“Fair values” and anchoring insurance prices

Recently, E-health released a survey that asked a 1,700 of their customers about their priorities on health insurance.  60% of the respondents are not subsidized for their ACA individual market plans. That most likely means they are earning well over 400% Federal Poverty Level (FPL). One of the questions asked what they thought a “fair” premium should be for a single adult. This illustrates the challenges of anchoring on personal experience when the distribution of experience is widely skewed.

This is not a crazy response.

Most people, most of the time, are fairly low cost individuals. Of the people with high, persistent costs, a good chunk of them are either in Medicare or Medicaid. If they are in Medicare, the Part B premiums tend to be under $200 for most individuals. If someone is covered by Medicaid, their premiums tend to be nominal. The universe of people who earn over 400% FPL and are shopping for their own individual market policy is likely to be a fairly healthy as a group.

Now I want to pull up the most important chart in US health policy: the spending distribution for care.

Most people, most of the time, barely touch the healthcare system. The size of the “most” in the preceding sentence is probably larger for the E-health universe than the general population for age/income reasons alone.

I can easily see how people will look back at their recent experience and think that they went to the PCP once, get a generic prescription once last year and thought about going to the urgent care but did not because they tweaked their ankle chasing their nine year old down a rocky trail. Their total medical expenses may have been $350 so thinking that paying $1,200 to $2,400 a year to help cover that as well as cover the low probability of getting hit with a meteor or a cancer diagnosis makes sense.

The anchor of personal experience for most people is that their medical costs aren’t high. They then add a wildly insufficient kicker on top of that baseline experience for high medical costs that have an extreme right hand skew on a power law distribution. Yeah, the numbers being bandied about as a “fair” premium are absurdly low but the process at how a lot of people got to those numbers makes, to me, a decent amount of sense.






34 replies
  1. 1
    dr. bloor says:

    I see how you get to your conclusions, although it’s still a display of spectacular ignorance. News and debate about health care insurance and costs have been high profile for extended stretches over the past decade, and it’s difficult to not know someone who got reamed for a 2K ED visit or a $15 Tylenol. Anyone who responded “$100 or less” would have looked much better saying, “you know, I’m really not sure.”

    ETA–and the biggest problem is that this sort of thinking makes it prohibitively difficult for government reps to have a realistic discussion about reform. If three quarters of your constituency is going to feel cheated by any solution that costs them more than $200 month, you just Aren’t Going There.

  2. 2
    RobertDSC-iPhone 6 says:

    I think it would be helpful to have the insurance actually work, regardless of what a fair price would be.

    I have a friend who is laboring through severe back pain. Her doctor prescribed an MRI but the insurance company blocked it and refused to pay.

    She is paying for the MRI out of her own pocket. Ridiculous.

  3. 3
    Walker says:

    People honestly think you should be able to pay a doctor less than a car mechanic?

  4. 4
    Walker says:

    Never mind. I see that is monthly price, not single visit.

  5. 5
    satby says:

    @RobertDSC-iPhone 6: yes, I think that’s a huge factor also. Everyone pays for insurance and then has the delightful ordeal of trying to get things covered or paid for.
    When I had my employer’s group health insurance, they basically fought every expenditure outside of the doctor’s office visit, for which I had a copay. MRIs, a recommended vascular surgery for varicose veins so large shaving my leg is dangerous (never got it done as a result), PT for my ruptured shoulder tendon; getting anything covered was a nightmare, and my premium was about $500/month. All those events were over about 10 years, and I otherwise had no medical utilization at all. Honestly, for most people premiums feel like a rip off because you know you’re going to end up paying out of pocket or going without care even with insurance.

  6. 6
    Yarrow says:

    @satby: And then there are the deductibles, which can be as high as $10,000 depending on your plan, before any insurance kicks in. So you know you’ll be paying that money every time you visit the doctor until you reach the deductible maximum and the insurance finally kicks in.

    Because deductibles are so high, every trip to the doctor is something you think about first. Is this worth the cost? Because you’ll be paying, even if insurance covers it.

