but it's not a good rationalization for choosing a plan that is objectively more expensive at every level of potential health need to just shrug and say people are stupid and incapable of acting in their own rational self interests. Why do we let such people sign mortgage documents or make other adult decisions?

The HSA idea of having people save so that over time.. they could say reduce a plan.. from silver.. to bronze.. ONCE they had enough saved would make sense. BUT.. that's not how HSA's are designed. They are designed so that you have to have crappy insurance in the first place to qualify.

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It's not crappy insurance if it's less expensive than silver and bronze at almost any and every potential level of health need.

Unless you're maxing out every year, the premium savings from a bronze plan affords the ability to feed the HSA. "But people have no self control" isn't a good reason to call bronze plans "crappy."

Neomalthusian said:

Just shopping for myself I've Excel-graphed the total OOP expenses (including annualized premiums) across metal tiers and for a full range theoretical health care expenditure needs and repeatedly found that either 1) the bronze plans leave us better off across all possible levels of need or 2) if there is ever a level of health need at which another plan is different, it's maybe one silver plan, only by a few hundred dollars at most, and only within a narrow range of health expenditure. And that's before factoring in the long-term upsides of greater HSA participation with the savings from the bronze premiums relative to the others. In short, my calculations repeatedly make the bronze plan a no-brainer, regardless of possible health needs. Maybe this is partly an effect of these issues you just described.

But if this has become the norm, then 30% bronze participation actually suggests pretty widespread consumer irrationality, i.e. if consumers wee rational you'd think we should be seeing vastly greater bronze and HSA participation. Why don't we? Just baked in (but nonetheless irrational) expectations that insurance should cover all our bills and deductibles should be low regardless of premiums? I don't know.

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Because of the OOP caps under the ACA, you're right that for an unsubsidized buyer in many circumstances a bronze plan will minimize your expenses both if you expect to have zero health spending in a given year or you expect to have very high health spending.

But the overwhelming majority of marketplace shoppers are not unsubsidized. Indeed, according to the public use file I linked in the OP, a full 71% of buyers are below 250% FPL, meaning they're eligible not just for premium subsidies but for cost-sharing subsidies as well. But cost-sharing subsidies are only available for silver tier plans. The two blue bars furthest to the right in the OP graphic are for plans with 87% and 94% actuarial values (i.e., better than gold) but technically those are CSR plans, which is to say they're silver plans whose generosity has been beefed up for low-income people. So those people are paying silver premiums, minus their subsidy value, and getting platinum-level coverage. Which can be a better deal that paying low or no premiums for a bronze plan but having no assistance with the cost-sharing.

Only 7% of buyers are actually choosing gold plans, everyone else is buying in the bronze or silver tier. So I wouldn't say there is any evidence of widespread irrationality.

Greenbeard said:

Because of the OOP caps under the ACA, you're right that for an unsubsidized buyer in many circumstances a bronze plan will minimize your expenses both if you expect to have zero health spending in a given year or you expect to have very high health spending.

But the overwhelming majority of marketplace shoppers are not unsubsidized. Indeed, according to the public use file I linked in the OP, a full 71% of buyers are below 250% FPL, meaning they're eligible not just for premium subsidies but for cost-sharing subsidies as well. But cost-sharing subsidies are only available for silver tier plans. The two blue bars furthest to the right in the OP graphic are for plans with 87% and 94% actuarial values (i.e., better than gold) but technically those are CSR plans, which is to say they're silver plans whose generosity has been beefed up for low-income people. So those people are paying silver premiums, minus their subsidy value, and getting platinum-level coverage. Which can be a better deal that paying low or no premiums for a bronze plan but having no assistance with the cost-sharing.

Only 7% of buyers are actually choosing gold plans, everyone else is buying in the bronze or silver tier. So I wouldn't say there is any evidence of widespread irrationality.

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Thanks for that explanation. I didn't realize CSRs are only offered for silver plans. Why not bronze?

Neomalthusian said:

Thanks for that explanation. I didn't realize CSRs are only offered for silver plans. Why not bronze?

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My guess would be the federal expense primarily, particularly given the obsession ten years ago with keeping the 10-year cost of the ACA below $1 trillion (in reality, we now know it came it well below that). The bronze-silver-gold-platinum tiers are defined by their actuarial values: 60-70-80-90, respectively.

The CSR plans for low-income people are defined to be 73%, 87%, and 94% actuarial values, with the lowest income people getting the latter (i.e., the most generous), the next lowest-income tier getting the middle one, etc. Effectively the insurer takes a plan of some actuarial value--in this case a ~70% actuarial value silver plan--and reduces the deductibles, copays, and out-of-pocket limit to whatever it takes to make it the actuarial value for the appropriate CSR plan. And the government makes them whole for whatever that difference is.

So if that means for instance taking a deductible from $2,500 down to zero, that insurer will eventually get a check for $2,500 from Uncle Sam. (This is what Trump stopped paying.)

