Risk pools, Executive orders and why my hair is not on fire

Politico’s Adam Cancryn has a good long piece on the association health plan executive order that will be signed this afternoon:

Trump is expected to sign an executive order on Thursday directing an overhaul of major federal regulations that would encourage the rise of a raft of cheap, loosely regulated health insurance plans that don’t have to comply with certain Obamacare consumer protections and benefit rules. They’d attract younger and healthier people — leaving older and sicker ones in the Obamacare markets facing higher and higher costs….

lowering premiums for the healthiest Americans at the expense of key consumer protections and potentially tipping the Obamacare markets into a tailspin….

The focus of the directive is association health plans, which allow small-business owners, trade groups and others to band together to purchase health insurance. Such plans would be exempt from certain Obamacare’s rules, including requirements that it cover standard benefits….

The administration is also preparing to roll back Obama-era restrictions on short-term health insurance plans, allowing insurers to once again sell stopgap policies which don’t cover pre-existing conditions, mental health services and many other costly benefits. Coverage could extend for as long as a year, up from a current three-month limit…..

“Within a year, this would kill the market,” said Karen Pollitz, a senior fellow at the Kaiser Family Foundation who previously worked at former President Barack Obama’s HHS Department.

I find myself in an odd spot.  I don’t think these changes are good for the risk pool but my hair is not on fire.  This places me in an isolated minority position among liberal health care wonks.  I want to work through my thought process.

There are two major risk pools in the ACA for most states.  The individual market risk pool and the small group market risk pool.  In most states those two risk pools never touch.  A few states, like Vermont, have a merged risk pool.  This analysis will differ in merged risk pool states. Association health plans will pull out healthier small groups if they can find some facially plausible reason to join an association that buys insurance.  Some of the lower premiums will be due to selection of a healthier/younger population, some of the lower premiums may be due to fewer benefits being offered.  The remaining firms in the ACA small group fully insured risk pool will face higher premiums and that will drive a few of the newly incrementally healthier groups out of the ACA and into association plans.

That is the definition of a risk spiral that could evolve into a death spiral.  However, there has been a long standing out in place for small companies that wanted to avoid the ACA regulations and that is through Administrative Services Only (ASO) contracts with stop loss re-insurance.  Effectively this means a small group would pay all of its claims up to a certain point where the stop-loss reinsurance kicks in.  If the group has a good, low claim year, they don’t spend much but the reinsurance limits their maximum exposure when they have a bad year.

Axene Health Partners is an insurance/actuarial consulting firm that offers a variety of flavors of this approach.

Level Funding is an ASO product with integrated stop loss coverage offered by insurance companies, brokers, and TPAs. Level Funding products are designed to allow the group to benefit from the advantages of self-funding, while limiting the disadvantages. As the name implies, groups with a Level Funding product will have fixed or level monthly costs associated with the funding of its members’ health coverage. For lower-risk groups, the monthly premium equivalents associated with a level funding product are often lower, sometimes much lower, than the premium the group would pay for the same benefits under the ACA’s community rating rules….

The Level Funding component that allows the group to pay fixed monthly payments is the Paid Claims Fund. The Paid Claims Fund is the product of the Aggregate Stop Loss (i.e., ASL) corridor and the group’s projected paid claims below any Specific Stop Loss (i.e., SSL) deductible. The Paid Claims Fund pre-funds the group’s maximum liability under a Level Funding product as actual paid claims over the ASL corridor are covered by the ASL insurance coverage. If the group’s actual paid claims for the coverage period are below the ASL corridor, the group will receive some portion of the Paid Claims Fund’s surplus as a refund. The refund allows the group to benefit from its own favorable claims experience, and thus Level Funding is considered a self-funded product.

There is a lot going on in those two paragraphs but the short version is that this is a way to legally structure an insurance program as ASO/self-funded to avoid ACA mandates and regulations while mostly acting as if it is a fully insured product.  This is already a well established out with dozens of different flavors that are offered by all of the major national carriers .  I think the association health plan functions as another channel of good risk out of the small group risk pool but there are already large rivers that can bring good risk out of that pool.  I am having a hard time seeing devastation.

