Oscar’s healthcare opportunity

Investment Analysis Clubs Macro Economic Trends and Risks
41

Personal utility - the more general term.

Many of the expanded opportunities would indeed be situations like Oscar’s, where the person is leaving their job with health care in order to essentially retire early or take up some avocation/dilettante type dream job. That might even be most of the situations. After all, most actual jobs that don’t have health care are pretty unattractive - not too many senior managers want to quit their jobs to go push a lawnmower or hang drywall or wash dishes in a strip mall restaurant. Mostly, they’re either retiring or doing whatever version of “open my own pottery shop” happens to be their personal heart’s content.

But on the flip side, a lot of those opportunities get destroyed by whatever system gets put in place to provide funding. Once you have to impose new sizable taxes, a bunch of the folks who were previously able to make retiring early or living off their pottery shop earnings pencil out now…can’t. A big chunk of their earnings/savings now has to go to pay for this new health care system. That causes them to lose a bunch of opportunities for personal utility that they had before.

Oscar gets to quit BigCorp open up his pottery shop because he’s independently wealthy, but Felix has to close his painting shop and take a job he hates because he can’t make it work with the big new payroll tax or VAT or whatever is used to fund that new healthcare program. Oscar’s opportunities expand, but Felix’s contract.

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42

But won’t there be a whole spectrum of opportunities that range from start new ambitious business to pottery shop to FIRE?

(And maybe someone does pottery shop but can also care for an aging parent with that flexibility and solve that additional health care challenge.)

And we don’t know that exact mix of opportunities in total.

There will be a varied (and unknown to us) opportunity mix.

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43

I think it’s unlikely. Again, we’re not getting into the specifics of “how” these things will get set up - just the “what.” But on the “what” side, the funding mechanism for the type of health care equalization system you’re thinking of will have to be massive. It’s going to make it much, much harder to FIRE or run a little pottery shop. So I think there will fewer such opportunities. Because now every business, large or small, is going to have to fund the provision of health care for everyone - as will all those early retirees. Or even late retirees. A 20% payroll tax or a 20% VAT (or whatever other thing raises the $2 trillion you need) will make those kinds of marginal businesses and early retirements very unattainable.

True! Which is why you can’t just look at the set of EO’s today can conclude that based just on mathematics that adopting this system will expand the set of opportunities. Yes, the set of EO’s includes both the set of EOh’s and some set of opportunities for which health care is not provided. But the process of switching to the type of health care system you describe is going to so massively scramble the set of EO’s in the economy that there’s no way to conclude whether you’re expanding the opportunity set for people, on the whole.

Again, my take is that there’s not a whole lot of people who are in a job with health care that want to switch to an existing job that doesn’t have health care. Because most of the jobs that don’t have health care are pretty unattractive jobs, comparatively speaking. They’re tarring roofs or washing dishes or pushing a lawnmower or some other low-end, difficult job. And all the “retire early” and dilettante/avocation switches are going to still be blocked off for folks, because they’re not going to be able to afford to make that switch to any greater extent in the new system than the old one - the health care still needs to be paid for, and if they couldn’t pay for it themselves in the current system they’re not going to be able to pay for it in the new one.

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44

As it stands today, you don’t think there is a spectrum of opportunities?

I do.

We could go interview 1000 people and identify a wild variety of situations, each with its own unique opportunities.

Again, we don’t even know the size of this set today (let alone under some future, more unknown scenario), but they exist.

It will almost certainly be a marginal set, but change happens at the margins of opportunity.

Which system have I described?

I haven’t described any system, only you have ventured into the “how” of equalizing health care.

I have only described the “what” for a thought experiment: equalizing health care over EO.

You have ventured ahead of me into the how, and you have provided a particular how that you are thinking of.

Is that the only how?

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45

I think I’m misunderstanding your point. Or perhaps not being clear in mine.

There exists an entire spectrum of opportunities. That’s your set EO. A subset of that spectrum of opportunities has employer provided health care (EOh), and a subset does not (EOu). And there are at least some people that are in the EOh set that would want to move to some outcome in the EOu set, if they could. Those are the “opportunities” that can get unlocked by equalizing health care.

I took your point to be that a system that equalizes health care across all EO’s would expand the spectrum of opportunities beyond what exists today, because mathematically the set of EO’s is larger than EOh, and unlock those people who are limited to the EOh set to move to some of the EOu set. My counter is that any such system that equalizes health care across all EO’s would end up causing such massive changes to the set of EO’s and EOh’s that there’s no way to say (mathematically or otherwise) that the actual set of opportunities expands.

You have described a system. A system that would “equalize healthcare across EO’s.” A system of “not linking a person’s health care opportunity to a person’s employment opportunity.” You are describing a system that is different than the current system in one key respect - healthcare is available in all EO’s, not tied to specific EO’s that offer employment-based health insurance.

You are proposing a change. You’re not describing what form that change will take (the “how”), but you are describing what effect the change to the system has to have (to “equalize health care”).

