Health Insurance for Small Consulting Firms
Before quitting my job to start this business, I spoke with several self-employed people to get their advice. Without exception, their first question was “how are you going to get health insurance?” I told them that Kristin planned to keep working and that we would get health insurance through her employer until the Affordable Care Act (ACA) kicked in and we could get insurance on the private market. Like almost everyone over the age of 40, I have pre-existing conditions that would have prevented me from getting health insurance prior to the passage of the ACA; I am healthy enough to ride a bicycle across the United States, but not healthy enough to get health insurance prior to the ACA.
For all of the problems that the federal exchange has had, the exchange makes it possible (if not necessarily easy) to compare insurance prices in different locations. To compare costs for different locations, go to Healthcare.gov under the “Get Answers” section for “Where can I find 2017 Marketplace plans and prices?”
Figure 1 shows a summary of the costs and availability of plans for a zip code.
If you collect information from several zip codes, you can start to compare insurance costs as shown in Table 1. Bronze plans are expected to cover 60% of expected costs, Silver 70%, Gold 80% and Platinum 90% (See Minnesota Rate Release Packet).
The only conclusion one can draw from the small data set shown in Table 1 and Figure 2 is that price and number of policies available are related. The number of policies available is largely a proxy for the number of insurers in the market. Whether competition is the cause for lower insurance prices, or more competition is the effect or less expensive and more readily available delivery cannot be determined from this data set.
|
Table 1. Comparison of Average Health Insurance Costs and Availability on Healthcare.gov. Retrieved July 13, 2017. Costs for people who are near 65 would be about 1.5-2 times higher while costs for those near 18 would be about 1/2 the costs shown here. | |||||||
| Zip Code | City | State | Bronze | Silver | Gold | Platinum | Wind.Location |
|---|---|---|---|---|---|---|---|
| 2906 | Providence | Rhode Island | NA ~ $NA | NA ~ $NA | NA ~ $NA | Industrial | |
| 23173 | Richmond | Virginia | 14 ~ $264 | 15 ~ $308 | 3 ~ $406 | Industrial | |
| 29342 | Gaffney | South Carolina | 5 ~ $336 | 15 ~ $382 | 5 ~ $472 | Small City | |
| 43612 | Toledo | Ohio | 19 ~ $275 | 34 ~ $303 | 9 ~ $361 | Industrial | |
| 48109 | Ann Arbor | Michigan | 23 ~ $280 | 30 ~ $362 | 6 ~ $466 | 1 ~ $506 | Industrial |
| 48236 | Detroit | Michigan | 32 ~ $239 | 41 ~ $312 | 9 ~ $388 | 1 ~ $474 | Industrial |
| 48501 | Flint | Michigan | 26 ~ $239 | 35 ~ $311 | 7 ~ $401 | 1 ~ $477 | Industrial |
| 49770 | Petosky | Michigan | 13 ~ $249 | 22 ~ $317 | 5 ~ $447 | 1 ~ $510 | Small City |
| 55082 | Stillwater | Minnesota | NA ~ $NA | NA ~ $NA | NA ~ $NA | Downwind | |
| 55374 | Rogers | Minnesota | NA ~ $NA | NA ~ $NA | NA ~ $NA | Upwind | |
| 55447 | Minneapolis | Minnesota | NA ~ $NA | NA ~ $NA | NA ~ $NA | Industrial | |
| 59808 | Missoula | Montana | 10 ~ $381 | 8 ~ $474 | 6 ~ $593 | Small City | |
| 59937 | Whitefish | Michigan | 5 ~ $429 | 4 ~ $514 | 3 ~ $610 | Small City | |
| 60613 | Chicago | Illinois | 11 ~ $333 | 21 ~ $353 | 6 ~ $454 | Industrial | |
| 61820 | Champaign | Illinois | 4 ~ $396 | 4 ~ $489 | 1 ~ $579 | Small City | |
| 75019 | Coppell | Texas | 8 ~ $328 | 18 ~ $359 | 6 ~ $461 | Downwind | |
| 75167 | Waxahachie | Texas | 5 ~ $361 | 5 ~ $466 | 3 ~ $560 | Upwind | |
| 76201 | Denton | Texas | 7 ~ $342 | 15 ~ $377 | 4 ~ $527 | Downwind | |
| 77840 | College Station | Texas | 5 ~ $352 | 5 ~ $453 | 5 ~ $545 | Small City | |
| 97035 | Portland | Oregon | 14 ~ $279 | 14 ~ $347 | 9 ~ $415 | Industrial | |
## Warning: Removed 12 rows containing non-finite values (stat_smooth).
## Warning: Removed 12 rows containing missing values (geom_point).
In this small sample of locations, the average cost of a bronze plan varies from $239/month in Flint, Michigan to $429/month in Whitefish, Montana, a 79% difference in price and a 5.2x difference in number of plans from which to choose. The number of plans available also varies significantly. Some states, including Minnesota and Rhode Island, have set up their own exchanges which can sometimes be much more useful if not as aesthetically pleasing as the Healthcare.gov site. The figures on these two sites are oriented to annual total costs including deductibles and though much more useful, would take a lot of work to get into the format on the healthcare.gov web site, and thus have been omitted.
It is clear that some states are better places to work if you depend upon the private market for health insurance. Texas is not the worst place for a private health insurance market, but it is far from the best. Although it is difficult to make direct comparisons, states that implemented their own exchanges seem to have more vibrant markets than states that did not. The difference in healthcare costs are significant enough to potentially outweigh higher tax rates in other states.
