Thursday, November 07, 2013

Paul Abrams: Affordable Care Act Insures Against Illness AND Bankruptcy

Wed Nov 06, 2013

We often hear politicians say that tens of millions of families are one bad diagnosis away from bankruptcy.

For once, they are not exaggerating.

Nearly 2 million peopleare expected to become bankrupt this year due to unpaid medical bills.  Without the Affordable Care Act, that would mean that 15% of the country would have declared bankruptcy in the next decade.

Based on 2007 estimates, medical-debt driven bankruptcies account for more than 60% of all personal bankruptcies.    Based upon the trends noted in 2007 compared to 2001,that percentage is likely even higher today. 

Some of those were people who had no insurance.  Whether it was because they did not bother, or could not afford it, or were excluded, is difficult to know.

But, 75% of these bankruptcies were people who actually had insurance.   Their problem is that it was not very good insurance, and so it did not cover enough of their expenses.   Moreover, there was no cap on the amount the individual would have to pay.

So, let us do a thought experiment.   How much would you be willing to pay to guarantee you would not go bankrupt because of illness?   $100/month?   $200/month?   What do you pay for auto insurance so that you are not impoverished by an accident that causes property and/or personal injury, and does not guarantee you against bankruptcy?

Whatever that amount is, one should subtract it from whatever premium one pays for health care under the Affordable Care Act.

Why?  Because the Affordable Care Act provides additional coverage for healthcare expenses, for prevention, for physical examinations, over and above its guarantee against bankruptcy.   So, if one would pay, say, $150/month for bankruptcy protection in case one gets an illness that is expensive to treat, then the rest of the premium insures for other health expenses.

Dianne Barrette, CBS's "victim", who now says she would "jump at the chance for an Obamacare policy", is a case in point.  True, she pays just $54/month today for "health insurance".  But, what does it insure?  Nothing, really.   Just $50 for an office visit, and $15 for drugs.   All other expenses from diagnostic tests to hospital costs to other treatment costs must be paid by her.  On her $30,000/year salary, if she gets sick, she could be sunk.

For another $50/month under the Affordable Care Act, however, her total exposure to medical costs is limited to $6250.  After that the insurance picks up 100% of her costs.  [These are estimates based upon the Kaiser Permanente calculator, lifted from the linked article.]

Or, for another $50/month ($150/month total), she can get office visits, "diagnostic visits" (evaluating specific complaints),  and the first $500 of tests (X-rays, lab tests, etc) covered.   If one is reasonably healthy, and does not think the medical expenses will be great, that is not a bad deal.  Her extra "$50/month" would be largely offset if she had a single MRI or CT-scan, or a battery of lab tests and some routine X-rays.   AND, she would be protected against bankruptcy.  If she were willing to pay $100/month for bankruptcy protection alone, her true cost for healthcare coverage is $50/month.  [Same qualifier as above].

Even the lowest of the bronze plans under the Affordable Care Act sets a cap, and not too high a cap, for the amount an individual needs to pay.   Although they may have high deductibles ($6, $8, $10,000), once that deductible is reached, and the cap is breached, the insurance pays everything else.

Moreover, one cannot be dropped from coverage and thus lose insurance completely.  Nor can one be excluded next year because one had an illness.

In 2007, three-quarters of the personal bankruptcies due to medical expenses were from people who had health insurance.

Starting in 2014, thanks to the Affordable Care Act, that percentage will become zero.