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Posted at 12:51 PM ET, 03/ 3/2011

How low can your health care go?

By Ezra Klein

I don’t think using the words “actuarial value” repeatedly will help grow this blog’s readership, But as I wrote yesterday, it really is the key concept for understanding what Republicans are now saying about health-care reform. Their reaction to Wyden-Brown has made pretty clear that they don’t have some alternative policy that covers more people, at lower cost, with similarly comprehensive health-care insurance. So they’ve argued that the health-care insurance envisioned in the Affordable Care Act is too lavish. As conservative health-care policy expert Stuart Brown wrote, the law “locks the states into guaranteeing a generous and costly level of benefits.”

The minimum level of benefits envisioned by the law is, for most us, 60 percent of our expected health-care costs over the next year. That is to say, it has an actuarial value of 60 percent. Here’s how that stacks up to other health-care arrangements you might be familiar with. Click on the table for a larger version:


That comes from this report (pdf) (and thanks to reader John Graves for the pointer). And here’s what it means: The minimum level of insurance envisioned by the Affordable Care Act will cover 40 percent less of your expected medical costs than Medicare, 33 percent less than the HMO plans most employers offer, and 16 percent less than most employer-sponsored health savings accounts (33 percent less if you’re including the money employers typically add to health savings accounts). It is much, much less generous than the health-care insurance that the vast majority of insured Americans actually have.

So I’ll ask again: How much less generous do conservatives want to see these insurance options get? The Massachusetts plan goes all the way down to 56 percent of actuarial value, which is lower, but not that much lower. But what is the magic number here?

By Ezra Klein  | March 3, 2011; 12:51 PM ET
Categories:  Health Reform  
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as you know Ezra the Republicans want out of this game. Dems won't let them so that's fine, it'll play out.

As far as actuarial value goes the question relates to how the subsidies will be structured because who in their right mind won't go straight to the Platinum plan when someone else is paying for it.

its like Governor Christie asking a town hall in NJ recently about the fact that the state employees have the choices of all the above type of plans and they have to pay 1.5% of their salary for whichever plan they want. Of course 96% choose the most expensive plan. Why not, they aren't paying for it.

Posted by: visionbrkr | March 3, 2011 1:03 PM | Report abuse

"How much less generous do conservatives want to see these insurance options get?"

Isn't this a little rhetorical?

You know, as long as citizens depend upon employers for health insurance, employers have that much more leverage over them, which distorts the free transition of labor.

Posted by: arm3 | March 3, 2011 1:06 PM | Report abuse


Since you are the health care wonk, do you know how that 60% figure breaks down according to age?

For instance when you write:

"The minimum level of insurance envisioned by the Affordable Care Act will cover 40 percent less of your expected medical costs than Medicare, 33 percent less than the HMO plans most employers offer, and 16 percent less than most employer-sponsored health savings accounts"

does that mean that Medicare covers most of the costs by dollar amount?

If so, does it also follow then that HC procedures in younger people are less costly and therefore the deductible portion of the total cost is a much greater percentage than would a senior citizen type procedure which would have a much larger total cost therefore making the deductible only a tiny percentage?

I'm not sure if I wrote that right, so let me give an example.

A young relative had recent outpatient surgery where the bill was about $3000, with a deductible of $200 or 6%

That same procedure on a senior might cost twice that much due to various factors, with the deductible still being $200. In that case the patient portion would only be 3% of the total cost.

Wouldn't that be one way to account for the different percentages between Medicare and the insurance of younger people?

(For once, I'm not being smart alecky, this is NOT my field! LOL)

Posted by: johnmarshall5446 | March 3, 2011 1:12 PM | Report abuse


age has no bearing on it.

Medicare btw covers only 76% (and that number is probably too high because he's using 2008 figures I believe. Medicare Part A deductible for 2011 is $1132 and not $893 of $993 whatever they show there. Again not his fault, just old data and Medicare's costs to receipients go up every year.

As i've said to all you single payer folks out there if you could buy into Medicare it'd cost you about $500-$600 a month per covered person to do so.

Posted by: visionbrkr | March 3, 2011 1:18 PM | Report abuse

It's easy to see that the value they want is 0%.

Look Ezra, you do these interesting thought experiments that do a great job at pointing out the inconsistencies of modern conservatism but they seem to assume that conservatives are actually interested in engaging in a "thought" experiment.

That would actually require some form of thought from them.