Now in the individual risk pool, there are a few things going on that I am getting stuck on. I have five major things that are sticking in my head regarding the individual market.

  • Short term plans have varied in allowable length
  • Grandmother plans, Health Care Ministries and Tennessee Farm Bureau
  • Subsidy structures
  • Individuals with chronic conditions who make more than 400% FPL
  • Lawyers generate time

The first is the rule that limits short term plans to only 90 days has only been in place for the 2017 and 2018 pricing years.  Switching back to a 364 day short term plan rule is not helpful to bringing and keeping good risk in the single individual risk pool but it is no worse than policies that were in place for the 2014, 2015 and 2016 pricing years.  John Graves at Vanderbilt raised a good point about relative pricing last night that I still need to consider:

 

  More people now won’t face mandate penalties because the high price of Bronze will generate more hardship exemptions in 2018 or 2019 than were generated in 2014. This is a sharp and subtle point.

Much like the small group market, there are a significant number of channels that bring good risk out of the individual risk pool.  The proliferation of transitional grandmother plans in states like Iowa has held a lot of healthy, low risk individuals out of the shared risk pool. Tennessee Farm Bureau is allowed to sell underwritten policies on the individual market and this has allowed for a very sick ACA risk pool. Finally, Healthcare Sharing Ministries are allowed to sell underwritten and limited benefit plans nation-wide. They have seen an explosion of growth since 2011. These are all major outs where good risk leaves the individual unified risk pool. Reinstituing 364 day short term plans is functionally another path for good risk to exit.

Good risk matters for two groups of stakeholders over the long run. The first is the federal government as good risk lowers net subsidies paid. The second is non-subsidy eligible individuals who have expensive conditions that will preclude them from being allowed into any underwritten pool. But most of the people who receive subsidies are fundamentally indifferent to the underlying composition of a risk pool. The subsidy is price linked so a bad risk pool means higher premiums and higher subsidies. The subtle point is that subsidized individuals who want to buy Gold, Platinum or non-Benchmark Silver plans will pay more but this is subtle. The ACA subsidy structure insulates a lot of people and as base premiums increase in a uniformed fashion, more people at the top of the subsidy eligible income scale will see affordable Bronze plans. This analysis is not assuming any CSR pricing games that I’ve gone into.

The big losers of this system are the non-subsidy eligible individuals with chronic conditions that will bounce them from any underwritten pool. High underlying base premiums for the ACA will make the community rated, guaranteed issued insurance unaffordable. The off-exchange/non-subsidized segment will death spiral. Insurers can protect themselves by increasing base premiums and cranking up the federal fire hose of premium tax credit subsidies for on-Exchange business. But this is the group that gets screwed.

Finally, all of these changes are not instantaneous. The association health plan changes and the short term insurance regulation changes will require new rule-making. Under the fast case scenario for major rule-making these changes may be in play for the 2019 Open Enrollment. I am seeing enough chatter on these changes to expect that there will be lawyers and there will be lawsuits that will slow this process down even more than the fast case scenario. This matters because insurers know how to price unhealthy risk pools and if they have sufficient time to price a bad risk pool, the on-Exchange markets are structurally stable. The off-Exchange market segment will be in trouble but again, insurers won’t flee if they can get states to approve the rates needed for a high morbidity projected risk pool.

This is how I am thinking through this problem and why I am mostly blase to only mildly alarmed. I know this puts me at odds with a lot of analysts whose intelligence and track records I respect, but I have a hard time lighting my hair on fire right now.






38 replies
  1. 1

    Thanks David, I was waiting for you to weigh in :)

    Finally, Healthcare Sharing Ministries are allowed to sell underwritten and limited benefit plans nation-wide. They have seen an explosion of growth since 2011.

    How convenient for them that (conservative Christian, the only kind allowed) religious objections let people profit from ignoring laws they don’t like.

