How Americans Drive Up Their Own Health Insurance Costs (UPDATE)


This is not a defense or excuse for the exorbitant pricing or profits in the health insurance industry in the US.  As with most social issues, there is no single cause of a problem. The industry owns part of the issue, Congress owns a major part, but consumers also own a piece. It’s time to recognize that and do what you can do about it.


I grew up in an advertising era touting “rugged individualism.” The icons of that era included John Wayne, the TV character Palladin, and the advertising “Marlboro Man,” all part of a mythology that people could cut their own path regardless of others.

Unfortunately, that’s not how life works. If your reading this, someone else probably had provided the electricity for  you. If you also write, the court system protects your intellectual property. If you have a retirment account, you depend on financial regulators to protect your assets. If you eat (and you’d better be doing that), there’s the farmers and fishermen who provide what you consume. We are a connected network of people, whether on the grid or not. Whether you like it or not.

That’s blatantly the case in health insurance. There was a time when health insurance didn’t exist and didn’t matter. There were relatively few doctors in the 1850s, medical knowledge was relatively crude, and life expectancy was short.

  • In the Americans, life expectancy from birth was only 35.1 years in 1850. Life expectancy for slaves was less, with estimates ranging from 22 to 30 years of age.
  • The shortness was due to childhood deaths. If one could make it to age 10, there was a reasonable prospect to live to age 60.


Life expectancy has  increased dramatically in the last two years, as you can see from the chart above, from an excellent article by Max Roser. (1)

In most geographies, the major gain in life expectancy came after World War II.


However, the increase in life expectancy comes at a substantial cost. One estimate says that each day of additional life expectancy adds $1.6 billion to medical costs just in the US. (2) However, living longer is just one component of the story of rising health costs.

Behavior matters. Certain things some of us do add substantially to medical costs for each and every one of us. How does that work? It’s in built into the concept of insurance as conceived by Benjamin Franklin.

  • People — healthy and sick — pay into a fund that in turn pays people in their time of need.
  • The required size of the fund is determined by the number of claims and the size of claims. The required size of the fund determines what people who participate have to pay.

That might seem unfair to healthy people, but we have to remember that no one stays healthy forever. Everyone dies. Everyone gets a turn with illness, sometimes more than one turn.

What might be considered unfair is when people do things or allow things to happen that cause illness. For example,

  • The CDC estimates that 36.5 million Americans smoke cigarettes, and 16 million currently have a smoking-related illness. Not everyone who smokes gets sick, but a larger percentage do, and that adds $170 billion to total medical expenses in the US. (3, 4)
    • According to a recent Gallup survey, more than 28% of adults in Ft. Smith, Arkansas, Layfayette, Louisiana, Erie, Pennsylvania and Bristol, Tennessee smoke. The national incidence is 18.2%, down from more than 40% in the 1960s. (9)
  • Obesity is estimated to add $147 billion to national healthcare spending (2008 dollars). (5) That figure may be low due to the large number of undiagnosed diabetics in the US.
  • Alcohol and drug abuse adds another $64 billion to healthcare spending (7)
  • Distracted driving (there are no separate estimates of direct medical costs), but medical bills have been rising even as the severity of injuries has been declining. (6)

The medical expenses that result from these behaviors hit every consumer:

  • Rising healthcare charges (remember the principle of “supply and demand”?)
  • Rising insurance premiums to cover the rising healthcare costs
  • Rising taxes to cover the proportion of expenses the government pays

High spending doesn’t mean better medical results.

With development, health outcomes generally improve, but the U.S. is an anomaly. The U.S. and the U.K. are both high-income, highly developed countries. The U.K. spends less per person ($3,749) on health care than the U.S. ($9,237). Despite its high spending, the U.S. does not have the best health outcomes. [Life expectancy, for example, is 79.1 years in the U.S. and 80.9 years in the U.K. And while the U.S. spends more on health care than any country in the world, it ranks 12th in life expectancy among the 12 wealthiest industrialized countries, according to the Kaiser Family Foundation, a non-profit organization focusing on health issues.] (8)

Europeans and the Chinese government understand the impact of individual behavior on costs. Americans have been more reluctant to understand and accept personal responsibility for how their behavior affects themselves and everyone else. It’s time to grow up and put the myth of rugged individualism away.



