Thursday, September 26, 2013

I Can't Keep My Health Plan!

“If you like your doctor, you can keep your doctor. If you like your current health insurance plan you can keep it.”
    -- President Obama, New Hampshire Town Hall 2009

"Because no matter who you are, what stage of life you're in, this law is a good thing.... if you already have insurance you like, you can keep it."
    -- HHS Secretary Kathleen Sebelius, DNC 2012

"Keep your doctor, and your plan, if you like them."
    -- Minority Leader Nanci Pelosi's website, currently

Well, I wasn't going to write anything about the implementation of the ACA because my views haven't changed much since the last time I wrote about it (see here and here). New information released in the lead up to full implementation of the exchanges hasn't been too far from what was expected a year ago. And I still think the key to good health insurance market reform remains breaking the reliance on employer-provided insurance and passing reforms that promote price transparency and treat insurance as insurance, not as a health care payment plan.

However, my company is changing my health insurance options to become Affordable Care Act (ACA) compliant and I need to evaluate what choice I am going to make, so I may as well share some of that decision making process with you.

How the Affordable Care Act Affects My Insurance Plan

I have good insurance, but even my current plan is not ACA compliant! Here’s how the ACA affects my current plan:

1. “Under the Affordable Care Act, doctor, ER, and urgent care copays will now be included in the out-of-pocket maximum, and accordingly, the in-network out-of-pocket maximum will be increasing from $1,500 for individuals… to $2,650.”
2. “Similarly, to comply with the Affordable Care Act, there will now be a prescription plan in-network out-of-pocket maximum of $3,700 for individuals.” (There was previously no max.)

Here’s the cost comparison:


2013 Plan with Vision
2014 ACA Compliant Plan with Vision
Biweekly Cost to Me
$87.69
$96.05
Calendar Year Deductible
$400
$425

There are a couple of things to notice here. In order to pay for these two benefits (and pay for the increasing cost of health care), the insurance company raised costs in several ways: It directly raised the price I face by 9.5%, increased the deductible by 6.25%, and increased the out-of-pocket maximum by 77%. The employer contribution also probably went up, but I don’t see that in the information I was given. They correctly assume that when making my decision I don’t care about prices I don’t face. 

I suspect this type of thing will be experienced by many others even if they already have insurance through their employers. Luckily, the ACA-compliant version of my plan isn't drastically different from what was offered last year. Others may not be so lucky. Because of these changes, cost increases individuals face will feel larger than they actually are simply because people are forced to consume additional “benefits” that aren't very valuable to them even if the cost curve is “bending down.” 

My Choice

Given that I want to remain insured through my company, I will have two options: buy the ACA-compliant version of the current plan (open access plan or “OAP”) or (new this year) buy an alternative plan that also utilizes a health savings account (HSA). The HSA plan with Vision will have a lower premium ($88.66 biweekly) but a higher deductible ($1,750/year), higher out-of-pocket maximum ($4,000/year), and a different benefits structure. For each claim, the OAP tends to make one pay a small amount then covers the entire cost above that amount. The HSA plan usually covers a fixed percentage of the cost. For example, under the OAP, for an X-Ray I would pay $25 while under the HSA plan, I would pay 10% of the cost (as long as total expenses remain under the out-of-pocket max). 

HSAs combined with catastrophic (i.e. high deductible) insurance have some good properties stemming mainly from the fact that people have more of an incentive to pay attention to and are affected by more prices. When enough people shop around, this puts downward pressure on the cost of care overall. So they are great in theory and would be the backbone of a market-based alternative to Obamacare. Here's one view

I am young and healthy and like the idea of HSAs, so why am I hesitant to sign up for one? A few reasons:

1. The particular HSA plan I am being offered gives only a 9% break on the premium. This is only about $192 a year.

This is partly due to the minimums imposed by the ACA and partly because most of the benefits come from tax deductions from contributing to an HSA. However, I will not be contributing much, if anything, beyond the minimal employer contribution in the next 1-2 years. So the savings from switching are minimal for me right now.

2. Additional hassle of managing yet another account.

3. The account starts at $0. There is a minimal yearly employer contribution, but moderate sized health shocks will be more costly to me for the first couple years under the HSA plan than under the OAP.

4. There is significant turmoil and uncertainty in the health insurance market. Originally, HSA plans were targeted by Democrats during the drafting of the ACA. I am not convinced enough politicians have been converted on them, yet. They may be targeted again in the short term or made otherwise more disadvantageous. Will the money I or my employer contribute really remain tax free and roll-over from year to year indefinitely?

