Golf Carts vs. Ford Fiestas: No, "healthcare policy" premiums did NOT go up 49% due to the ACA

Yesterday I posted an entry which noted a story published by Avik Roy over at Forbes about an extensive study by the Manhattan Institute which compared the average insurance policy premiums last year vs. the average premiums this year, after the first ACA open enrollment period. Roy's piece breathlessly claims "Obamacare Increased 2014 Individual-Market Premiums By Average Of 49%"

I wrote a response piece which also included the HHS report about ACA subsidies covering an average of 76% of the premium cost for the Federal marketplace, but I didn't really have time to do a full analysis of the Forbes piece. However, I did note 4 major points which lept out at me right off the bat:

  1. The "49% increase" referred to unsubsidized rates. Once you include the subsidies, the average cost to the enrollee DROPPED by 64%...although that only applies to policies purchased via the ACA exchanges, of course (the report only covered HC.gov, not the state-run exchanges, though I presume those would see similar numbers)
  2. Both reports only covered the premiums, not the total cost of the policies including deductibles, co-pays and other expenses; obviously those are much trickier to deal with
  3. I couldn't tell whether the Forbes study included only true healthcare policies or if it also included the so-called "junk" plans or not, which are often nothing more than expensive "discount cards"
  4. Average healthcare premium rates were already going up at least 10% per year before the ACA was enacted, meaning that at least 1/5th of the "49% increase" was irrelevant

Of the 4 points above, the one which is most significant was #3--what exactly was being compared here? If low-end "junk" plans were being included, that's kind of a significant factor:

Known as "mini-meds'' or "junk insurance,'' these products often are little more than discount cards that can leave unknowing consumers with huge medical debt. Even a policy expert from the conservative Heritage Foundation, no fan of the Affordable Care Act, says they aren't worth keeping.

One example: the "Go Blue Health Services Card'' for which cancer survivor Donnamarie Palin of New Port Richey has paid $79 a month. For that, she gets $50 toward each primary care doctor visit, $15 toward each drug — but zero coverage for big-ticket items like hospital stays.

Obviously people may have different definitions about what a "healthcare policy" needs to include in order to be called that, but it seems to me that "coverage for hospital stays" would be kind of high on the list.

So, how many people had these plans (more positively referred to as "mini-meds")? According to an anti-ACA healthcare researcher, about 2 million people:

Ed Haislmaier, senior research fellow for health policy at the Heritage Foundation, which opposes the Affordable Care Act, said a minority of the 16 million people in the individual market have such low-quality plans.

According to his figures, most of those in this market — about 11 million — have traditional "major medical" insurance, even if it falls short of new standards. Another 3 million get plans through professional associations. And about 2 million have short-term policies or limited benefit plans like the Go Blue Health Services Card.

OK, so it's only about 2 million out of the 16 million who were on the individual market (which is what we're discussing here). HOWEVER, the number of people using those plans is irrelevant to the Forbes study. Read Roy's description of their methodology again:

To calculate these figures, we used the same methodology we’ve used in the past. We compiled an average of the five least-expensive plans in a particular county pre-Obamacare, adjusted to take into account those with pre-existing conditions and other health problems. We then did the same calculation with the five least-expensive plans in each county under the Obamacare exchanges. We then used these county-based numbers to come up with population-weighted averages pre- and post-Obamacare.

There are 314 million people in the country, and 3,144 counties; that's an average of around 100,000 people per county. If we assume that the 2 million figure is accurate, that means an average of only 636 people per county were enrolled in a "mini-med" plan prior to the ACA.

Here's the thing, though: I don't see anything in the Manhattan methodology about accounting for how many people actually had the "5 least-expensive plans", do you?

That leads to the question I posed yesterday: Were these "mini-meds" included in this massive study of "before & after Obamacare" premium rates?