If the insurer was taking a ~60% actuarial value bronze plan up to a 94% actuarial value CSR plan, the deductibles and OOP limits are all dropping a lot more and that check from Uncle Sam gets even bigger. The enrollee would be better off, because their subsidy is based on a silver-tier benchmark so bronze premiums for them are relatively lower, but the whole thing costs the government more.

That said, I think this is effectively analogous what happens under Biden-Buttigieg. The benchmark becomes a gold plan but (as far as I can tell) CSR plans are still pegged to the silver tier, so people getting CSR plans are buying silver plans with subsidies pegged to gold plans. That is, they're getting cost-sharing subsidies by buying plans one tier below the benchmark tier. It doesn't affect the cost of the CSRs relative to current state, since they're silver plan cost reductions either way; the cost for B-B shows up in the big increase in available premium subsidies.

Greenbeard said:

My guess would be the federal expense primarily, particularly given the obsession ten years ago with keeping the 10-year cost of the ACA below $1 trillion (in reality, we now know it came it well below that). The bronze-silver-gold-platinum tiers are defined by their actuarial values: 60-70-80-90, respectively.

The CSR plans for low-income people are defined to be 73%, 87%, and 94% actuarial values, with the lowest income people getting the latter (i.e., the most generous), the next lowest-income tier getting the middle one, etc. Effectively the insurer takes a plan of some actuarial value--in this case a ~70% actuarial value silver plan--and reduces the deductibles, copays, and out-of-pocket limit to whatever it takes to make it the actuarial value for the appropriate CSR plan. And the government makes them whole for whatever that difference is.

So if that means for instance taking a deductible from $2,500 down to zero, that insurer will eventually get a check for $2,500 from Uncle Sam. (This is what Trump stopped paying.)

If the insurer was taking a ~60% actuarial value bronze plan up to a 94% actuarial value CSR plan, the deductibles and OOP limits are all dropping a lot more and that check from Uncle Sam gets even bigger. The enrollee would be better off, because their subsidy is based on a silver-tier benchmark so bronze premiums for them are relatively lower, but the whole thing costs the government more.

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Maybe I'm struggling to follow the math/logic, but if the government is subsidizing both the premiums and the cost-sharing, it doesn't seem like it would be that hard (or different in terms of cost to government) to dial the generosity of the bronze subsidies/CSRs up to be comparable to the generosity of the silver ones. CSR has to be more generous with bronze but doesn't have to be as generous on the premium side.

Personally I'm just biased against "generous" health insurance plans that perpetuate public expectations that insurance is supposed to pay for virtually everything at virtually no cost. This is why I'm happy with bronze plans. I clearly have a choice between definitely spending $10,000 a year (with silver) or only spending $10k in the worst case scenario (with bronze), the choice is obvious. Yet people continue to refer to HDHPs as "crappy." These thinking errors seem more likely to persist if policy continues to disproportionately favor/subsidize silver but not bronze.

Neomalthusian said:

The only rational explanation for choosing a gold plan is if you absolutely know you're going to need tens of thousands of dollars in health care and would rather pay premiums over the course of the year than come up with the OOP maximum in January and February. That's not the norm. And even in these cases, providers almost always accept payment arrangements that let you pay it off over time all the same.

I'm not necessarily disputing what you're saying, but it's not a good rationalization for choosing a plan that is objectively more expensive at every level of potential health need to just shrug and say people are stupid and incapable of acting in their own rational self interests. Why do we let such people sign mortgage documents or make other adult decisions?
."

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Well..thats the free market. Look.. I get it to some degree. Heck.. on all my wife's vehicles.. I have an extended warranty. Financially this is a huge money maker for the car companies. I know it financially almost NEVER pencils out that the extended warranty is worth it. Heck.. I know it. In fact, when I buy it at the dealer.. I negotiate it as low as I can and I tell them... "I dang well know that this is a huge money loser for me".

So why do I do it.. knowing full well.. it NEVER pencils out (I think in 15 years.. I never once got more back in insurance than what I paid for that insurance)? Because it shuts my wife up. Yep.. whenever she hears some "noise". or thinks the car is "doing something funny"... I tell her to "take it to the dealer, its under warranty".

And I DON"T HAVE TO HEAR ABOUT IT.

Basically it the extra wasted dollars.. aren't wasted in my mind.. because its less stress on me.. to tell her "go take it to the dealer". NONE of my vehicles.. have that extended warranty.

So.. I can see why someone... is willing to pay for that extra supplement.. or that lower deductible.. or gold plan... even in the long run.. it NEVER pencils out for them.. because.. it makes them feel better.

jaeger19 said:

Well..thats the free market. Look.. I get it to some degree. Heck.. on all my wife's vehicles.. I have an extended warranty. Financially this is a huge money maker for the car companies. I know it financially almost NEVER pencils out that the extended warranty is worth it. Heck.. I know it. In fact, when I buy it at the dealer.. I negotiate it as low as I can and I tell them... "I dang well know that this is a huge money loser for me".

So why do I do it.. knowing full well.. it NEVER pencils out (I think in 15 years.. I never once got more back in insurance than what I paid for that insurance)? Because it shuts my wife up. Yep.. whenever she hears some "noise". or thinks the car is "doing something funny"... I tell her to "take it to the dealer, its under warranty".

