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Will the Affordable Care Act be Affordable?

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Most of us have no clue what the ACA (Affordable Care Act, a.k.a. "Obamacare") actually is or does, or how much it costs. We just know it's big and contentious, and is supposed to help insure most of the currently uninsured people in the U.S. Oddly, even though there are about 55 million uninsured people in the U.S. today, it seems that the ACA will only cover about 22 million of them. Apparently, 40 percent of a job completed is good enough. There is a lot of fuss about how this plan is being paid for, as it is in Massachusetts today, by requiring those who might not want health insurance (the young and healthy) to pay for it. This is, of course, how most insurance systems work. Life insurance costs what it does because the long-lived essentially fund the short-lived and driving insurance the same because the good drivers help fund the bad ones.

There is a key difference, however, that renders all of this a bit problematic. Life insurers can and do charge you more if you are in poor health, because they will have to pay out sooner with less paid in. Driving insurers can and do charge you more if you are a poor driver with a history of infractions and/or accidents. But in the ACA, there is a provision that removes the insurers' rights if they buy their health insurance through an "exchange," to charge more for a population that has individuals in poor health or poor health habits, except for smoking. That's right. You can be 5'6", weigh in at 220 pounds., live on Twinkies and giant gulp sodas and be a couch potato and thus, be a massive risk for coronary disease and strokes and diabetes -- and they can't charge you a penny more. The exclusion for smoking, but not obesity, is particularly odd, as obesity now costs more than smoking in expected health care costs. In the financial world, this is called "moral hazard." It means that when a system lets you win if you take unnecessary risks, and covers you so that you don't lose if the risks overwhelm you, you have no incentive to avoid risk. This is, of course, what happened to our financial system both in the savings and loan crash in the '80s, and the much more dramatic and recent meltdown in 2007/2008. Do we face something similar here?

One thing is for sure. If insurers have to insure you, regardless of your health habits and profile, and can't charge you more for poor health habits, they are going to charge more overall. All of those healthier people being covered (since everyone will be charged the same amount) will be penalized to cover the costs. Now, this isn't the same as the heartbreaking stories we all read about a poor family bankrupted by the cost of a sick child or cancer, or some rare and terrible disease. This is, essentially, not getting to charge a bit more to reward people from not sliding over the cliff by willfully abusing their bodies -- and it is certainly going to make it harder to make the ACA "affordable."

Now, as it turns out, the stick isn't usually as effective as the carrot anyway. Threatening people who are tired, overworked, stressed and frightened isn't a great strategy to get them to work on being well. This is why you see nurses smoking outside the famous Memorial Sloan-Kettering Cancer Center. What actually works is creating a positive culture of wellness and positive rewards and incentives, and fun/social ways to reinforce the culture on a daily basis. More on this in a subsequent post. But in short, financial incentives used in conjunction with social networks and games are a far more effective way to get folks to do the right thing. For example, just as a thought experiment, imagine a scale you got on each morning, which told you how many pounds away you were from earning $100 or even $250, depending on the weight loss and how your team of friends/co-workers was doing compared to other teams for the big prize of $1,000 for the team. Yes, I know this sounds even more expensive, but consider that we spend at least $1,500 more per year on health care for each obese person on average. Consider that even that number is deceptive. The way to think about this is that we spend less on most obese people until they get seriously ill (back problems, joint problems, cardiovascular disease, diabetes, renal failure, depression) and then we spend a bunch more. Five percent of Americans -- call it 15 million -- cost 50 percent of our total health costs, or about $100,000 / year / sick person!

It is as though the clinically obese (100 million Americans, at last count) are all sliding down a hill with a cliff at the bottom and we don't want them to fall off that cliff! Note that if 100,000,000 Americans end up costing $100,000 per year, that will cost us $33,000 for every man, woman, and child in this country -- or $10 trillion a year, more than the total current Federal budget! So, if these unhealthy folks actually show that they have gotten off of that hill (gone from obese to just overweight or from overweight to appropriate) and/or taken their blood pressure/cholesterol from highly risky to just poor or from poor to good, then they aren't sliding down that hill. We are avoiding the really big costs for them and avoiding them year after year, not just for one year. Suddenly, a few hundred dollars in a given year looks like a heck of a bargain.

So, if I were the health insurers offering coverage on the health exchanges and I couldn't charge more for health habits, I'd certainly be looking very hard for other ways to motivate my members to take care of themselves. And if I were Obama and his merry men in Health and Human Services, I'd be looking very hard as well.