That’s the “what” - and that “what” will generate a funding obligation. There is no possible way to “equalize health care” without having some system in place to pay for it. The “how” is undetermined, since the “how” of the health care system is undetermined. But there is a “what” that has to happen (paying for equalizing health care), because there is a “what” that you are proposing (a change to the system that equalizes health care).

There’s lots of different “hows” for achieving equalized healthcare across EO’s: a National Health Service (like UK), a social health insurance model (like Germany), or a government-run single-payer system (like Canada). Maybe we come up with a different one. There’s also different “hows” for funding those systems: payroll taxes, VAT/consumption taxes, or combinations thereof. Again, maybe we come up with a different funding system as well.

But you can’t have the thing you describe - a system that equalizes health care however constituted - without paying for it. And in the same way that the system that equalizes health care has an impact on people’s opportunity set, the obligation to pay for that has an impact on people’s opportunity set.

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46

Right:

Considering large, private employer plans and “everyone else” (small biz including sole prop and contractor/gig workers and part-time and student and FIRE), how different in terms of these three factors

  • all-in per-person cost (employer cost, employee premium, and out-of-pocket)
  • quality of benefits (value per dollar)
  • policy uncertainty

do you think the health care options are for those two groups (large, private employer vs “everyone else”)?

47

Not sure I completely understand your question. I think you’re asking me whether they’re different or not? Of course there are differences along those factors - as indeed there are significant differences along those factors within each group as well. Even among large private employer plans, there are considerable variations between all-in person cost, quality of benefits, and policy uncertainty as well when looking from company to company.

Heck, even within a given company employees will often have a variety of coverage options with different “all-in per-person costs” and actuarial values. There’s enormous complexity within the existing system within any single large employer, between large employers, between large employers and everyone else, between different categories of everyone else, etc. There are lots of different options available to all of the different groups.

That’s a big part of why you can’t assume that “equalizing health care” expands, or contracts, people’s EO’s. Even if you “equalized health care” within a single company you would be affecting the range of options people have.

48

I think the question is clear:

You said there are differences.

But for each factor, how (much) different?

The bigger the differences, the bigger the disparity in personal utility.

On the other hand, the smaller the differences, then the need for the thought experiment vanishes (the health care differences are the premise).

49

Ah, now I understand.

As to the first, no difference overall. By definition, the “all-in per-person cost (employer cost, employee premium, and out-of-pocket)” is just the person’s health care needs for the relevant time period. The insurance you have (or whether you have insurance) just affects who pays for that health care. If you have a broad policy (80-90% AV), most is pay under the policy and very little out of pocket; if you have a narrow policy (60% AV) or are uninsured (0% AV), it means more of it or all of it is out-of-pocket. By definition, the total is the same for everyone regardless of what policy they have. But it will vary intensely from person to person, or group to group, because different people have different health care needs: that total cost will be very high for a 64-year-old (on average) and very low for a 20-year-old (on average).

When reading this the first time, I didn’t quite catch what you were talking about. There’s vast difference in the relative proportions of “employee pays” vs. “employer pays” vs. “out-of-pocket” among the different groups (and within each group), and I thought that’s what you were pointing to. But if it is the total (which on re-reading it seems like you’re asking), then that depends entirely on the person, not which group they belong to.

If what you’re asking about is the nature of the insurance on offer, the insurance available in the private marketplace is now pretty similar to that of employer group plans:

How ACA Marketplace costs compare to employer-sponsored health insurance - Peterson-KFF Health System Tracker

…with similar premiums and coverage rates. Most large-group employers offer choices between 60% AV plans and 80% AV plans, roughly corresponding to Bronze and Gold in the ACA: so both groups will have a range of options to choose from, more or less (small-group employers tend to only have the HMO/PPO ~80% AV choice). Which is what I was talking about upthread - for the most part, most folks leaving workplace insurance can replicate their coverage by purchasing individual insurance policies. The question isn’t whether those policies are available, but whether someone else is going to pay for them or not. Obviously, outside of employer-based insurance those policies will not be paid for by employers, but will be paid for entirely by the individual.

There are differences in the populations of each of those groups, since the individual insurance market skews much older than workforce insurance - it’s heavily utilized by the “retire early” crowd who are not quite Medicare eligible.

As for this…

Why do you think that’s true? Often if there are different options, personal utility increases rather than decreases - because you can match your option to your needs, and change your option if your needs change. There’s massive variety in how healthcare is paid for in different groups - but do those differences create a disparity in personal utility? Or is it just that a person being paid $7K higher compensation has more utility than someone who is not? If I am looking at two groups that are paid exactly the same compensation (nominal salary plus the value of health care benefits), and one group gets part of their salary in employer-based health-care and the other does not, why would that difference create a disparity in personal utility?

50

Ok, that covers cost.

What do think about value and uncertainty?

