Datapoints: Placing Odds on Your Health (and Its Cost)

What is the chance that you will rack up big health care bills in 2014?

For the typical American adult under 65 who does not have health insurance, the total of all health care bills would be $2,700. That’s according to calculations by Milliman, an actuarial firm.

The obvious problem is that you can’t know in advance if your costs for the year will be typical. If you are unfortunate enough to have a costly medical problem, you could end up with far higher bills. Milliman calculated that 5 percent of the population will incur bills, absent insurance, exceeding $47,300.

Milliman estimated what patients will be billed without insurance, not what is paid to providers. According to Milliman, uninsured patients, who don’t have the benefit of insurance negotiators, are billed about 30 percent more than insured patients. The Affordable Care Act requires individuals to purchase insurance, but at what coverage level? If half of Americans without insurance will be billed less than $2,700, as Milliman projects, a healthy person, might do better under a plan with lower premiums but with high deductibles. (They can generally run as high as $5,000 for an individual and $10,000 for a couple.)

Of course, Milliman doesn’t know whether you are likely to become sick and to be among the top 5 percent or even the top 20 percent (who are billed more than $13,300). When choosing insurance, consumers need to consider their personal situations — and their stomach for risk.

Datapoints: Placing Odds on Your Health (and Its Cost)

What is the chance that you will rack up big health care bills in 2014?

For the typical American adult under 65 who does not have health insurance, the total of all health care bills would be $2,700. That’s according to calculations by Milliman, an actuarial firm.

The obvious problem is that you can’t know in advance if your costs for the year will be typical. If you are unfortunate enough to have a costly medical problem, you could end up with far higher bills. Milliman calculated that 5 percent of the population will incur bills, absent insurance, exceeding $47,300.

Milliman estimated what patients will be billed without insurance, not what is paid to providers. According to Milliman, uninsured patients, who don’t have the benefit of insurance negotiators, are billed about 30 percent more than insured patients. The Affordable Care Act requires individuals to purchase insurance, but at what coverage level? If half of Americans without insurance will be billed less than $2,700, as Milliman projects, a healthy person, might do better under a plan with lower premiums but with high deductibles. (They can generally run as high as $5,000 for an individual and $10,000 for a couple.)

Of course, Milliman doesn’t know whether you are likely to become sick and to be among the top 5 percent or even the top 20 percent (who are billed more than $13,300). When choosing insurance, consumers need to consider their personal situations — and their stomach for risk.

Case Study: Questions Abound in Learning to Adjust to Health Care Overhaul

THE CHALLENGE The company is one of thousands of small businesses that employ more than 50 full-time employees and thus will be required to offer health insurance to their workers — or pay into a government fund — beginning Jan. 1. Rachel Shein and Steve Pilarski, the married owners of the bakery, which employs 95 people, estimate this could cost their business up to $108,000, and they are weighing their options as the date approaches. “Our revenues are about $8 million, but the food business is a low-margin industry so cutting $108,000 out of our profits, which are just over $200,000, is a big deal,” said Ms. Shein, who is the chief executive. They are evaluating different ways to comply with the new law and finance the expense.

THE BACKGROUND Ms. Shein and Mr. Pilarski bought their first bakery, a maker of scones, 16 years ago. Their business grew along with the popularity of coffee shops, and they expanded their product line to include other pastries.

During the recession, the coffee shop business contracted, so they found new customers among hotels and hospitals, but the cost of servicing different types of businesses and developing new products to meet their needs eroded profits. At the same time, gasoline and ingredient prices went up and vendors tightened payment terms. Still, the couple persevered by providing an array of freshly baked goods and offering product variety and consolidated delivery, simplifying things for their customers.

With the recession behind them, Ms. Shein and Mr. Pilarski are trying to rebuild their profitability. Baked in the Sun produces nearly 20,000 items a day — almost 200 different products, including brownies, coffee cakes, muffins and cookies — in an 18,500-square-foot baking facility in San Marcos, Calif. The goods are delivered to coffee shops, schools, hotels and hospitals in the San Diego area.