  7. 7
    satby says:

    @Yarrow: Good point!
    I think the year I had the shoulder trouble, my deductible was about $3k. Add in the $6k in premiums and for $9k I got at best about $3k of medical care, since I had 20% co-pays on the office visits and 80% copays on my PT. They covered the MRI after a fight.
    Without any insurance, I would have been at least $5k ahead. Or at least that’s how it looks. Profit driven medical insurance is a ripoff, and people resent it.
    Edited to add: I get that healthy people subsidize unhealthy people and I don’t resent that. I resent paying $9,000 dollars for coverage that I also have to do battle to get, plus pay additionally for.

  8. 8
    Yarrow says:

    @satby:

    Edited to add: I get that healthy people subsidize unhealthy people and I don’t resent that. I resent paying $9,000 dollars for coverage that I also have to do battle to get, plus pay additionally for.

    Agreed. It’s a nightmare just to get things covered that should be covered. Even when you follow all their rules they still deny claims.

  9. 9
    MomSense says:

    I think what is happening is that people know they need health care but they don’t know when or why. It’s an essential service and they don’t want to have to think about let alone worry about it. They’re willing to pay for it but not at the point where it becomes a burden.

    If only we could have the discussion about the role taxes play in a modern society. It would be a lot easier if people paid their fair share of taxes and could count on essential benefits of citizenship in a modern society like health care, education, etc.

    We are stuck with a narrative that has been dominated by radical new conservatives who apparently prefer an every person for themselves construct.

  10. 10
    sheila in nc says:

    @satby: It’s frustrating to think that claims denial is still a method used by insurers to 1) reduce premiums and/or 2) maximize profit. But Medicare is non-profit and they probably deny some claims also — I dunno because I’m not on it yet.
    Even Federal employee insurance — which I am on — wants a LOT of documentation before they will approve some of the pricier treatments. I’ve never had an MRI so I don’t know about that, but I’ve had costly infusion drugs, and my doctor had to provide a couple levels of justification. (Which was ultimately accepted.)
    OTOH, the way you describe your cost/benefit experience with the insurer makes me think — perhaps another way to think about it is that you are misallocating what your premium stands for. If you were paying $500/month in the year of your shoulder trouble, perhaps the behind-the-scenes math is that only a small amount of that premium is covering your shoulder-related expenses, while the bulk of it is actually covering your (happily unrealized) risk of some other medical condition which would be much, much more expensive.

  11. 11
    sheila in nc says:

    @MomSense: This. Just a quick look at David’s chart above shows that the task of smoothing risk across these different percentiles is non-trivial. How much easier it would be if everything above a certain relatively minimal level were covered by taxes. We could have a policy discussion about the fairest way to levy the taxes, and then that would be it. No more gaming across this hugely complex system by various for-profit entities (not just the insurers, but also pharma and at least some of the provider pool as well.)

  12. 12
    Yarrow says:

    @MomSense:

    If only we could have the discussion about the role taxes play in a modern society. It would be a lot easier if people paid their fair share of taxes and could count on essential benefits of citizenship in a modern society like health care, education, etc.

    Yes, this. I talk about what taxes do when given a chance. I compare our taxes to those in other countries and what they get for their taxes–health care (and I mention specifics like all maternity care is covered), good roads and bridges, high speed rail, etc. Taxes pay for things we want. I think that connection is lost for a lot of people.

    I was at a local courthouse to transfer a car title and the line was really long. A bunch of windows that could have had employees in them were empty. People around me were bitching about the wait and so few people to help, so I made a point of saying, “If the state government wouldn’t cut funding for offices like this, then there would be more employees and we wouldn’t have to wait as long. Tax cuts don’t come without consequences. We pay for them one way or the other. Right now we’re paying with our time.”

    People looked at me like I was from Mars. It was like they could not put together the idea that cutting taxes means cutting budgets and eventually people pay with things like underfunded schools, failing bridges, long lines at government offices, etc. The Australian guy in line next to me was on my side, though. We had a great conversation about taxes, what they cover, etc.