Health Insurance Costs and Air Quality
In identifying a place to live, air quality should always be a consideration, but how does air quality effect the cost of health insurance? By joining insurance cost data with air pollution data, we can attempt to answer that question. One would expect costs to decline as air pollution increases. Figure 3 shows an unexpected pattern; costs first decline as the number of unhealthy days for sensitive individuals increases, and then costs begin to increase. The most likely explanation is that air pollution is related to the size of a city, and that costs decline with the economies of scale associated with a city before the poor air quality of cities begins to overwhelm the economies of scale in medical care delivery. This data set is not large enough to do regressions to prove that hypothesis.
Because many rural locations do not have reliable air quality reporting, the an “adjusted number of good air quality days” has been calculated as the (number of good days)/(number days reported)*366.
Figure 4 shows the cost versus the number of days with good air quality, and the cost benefit of good air quality is weak, but reasonably clear for this data set up to about 270 days of good air quality. Beyond 270, it appears that costs increase, but this may be drive more by urban vs. rural cost inefficiencies than by air quality. Generally speaking, only rural locations get more than 300 good air days per year. The urban vs. rural aspect is clear for the Platinum policies which are only present for the state of Michigan in this data set. There is a clear increasing trend with Adjusted Number of Good air days, which corresponds to decreasing city size.
The clear implication is that one should select a suburb on the upwind side of a medium-sized city.
Upwind or Downwind
There appear to be two patterns in this small and admittedly skewed dataset:
- There are economies of scale that lower health insurance costs in or near large cities.
These two patterns imply that health insurance costs are lowest upwind of a major city. Figure 5 shows a plot of costs vs. Adjusted Number of Good Air Quality Days–the same as Figure 4, but this time the color coding is based upon the classification of a location as “upwind”, “industrial”,“downwind” or “small city”. There really is not enough data on upwind costs, but it is clear for this data set that for small cities, costs decline as air quality improves beyond about 270 days.
Because the costs in the state of Michigan are significantly lower than the other states in this analysis, all Michigan data is removed in Figure 6; the trend for cost decreases with increasing air quality still appears to hold for small cities, but not for industrial cities. The small size of this data set make firm conclusions impossible, but this looks like it would be an interesting area for a larger analysis.
Shop for Policies
When talking with other consultants, I have been surprised that I have found several who are paying higher premiums than we are even though the ages of their family members would indicate that they should be paying lower premiums. They chose plans with low deductibles and higher premiums, but in most cases, the combined premium and deductible were higher for their plan than for our “high deductible” plan. In most circumstances, it does not make sense to get this type of plan.
High deductibles may be completely foreign coming from the traditional salaried market world, but high deductible plans make sense in the independent consultant world. Do not be worried that you may not get any reimbursements–the goal is not to maximize what you get back from the insurance company–the goal is to minimize annual costs to protect your family from a health and financial catastrophe.
There is a 100% chance that you will pay all of the premiums, but some chance less than 100% that you will pay all of the deductible. With a high premium/low deductible policy, you only get the money back if you require a lot of healthcare services. With a low premium/high deductible plan, you avoid expenses altogether if you do not require healthcare services.
Because you have almost no information on expected expenses, a “minimize maximum regret”decision strategy is the only one where you have the information to make a choice, and low premium/high deductible policies almost invariably have the lowest combined premium and deductible annual cost. In this respect, most of the state-run exchanges are much easier for shopping because they tend to expose the combined premium and deductible cost directly while on the federal exchange you have to go in and look up the deductible directly.
Destabilizing the Affordable Care Act Insurance Markets by Removing Risk Corridors
Part of the reason premiums have increased and some insurers have left some markets is that the actions of the Republican party have destabilized the ACA insurance markets. In 2015, Marco Rubio and others managed to insert into a spending bill language to remove one of the key financing provisions of the Affordable Care Act. The language removed a “risk corridor” financing provision intended to help insurance companies during the first years of the start-up of the ACA. Because no insurance company had any significant data on the expected costs of the newly insured, the premium price setting process involved a lot more guessing than for setting premiums in mature markets. The risk corridor payments were intended to reduce losses should initial premium estimates prove wrong. When the risk corridors were removed, only unusually large and well capitalized companies could afford the risk of guessing wrong on the premium pricing. The result of the Republican action to remove this was entirely predictable: smaller companies exited markets where the risk of mis-pricing was too high, and with less competition, larger companies raised prices.
Destabilizing the Insurance Markets by Threatening to Stop Low-income Subsidy Payments
The threats by the Trump administration to withhold subsidy payments to insurance companies for low-income policy holders has caused some insurers to pull out of markets, further destabilizing them.
Destabilizing the Insurance Markets by Planning to Repeal the Affordable Care Act
Current efforts to repeal the ACA are further destabilizing markets; what insurer would invest in building physician networks, call centers, and other infrastructure for a line of business that could disappear completely at the whim of Congress? The opaque nature of the policy debate guarantees that everyone–including insurance companies and their actuaries–will be surprised by whatever does (or does not) come out of the Republican caucuses. In the insurance industry, surprise is a very, very bad thing; the only thing way to protect against surprises is to raise premiums.
What Should Independent Consultants in IT Industry Do?
The effect of the destabilization of the private insurance marketplace has gotten the attention of just about every independent consultant that I know; everyone has started talking about the possibility of closing shop and going back into the salaried workforce for the sole reason of maintaining access to health insurance. If this were to happen, the influx of workers into the salaried market would cause wages to stagnate or even decline; which would benefit no one.
For businesses that do not require a local presence, it is worth investigating the health insurance costs in other locations. The health insurance availability and cost savings could be substantial.