I received my answer this morning via an extended Twitter conversation between myself, Forbes' Avik Roy, Yevginey Feyman (the actual author of the Manhattan Institute study), Pradheep Shanker, Xpostfactoid...and Adrianna McIntyre, who wrote up an excellent analysis of a different study by the National Bureau of Economic Research on the same topic, and 

The answer? Yes, the Manhattan Institute study did indeed include "mini-meds" in the comparison...making it somewhat irrelevant since it's not a reasonable "apples to apples" comparison:

What the new paper from University of Pennsylvania's Mark Pauly attempts to do is figure out how much, exactly, Obamacare changed prices for existing consumers — and what specifically drove those changes.

Early attempts to estimate Obamacare's "sticker shock" were messy.  They often looked at some of the cheapest plans that were available prior to health reform; those cheap plans were often less comprehensive that today's exchange plans — they could cover far fewer benefits, so comparing them didn't make much sense.

More comprehensive care is not without value. "Any analysis of the change in premiums should at least recognize that more comprehensive coverage pays for more medical costs," Pauly — a conservative — writes.

@charles_gaba @YFeyman @Avik Pauly study dismisses Avik's mode of comparison as apples to oranges.

— xpostfactoid (@xpostfactoid1) June 19, 2014

@charles_gaba @xpostfactoid1 @YFeyman @Avik FWIW, Pauly basically acknowledges that "apples to apples" is impossible with data available.

— Adrianna McIntyre (@onceuponA) June 19, 2014

Roy tried to shrug this point off:

@onceuponA @charles_gaba @xpostfactoid1 @YFeyman yes Pauly analysis isn't apples to apples on numerous fronts. Nor is a-to-a most important.

— Avik Roy (@Avik) June 19, 2014

...to which I made an important--but wrongly-worded response:

@Avik @onceuponA @xpostfactoid1 @YFeyman um...really? So comparing cost of beat-up Yugo vs new BMW isn't significant?

— Charles Gaba (@charles_gaba) June 19, 2014

The problem with my "Yugo vs. BMW" response wasn't the car analogy; it was the choice of vehicles. When it comes to "mini-meds", we aren't talking about Yugos vs. BMWs. Yugos may be crappy cars, but they're street legal, and BMWs are certainly far more of a luxury vehicle than most people need.

The better analogy would be a golf cart vs, say, a Ford Fiesta (or the Chevy Spark, or Hyundai Accent...pick whatever entry-level car you wish). Both are 4-wheeled motorized vehicles. Both hold at least 2-3 people. Both use a steering wheel, have an engine and a roof. Both have some sort of storage space in the back.

However, a golf cart isn't even close to street legal. It has no doors or windows; no safety features (perhaps a seat belt? I don't remember). Not sure if they even have headlights (is there night golfing? I don't play...) They have a top speed of around 15-20 mph, and so on.

The problem with the Manhattan study--as comprehensive as it may be--is obvious: It's trying to compare the price of a golf cart vs. the price of an entry-level automobile. Golf carts can be found ranging from $300 - $3,000 depending on the version you get (and you can even get one which actually is technically "street legal" for around $7,000 or so...who knew?)...but no one would reasonably consider that "buying a car", and trying to claim otherwise sounds pretty lame.

Now, there is a reasonable discussion to be had as to whether a "reduced coverage" policy should be allowed to stay on the market. For instance, in my own family's policy, I noted that the single biggest difference between coverage in our pre- and post-ACA policies was the addition of mental healthcare. This will save us at least $4,500 this year...but also increased our premiums by over $2,000. If your family is absolutely, 100% certain that you aren't going to need mental health coverage, then perhaps that should be optional...except, like with any insurance, you never think you need it until you need it.

Anyway, perhaps there should be, as came up in our Twitter discussion, a 5th low-end "Copper" metal level, which would be somewhere between the "Bronze" and "Catastrophic" plans. Perhaps "street legal golf carts" should be allowed to stay on the market, perhaps not.

But I can't imagine that anyone would try to argue that a golf cart should be allowed on the market without an engine, tires or brakes included.