5. While HSAs could be the backbone of health insurance market reform, they are not currently the backbone of the ACA. Not very many people have them, so will the macro effects of price sensitivity by those individuals be felt? I don't think we are there yet. In order to hit a tipping point, HSA plans need to be actively promoted, not tacitly discouraged. 

6. When shopping for the best price, which price will people be looking at? The higher, fake insurance price that gets negotiated down later, or the lower cash price for those without insurance? My suspicion is that when few people have HSAs, they will be forced to shop on and pay 10% of the fake, high price because of the lack of bargaining power and relatively few people shopping around.

It's also relatively easier to switch to an HSA account in a year or two than from one, so I think I am going to swallow the ACA cost increases for now and stick with the traditional insurance.

I have a couple of weeks to decision time, so, what do you think?

Saturday, September 21, 2013

Impose a Living Wage and Reduce Unemployment?

What happens to unemployment when the minimum wage increases? What if a living wage is imposed, raising the minimum wage a lot?

The Standard Static Story

Here's the standard story from intro econ in one easy picture:



The difference between the amount of work people are willing to supply at the minimum wage and the labor demanded by firms at the minimum wage is unemployment. (Note that unemployment doesn't exist at the competitive equilibrium in this model. Unemployment exists at the minimum wage because at the higher wage people want to work or work more (i.e. are "underemployed") but firms are unwilling to provide that work opportunity).

So, an increase in the minimum wage would increase unemployment and decrease employment. If the minimum wage is increased a lot to impose a living wage, then unemployment and underemployment increase a lot.

A Crazy Alternative Story

The standard story is nice, but it's a story that actually makes MORE assumptions about the supply of labor than the standard labor supply curve in many neoclassical models. In the standard labor-leisure model (now were at intermediate econ!), an individual's supply of labor can be backward bending.

Imagine you are given a small raise and can choose the amount you work in a year. Would you work more -- or less? What if you were given a pay cut? Would you work less -- or more? What if you were given a large raise? What if you earned $1,000,000 an hour; how much would you work a year then?

If given a raise, it turns out that most people would work more if they have a relatively low wage to begin with, but would work less if they have a relatively high wage. This is the backward bending labor supply curve. If people who work "minimum wage" jobs exhibit this phenomenon and have relatively similar preferences, the aggregate labor supply curve will also be backward bending at some wage level.



Now if there is an increase in the minimum wage, unemployment may actually go down! This would happen if the minimum wage pushed the market well into the backward bending portion of the labor supply curve and labor demand was inelastic enough. Here, we get the interesting case where imposing a living wage doesn't increase unemployment, it decreases it! However, notice employment still declines, as before. So we have a regime of decreasing unemployment and decreasing employment.

Notice in both stories an increase in the minimum wage reduces the total surplus in the economy. In addition, workers as a whole are better off if the gains from increasing the wage on those who remain employed outweigh the losses to those to lose their job or otherwise work less than they would like at that wage. Firms are definitely worse off.

This is very close to an analysis of how unions affect the labor market in the simple classical model. It's usually a good deal for those who remain employed, but hurts workers who would be willing to work for a little less, hurts firms, and there is a net loss compared to the competitive outcome.

An Even Crazier Story

Suppose -- this is very much a hypothetical -- the aggregate labor supply is backward bending and it intersects the demand curve in multiple places like this:



I've also added the standard "dynamics" to the static model. The competitive equilibrium is "stable" in the following sense: if wages were slightly below the competitive wage, demand would exceed supply. In order to attract more workers, firms are willing to raise the wage offered to workers. At a higher wage, laborers are willing to work more, and more may enter the market. We move "up" the curves until we hit an intersection -- the competitive equilibrium. At wages just above the competitive equilibrium, the opposite happens; supply exceeds demand and workers are willing to accept a lower wage in order to get a job or work more. The wage declines until it hits the competitive equilibrium.

Notice that the second equilibrium up the demand curve does not have this stability property, but the highest wage one does. Now if a living wage is imposed, wages for the lowest skill workers could settle at ABOVE the living wage at a high wage, low work, no unemployment equilibrium. Again, this could be good for workers if the benefits to those who are working outweigh the costs to those who are not, but it's also likely that this could lead to a WORSE outcome for the workers, too! That is, if the surplus is small enough (as it in the figure), both workers and firms would prefer the economy to be at the low wage, high work equilibrium, but instead the economy is stuck in stagnation!