THE OPTIONS Ms. Shein is contemplating several options to comply with the Affordable Care Act’s business mandate.

Option One is to provide the insurance. According to the law, Ms. Shein will have to offer health insurance or, most likely, pay a penalty, and she estimates the insurance will cost up to $108,000 a year for 90 employees (managers have insurance already).

This is just an estimate, she said, because the insurance companies have not yet created and set a price on plans that meet the law’s requirement for minimum care. She estimates a cost of $200 per employee a month, of which the bakery would pay half and the employee would pay half. Employees can choose not to participate in the plan if they are covered elsewhere or for other reasons, so it is unlikely they will all sign up.

Option Two is to not offer health insurance and let employees find coverage elsewhere, perhaps on one of the new government exchanges. Under this option, the company will probably have to pay the mandated “employer shared responsibility payment” to the government.

The cost to the business would be $2,000 per employee a year, but the law exempts the first 30 employees, so the total would be $130,000 per year for a 95-person company. One benefit of this option is that the company would not have to take on the burden or expense of managing the insurance plan, which Ms. Shein estimates would take $10,000 of staff time.

One way to cover the costs associated with the new law would be to raise the price of each item sold about 4 percent and pass the costs along to buyers. “It’s ironic that our success meant we could grow,” Ms. Shein said, “and now we will be competing against smaller companies, with 50 employees or fewer, who will be able to charge less per item because they don’t have the financial burden of health insurance.” Prices are currently similar among local competitors, Ms. Shein said, and she says she believes the increase in her prices could affect her sales, possibly significantly.

Ms. Shein is considering a third option: outsourcing certain jobs to reduce the staff, because businesses with 50 or fewer employees will be exempt from the penalty. “We can outsource the cleaning and make the drivers independent contractors,” she said, “and we can cut the least profitable delivery routes, least profitable accounts or reduce the variety of items we create.”

This article has been revised to reflect the following correction:

Correction: March 25, 2013

An earlier version of this article, using information from a bakery owner, misstated the number of items produced by the bakery daily. It is nearly 20,000 items, not nearly 200,000.

Case Study: Bakery Owner Talks About Coping With Health Insurance Changes

Sandy Huffaker for The New York Times Rachel Shein, center, is trying to figure out how to comply with the new health insurance law.What would you do with this business?

Last week, we published a case study about Baked in the Sun, a wholesale bakery and distributor that is trying to decide how best to comply with the Affordable Care Act. Starting in January, the new law requires businesses with 50 or more full-time employees to offer health insurance or pay a penalty. Owned by Rachel Shein and Steve Pilarski, husband and wife, the company employs nearly 100 workers to bake and deliver freshly made pastries to coffee shops, hospitals and hotels in Southern California.

Baked in the Sun has offered health insurance to its employees in the past but many are young and healthy and have preferred to keep more money in their paycheck, rather than contribute to a health plan. Soon, though, almost all workers will have to carry health insurance — through their employer, a government exchange or other source — or pay a penalty. And, as the case study discussed, Ms. Shein and Mr. Pilaski are trying to decide whether they will offer health insurance, pay a penalty or outsource enough work that they can reduce their head count below 50 and be exempt from the law.

The article elicited lots of comments and strong opinions, as well as reports in other media outlets, including CNBC, which included Ms. Shein in a panel discussion about her company’s situation. Some readers argued that Baked in the Sun has a moral obligation to offer coverage. Others argued for a single-payer system that would allow owners to stop worrying about health insurance and focus on running their businesses.

Andrew Greenblatt, a senior vice president at Benestream, which helps low wage employees apply for government benefits, pointed out that under the Affordable Care Act, Medicaid has been expanded to cover families earning up to 138 percent of the poverty level, which means that workers who make minimum wage, especially single parents, may qualify.

And Alan Cohen, chief strategy officer for Liazon, a private insurance exchange for companies, suggested in a comment that many employees will be better off if the bakery chooses not to offer insurance and instead pays the government penalty. That’s because the employees would be likely to qualify for a subsidy at a government exchange that would allow them to insure their whole family — but only if their employer does not offer health insurance.