  1. Max Roser, “Life Expectancy,” Our World in Data, undated.
  2. Sean Davis, “8 Charts that Explain the Explosive Growth of U. S. Health Care Costs,” Media Trackers, 1 October 2013.
  3. US Centers for Disease Control and Prevention, “Economic Trends in Tobacco,” last updated 17 June 2017.
  4. US Centers for Disease Control and Prevention, “Current Cigarette Smoking Among Adults in the United States,” last updated 1 December 2016.
  5. US Centers for Disease Control and Prevention, “Adult Obesity Causes and Consequences,” last updated 15 August 2016.
  6. Rocky Mountain Insurance Information Association, “Cost of Auto Crashes and Statistics,” undated.
  7. National Institute of Drug Abuse, “Trends and Statistics,” last updated April 2017.
  8. NPR, “What Country Spends The Most (And Least) On Health Care Per Person?” 20 April 2017.
  9. Samuel Stebbins, “Cities with the Most Smokers,” 24/7 Wall Street, 22 JUne 2017.

The [State] Politics of Health Insurance


In the rush to repeal the Affordable Care Act, the Trump Administration has been repeating the mantra that the individual insurance marketplaces are “failing.” Like most statements made by politicians these days, the facts seem to be a little different.

Clearly, Iowa is in crisis. With the withdrawal of Aetna from the individual marketplace, there is a real risk they may have no insurers offering individual coverage through the marketplace in 2018.

My suspicion is that Aetna’s withdrawal has more to do with its stock price and financial liabilities after a failed merger attempt than with the ACA itself. Aetna has also stopped writing small group insurance in some states.

However, Pennsylvania has six carriers committed to the marketplace for 2018. The only concern is what the Trump administration might do the mess things up.

Further, another insurer, Centene, has announced that it is expanding individual marketplace coverage into three new states — Kansas, Missouri and Nevada.

So what’s the real story with Iowa? If the fault were with ACA, it would be impacting every state and every carrier, and that’s not the case. What have state officials done to mess things up?

If you know the story, please reply. I’d like to know, both about Iowa and about other states where local officials are whining about Obamacare. Let’s get the full story out into the open.


The Small Business HRA


As some readers know, I’m a market researcher doing a transition to a second life in health insurance. It’s not the most profitable line of insurance, but I really enjoy helping people. That’s what makes me feel  good. And as my grandfather said, do something well or don’t do it.


For most purposes, a “small business” is anything with 50 or fewer full time employees or FTEs.  If you have one of those, you have a great opportunity to offer health insurance benefits without breaking the bank. The HRA is one option; the hybrid self-insured approach is another. Either can be significantly less costly than traditional group insurance, although neither is a universal solution.

I’m not wedded to a particular type of insurance. A good advisor should listen to you, research the options that are best solutions for your needs, and present the options to you with both their pros and cons. Nothing’s perfect, and one-size-fits-all is a myth.

What’s essential is that you know the choices available to you. Both the costs and benefits of some of the options may be quite different than what you expect.

I found the following blog article from Zane Benefits. It’s a good review of the HRA and how it works. Some of the terminology is arcane (thank you, Congress!).  If you find things you don’t understand, talk with me.

A big thank you to Caitlin for permission to repost this.

How the QSEHRA Works for Employees Without Minimum Essential Coverage

When Congress passed the 21st Century Cures Act in December 2016, it created a new health plan for small businesses—the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), or Small Business HRA.How the QSEHRA Works for Employees Without Minimum Essential Coverage

Under a QSEHRA, businesses with fewer than 50 full-time employees can reimburse their staff for individual insurance premiums and qualified out-of-pocket medical expenses. The business sets a monthly allowance for employees, verifies and approves employee expenses, and then reimburses them from that allowance.

