How Much Does Insurance Really Cost?
CNNMoney reports on a recent study by eHealthinsurance.com that found:
Half of individual policyholders paid $132 or less per month… According to the report, in 2009 the median non-group health insurance premium for an individual in the United States was $1,584 per year ($132 per month) and the average deductible was $2,326. Combined, annual premiums and deductibles account for approximately 7.7 percent of median household income for 2008 ($50,303) as reported by the US Census Bureau.
Now, if individuals buying their own insurance got the same tax break as employees get for employer-provided coverage and if there were a back-up mechanism for high-risk applicants, we might dramatically reduce the numbers of uninsured without any individual mandate.
The eHealthInsurance data illustrates how people are price sensitive when they purchase coverage on their own. Like typical consumers, they see the trade-off between first-dollar coverage and the cost of premiums. Most opt to insure only major medical events and pay out of pocket for day-to-day medical needs. The individual market functions like a normal market. If there was tax fairness regardless of where you obtain your coverage, most people would probably have personal and portable coverage that travels with them from job to job. Contracts would be longer than one year and the cost of health care would be rising more slowly.
Very interesting. What this shows is that if people are charged fair prices, insurance is actually cheap. What makes it expensive are regulations like guaranteed issue and community rating. But these regulations are just an indirect form of taxation.
Those are amazing numbers.
Is it impolite to point out that all these people will be forced to pay more than $5,000 for essentially the same coverage once we get “health reform.”
Reducing the after tax cost from $132 to $80 or so might reduce numbers of uninsured slightly, but I can’t believe the difference would be that dramatic. And in any event I can’t believe the social benefit would equal the cost.
On the other hand, it’s faulty reasoning to consider the value of a tax benefit without also considering the costs of obtaining said benefit. Employer-sponsored coverage comes with expensive requirements, chiefly that group plans cannot be rated according to sex or health status, and that all full-time employees must be offered coverage. These requirements add to the cost of covering healthy employees, while reducing the cost for sickly employees.
For employees healthy enough to qualify for the $132 individual plans cited above, the additional cost of subsidizing less healthy employees likely negates any tax benefit. The additional cost of group coverage is an unavoidable cost of obtaining the employment tax benefit. In effect, individuals buying these $132 plans are already receiving the same net tax break as they would have gotten with employer-sponsored coverage.
The situation is different for less-healthy individuals, of course. To maintain parity with employer-sponsored plans, some kind of tax break or subsidy would be needed. Either risk-rated individual plans with government reimbursement for everything above a given price, or else subsidized risk pools, take your pick.
N.B. I haven’t made any normative statements here. Just simple observations. But I’d sure like to see an honest response.
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