There is no middle position for compromise with a party that believes that programs to help the poor or that government as a whole shouldn't exist.

Posted by: dplionis | March 3, 2011 1:24 PM | Report abuse

@johnmarshall: From my understanding of Obamacare, the actuarial value is adjusted for age, so that the circumstance you describe is accounted for in each party's rates, presumably as you would prefer.
A caveat: while PPACA allows rates to vary by age, it will not allow the worst rate to be more than 3 times the best rate. So there is some cost shifting.
To directly answer your question, though - the amount of coverage varies from program to program because each program is different and subject to different laws and regulations. I think it would be quite surprising for them to cover at the same rate unless it were mandated by some overriding legislation.

Posted by: RZ100 | March 3, 2011 1:25 PM | Report abuse

"As i've said to all you single payer folks out there if you could buy into Medicare it'd cost you about $500-$600 a month per covered person to do so."

Assuming cost controls aren't imposed in the process of constructing such a situation, right?

I think the actual cost of care is the 800 lb. gorilla in this situation. There is tremendous moral hazard: both patients and providers want insurers to pay providers whatever it costs for patients to receive the care they "need".

Posted by: arm3 | March 3, 2011 1:26 PM | Report abuse


Ok, then help me out, because I won't get to Medicare for a while.

Is the Medicare copay a percentage, or an actual dollar amount? For instance in my example the copay was a fixed dollar amount. If the same procedure was done by Medicare would the copay be say 10%?

If not, then excuse me for being thick, because I still don't understand why a senior procedure would not result in Medicare paying a higher percentage on a fixed dollar amount deductible.

Posted by: johnmarshall5446 | March 3, 2011 1:30 PM | Report abuse

The 60% figure is a straw man. It doesn't matter what the standard is, those againts health care reform will hold the line until it's untenable even for them, then change the subject.

Posted by: dlk117561 | March 3, 2011 1:31 PM | Report abuse

"As far as actuarial value goes the question relates to how the subsidies will be structured because who in their right mind won't go straight to the Platinum plan when someone else is paying for it."

-- The amount of the tax credit that a person can receive is based on the premium for the second lowest cost silver plan3 in
the exchange and area where the person is eligible to purchase coverage. A silver plan is a plan that provides the essential
benefits4 and has an actuarial value of 70%. (In PPACA, a 70% actuarial value means that on average the plan pays 70% of
the cost of covered benefits for a standard population of enrollees.) --

Posted by: justin84 | March 3, 2011 1:31 PM | Report abuse

I'm pretty sure the answer to your question Ezra is a big fat ZERO. Most of the conservative arguments I've heard don't really deal with insurance. They want health savings accounts and for most people to pay for their own health care (thus my point of being zero actuarial value). This is why their latest plan included no mandate or no ban on pre-existing conditions (HR 3400) - whether you choose not to carry insurance or are forced, the end result is the same.

The rebuttal to this argument is obviously that people can't predict when they will need insurance, nor can you shop around for the "best" hospital on your way there with chest pain. People need a basic level of coverage and the ACA definition is by no means excessive. Importantly, all plans must cover preventative care, which by itself is a windfall - those who don't believe me should go to medical school in a underserved area like I do.

Posted by: kmani1 | March 3, 2011 1:35 PM | Report abuse


thanks. I knew the answer was out there and they couldn't structure if as NJ does our state employee's benefits but wasn't sure of the calculations.


no worries. As you say its not what you do. Medicare pays differently for different services. Some are percentages, some are deductibles (that change over time) percentages don't change.

Here's a good link to show what medicare pays and what a sample company (BCBS in NJ) pays as a supplement.

Posted by: visionbrkr | March 3, 2011 1:38 PM | Report abuse

This will probably get as much progress as asking Congressmen for their opinion on the Laffer Curve.

Very few specific answers and very little traction outside of the wonk world.

To paraphrase another commenter, When can I get back to Angry Birds already?

Posted by: will12 | March 3, 2011 1:39 PM | Report abuse


absolutely but why do we need single payer to institute cost controls? We've already seen GAO admit that 10% of medicare is fraud. Why give then the whole deal then and waste $200+ billion per year in fraud?

MA is instituting cost controls (if they have thick enough skin to go through with it), so we'll see how it goes there.


just as an FYI HSA's ARE insurance. See the chart above. They're between 76 and 93% of actuarial value depending on how they're funded. You can put your talking points away now.

Posted by: visionbrkr | March 3, 2011 2:00 PM | Report abuse

Ok I'm out of here. Give me currency trading and the bond market any day over this!