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  2. 2
    Vhh says:

    Trump has made all sorts of threats to sabotage programs, budgets, treaties, immigration rules, trade agreements, you name it. Lots of big talk and attention getting headlines (he loves that). But look what actually happens. His Muslim ban gets bogged down in courts and its own contradictions. The sweeping Presidential budget plan has simply been ignored by Congress and the departments because it is incoherent and unworkable. Repeal/replace of the ACA flamed out. He punted DACA to Congress, who have to save it or watch an immigration Gestapo snatch young employees from major firms who have vowed to fight tooth and nail in court. He punted the Iran deal to Congress, where even traitors like Cotton know that we can’t abandon it. Trump might as well announce that Evil has been abolished and Paradise restored, for all that matters. It is more and more obvious that he is ignorant, lazy, incompetent, snd mentally unstable. He is hurting Americans and the reputation of the US, and it will yake more of that befor

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  3. 3
    Barbara says:

    The joke here is that association products are almost always a bad deal, more of a way to let the association raise money than for small business groups to save money. They are almost always the last refuge of groups that had no other option. And even when they have regulatory wind at their backs they are really difficult to administer. They tend to be favored by small groups with very demanding members (think small law firms). They would clearly require insurers to gear up to market them, so the test will be to see what the big four do (CIGNA, United, Anthem, Aetna) in response. Republicans and more than a few Democrats don’t seem to understand how the insurance business works and how hard it is to do it successfully, much less the long lead up time to get something like this off the ground.

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  4. 4
    Planetpundit says:

    How do we know your hair isn’t on fire?…..just because you told us?……you used to tell us your name was Mayhew!!!

    :)

    Good post, David (from a fellow David)

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  5. 5
    ken says:

    Is there any chatter about reducing the Order’s burden on 400%+ FPL people by, say, enacting legislation to allow unsubsidized people to deduct premiums (maybe just if premiums exceed $X) and/or out of pocket thru expanded HSAs or something similar? I know the GOP doesn’t care about health care per se, but if the relief could be targeted solely at middle/high earner people, many who are fairly old, maybe they’d be OK with a targeted tax cut and could roll it into their tax package.

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  6. 6
    clay says:

    My question is: how much wiggle room does Trump have on this, legally speaking? The ACA is enshrined into law; an executive order can’t override a Congressional act. And, as I understand it, the ACA is quite an extensive law at that. So how much futzing around can Trump do without bumping into the legal limits set by the ACA?

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  7. 7
    Enhanced Voting Techniques says:

    Not sure what’s the point of discussing this at this point because it’s Trump so the actual Executive Order is going to bigger mess than first indicated (me personally, I am betting it will include a travel ban on Puerto Ricans and a repeal of the 8th Amendment as Trump launches into some “criminals committing crimes on bail” rant)

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  8. 8
    MP says:

    @ken: Yes, please. I run a small (extremely small) business and purchase my plan through the Exchange. Cost is just under $1100 per month for a Bronze plan that covers me and my family but has a deductible of roughly $13k. I am extremely fortunate and can pay the premiums and have managed to bank enough in the HSA over the years to cover the deductible for one year. But if premiums skyrocket in the coming years as the risk pool deteriorates, I’m not sure what I am going to do.

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  9. 9

    @clay: yeah, this just smells (to me) like something an EO can’t do.

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  10. 10
    Barbara says:

    @clay: It’s a good question. I would wait for the executive order to come out, but it strikes me as likely tripping various federal law wires, and it is unclear to me at all whether it could supersede longstanding state insurance laws that limit the scope of association based insurance plans. Basically, the states prohibit groups from banding together solely for the purpose of buying insurance because of the long history of fraudulent practices associated with such groups, which can sometimes take the shape of a MEWA (multi-employer welfare association). I have often thought some of these laws were overkill, but it’s really not that hard to get around them either.

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  11. 11
    Mandarama says:

    Thank you so much for this overview, Mr. Mayhew. If it tells you anything about how lucid and reassuring this is…I was just reading your post to my husband and our two teen boys stopped to listen and ask questions.

    Our local NPR was talking about Farm Bureau in the same terms this morning (we’re in TN). And you know that Trump has no concept of industry rules and probably believes that people can run out Friday and buy their free-market paradise policies. Sigh.

