The Uninsured Gamble: Are catastrophic Obamacare plans worth it?

The cheapest Obamacare health insurance plan will cost me $208 per month. It’s a so-called “catastrophic” plan from Anthem Blue Cross Blue Shield. The deductible alone is $5,450, with a 30 percent co-pay after that. I make about $32,000 per year, which qualifies me for a $128 monthly tax credit.

When I looked into getting Obamacare last year, right after I turned 26, premiums were less than $100 per month. The price for me to get health insurance skyrocketed well past the 25 percent increase in premiums I was expecting from all the news reports.

The Obama administration blames rising premiums on people who didn’t buy in. They instead chose to pay the penalty for not adhering to the individual mandate. They are mostly young, healthy people who simply feel they don’t need health insurance — at least not at the asking price.

I’m one of those people. I’m a 27-year-old white male. I’m self-employed. I’m physically fit. I have no serious chronic conditions or allergies. I don’t take any medication. I rarely get sick. I’m not a tobacco user. I dislike going to the doctor.

Obamacare needs more people like me to sign up in order to offset the costs of all the sick people.

I don’t think I’m invincible. I know that there’s always a chance something really bad could happen. I could need a sudden appendectomy. I could be seriously injured in a car crash. If I had to pay for a catastrophe that put me in a hospital, it could financially ruin me.

Thus far, I’ve been exempt from Obamacare thanks to a loophole that says I’m not subject to the individual mandate if I live outside of the country for at least 330 days out of the year. I’m a digital nomad who’s been living abroad for the last four years. Now I’m planning to permanently move back to the States sometime in the next few months.

So I’ve been doing some calculations.

I wanted to find out: What are the chances, in a given year, that I get sick or injured so bad that I would pay more for a single hospital visit than what I would have if I had a catastrophic health insurance plan?

My maximum out-of-pocket expense is $7,150, according to estimates. Add that to the cost of 12 $208 premium payments for the year, and I end up paying $9,646 including co-payments. The ACA fine for not having health insurance is $695 per adult, so we’ll subtract that amount as savings for good measure. I set a bar of $8,951.

Let’s say you make the median income of the US, $52,000 per year, in which case you get no tax credit. Under a similar catastrophic plan, your deductible is higher, but there are no co-payments once you reach that deductible. Your max out-of-pocket expenses are still $7,150. Add that to an estimated monthly premium of $316, and you end up paying a total of $10,942 before insurance even begins to chip in. Subtract the $695 for a bar of $10,247.

Alright, that’s the easy part. Now let’s start calculating your chances of going to the hospital.

What about emergency room visits?

Before I go any further, I need to explain something or else people will yell at me for excluding crucial data.

It’s very difficult for me, as a layman analyst, to get my hands on reliable data about the cost of outpatient procedures. The prices vary wildly from hospital to hospital, and no one seems to know how much it really costs, on average, for an emergency room visit. If I wanted to categorize those costs by age, the pickings for publicly available data are even slimmer. To get that kind of data requires money that I (clearly) don’t have.

What little data I did find, however, was enough to convince me that such calculations weren’t all that necessary in terms of this analysis. Depending on whom you ask, the average expense paid for outpatient ambulatory care ranges from less than $1,000 to just over $2,000. Even adding a few standard deviations, that mean isn’t going to be anywhere near my $8,951 threshold for a single visit.

Yes, there are horror stories of people getting billed by hospitals for upwards of $10,000 after an outpatient procedure. But from what I can tell, that’s not anywhere near the norm.

For this reason, I focused on inpatient data, for which there’s a wealth of information from the CDC, HCUP, and Census Bureau.

Playing the odds

At age 27, all other things equal, there’s about a 6 percent chance that I’ll have to stay at least one night in a hospital, according to a 2010 Census Bureau report. As we’ll soon discover, this is pretty much the worst thing that could possibly happen. The probability continues to climb with age until death, as expected.

I know I just said that we’re not counting outpatient visits in our expense analysis, but I was curious to see what the chances are of visiting the emergency room or an urgent care clinic. The CDC breaks down emergency room visits into five levels of urgency: nonurgent, semiurgent, urgent, emergent, and immediate.

I’m interested in the latter-most two levels, because for everything else I could suck it up and deal with it. So-called “urgent” medical conditions include coughs, bug bites, mild burns, mild fevers, ear infections, and other stuff I would never go to the hospital for. To be honest, it blows my mind that over 85 percent of ER visits, according to a 2011 CDC report, are categorized as urgent, semiurgent, or nonurgent. That leaves me with 11.9 percent of ER visits in the “emergent” or “immediate” range.

According to a separate 2011 report from the CDC (PDF), there’s a roughly one-in-three chance that someone my age will visit to the hospital for “acute care.” Acute care is when “a patient receives active but short-term treatment for a severe injury or episode of illness, an urgent medical condition, or during recovery from surgery.”

Between these two reports, I have to start filling in the blanks myself. Not all acute outpatient care comes in the form of an ER visit, but I’m willing to bet that the breakdown of probabilities for each of those five levels is roughly the same. I multiplied the probability of an acute outpatient visit by the percent of ER visits that require emergent or immediate care.