    I figure if I can get even one person to think about taxes even a little bit differently, then it’s all to the good.

  13. 13
    MomSense says:

    @Yarrow:

    I find myself having those conversations all the time. The problem is it takes a good 20 minutes to walk someone through it and if they are exposed to Fox and a number of other media outlets afterwards they will have regressed back to their anti-tax assumptions the next time you see them.

    We need to Parkland the media, think tanks, and some of the right wing funded professorships and departments next. They promulgate this bullshit to the point where people think it’s true.

  14. 14
    Brachiator says:

    @MomSense:

    I think what is happening is that people know they need health care but they don’t know when or why. It’s an essential service and they don’t want to have to think about let alone worry about it. They’re willing to pay for it but not at the point where it becomes a burden.

    Conservatives, and some younger, healthier people, either do not understand or reject the concept of insurance. Healthy people do not want to pay for health insurance at all. Other people are stuck on a “fee for service model.” You get sick, you go to the doctor and pay a small amount to get healed. Everyone wants a rescue clause which limits the maximum amount that they would have to pay for any medical issues.

    If only we could have the discussion about the role taxes play in a modern society. It would be a lot easier if people paid their fair share of taxes and could count on essential benefits of citizenship in a modern society like health care, education, etc.

    We have the discussion, we just can never agree. Conservatives believe, despite evidence against them, that the free market alone can solve health care problems, and that it is by definition wrong to use taxes to provide most social services.

  15. 15
    Yarrow says:

    @MomSense:

    We need to Parkland the media, think tanks, and some of the right wing funded professorships and departments next.

    That is a great description of what needs to happen! In some ways I feel like it’s all a Jenga tower–it looks okay but one move will cause it to fall. In some ways Parkland was the “one thing” for the gun issue. I don’t know what the tipping point will be for the rightwing noise machine and how much they own the media. Any ideas?

  16. 16
    Shinobi says:

    It’s interesting how money in the health care world is on a completely different scale than non health care. Everything once it is for health care is more expensive. It’s like wedding of the business world.

    I work in a group that does analytics, and we sell largely to retailers. We recently started talking to a group that does health care work. They produce a lower quality product, with very limited analytics as well as a less well developed platform. They do in their process about a quarter of the work we do. And they charge, per engagement, roughly the same or more than we do.

    We had a hard time breaking into this environment because our pricing was too low, and health care groups assumed that meant it was low quality. Whereas on the retail side we are constantly beaten up.

    What I’m saying, is that $100/mo premium is PERFECTLY REASONABLE. What’s not reasonable is how much the health care industry thinks things cost.

  17. 17
    Brachiator says:

    @satby:

    When I had my employer’s group health insurance, they basically fought every expenditure outside of the doctor’s office visit, for which I had a copay. MRIs, a recommended vascular surgery for varicose veins so large shaving my leg is dangerous (never got it done as a result), PT for my ruptured shoulder tendon; getting anything covered was a nightmare, and my premium was about $500/month.

    This is insane on so many levels. Not only are people either prevented from getting recommended or necessary medical treatment, they may also be discouraged from routine care which might help their overall quality of life, and which might prevent other problems in the future.

  18. 18
    Yarrow says:

    @Brachiator: The structure of our health insurance system discourages people from getting routine care. The high deductible system means you pay everything yourself until you reach your deductible. I know I have delayed doctor’s visits because I don’t know what insurance will cover and the out of pocket expense because I haven’t met the deductible is too much for me. I’ve done it in the past and I’m doing it again this year.

  19. 19
    satby says:

    @Brachiator: the vascular surgeon even argued with the insurance company on my behalf that it was not a cosmetic procedure but one that would prevent leg ulcers and circulatory problems (like blood clots), to no avail. If it was a varicose vein in my leg, I must have wanted it treated for cosmetic purposes only. Despite the surgeon’s additional documentation of need.
    I hate health insurance in this country.
    I should note, the vein was damaged in a blunt force trauma accident, also documented.