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  12. 12
    West of the Cascades says:

    @Major Major Major Major: from the reporting I’ve seen (very imprecise regarding the legal processes involved), the EO is a mostly a directive to federal agencies to issue new regulations, particularly w/r/t the association health plans. So that requires a time-intensive process to prepare draft regulations (somehow interpreting the provisions of the PPACA to allow such plans to avoid providing PPACA standard benefits and otherwise being consistent with the PPACA), put it out for public notice and comment, and then issue the final regulations. At which point the final regulations becomes subject to challenge in court as being in violation of the PPACA.

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  13. 13
    clay says:

    @Barbara:

    Basically, the states prohibit groups from banding together solely for the purpose of buying insurance because of the long history of fraudulent practices associated with such groups…

    Ah. This explains why Trump is so keen on it.

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  14. 14
    Bob Hertz says:

    I do not quite know how anyone can sue to block a 12-month period for short term plans.

    The obvious solution to the problem of unsubsidized older persons is to extend the tax credits to all income levels.
    State simply that no one will pay over 10% of income (or 9%, or 8%) for health insurance. If a person makes $100,000 a year, his ceiling is $8,000 for health insurance. If the cost of his policy as this death spiral is $12,000 a year, then his tax credit is $4,000.

    I believe there are about 7 million unsubsidized persons in the individual market. If they are all like the person above, the total cost to government would be $28 billion a year..

    Well, it is a necessary patch to the ACA. We could raise the Medicare payroll tax by less than one half of one percent to cover this.

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  15. 15
    Raoul says:

    Thoughts, David? How many states realistically might/would do this? How do we push this thru where possible?

    Edwin Park‏ @EdwinCBPP
    Important: states can prevent expanded short-term plans from damaging individual market by requiring ACA-compliance under state law

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  16. 16
    MomSense says:

    Association plans only make sense to me as a way to provide some kind of coverage in the pre-ACA days.

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  17. 17
    Enhanced Voting Techniques says:

    @Major Major Major Major:

    yeah, this just smells (to me) like something an EO can’t do.

    My bet is that’s idea. The EO will get knocked down by the courts and Republicans can wave it arround to their voters and scream “You see, we have a plan, if only our incomptent leaders in Washington would let us do it. Why look, the party is power can’t even pore piss from a boot with instructions on the heel. That’s why you need to vote us Republicans back in.”

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  18. 18

    Is the idea here literally only to hurt people?

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  19. 19
    karensky says:

    As a political hack, and proud of it, it would be very valuable to track the very unfortunate folks noted in your penultimate paragraph. Not by individual, but by Congressial district so that we can fight for them in 2018.

    I am not a data freak or a health insurance expert but Trump is going to keep pulling this shit and we gotta resist effectively. Pls excuse typos.

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  20. 20
    CaseyL says:

    @Major Major Major Major:

    Is the idea here literally only to hurt people?

    For Trump and most of his followers, yes.

    But the entities that helped put him in the WH (Russian and non-Russian oligarchs) I think the end goal is to completely fractionalize the US into small pockets of reasonable prosperity and civilization surrounded by vast ruined landscapes populated by people with no concept of belonging to any social system larger than their own family and ethno-religious tribe.

    I’m so glad I have no children, no nieces or nephews, and that my first cousins also elected not to reproduce.

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  21. 21
    sheila in nc says:

    @MP:

    Cost is just under $1100 per month for a Bronze plan that covers me and my family

    I sometimes remind my self-employed friends who are shocked at the size of their premiums that they are paying the equivalent of the employer + employee contribution. My out of pocket for self + 1 insurance is about $500/month but my employer is paying $1000 per month. We just have really expensive health CARE in the US. The only way to make it cheaper is not to use care which is not always an option.
    Also I TOTALLY agree that the employer contribution to health care is de facto compensation for me and should be taxed. Good luck getting everyone with employer sponsored insurance to agree to that!

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  22. 22
    Daddio7 says:

    What happened to price controls? Can no one figure out some way to provide lower cost healthcare? Throw money at it and just like education costs will rise to soak it up without any increased benefit. How many multi-millionaire doctors and hospital administrators can we afford?