And I DON"T HAVE TO HEAR ABOUT IT.

Basically it the extra wasted dollars.. aren't wasted in my mind.. because its less stress on me.. to tell her "go take it to the dealer". NONE of my vehicles.. have that extended warranty.

So.. I can see why someone... is willing to pay for that extra supplement.. or that lower deductible.. or gold plan... even in the long run.. it NEVER pencils out for them.. because.. it makes them feel better.

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Maybe. I don't think I'd cave to that sort of thing unless I was very wealthy and didn't care about money.

A recent example was a choice between two insurance plans where one had a broad network including out-of-state care vs. a more local plan where all in-network care was local. We travel out of state but not typically for elective health care (emergency is all covered as if in-network regardless), and the cost difference was over $150 a month. My wife preferred the one she initially perceived would give us out-of-state in-network care should we choose to see someone while out-of-state. The odds of this happening are relatively low, and the cost difference between the plans was comparatively high relative to that possible benefit. I reasoned my wife into submission and she eventually understood and conceded we're never money ahead with the more expensive plan.

Final point on all of that, the fact that you're aware the warranty choice might be irrational in purely logical terms is fine, I can go with that. But what I can't go along with is the widespread misconception that compared to an extended warranty, not having an extended warranty constitutes "crappy coverage." That's how a lot of people regard high-deductible plans. They aren't doing the math.

Granted, Greenbeard explained why, for some people (e.g. < 250% FPL), the cost-sharing reductions make the "more expensive" silver plans an objectively better deal than the bronze, and there is also the hypothetical example where a person is absolutely certain they're going to be a really high biller and would rather pay premiums throughout the year than a high OOP max early in the cycle, but other than those two examples, it's not fair or rational to characterize all HDHPs as "crappy." But a lot of people do, and it tilts public expectations of health coverage toward needing to be extremely broad, leading them to prefer to pay premiums up front in premiums rather than save that money and pay deductibles only if/when they actually need significant care.

As I've described before, I had the equivalent of "gold" coverage through employers in Alaska (highest cost state by leaps and bounds) all throughout my 20s and early 30s. Between me and my wife, about $160,000-$180,000 was spent on health premiums during that time, most of it by our employers. Our OOP costs over that whole period of time was about $15,000 total. If we had had "bronze" equivalent HSA-compatible coverage that whole time, we'd have spent an extra $15,000 or so on maternity care, C-sections and some early childhood care, but the premium expense would have been half what it was, leaving a difference of probably $60,000 to $80,000 that could have gone into an HSA.

Now that we're getting older and more likely to eventually need some health care for ourselves, and our kids are going to start becoming higher risk for bone breaks, surgery needs, orthodontia eventually, and so on and so forth, it would be really nice if we had some extra money saved up over our younger years to drop on these things. But we don't, because a gigantic piece of our compensation early in my career went into a black hole of health insurance premiums for coverage that was about 5x more generous than we needed.

Neomalthusian said:

Maybe. I don't think I'd cave to that sort of thing unless I was very wealthy and didn't care about money.

A recent example was a choice between two insurance plans where one had a broad network including out-of-state care vs. a more local plan where all in-network care was local. We travel out of state but not typically for elective health care (emergency is all covered as if in-network regardless), and the cost difference was over $150 a month. My wife preferred the one she initially perceived would give us out-of-state in-network care should we choose to see someone while out-of-state. The odds of this happening are relatively low, and the cost difference between the plans was comparatively high relative to that possible benefit. I reasoned my wife into submission and she eventually understood and conceded we're never money ahead with the more expensive plan.

Final point on all of that, the fact that you're aware the warranty choice might be irrational in purely logical terms is fine, I can go with that. But what I can't go along with is the widespread misconception that compared to an extended warranty, not having an extended warranty constitutes "crappy coverage." That's how a lot of people regard high-deductible plans. They aren't doing the math.
d.

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Oh I would agree. You have folks here complaining about how medicare is terrible because they "have to buy a 300 month supplemental plan for what medicare won't pay for". And don't realize that basically they are only paying for the 20% that medicare doesn't pay as an outpatient.

I mean.. don't they realize that the way the insurance companies make money is that you pay more to them..than they pay out?

jaeger19 said:

Oh I would agree. You have folks here complaining about how medicare is terrible because they "have to buy a 300 month supplemental plan for what medicare won't pay for". And don't realize that basically they are only paying for the 20% that medicare doesn't pay as an outpatient.

I mean.. don't they realize that the way the insurance companies make money is that you pay more to them..than they pay out?

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No. People don't realize that. And some of the people you're talking about in your example (Medicare) have been conditioned to think they are not supposed to have to pay for any of their own health care, like ever. And when they agree to pay $300 a month, they aren't multiplying it by twelve and comparing it to what they'd likely spend out of pocket foregoing that policy. Not everyone is so ignorant about it, but many are. They feel so entitled to spend nothing at the point of service that they'll voluntarily and unquestioningly pay significantly more than that in premiums over the course of the year.