  20. 20
    MomSense says:

    @Yarrow:

    I think it’s going to be the same coalition of young people who make the same connection about reporting that they have about how NRA money influences the way our elected representatives vote.

    They already have in terms of going after the advertisers who sponsor hateful media people.

  21. 21
    MomSense says:

    @satby:

    I’m so sorry. Can you get them repaired now? I think they have some less invasive options.

  22. 22
    Brachiator says:

    @Yarrow:

    The structure of our health insurance system discourages people from getting routine care. The high deductible system means you pay everything yourself until you reach your deductible. I know I have delayed doctor’s visits because I don’t know what insurance will cover and the out of pocket expense because I haven’t met the deductible is too much for me. I’ve done it in the past and I’m doing it again this year.

    Obviously, this depends on the health care options you have and other issues. The employer HMO I use has a low or zero co-pay for most medical coverage.

    Also, to be fair, for some people, the out of pocket expense until you reach the deductible is not excessive.

    But an added problem in the situation you describe is not knowing what the insurance will cover. This is another insane burden.

    We don’t have a single system with a core problem, but a hodge-podge of a system with numerous problems.

  23. 23
    Brachiator says:

    @satby:

    the vascular surgeon even argued with the insurance company on my behalf that it was not a cosmetic procedure but one that would prevent leg ulcers and circulatory problems (like blood clots), to no avail. If it was a varicose vein in my leg, I must have wanted it treated for cosmetic purposes only. Despite the surgeon’s additional documentation of need.

    This is just idiotic. But hell, I think even purely cosmetic procedures should be accommodated, to some degree. But in any event, outright denial of care is just all kinds of rage-making stupid.

  24. 24
    Yutsano says:

    @Brachiator: They allow breast reconstruction after a mastectomy quite often, even though it isn’t totally necessary for the health of the woman. But satby was demonstrating a medical need that was well documented.

    @sheila in nc:

    Even Federal employee insurance — which I am on — wants a LOT of documentation before they will approve some of the pricier treatments. I’ve never had an MRI so I don’t know about that, but I’ve had costly infusion drugs, and my doctor had to provide a couple levels of justification. (Which was ultimately accepted.)

    Squak to your union if you run into that in the future. A lot of insurance companies would love to be on FEBHP because it’s the largest insurance pool in the country. If you’re not happy with yours don’t be afraid to make a ruckus. They’re very amenable to us feds.

  25. 25
    satby says:

    @sheila in nc: I don’t believe I’m misallocating my premiums at all. Insurance is a risk pool, neither I nor anyone else in that pool should expect that our premiums would cover all medical care required in a given year, or even over the course of several years. We pay into the pool based on the group rate and under the assumption that medical needs will be tended to, not denied or covered only after a battle with the underwriters. Had I been able to use the insurance I paid for, it would have been a reasonable cost of coverage.

    @MomSense: I’m two years away from Medicare, which will cover the condition without problems. Otherwise, as I have mentioned before, I will become a medical expatriate, because I can buy into coverage in universal care nations. And out of pocket is still less.

  26. 26
    Thaddeu says:

    @Shinobi:

    What I’m saying, is that $100/mo premium is PERFECTLY REASONABLE. What’s not reasonable is how much the health care industry thinks things cost.

    This a hundred times.

    At $100/month, a family of 4 is paying close to $5000/year. That is just in premiums.

    What should healthcare cost a family? The median income is $60k/year in the US. Bring down costs to a reasonable price.

    “The average pay for doctors in the United States is over $260,000 a year. This is more than twice the average for other wealthy countries. The gap between doctors’ pay in the United States and pay in developing countries like the Philippines (the focus of this piece) would be even larger.”

    Protection of Exorbitant Wages of Doctors

  27. 27
    Brachiator says:

    @Yutsano:

    They allow breast reconstruction after a mastectomy quite often, even though it isn’t totally necessary for the health of the woman. But satby was demonstrating a medical need that was well documented.