(out of the dollar as of last week btw, really crummy action during this last crisis)

Posted by: johnmarshall5446 | March 3, 2011 2:05 PM | Report abuse

Just an FYI 2010, 2011 FEHBP BCBS copay is $20.

Posted by: jak201 | March 3, 2011 2:22 PM | Report abuse

@ vision

Just a tangential observation of mine, I guess. I like musing on public policy issues, and there seem to be enough intelligent people on this blog to try bouncing things off of. WTB an edit button, though. :)

Single payer is of course not a prerequisite for cost controls. It might make them easier to implement though as a matter of greater leverage, but cost controls without single payer probably would be an easier sale than single payer anyway. Of course, there's always the threat of single payer as incentive to implement cost controls, but the threat has to be credible.

Posted by: arm3 | March 3, 2011 2:51 PM | Report abuse

Interesting how Ezra defines the sandbox in which Republicans are supposed to climb in to to play with the Democrats on healthcare policy.

The fact is that the federal and state governments has hampered the ability for a health insurance market to function.

Let's start with the idea of insurance: pay a small certain cost in exchange for coverage of an very large costs that is uncertain. Therefore, using "insurance" plans to cover predictable events like dental cleanings, normal pregnancy deliveries, annual checkups,purchase of eye glasses, etc. is not how insurance in a normal market like auto and homeowners. These things are covered in today's health ins market because the tax code encourages subsidization of these purchases and/or state regulations mandate that policies include these coverages.

First eliminate the tax deduction for employer-provided health insurance and repeal state laws mandating the policies cover pre-existing conditions, psychiatric care, pregnancy, and other ailments that not everyone needs or wants, then we can try the free market in insurance.

Once we do that, we can get down to the real problem and that is covering the poor. If you cannot afford health insurance, and society wishes to provide it, then there are many different ways of solving the problem. Have public hospitals offer reduced cost care, offer vouchers to the poor that can be used at private hospitals, etc. You don't impose that social cost just on insurance companies.

We don't need PPACA to solve this problem.

The better way to solve this problem is to attack the root cause of rising health care costs which is the awful nutritional and exercise habits of Americans. The New England Journal of Medicine just published a study that found Canadiens obesity rates are 26% versus 36% in the US! That fact alone probably accounts for a huge portion of their lower healthcare expenditures.

Following Michelle Obama's focus on health eating and exercise, the President should propose to double or triple Medicare tax rates, and increase Medicare deductibles and co-pays. Then HHS should develop a schedule of discounts offered on these tax rates, co-pays, and deductibles based on health metrics that are controllable by individual behavior and are correlated with health care expenditures. Examples are: body fat percentage, blood pressure, cholesterol count,and nicotine levels (from smoking).

Likewise, future aid to Medicaid recipients should be conditioned upon the recipients meeting target metrics. It's stupid to offer type 2 diabetes treatment to a 5'4" 275 lbs. woman who refuses to take steps to change her behavior.

Now this would actually make people healthier. But Democrats don't care about improving the health of Americans. They'd rather blame evil drug companies and profiteering insurance companies so that they can increase the size of government.

Posted by: DeficitHawk | March 3, 2011 4:38 PM | Report abuse

The world is our health policy laboratory and the results have been in for decades. Single payer produces lower costs (1/2 to 1/3 of ours) and better outcomes (in every measurable outcome; longevity, infant mortality, cancer, heart disease, etc).

Single payer is the best negotiating position. Hence in Japan an MRI is $98. In the US, around $1,200.

Sure, we could control costs without single payer, but when the GOP prevents the government by law from negotiating better drug prices, we pay more, more than any other country for the same drug.

DeficitHawk claims the Dems don't care about public health. What bull. It is the GOP that cares more about the profitability of their donors than the health of the public. The GOP proposes cutting food safety inspectors and regulations, degrading water and air quality standards, allowing insurance companies to avoid paying for preexisting conditions or insuring high risk Americans, etc.

I think it's pretty clear which party is on whose side.

Posted by: GreenDreams | March 3, 2011 7:26 PM | Report abuse

The generosity of politicians of all stripes is underwhelming...even when we pay the bill for it.

Posted by: denim39 | March 3, 2011 8:16 PM | Report abuse


There is no evidence that single payer systems cause better health outcomes. There is only correlation, not causation.

