Ripping Off the Young
A little noticed feature of the health reform legislation is the common tendency to regulate insurance premiums in a way that will force young people to pay more so that older people can pay less. The legislation would gouge people at the time of life when their wages tend to be low in order to subsidize people at a time in their life when wages tend to be high.
Ironically, this take-from-the-poor-and-give-to-the-rich policy is favored by the members of Congress who claim to be “progressive.”
In this respect, the House (Pelosi) bill is by far the worst. Under the bill, health insurance premiums will be allowed to vary by age only so long as the highest premium does not exceed the lowest premium by a ratio of 2 to 1.
According to eHealthInsurance.com, a medically underwritten individual policy in the Denver area for a non-smoking 20-year-old woman in excellent health costs $50.88 a month. The same policy for a 40-year-old woman costs roughly three times as much, $152.21 a month.
How’s the government going to get to the 2 to 1 ratio?
In Massachusetts, which has a 2 to 1 rate band, the young pay more so that the old can pay less. A bronze level Connector plan for a 20-year-old young adult ranges from $152.03 to $228.69, with the lower bound roughly triple the rate in Colorado. A bronze level plan for a 40-year-old ranges from $329 to $518, with a lower bound rate roughly double the rate in Colorado.
Health reform modeled after Massachusetts means that everyone pays more, but at least when the private sector sets prices the people who actually cost more pay more, and, fortunately, are those better able to afford higher prices.
Right on Linda. We keep hearing about how the seniors are going to get ripped off in health reform. Hardly anyone is talking about the rip off of young people.
This is terrible. How can they get away with it?
Employer-sponsored insurance is also typically rate banded, if not pure community rated for some large companies, but the employer tax exclusion serves to offset the additional cost of these plans for younger or healthier individuals.
If Congress wanted to narrow the price range they should have used a cleaned-up version of this approach, instead of dictating prices.
Bart I. Most employers community rate to employees the employee share of the premium. But this is only 25% of the cost, on the average. More importantly, economic studies show that fringe benefits are substitutes for wages in the compensation package. To me, this implies that regardless of how employers nominally allocate the premium, the real value of the insurance plus the taxable wage is the total value of employee compensation, and this has to equal the employee’s marginal product.
If employee’s are getting their marginal product then no one is getting screwed.
What is being proposed is entirely different. Young people will be compelled to buy a product for which they are overcharged and (in the exchange) there will be no compensating variation in the wage rate to offset this burden.
What progressives really want is a socialized health care system like is commonly found in Europe. In these systems, nobody ever experiences a bill; bureaucrats control the recourses and the cost is paid by society as a whole — especially the rich.
But, Leaders in Congress are stuck with our current system. Thus, the starting point is a system heavily dominated by employers. As a result, the proposals are little more than a convoluted attempt to simulate European social sickness funds using a series of taxes, subsidies, mandates, employer penalties.
A simulated socialized health care system will likely perform even worse than an actual socialized health care system.
What is being proposed is also very regressive. When you’re young your income tends to be low. Most people reach their peak earnings in their 50s or even in their 60s. So overcharging the young so that older people can be undercharged is taking from the poor and giving to the rich.
Stephen: By “most employers” you appear to be talking about only those employers who self-insure. But it seems to me that most smaller employers purchase small company group plans. Here the premium is the actual premium charged by the insurance company, so it’s not just ‘nominal’.
I agree that the pure community rating carried on large, self-insured employers’ books is largely bookkeeping fiction. No doubt the employees’ salaries are adjusted to compensate for much of the actual cost of coverage, at least where age and sex are concerned. Whether this is also true of health status would depend on whether management has access to claims data. My guess is that it would be difficult to adjust salaries in response to changes in health status, so the reality in large companies is probably fairly close to the small-business, age-banded, non-self-insured model.
Just look at the states that have this modified community rating and it is an insurance night mare for the young. I tried to get a woman age 20 in NJ a plan, it was over $400. In PA, the plan was around $75. This bill is absurd.
Instead of change we can believe in , it should be change our wallets will feel. This bill is a joke.
Anyway, my point was that employer-sponsored insurance is already at least modified-community-rated. Insurance companies aren’t forced by the government to sell group insurance, employers aren’t forced to carry it, and employees aren’t forced to accept it, yet employer sponsored insurance is more prevalent than individually purchased coverage by a factor of 10 to 1. Something must be working right; why couldn’t they have used this as the basis for expanded access, rather than throw the whole system into chaos?
Is employer-sponsored insurance truly community rated?
Perhaps it looks like that from the employee perspective, but that is because it is, as people have pointed out here, due to the fact that the employee pricing reflects health insurance’s status as an employee benefit.
When the employer goes shopping for insurance to cover large losses, however, its group is experience rated–you have high medical losses in your group? You pay more. No community rating there.
There is a great editorial on this by Robert Samuelson in the Washington Post this morning. Here is the link: http://bit.ly/6eHp3R