The result? Someone my age has about a 3.3 percent chance of requiring immediate or emergent medical care. Add that to my 6 percent chance of an inpatient visit, and I’m left with just less than a one-in-ten chance of a necessary hospital visit.

I’d like to think that the difference between the line for acute outpatient care and emergency care are the times that I would have gone to the hospital if I thought insurance would cover it, but didn’t because I have to pay out of pocket.

How much would it cost?

Now that I know I have a 6 percent chance of spending the night in the hospital, we can estimate expenses. Remember that I’m not including any outpatient expenses because, on average, a single outpatient visit doesn’t cost enough to warrant a year of catastrophic health insurance.

I got my 2014 inpatient expense data from the HCUP, a wonderful free resource. The HCUP splits expense data into two categories: costs and charges. Charges are what the hospital bills for, and costs are how much it actually costs a hospital for the entire visit. Because America’s healthcare system is seriously screwed up, a hospital typically charges three to four times what it cost them to perform a procedure.

What the hospital ends up being paid is somewhere in between those two figures. Medicare and health insurance companies can bargain down the prices and get a better deal. If I’m uninsured, I could very well get a bill for the full amount of charges. I could negotiate them down, however, either on my own or with the help of a billing advocate (which also costs money).

Actual payment data is difficult to come by. In any case, it varies wildly from hospital to hospital and state to state.

Unfortunately, HCUP clumps everyone in the 18-to-44 age range into one giant pile. Obviously an 18-year-old will most likely have very different health issues than a 44-year-old, but we’ll work with what we have.

The average cost of an inpatient hospital stay for an uninsured person in the 18–44 age range is $7,813. The average charge is $31,625.

The cost is still well short of my $8,951 bar even if we add a couple of the $435 standard deviations onto the figure. The charges, however, would annihilate me. In all likelihood I would need a billing advocate’s help. Some billing advocates charge for a portion of your savings, somewhere between 15 and 35 percent. Others charge an hourly rate of $100 to $200.

WellCard, a billing advocate agency I found on Google, says it reaps savings of $3,000 on average. I have no idea what its average bill size is, but there you go. After I paid the advocate her cut, that leaves me with $2,000 in savings. I’m still stuck with a 20-grand-plus bill.

The system is supposed to be rigged

I don’t even need to do the calculations to prove that the health insurance company is getting the better end of the bargain. Of course it is. It’s a for-profit company. I’m not even angry about it.

Okay I’m a little peeved. There’s about a 7 percent chance — and that’s high-balling it — that a health insurance company would have to pay something for me in a given year. Between me and the tax credit, it would receive $3,634 for the cheapest and worst possible Obamacare plan I can get.

Based on those figures, the insurance company is hedging its bets that I won’t need more than $51,914 worth of medical care this year on top of the $8,951 paid by me — almost $30,000 more than the charges for a one-in-sixteen chance of spending a night in a hospital. It knows I won’t go for anything less than absolutely necessary, because I’d still have to pay out of pocket for the $5,450 deductible. People like me who buy catastrophic plans are stingy.

I understand that insurance companies have to offset the costs of losing bets on less healthy people, but that doesn’t really make me want to buy in.

So, is it worth it to buy the worst possible health insurance plan under Obamacare? For me, there’s about a 93 percent chance that it won’t be. But the remaining 7 percent is pretty intimidating.

Epilogue: many missing pieces

I decided to do this bit of haphazard analysis for my own sake. I published it in the hopes that it can shed some light on why young healthy men are foregoing health insurance in favor of a $695 penalty. Please share it, but don’t base your decision to buy health insurance (or not) solely on my amateur findings. Due to the constraints of publicly available health data, there’s a lot wrong about this analysis:

  • I sourced data from the CDC, Census Bureau, and HCUP. They all categorize things in slightly different ways. Even the age brackets are inconsistent, so what you see in the graphs might be slightly off.
  • Gender is a big factor that I didn’t account for because, again, I did this for me. I’m a man. Women generally need more preventative care and can get pregnant. They account for 54.7 percent of hospital visits.
  • Healthcare expenses vary wildly across the United States. An appendectomy can cost anywhere from $1,500 to $180,000. A big part of that depends on location. I used national averages.
  • This analysis does not include ambulance rides, follow ups, or re-admissions. Those possible eventualities can add a lot to healthcare expenses.
  • I’m not sure whether the statuses of ambulatory urgency levels in the 2011 CDC report were based on initial complaints or end diagnoses. The CDC only states that the data is based on medical records, which would include both. If the data is based on initial complaints, we could assume the percentage of patients who require emergent or immediate care is even lower than 11.9 percent due to exaggerated initial complaints.

This analysis is also not an indictment of Obamacare. I’ll be the first to admit that I benefited from Obamacare when my previous health insurance was extended by four years until I turned 26. If you want to learn more about why health insurance costs so much in the first place, and not just argue about who should be paying for it, I highly recommend Bitter Pill by Steven Brill.

Published in 2013 after Obamacare was passed but before much of it was enacted, it remains the most comprehensive and important piece of journalism about the problems in America’s healthcare system. Mandatory reading for anyone who wants to argue the topic. A long and brilliant read that will make your blood boil.

The original article is here (paywalled). You can find a free PDF here. And Brill’s book, if you want even more, can be purchased here.

Freelance writer and journalist. Previously China editor at @Techinasia

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