You can compare health outcomes between single payer nations like Japan, Canada, and the UK, and you'll see big difference in life expectancy, morbidity rates, etc. So what's your explanation for that?

Studies have demonstrated that most of the differences in healthcare cost between the US and Euro Zone nations can be explained by higher rates in the US of type 2 diabetes, heart disease, stroke, osteporosis, arthritis, etc. which are driven by our inferior nutrition and exercise habits. If you want to bend the cost curve, then you have to change behaviors that create medical costs! PPACA would only make it less expensive to continue being a fat slob driving up our health care premiums. Obama and the Democrats will actually cause more people to die, and we'll pay more for the privilege.

Of course, eliminating deductions for employer health insurance plans, and abolishing state regulations that impose unnecessary coverages on consumers that pay more for things they don't want or need would also help to make health insurance markets function more efficiently, too.

As for covering pre-existing conditions, that's everyone's responsibility. It should not just be a burden for insurance companies because it undermines the entire logic of insurance underwriting. Hell, we don't require auto insurance companies to offer drunk drivers the same auto insurance policies as safe drivers. Why the different standards for health insurance.

Posted by: ElGipper | March 3, 2011 10:07 PM | Report abuse

ElGipper, you are ignoring a couple of very big facts: the nations with universal health care pay about half as much as we do per capita NOT because we are twice as sick, but because we pay about twice as much for comparable care. This is born out when you look at physician income, or per admit rates for hospital care, or drug costs, etc. There is a lot of variation, but on the whole the bulk of the difference is in the unit cost of care. Check out this study, for example:

Note that the study is coming from health insurers, not government or a left-leaning non-profit.

To the extent that relative sickness does play a role, you neglect to point out how strongly correlated this is with poverty and education. Not a mere correlation, of course. America has a higher share of people poverty and people with very limited education than most other industrialized economies. That, of course, is in part because our social safety net is weaker than those other nations.

Posted by: jdhalv | March 4, 2011 12:50 AM | Report abuse


While the Republicans are certainly no saints you're absolutely WRONG on who the culprit is here:

you said:

"Sure, we could control costs without single payer, but when the GOP prevents the government by law from negotiating better drug prices, we pay more, more than any other country for the same drug"

As Ms. Hamsher notes it was Rep Eshoo who not only pushed PPACA to have a 12 year to generic biologic window instead of 5 or the negotiatied 7 years she also allows evergreening to happen which causes prices to skyrocket. All it seems on behalf of her receiving $712,000 in campaign donations from Pharma. $712k in donations for Billions and Billions in profit. Seems like a great dealt to me.

Posted by: visionbrkr | March 4, 2011 7:30 AM | Report abuse

But what is the magic number here?


They don't care the value. All that matters is that there is no increasing claim on government to pay. That is, no prospect that taxes will have to be raised, let alone taxes on the wealthiest.

For them, on health care, "we" are not "in this together" (up to and including death).

Posted by: Amphigory | March 4, 2011 10:15 AM | Report abuse

"The better way to solve this problem is to attack the root cause of rising health care costs which is the awful nutritional and exercise habits of Americans."

If you think mandating healthcare coverage is nanny state-ish, how would any proposals in government *ever* pass the conservative smell test regarding an individual's freedom to glut himself and sit on the couch? From the stink made anytime a state or municipality has tried to ban smoking in bars and restaurants, I can tell you that I will be old and gray before any such regulation sees the light of day.

This change will have to come at a societal level, and it won't come while we're constantly assured by bombardments of advertisements to "go ahead and indulge," because "you've earned it, you deserve it, you owe it to yourself, you're an individual." A Soma holiday, indeed.

Posted by: arm3 | March 4, 2011 12:43 PM | Report abuse


This isn't a nanny state proposal. To charge people Medicare tax rates and Medicare deductibles and co-pays rates commensurate with their likelihood of incurring medical expenses is a sound conservative principle.

Also, creating personal responsibility for your managing your own healthcare costs is extremely conservative. The first thing Democrats complain about regarding my proposal is that minorities are disproportianately obese, and they try to blame obesity on income instead of personal choices.

Well, I don't know if you've travelled much in the 3rd world, but poor people generally are very skinny outside the US. I was a vegan for 14 years, and my food bill was much lower than the average Section 8 family.

Nevertheless, the Left does what it can to blame high healthcare expenses on greedy corporations instead of the true culprits: government and individuals with poor health habits.

Posted by: DeficitHawk | March 4, 2011 3:37 PM | Report abuse

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