Curmudgeon On Health Insurance


The Affordable Care Act, commonly referred to as Health Care, is in reality a mixture of Health Insurance and Welfare. The pure insurance portions are the various exchanges, the pure welfare portion is Medicaid Expansion, and the mixtures are the subsidies, which lower the monthly premium cost and “cost sharing”, which lowers the deductible and co-pay. Eighty five percent of 13 M ACA marketplace enrollee receive subsidies while 37% receive the “cost sharing” benefits.

ACA offers four tiers of coverage, Bronze, Silver, Gold and Platinum. Bronze is designed to cover 60% of medical cost, Silver 70%, Gold 80% and Platinum 90%,

A single person making in excess of $47,500, well below the $66,560 (1st Qtr 2017) median salary of a college graduate, and well above the $36,504 median salary of a high school graduate, will not qualify for any subsidies. The threshold for a family of four is $97,200.

The nationwide average (2017) Bronze plan, for a 30-year-old has a $311 monthly premium ($3,732 yearly) and a $6,092 annual deductible, a Silver plan would be $365/mo. ($4,380/yr.) with a $3,572 deductible. A 60-year-old would have an average Bronze plan premium of $744/mo. ($8,928/yr.), 2.4 time the cost of the 30-year-old. In addition are co-pays for doctor visits and drugs which are approximately 30% each, with a typical cap of $6,500 per year. Thus a maxed out 30-year-old would have out-of-pocket expenses of $16,324. This is 34.3% of the individuals $47,500 income.

The ACA plans also cover drugs, the typical out-of-pocket cost for a 30-day supply of drugs are:

By way of comparison, 150 M individuals have employer based health care with a typical premium of $440/mo. ($5280/yr.) paid by the employee and $1,075/mo. ($12,900/yr.) paid by the employer. Most have lower deductibles and copays.

An Existing Alternative

How would a program

  • with 250+ insurance carriers, regional and nationwide,
  • that are actuarially sound,
  • has been in existence for 57 years,
  • covers preexisting conditions,
  • has a single premium regardless of age,
  • dental and vision options are available,
  • and is codified in federal law
    • statute is only a few dozen pages long, and only a few paragraphs are devoted to the structure and functioning of the program.
    • Regulations are minimal; only another few dozen pages


Last year the average of the premiums, of typical nationwide programs, rose only 6%. A median standard nationwide family plan cost $17,451 per year, with the employee paying $363.57 per month and the employer paying $1090.70 per month, with:

  • Doctor and Hospital;
    • co-pays of $20.00 per visit and $200 per hospitalization,
    • deductibles of $350 per individual (or $1050 for all family members)
    • and a maximum out-of-pocket annual cost of $5,000 per individual and $10,000 per family.
  • Prescription Drugs co-pays, with catastrophic limits of $1,500 per individual, $3,000 per family.
    • Network retail pharmacy
      • Generic = $8 copay
      • Preferred Brand Name = 30% of plan allowance, $70 maximum
      • Non-Preferred Brand Names = 40% of plan allowance, $110 maximum
    • Mail order pharmacy (90 day prescriptions)
      • Generic = $15 copay
      • Preferred Brand Name = 30% of plan allowance, $150 maximum
      • Non-Preferred Brand Names = 40% of plan allowance, $275 maximum

This is the Federal Employees Health Benefit program administer by the Office of Personnel Management, covering 9 M individuals, employees and families and retirees and families. Wikipedia tells us:

The Federal Employees Health Benefits (FEHB) Program is a system of “managed competition” through which employee health benefits are provided to civilian government employees and annuitants of the United States government.

The FEHB program allows some insurance companies, employee associations, and labor unions to market health insurance plans to governmental employees. The program is administered by the United States Office of Personnel Management (OPM).

