The $4,500 Deductible

$4,537 can buy a lot of Skittles1363,000+ (75 cents per pack and 60 skittles per package)]. It buys the average single deductible for an unsubsidized enrollee with healthcare coverage on the Affordable Care Act (ACA) exchanges. At 3.4x less, the $1,350 average deductible for the 152 million who get their insurance through an employer looks benevolent.

In spite of having the word affordable in the title of the ACA, costs continue to be a problem. For 2 million people, or 17% of the ACA enrollees, who pay the unsubsidized rate (make at least $24/hr for individual coverage), the premiums have grown 75% over the last 4 years–that’s 15% compounded per year. These plans are a sign of what consumers want  settle for, or the optimal plan given the shrinking menu. To make it more fun, when you consider the $440 per month average premium, you get close to $10,000 in spending before real coverage begins (though yearly check-ups and mammograms are free. It’s no wonder Ministry and alternative plans are growing.

If healthcare premiums reflect expenses plus a mandated limit on profits, an imperfect analogy for how the system works in the US may help. Imagine a restaurant where patrons all pay different prices but only after you eat. 55% pay $0 to $1.20 of the $6 lasagna dinner special (Medicare & Medicaid). 8% of people dine and dash. 5% pay the cash price of around $10, and around 1/3 pay through insurance that they pay for in premiums and foregone wages, which is $15 total but “only” $2-3 dollars out-of-pocket so it’s this group’s 5th big meal of the day. Some of them need a lot of food or they’ll die. The restaurant earns 2-4% net profit margins, so they’re clearly losing money on some customers. They can’t turn away anyone, are heavily regulated, have a kitchen full of people to code receipts, IT-types running analytics on what customers order and machine learning to help predict future orders, administrators who love meetings, and business managers who run the decisions and menus of the chefs and waiters. Countries like Australia, Germany, and Singapore have multiple restaurants and menus with varied patrons.

Citizens of American towns do basically all their eating at this one restaurant, one their employer chooses. Brokers and consultants make a 5% commission on the total cost of all the meals. The menu is amazing for certain items, the best in the world for some, but the full cost is 2x more than simpler restaurants in other developed countries. It’s no wonder restaurant owners obfuscate prices, the menu, and quality. Making restaurants transparent about the price will never change the underlying problems. You have to change where and how people eat and how it’s paid. You have to educate consumers. You have to create a new model.

For all the talk of crazy distortions, unconscionable mergers, and shenanigans, while much of it is structural and requires a legislative solution, any inefficiencies are another person’s opportunity to use a Bezosism. If you’re an insider or would-be disruptor of the truest stripe, keep your head down and make something people want/need. The more value you add, the more good things will come. Change is bubbling up. As Ray Dalio says, “The economic machine is more powerful than any political system.”


Photo by Hello I’m Nik ? on Unsplash


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