Of course, because neither the minimum level of coverage, nor the costs to all the insurance options have been finalized, lots of uncertainty remains. We contacted Ms. Shein for a follow-up conversation that has been condensed and edited.

A number of readers suspect that you are underestimating how much it would actually cost to insure your employees. Have you taken another look?

The insurance plans are still under development. My broker recently found one that was less than what I had found, but I’m not sure anyone knows what the final rules and prices will be.

Have you thought any further about how many of your employees will actually sign up for insurance if you offer it?

In the short run, when the individual penalty is low, there might not be much participation. We plan to have a meeting with our employees to see what kind of insurance they might want and which of them might be covered elsewhere.

Did this discussion have any impact on your thinking about whether you will pay the penalty or offer insurance?

The employees will all have access to health insurance whether we provide it, or we pay the penalty and they purchase it using a subsidy on the government exchange. We need to look at all the costs and tax implications and do whichever is least expensive for the business.

Are there any reader questions you want to answer?

Some readers claimed it was a moral imperative to provide insurance — but all employees will have insurance under the law.

Some readers thought your profit margin was too low and questioned how well your business was doing. What was your reaction?

Like many entrepreneurs we have great years where we can take vacations and put money into our kids’ college funds. Some years are leaner.

Do you think your customers would pay a few more cents for your baked goods — especially if it allows you to offer your employees health insurance?

Our products are unbranded and sold in hundreds of outlets so it would be hard to educate consumers about our employment practices. And the popularity of Wal-Mart shows that most consumers just want the best price.

You suggested in the article that you might have to raise your prices 4 percent to cover the cost of providing health insurance. But 4 percent of $8 million — your annual revenue — is $320,000. That’s a lot more than you estimated the cost of insurance. Couldn’t you just raise your prices 2 percent?

Yes, a 2- to 3-percent increase could cover the costs, but it’s a low margin business and pennies matter so we like to build in some buffer.

Would you favor a single-payer system?

I am in favor of a system that doesn’t penalize a business for being successful and able to hire more than 50 people and doesn’t deter us from wanting to grow. I am in favor of a system where everyone pays in, and everyone is covered. If that is a single-payer system, I’m for that.

You're the Boss Blog: Why I Have No Health Insurance

Courtesy of Fashioning Change. Adriana Herrera: I finally gave in and decided to see a doctor.A social entrepreneur tries to change the way people shop.

Three days after we established the Fashioning Change house in Santa Monica, I was in a car accident. I was rear-ended, and upon impact I felt like I had the wind knocked out of me. Despite the pain, I didn’t give it much thought. I assumed it was because the seat belt had done what it was supposed to do.

Following protocol, I went to exchange information with the driver of the other car. The woman who hit me was in her early 20s, had an empty child seat in the back of her car, spoke broken English and was shaking. Fortunately, I speak Spanish and we were able to communicate. As we exchanged information I learned that she was from El Salvador.

As soon as she said that, I understood that she might not be an American citizen. I took a moment to call my father to ask his advice. He said that because I was in pain, I needed to report the accident. At that point I started to shake. I began to anticipate what this accident might mean for the woman’s life. Following my father’s advice, I called the Santa Monica police to report the accident and the dispatcher asked if there were any major injuries or damage. I told her no and she said that they were directing all units to something else that was happening. Her advice was to exchange information with the driver and call our insurance companies.

I took that as a sign that I should go with my instinct and try to keep the impact of the car accident as minimal as possible for both of us. We exchanged information with the understanding that she would have to cover any costs I would incur from the accident. We both seemed at ease with not having to involve law enforcement.

But in the weeks that followed, the pain in my side never went away. In fact, it got worse. There were mornings when I would wake up and the pain would be so bad that I’d get sick.

Why didn’t I go to the doctor? Well, I don’t have health insurance. I’ve always been a healthy person, and at the time I priced out health insurance I felt as though the money would be better spent building the company.