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  23. 23

    The second is non-subsidy eligible individuals who have expensive conditions that will preclude them from being allowed into any underwritten pool.

    Doesn’t that mean that anyone in one of these plans wishing to bear a child risks illness, death, and medical bankruptcy? What is this going to do to US maternal morbidity and mortality rates?

    The association health plan changes and the short term insurance regulation changes will require new rule-making. Under the fast case scenario for major rule-making these changes may be in play for the 2019 Open Enrollment. I am seeing enough chatter on these changes to expect that there will be lawyers and there will be lawsuits that will slow this process down even more than the fast case scenario.

    Well, that’s something. But I think you underestimate the creativity of the fraudsters.

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  24. 24
    gene108 says:

    @sheila in nc:

    The only way to make it cheaper is not to use care which is not always an option.

    Or just have a gatekeeper, with the negotiating power to pay less to providers. This will cause a disruption for providers, but theoretically the rest of us get more money in our pockets, so we should be able to rebalance the economy.

    As someone, who is wholly dependent on healthcare to keep my going every day, cutting back my usage is not an option.

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  25. 25
    oldster says:

    Simple question:

    If I want to phone my Republican Congressman and harangue him about this EO, what points should I hammer home?

    What is the best way to highlight the damage that Trump just did?
    What is the best way to demand that Congress ameliorate it?
    What should I complain about, and what should I demand?

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  26. 26

    Isn’t this also hard on small businesses and older employees? It will provide a financial incentive for age discrimination.

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  27. 27
    Cheryl Rofer says:

    This is helpful.

    Finally, all of these changes are not instantaneous. The association health plan changes and the short term insurance regulation changes will require new rule-making. Under the fast case scenario for major rule-making these changes may be in play for the 2019 Open Enrollment. I am seeing enough chatter on these changes to expect that there will be lawyers and there will be lawsuits that will slow this process down even more than the fast case scenario.

    But I’m fine with people having their hair on fire. Get them moving against this empathy-challeneged President and his political party.

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  28. 28
    gene108 says:

    Level Funding is an ASO product with integrated stop loss coverage offered by insurance companies, brokers, and TPAs. Level Funding products are designed to allow the group to benefit from the advantages of self-funding, while limiting the disadvantages.

    We (my employer) went into level funding a year or two before Obamacare went into law, as our fully insured rates doubled because we had one employee with a brain tumor and one with premature triplets. We probably had just over 50 employees on the plan, plus their dependents. We ended up with premiums in line with our pre-renewal rates, but we ended up being an early adopter of high deductible plans.

    The level funded plans we’ve had all require medical underwriting, at the time of enrollment. If you are a new group, with say someone on dialysis, they may chose not to underwrite the plan. They do not have issues with regular chronic conditions.

    Claims management has generally been a strong seamless a a regular fully insured plan.

    It is not a bad option.

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  29. 29
    mai naem mobile says:

    This may sound dumb but in don’t understand how you can executive order for States to sell insurance across state lines. Don’t the insurance cos have to have contracts with different hospitals etc. even in the shittiest of plans, and don’t they have to meet the legalities of the state they will be offering in? I can see NH and Mass. doing it but don’t they kind of do it anyway because southern NH people go to Mass fo treatment because it’s good care and close.

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  30. 30
    David Anderson says:

    @mai naem mobile: The order is for new rules to be developed by Department of Labor and Department of Health and Human Services to redefine how some plans are categorized and thus regulated. Association plans are regulated under ERISA and not the ACA; ERISA allows for some state line shopping.

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  31. 31
    Barbara says:

    @David Anderson: They are regulated under ERISA only when they are associations of employers offering employee welfare plans.

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  32. 32
    Planetpundit says:

    I’m 61 live in MN my gold plan is $1100/m

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  33. 33
    clay says:

    The story on CNN said the the executive order “would allow consumers to buy short-term policies, which don’t have to comply with Obamacare’s protections for those with pre-existing conditions.”