    Oh, yeah, what satby was documenting was just insane. The refusal of the insurance company to pay for the procedure was just outrageous. The lack of a reasonable appeal process is also insane.

    even though it isn’t totally necessary for the health of the woman.

    This is too narrow a way of looking at it. For a good number of women, the breast reconstruction helps restore emotional health.

    As an aside, a healthy market for cosmetic procedures, aids in the development of better and cheaper restorative cosmetic surgery.

  28. 28
    TenguPhule says:

    @dr. bloor:

    and it’s difficult to not know someone who got reamed for a 2K ED visit or a $15 Tylenol.

    That’s why the survey was asking about what they thought was the fair price. They think they’re being overcharged.

  29. 29
    ProfDamatu says:

    @Yutsano:

    They allow breast reconstruction after a mastectomy quite often, even though it isn’t totally necessary for the health of the woman.

    Not necessary for physical health, perhaps, but for many women, you could argue that it is needed for mental health (which of course also plays back into how well a woman physically recovers from the cancer ordeal). I suppose you could argue that my reconstruction after my double mastectomy was cosmetic and therefore unnecessary, but I don’t like to think about how difficult it would have been if, in addition to dealing with the effects of chemo and all that fear and anxiety, I also had to deal with such a dramatic change in my physical appearance. (Also, my understanding is that most states actually legally require insurers to pay for “cosmetic” reconstructive procedures after breast cancer surgery.) Same kind of justification as paying for reconstructive procedures to improve the appearance of burn victims, or victims of major facial trauma.

    Otherwise, I agree; it’s nuts to deny a procedure that could be cosmetic, but isn’t in the case of the patient in question.

  30. 30
    ProfDamatu says:

    @Brachiator:

    As an aside, a healthy market for cosmetic procedures, aids in the development of better and cheaper restorative cosmetic surgery.

    Case in point: my plastic surgeon. About half his practice is reconstruction on women with cancer…which, given what he got paid by my insurance, is, I suspect, subsidized by his very extensive aesthetic surgery practice.

  31. 31
    Brachiator says:

    @ProfDamatu:

    Case in point: my plastic surgeon. About half his practice is reconstruction on women with cancer…which, given what he got paid by my insurance, is, I suspect, subsidized by his very extensive aesthetic surgery practice.

    Yep. And expenses related to this are fully deductible as medical expenses on your taxes.

    You can include in medical expenses the amounts you pay for breast reconstruction surgery, as well as breast prosthesis, following a mastectomy for cancer.

  32. 32
    Bob Hertz says:

    Most people have had employer health insurance coverage at some point in their life, and then they DID pay $100 or $200 a month. The employer paid the rest ( and by the way, I do not accept the notion that these are deferred wages.) Of course the total cost of the health policy was maybe $700 a month, but this was largely unseen.

    This assumption about $100-$200 being fair carries over even when these persons wind up in the individual market.

    I sell insurance and I see these emotions all the time.

    For the subsidized ACA market, the government essentially takes over as the generous backstop. For the unsubsidized market, there is no sugar daddy and this is darned painful.

  33. 33
    J R in WV says:

    @RobertDSC-iPhone 6:

    I have a friend who is laboring through severe back pain. Her doctor prescribed an MRI but the insurance company blocked it and refused to pay.

    She is paying for the MRI out of her own pocket. Ridiculous.

    Yes, This!! When did insurance companies become qualified to practice medicine?? Qualified so well they can over-ride a doctor who has actually examined the patient???

    The individual who made that decision should be identified, by subpoena if necessary, and if not an actual licensed physician, prosecuted for practicing medicine without a license, etc. The insurance company’s executives who put rules in place regarding the decision should suffer as well.

    Insurance companies and drug companies are why our health care is so stupidly expensive.

  34. 34
    E says:

    @Bob Hertz: There are lots of anecdotes as well when they view the costs through their own experience. A large portion of people don’t comprehend there are people costing hundreds of thousands or millions of dollars each year that they are paying for. Combining pools works well in some aspects and not so well in others. Hooray for skewed claim distributions.

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