Is This Why Both Unemployment and Employment are Declining and the Economy is in the Doldrums; It's All About the Minimum Wage and Backward Bending Labor Supply?

Almost certainly NOT, so why did I bother with these crazy stories?

0) They're interesting! So what if it's not reality? It might describe some reality sometime.... Ok, you want some better reasons? Here you go:

1) It speaks to what MAY happen if there are LARGE changes in the minimum wage. The empirical literature on the minimum wage only talks about the effects on employment for small changes in the minimum wage around the levels we currently have (or have had in the past). In order to understand the effects of large changes, we have to have a model of the whole market. I just presented a couple. Crazy things can happen in less dubious models, too.

2) Unemployment is just an indicator. People aren't necessarily better off because it goes down. It depends on what else is going on in the economy. The crazy story above is one example of people being worse off when unemployment declines.

3) Multiple equilibria happen all the time. Often, some of the equilibiria are bad. If stuck in a bad equilibrium, even though everyone knows they are stuck in a bad spot, no individual actor (even perfectly rational ones!) can do anything to get out of it.

Friday, September 6, 2013

Why I Opt Out

To fly nowadays you need to go through some pretty serious security. You've probably noticed. 

But did you know that you can opt out? Well, you can opt out of the full body scanner, anyway, if you are selected to go through it. All you do is say "I would like to opt out" to the Transportation Security Administration (TSA) agent who directs you to go through the full body scanner. Then instead of going through the scanner you get an enhanced pat down.

I opt out every time I fly. It's a protest.

While 9/11 prompted an understandable increase in airline security, additional security comes at a cost. If you want more security, you are going to have to give up some freedom and pay for that security, too, in money and time. After 9/11 there was (and continued to be) a big increase in security measures after every (perceived) threat at the expense of some freedom.

I believe we have gone too far, trading too little security for too much freedom at too high a cost.

Bureaucratic Behavior

Benevolent public officials and bureaucrats should provide the optimal amount of security that we as a society demand, right? But if something goes wrong, the bureaucrat or public official in charge will be blamed for not doing enough. He would probably lose his job. To ensure his job, he increases security. He can do this without personally bearing practically any of the cost. Taxpayers pay for it (as long as Congress authorizes his funding).

Because of misaligned incentives, unchecked public officials will always ask for too much funding, implement regulatory policies at too high of a cost, and restrict freedoms too much.

I don't think the TSA is checked enough.

What About the NSA?

The bigger invader of privacy is the TSA not the NSA. It's no secret the NSA has been in the news lately because of the data it collects. There has been a lot of talk about invasion of privacy, search and seizure, and what kind of information government computers, agents, or analysts should have access to. Well, the TSA is worse than the NSA on almost every dimension. The NSA needs warrants issued and renewed regularly by FISA courts in order to just get metadata because it might collect information on Americans. Congress also checks it. The TSA does not need a warrant to get actual data on actual Americans standing right in front of them. NSA computers look at US metadata (except when procedure is violated). Actual TSA agents look at everyone's data every time you fly. The NSA targets foreign traffic, collecting most of its US data as a byproduct. The TSA targets American traffic intentionally. The NSA does not noticeably interfere with your use of the internet. The TSA does noticeably interfere with your use of transportation networks.

Is it Worth It to Protest?

I think it is worth it to protest.

The TSA does note the protest numbers. When I flew back to Chicago on Monday, I noticed the TSA agents were marking the number of opt outs. I was the 11th that day at that security station. Also, other people see you, which may encourage others to do the same or at least encourage others who are concerned about privacy that they are not alone.There has already been some success. Opt outs and privacy concerns were cited in the decision to move to displaying cartoon representations of people that highlight problem areas rather than the actual x-ray photos.

Yes, protesting is costly (the pat down can be very uncomfortable for both you and the agent and it may delay you), but it wouldn't be a credible protest if there wasn't some personal cost involved. It shows you care about the issue.

If you feel opting out isn't enough, you can also file formal complaints (I've done that before, too), mention security procedures concerns on airlines post-flight surveys (I've done that, as well), or write to your Congressman or the ACLU (I haven't done that, yet. Well, about this issue, anyway).

But at the very least, if you feel the government has traded off too much freedom for too little security, I hope  the next time you fly that you will opt out, too.