    This gets back to my earlier question… I’m almost positive the mandate for insurance to cover pre-existing conditions is enshrined into law by the ACA. An executive order shouldn’t be able to override that law… should it? What’s going on here? Am I wrong about the law? Or is there some loophole Trump’s exploiting?

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  34. 34
    Florida Frog says:

    @Planetpundit: Ouch, I am in Florida and 61. My bottom of the line bronze plan (about $7500 deductible) is $1130 a month. I just got the news this morning from Florida Blue about the new rates. How many people can afford this?

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  35. 35
    Raoul says:

    @sheila in nc:

    The only way to make it cheaper is not to use care which is not always an option.

    But people in Europe don’t forgo care. Yet their spending as a percent of GDP is lower. How we price care, who pays what, and how much the providers make is different.

    I don’t think Dr.s should take a vow of poverty, but they also don’t need $500,000 a year compensation packages. IMO.

    eta: I needed some care this week. because I know my way around, I was able to call a nurse, get my PCP to authorize a direct visit to a P.A., and got what I needed. I’m sure it still wasn’t cheap, but I didn’t need to see an M.D. or go through visit-referral-visit. How we access care is too often dumb in this country.

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  36. 36
    Lulymay says:

    As a Canadian, I’m interested in what I call the huge Health Business (care is optional) and reading all these comments leads me to believe I would need the assistance of a Philadelphia lawyer (a very good one!) to just understand all these acronyms that are referenced.

    We are guided federally by the Canada Health Act, but it is delivered and managed by individual Provinces. Living in B.C. which until recently was ruled by a very right wing conservative (Republican-like) government who have been charging what we feel are exhorbitant monthly fees, while folks in other provinces pay zero. Before our Repugs gained power, our family of 2 adults paid a total of $32 per month – deducted from one’s payroll cheque. Our employer paid the same amount. Then the Greedos took over and within a short time, and now as a retiree, we pay $150 per month. I know, you will look at us and wonder what our beef is! In addition, we travel so must purchase what is referred to as “out of province” insurance in case we have a health problem while outside of BC. Insurance companies in Canada use the cost of health care in the US as a basis for charging us. The older we get, the more expensive, especially if you have a record that they identify as a “pre-existing condition”. For a total of 35 days travelling out of my home province, we paid just short of $1900 with a $1000 deductible. If there is anything serious, they will medi-vac us home, the cost of which is still far cheaper than paying for the most expensive health care in the world, which is apparently in your country.

    Bottom line: I feel so sorry for you living across the 49th from us when it comes to health issues. We have a lot of Americans travelling north and see a doctor up here in BC in order to obtain prescriptions that can be filled at Canadian pharmacies because there is such a cost savings. I also see bus loads of folks coming on day trips from as far as Las Vegas travelling to Algadones, Mexico across from Yuma to regularly to there for dentists, eye glasses as well as fill their prescription needs (limited to a 3 month supply) and checked closely by the Border staff.

    I can’t imagine why your politicians, and apparently many citizens as well, don’t or won’t or can’t see the advantage of having a Federal Health System whereby everyone gets treated the same, no matter what their financial position is, when it comes to something as important as the overall health of a nation. Of course that would imply setting a standard of billing for procedures as well as controlling pricing of drugs. I can tell you our medical doctors are not suffering financially, and neither would yours, but, hey, that would be akin to Communism, right?

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  37. 37
    eltay3 says:

    @sheila in nc: There are several ways of decreasing healthcare costs. First, don’t allow for-profit primary care insurance. It can be private, just not for profit. This eliminates Billions from the cost equation. Second, is to eliminate what amount to pharmaceutical monopolies who can effectively charge whatever they wish. (Think Epi pen.) These are routine in most of the developed world.

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  38. 38
    rikyrah says:

    This muthaphucka here!!!

    MAYHEW, DID YOU SEE THIS?

    Topher Spiro‏Verified account @TopherSpiro

    🚨 FULL SABOTAGE: Trump has decided to default on ACA payments for cost-sharing subsidies. http://politi.co/2gfZv7e via @politico

    https://twitter.com/TopherSpiro/status/918649017231437825

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