The FEHB program relies on consumer choices among competing private plans to determine costs, premiums, benefits, and service. This model is in sharp contrast to that used by original Medicare. In Medicare, premiums, benefits, and payment rates are all centrally determined by law or regulation (there is no bargaining and no reliance on volume discounts in original Medicare; these parameters are set by fiat). Some have criticized the FEHB model because neither the monopsony power nor purchasing power of the federal government is utilized to control costs. This controversy is similar to that which surrounded legislation for the Medicare Prescription Drug Coverage passed during the George W. Bush administration. Over time, however, the FEHB program has outperformed original Medicare not only in cost control, but also in benefit improvement, enrollee service, fraud prevention, and avoidance of “pork barrel” spending and earmarks. (Medicare Part D has also controlled costs far better than originally forecast through a competitive, consumer-driven system of plan choices similar to and modeled after the FEHB program.)

In the FEHB program the federal government sets minimal standards that, if met by an insurance company, allows it to participate in the program. The result is numerous competing insurance plans that are available to federal employees. Local plans have ready access to participation in the program, but the underlying statute prohibits entry of new national plans.

The FEHB program has often been proposed as a model for national health insurance and sometimes as a program that could directly enroll the uninsured. These proposals began within its first decade[11] and have continued ever since. Notable economist Alain Enthoven explicitly built a proposal for a system of “managed competition” as a national health reform decade ago, and has continued promoting the idea ever since. A version of this proposal was recently adopted by the Netherlands. In the 2004 presidential campaign, Senator John Kerry proposed opening enrollment in this plan to all Americans. In enacting the Medicare Modernization Act in 2003, the Congress explicitly modeled the reformed Medicare Advantage program and the new Medicare Part D Prescription Drug program after the FEHB program. One of the prominent proposals for health reform in the United States, the proposed bipartisan Wyden-Bennett Act is largely modeled after the FEHB program.

Providing Health Insurance to all Americans

Having established that there is a viable free market insurance model, lets address the insurance market segments:

  1.  Government provided coverage for those who are drawing Social Security, Medicare; the program need to be reformed to be actuarially sound, with it unfunded liabilities eradicated over a 15 – 20 year period. This will require tax, premium and benefit adjustments. It should be expanded to address dental and vision care.
  2. Government provided coverage for those not covered by Medicare who fall below a TBD income threshold (? x the poverty level). This could use the FEHB model or the Medicaid model. It should be funded via a health care surtax to the existing income tax system, applied proportionally to the in-place tax brackets, or a national sales tax system. IMHO the sales tax system is the most appropriate approach to approach a “fair share” contribution by all Americans and “transparency” of cost.There could be a transition income range where vouchers for insurance premium assistance would be available. The program would be required to operate on a balance budget, tax revenue = operating cost plus reserves.
  3. Government provided coverage for “wards and employees” of governments, those who are wards of local and federal government, such as prisoners, children in foster care, … and those employed by local and federal government agencies. This would also include; FEHB, military services, VA and BIA programs. Funding is part of the operating cost of the parent government organization.
  4. Employer (non-government) provided coverage, mandatory for employers of more than TBD employees. Employer based long term care insurance should be addressed, probably on a voluntary basis, but a tax benefited program, i.e. paid with pretax dollars by individual and deductible by employer.
  5. Individual market, based on the FEHB model and existing insurance programs, for those not covered by employee plans. Affinity groups could create plans such a trade union programs, national associations, such as National Association of Federally-Insured Credit Unions (NAFCU), … . Health insurance, including dental and vision, should be paid with pre-tax dollars. Long term care insurance, not provided via employer should be tax advantaged to the individual.
  6. There is also a medical liability insurance market.
  7. The final program, that I am aware of is Workers Compensation insurance, which includes both medical coverage and disability coverage. The program should be reformed to provide coverage by the patients established providers.

Where Would We Be Today

If over the last seven years the Republican Party and their Think Tanks has crafted model bills to:

  1. Establish a FEBH modeled Individual Insurance Marketplace
    1. with actuarial estimates of cost if the 10+ million ACA Marketplace subscribers were folded into the existing FEHB program.
  2. Expand and fully fund Medicaid Expansion
  3. Create a Individual Insurance Assistance Program to subsidize those transitioning from Medicaid to the Individual Insurance Marketplace and fully funded the program.
  4. Made Medicare actuarially  sound and eliminate the unfunded liabilities over a 15 – 20 year period.