October 30, 2013


Here's The Truth About Your 'Private' Health Insurance -- It's Already A Big Government Program (JOSH BARRO, OCT. 29, 2013, Business Insider)

This system is a kind of shadow fiscal policy, redistributing income from the healthy to the sick. It can only work if consumer choice is restricted in such a way that many people are induced to buy policies that cost much more than they can expect to get back. Obamacare contains many such inducements (including subsidies and the individual mandate) but so does the pre-Obamacare status quo in health policy.

I'll start with the individual market, which is pretty small (about 5% of Americans get their coverage there) but is being significantly disrupted by the launch of Obamacare.

Individually-purchased health insurance is usually a one-year contract. But these insurance policies are subject to a federal policy called "guaranteed renewability." Once an insurer covers you, it has to offer you renewals as long as you want them, and it's not allowed to raise your premium based on new information about your health.

This rule, created by the bipartisan Health Insurance Portability and Accountability Act of 1996 (HIPAA), is basically rent control for health insurance. It benefits the sick by obligating health insurers to write policies at a loss; they make up the difference by charging more to the healthy.

In most states, there are additional regulations on the individual insurance market that promote cost-shifting. These state regulations fall into two main categories; a 2008 report produced by the Department of Health and Human Services provides a good overview.

One set of regulations requires comprehensiveness of health insurance coverage: For example, plans must cover maternity care or mental health. These regulations constitute a transfer from people who don't need these coverages to those who do. Without these rules, insurance coverages that only some people need are likely to be expensive or unavailable.

The other set of regulations pertains to how insurers may set rates, limiting the extent they can charge people more because they are likely to make more claims. These rules are more restrictive of insurers than guaranteed renewability because they apply to people who are buying new insurance, not just those who are renewing it. [...]

Redistributive public policy is even more of a theme in the group health insurance market, which is nine times larger than the individual market and the dominant source of "private" health coverage. The government massively subsidizes this market by excluding employer-provided health benefits from income and payroll taxes. Federal tax advantages for health insurance add up to $300 billion a year.

These tax subsidies are highly coercive. Take a family with salary income of $60,000 and a health plan worth $15,000. If this family instead took all of its income as $75,000 in cash salary, it would face an income and payroll tax hit of around $4,500, or about 6% of their income. For comparison, the individual mandate penalty in Obamacare will be limited to 2.5% of income.

Employers are also limited in their ability to pick and choose whom they offer insurance to. You can limit coverage to full-time workers only, but you have to offer it to all of them on approximately the same terms, without premium adjustments for claims or health status. The tax advantage combined with this universality requirement results in a large majority of full-time workers getting covered through work -- and that benefit ends up being much more valuable to people with high health costs than with low ones.

That's a summary of the "private" health insurance system we have today: Subsidize and regulate to push as many people as possible into insurance pools, and shift costs among them so the healthy subsidize the sick.

...is that they force healthy you to set aside the money to subsidize the sick you of the future, enough money so that there's more than sick you could ever spend.

Posted by at October 30, 2013 12:57 PM

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