The timing of the car accident could not have been much worse. We had just begun to establish ourselves in the Santa Monica area, I was running from meeting to meeting, and it was the holiday season. To manage the pain, I started taking ridiculous amounts of Advil. I’d find myself sitting in a car right before a meeting, fighting back tears and telling myself to “Suck it up, suck it in,” a phrase my mother and I say when we’re trying to deal with a problem and maintain a smile.

The holidays passed, we were in January, and the pain still hadn’t gone away. I finally gave in and decided to see a doctor. When I shared this with Kestrel, who is in charge of product sourcing and is also my roommate, she was obviously relieved. She had watched me deal with the pain on a daily basis and had been very respectful of my choice not to see a doctor, until now. The choice had been part not wanting to deal with not having insurance, part really hating going to the doctor, part having more than enough to keep me busy at work, and part believing in living as naturally as possible. I assumed that my body would figure it out.

But that hadn’t happened, and now Kestrel suggested that I try a clinic in South Central Los Angeles for people without insurance. I called and tried to make an appointment but they didn’t have any availability. They suggested I come as a walk-in at 6:30 a.m., the time they open. Because the clinic is in a part of town with high crime (and because she is awesome), Kestrel came with me. When we got to the clinic at 6:30 a.m. on a Thursday, it was already full of people.

Four hours later, a doctor examined me for 10 minutes and told me that my pain was in my gallbladder and that I would probably have to have it removed. This was both scary and confusing since the pain had started when I was rear-ended. He said we’d know for sure if I had to have surgery once they ran blood tests and I had an ultrasound. He wrote me a referral to get the ultrasound and blood work.

So I got my blood work done and went to a radiology office where everything was paid for out of pocket. It was $50 for the ultrasound – a price I gladly paid, knowing it can cost far more. The woman who did my ultrasound was really nice. As I walked into the room, she could read the worry on my face. To ease my nerves she made conversation and told me what she did and did not see. She did not see anything wrong with my gallbladder, but she did see an enlarged liver. I shared the details of my car accident with her, and she said she suspected that I had a fractured rib that was poking my liver. But she was not a doctor.

It was frustrating to think I had been walking around this way because I wanted to avoid the medical expenses. It was also frustrating that the woman who rear-ended me seemed to have fallen off the face of the earth. But I have not had second thoughts about not waiting for the police. I find it harder to face the idea that I would have been responsible for keeping that woman from raising her child in this country.

It has been several weeks since I went to the doctor and they never got back to me. I called several times and no one ever answered the phone or returned a message. Needing to begin my healing process, I spoke with my parents — both of whom have worked in the medical field — and my mother gave me some advice on getting good, affordable care.

Step one, she said, was finding a good primary care physician. She made a list of doctors she thought I might like and I was lucky enough that my first choice took me as a new patient. Step two was knowing about the discount that comes with immediate “self pay.” If you pay for the appointment in full at the time of service, many doctors give a discount. In my case, I saved 40 percent.

Step three was knowing about professional third-party vendors through which I could order my own lab work, save money and take the results to the doctor. This is the process I went through, and it turned out my liver is fine — although I have a severely bruised rib that hasn’t healed because I haven’t slowed down enough to let it heal. The doctor prescribed pain cream but I never filled the prescription. I prefer natural steps, so I’m conducting more meetings through Skype, doing a little less running around, and asking for help carrying things.

Allowing personal challenges to get in the way of day-to-day operations can be deadly for an early stage start-up like Fashioning Change. No one that I met with in recent months had any idea how much pain I was in. I even hid the pain I was dealing with from my team as long as possible, which was particularly hard when we would laugh. Despite these challenges, the fourth quarter of 2012 was our best quarter ever.

Meanwhile, somewhat reluctantly, I am in the process of pricing out insurance.

Any suggestions?

Adriana Herrera is chief executive of Fashioning Change. You can e-mail her at adrianah@fashioningchange.com, and you can follow her on Twitter.