QSEHRAs are administered on a tax-free basis for small businesses. Employees are also spared from income tax—provided they’re covered by an insurance policy with minimum essential coverage (MEC).

Hundreds of small businesses across the country have already found relief through the QSEHRA, both from the cost and administration time associated with group health insurance and from the damage of not offering health benefits at all.

However, what businesses may not realize is that even employees without MEC can benefit from the QSEHRA.

In this article, we’ll walk you through what the 21st Century Cures Act says about QSEHRA participation and MEC requirements, how your uninsured employees can access the benefit, and how to compliantly administer the plan for both insured and uninsured employees.

QSEHRA Employee Eligibility Requirements

Title 18 of the 21st Century Cures Act outlines QSEHRA eligibility requirements for individuals. Generally, eligibility for the benefit is quite broad; a person simply needs to work for—or be the spouse or dependent of someone who works for—a qualified small business offering a QSEHRA.

However, small businesses can exclude employees who fall into any of the following categories:

  • Part-time and seasonal employees
  • Employees who have not completed 90 days of service
  • Employees younger than 25
  • Union employees (unless the relevant collective bargaining agreement provides for eligibility)
  • Nonresident aliens with no U.S. source income

Beyond that, employees are eligible for the QSEHRA “after the employee provides proof of coverage for the payment of, or reimbursement of … expenses for medical care.”

In this context, “proof of coverage” means proof that the employee incurred an expense covered by the QSEHRA. This means that any employee who meets the above requirements and submits proof of an eligible expense qualifies for the QSEHRA benefit—regardless of whether they have MEC.

Where MEC does matter is in determining how the benefit will be taxed.

Accessing Tax-Free Benefits

One of the advantages of a QSEHRA is its tax-free status for both small businesses and employees. Businesses administering a QSEHRA won’t be subject to payroll taxes for the reimbursements they issue employees, and employees won’t have to pay income or payroll tax on the reimbursements they receive.

Small businesses will receive these tax advantages regardless of the coverage status of their employees.

Employees, however, must have MEC if they want to receive tax-free reimbursement. Without MEC, any reimbursements received through the QSEHRA may be considered taxable and includable in the employee’s gross income.

Receiving Value from the QSEHRA Without MEC

Even without some of the QSEHRA’s tax advantages, employees without MEC can receive value from the benefit.

The QSEHRA allowance helps uninsured employees or those on cost-sharing plans like Medi-Share pay for a variety of medical expenses. Physical exams, prescription and nonprescription drugs, and premiums for dental and vision policies are all eligible for reimbursement under the QSEHRA, along with many other expenses.

While employees without MEC must pay some tax on these reimbursements, the up-front benefit from their employer significantly defrays the cost of their health needs.

And, when employees do gain MEC, they’ll be able to slip seamlessly into the tax-advantaged benefit.

Administering the QSEHRA for Employees Without MEC

Small businesses offering a QSEHRA must make employees aware of the potential tax consequences of going uninsured.

Title 18, Section 4(A) of the 21st Century Cures Act requires small businesses to notify employees of the QSEHRA benefit each year. In addition to informing employees of the amount of their benefit and explaining how it affects premium tax credits, the notice must explain that employees could be subject to a tax penalty if they fail to maintain MEC during the year.

The notice must also explain that any reimbursements made through the QSEHRA while the employee isn’t covered under MEC may be includable in the employee’s gross income.

Small businesses are under no legal requirement to track employees’ tax liability for QSEHRA benefits.


The QSEHRA is the only formal small business health plan that offers an immediate benefit to uninsured employees. And, unlike simply grossing up employee wages, the QSEHRA gives businesses the peace of mind that comes with knowing their funds are being spent on employees’ health needs.

Employees without MEC can still access their allowance, and, because of the tax advantages enjoyed by those with MEC, the QSEHRA provides incentive for all employees to purchase full coverage.