And,

Why do you think that’s true? Often if there are different options, personal utility increases rather than decreases - because you can match your option to your needs, and change your option if your needs change.
[/quote]

I wrote differences and disparity (nothing about directional differences), intending to mean the same as you writing “different options,” so we are saying the same thing.

51

Pretty much the same.

As for value, there’s enormous variation within all of the categories, but they’re within pennies on the dollar in terms of administrative load. Per google, the average administrative load (the amount of premium that isn’t paid out in claims) for employer-based plans is about 12%. The average administrative load for ACA marketplace plans is given as between 12-16%. Again, there’s variance within those groups (for example, if your large employer plan is self-funded, it will have lower administrative load than if it is a fully-insured large group plan, though there are off-book capital costs) - but you’re pretty much getting the same value for your premium dollar across the different plans.

As for uncertainty, they seem to be about the same. Total payout ratios are about the same, claim denial rates are about the same, solvency/insurer default rates don’t seem to be any different. You get the health insurance you buy, and if you buy an 80% AV individual plan you’re going to get pretty much the same dependability whether it’s ACA marketplace or your employer.

There is one main difference, though it’s not something you’ve mentioned - tax treatment. On the one hand, employer-based health insurance is paid for with pre-tax dollars, which is a big subsidy. On the other hand, the overwhelming majority of ACA individual marketplace plan premiums are actually paid for by the government (yes, even after recent changes) - so the overall subsidy is probably higher in the individual market than the employer-based market right now.

Then I think I really don’t understand your point. If big differences allowed for increased personal utility, then “equalizing health care” across all the different scenarios might reduce overall utility. I thought you were advocating in favor of equalizing health care between employer-based opportunities and non-employer-based opportunities, and were saying that this would unavoidably increase personal utility. But now I’m pretty sure I’m missing something.

52

Is Oscar a scam?

Our ACA insurer is pulling out of Ohio for 2027. Oscar Health might be our only option.

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53

Tax should be considered.

I was thinking tax is part of funding.

Cost is what we need to pay.
Funding is how we pay for it.

Maybe we just got mixed up there.

Restating:

Assumption
Take the big set EO.

Take a subset EOu and make it less attractive (worse healthcare).

Now some of EO is less attractive and the remaining set, EOh, is smaller than EO.

Implication
So the remaining opportunity set is smaller (for some people), reducing personal utility (b/c more options in the bigger set EO is likely to result in a better outcome)

54

Ah. That’s why I was confused - because that is a directional difference. You’re asserting that the health care is worse (not just different), and therefore the EOu is less attractive (not just different).

That’s where I think we fundamentally disagree - I don’t think that analysis is kosher. Just because the EOu set is different from the EOh set - even if it was worse in some respect from the EOh set - doesn’t mean it reduces personal utility.

For example, consider the set of cars. The average car right now costs close to $50K, but also has a lot of quality. If I were to introduce a new “econobox” car to the market that cost $20K than those $50K cars, it would probably increase overall personal utility. Though the car is almost certainly “worse” in an absolute sense (fewer features, smaller, less expensive materials), having it as an option increases people’s choices - and thus their personal utility. This isn’t a car that started off as being in a larger set of full-feature cars that was “made less attractive” by being made worse.

I think the logical flaw is thinking about EOu as starting off in the big set EO and then being changed to be “less attractive” with worse healthcare. That’s not really what happens. It’s not like these jobs or opportunities started off with employer-based health care and it got stripped out. They are opportunities that exist without healthcare, in the same way that there are jobs that pay less than other jobs.

We don’t think of salary this way, for example - that we start with a big set of “EO,” and then take a subset of EOand make them less attractive by lowering their salary below $50K (“EOlow”), leaving the remaining set (“EOhigh”) as smaller than the overall set of EO and deciding that this reduces people’s utility. Reduces people’s utility compared to what? Some hypothetical world where every job paid more than $50K? If we thought of what would happen if we tried to take some steps to make every job pay more than $50K, we can easily see that it would simply mean that a lot of those jobs would disappear rather than let people now have the chance to be a dishwasher but get paid more than $50K. We just acknowledge that the set of EO contains opportunities that are high paying and some that are low paying, and even though the low paying jobs would be more attractive (obviously) if they paid more, that’s not something that “reduces personal utility.”

Put another way, all of the EOu are already in the set of EO. You’re not making the opportunity set bigger if you change the health care attributes of the EOu. You would make those jobs more attractive, in the same way as if you increased the amount of money they paid or whether they came with private offices or whether they had a company car or whatever. The set of EO already has enormous variety in the attractiveness of the EO’s, on a variety of dimensions - of course some EO’s are less attractive than others, and always will be. The question is always whether whatever change you make to try to make some EO’s more attractive is worth the cost you have to incur to make them more attractive.

55

Not what I meant to communicate in the last post.

In post #2, I did not write anything about changing a set.

I just wrote EO is comprised of EOh and EOu.

I agree, using the words take and make in my last post was not careful enough.