Paying a Premium for Insurance

The House health care bill delivers the "inefficiencies" the president promised.

Jacob Sullum | July 22, 2009

This week President Obama promised "the reforms we seek" will bring greater "inefficiencies to our health care system." It was a slip of the tongue, but the Obama-inspired health care bill moving through the House of Representatives suggests the president accidentally told the truth. The bill, approved last week by two House committees, would spend much more than necessary to subsidize medical coverage for uninsured Americans while failing to deliver on Obama's commitment to control health care costs.

The Congressional Budget Office (CBO) estimates the legislation would cost $1.3 trillion during its first decade: $438 billion for Medicaid and the Children's Health Insurance Program, $53 billion in tax credits for small businesses that offer health insurance to their employees, and $773 billion in subsidies for a government-administered "insurance exchange" in which people could choose among various health plans, including a newly created "public option."

One reason the tab is so high: The bill defines its target too broadly. U.S. Census Bureau data indicate that nearly 40 percent of the 46 million U.S. residents who were uninsured at some point in 2007 had annual household incomes of $50,000 or more. Another 23 percent or so were already covered by existing government programs or could have been. Instead of focusing on the minority who can't afford insurance but are ineligible for taxpayer-funded health care, the House bill takes aim at "the uninsured" generally.

By 2018, the CBO projects, the legislation would provide insurance to 37 million Americans who currently lack it, at a cost of $234 billion. That works out to about $6,300 a person for a year of coverage, which seems pretty pricey, especially since the total cost would be higher: People participating in the insurance exchange would be expected to pay part of their premiums.

According to a December 2007 report from America's Health Insurance Plans, the average annual premium for nongroup health insurance that year was about $2,600 for individual coverage and $5,800 for family coverage. The Census Bureau reports that three-quarters of uninsured Americans live in family households, which in the general population average three people each. Taking that into account, buying insurance for 37 million people in 2007 should have cost around $78 billion, or a little more than $2,000 each.

How much would it cost in 2018? Kaiser Family Foundation data on employer-provided health benefits (which tend to cost a lot more than policies purchased by individuals) indicate a recent premium growth rate of 5 percent a year, which would make $2,000 in 2007 about $3,400 in 2018, a little more than half what the House bill would spend to insure one person. Even if premiums double during the next decade (as they did during the last decade), simply buying insurance for 37 million people would still be about one-third cheaper than the subsidy scheme created by the House bill.

Also keep in mind that government spending, especially on health care programs, tends to be much higher than anticipated. "When Medicare was launched in 1965," note Cato Institute policy analysts Michael Tanner and Chris Edwards, "Part A was projected to cost $9 billion by 1990, but ended up costing $67 billion. When Medicaid's special hospitals subsidy was added in 1987, it was supposed to cost $100 million annually, but it already cost $11 billion by 1992."

The subsidies championed by Obama would only aggravate the problem of runaway government spending on health care. "In the legislation that has been reported," CBO Director Douglas Elmendorf told the Senate Budget Committee last week, "we do not see the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount. And on the contrary, the legislation significantly expands the federal responsibility for health care costs."

The bill does have a great name, though. In the spirit of the spending binge that Obama dubbed a New Era of Responsibility, it's called America's Affordable Health Choices Act.

Jacob Sullum is a senior editor at Reason and a nationally syndicated columnist.

© Copyright 2009 by Creators Syndicate Inc.

Comments

Ebeneezer Scrooge|7.22.09 @ 7:04AM|#

Sullum says the bill, approved last week by two House committees, would spend much more than necessary to subsidize medical coverage for uninsured Americans while failing to deliver on Obama's commitment to control health care costs.

Obama has no commitment to control health care costs.

Obama has only a commitment to control health care. Whether you like it or not.

He promised.

Kyle Jordan|7.22.09 @ 7:13AM|#

"President Obama promised "the reforms we seek" will bring greater "inefficiencies to our health care system.""

This, is change I can believe in. It'd be nice to see more pols tell the truth.

Tricky Prickears |7.22.09 @ 7:28AM|#

This is starting to make the 4.5% across the board payroll tax the single-payer advocates are proposing seem almost "reasonable".

*|7.22.09 @ 7:28AM|#

Is there a doctor in the house? Simple question: With 40-50 million more patients, all of them "covered," who will be treating them? Is Mr. Obama going to "create" 10 million more physicians? How? By telling them that their fees will be regulated by D.C. bureaucrats? Be afraid.

Mike in PA|7.22.09 @ 7:31AM|#

"If you think health care is expensive now, just wait until it's free!"

Gotta love P.J. O'Rourke

|7.22.09 @ 7:56AM|#

Health care reform will never happen. Too much money at stake in the private sector and rest assured the medical lobbyists have lubed all the right pockets to make sure it never happens!

RT
www.anonweb.net.tc

Tricky Prickears |7.22.09 @ 7:58AM|#

C'mon now. We all know how we are going to pay for this, right? A national sales tax, how else? Personally, I'd like to see a national lottery with the winners getting a free plastic surgery make-over (includes breast and/or penis implants).

*|7.22.09 @ 7:58AM|#

lubed all the right pockets

Spambot mixes metaphors like a pro!

|7.22.09 @ 7:58AM|#

anonimity bot is right on, im afraid.

*|7.22.09 @ 7:59AM|#

(includes breast and/or penis implants)

Why not both?

|7.22.09 @ 8:05AM|#

Is there a doctor in the house? Simple question: With 40-50 million more patients, all of them "covered," who will be treating them?

The same people covering them now, since the "uninsured" obviously get care.

Tricky Prickears |7.22.09 @ 8:05AM|#

Why not both?

That's why I used "and/or"; to leave the option open.

|7.22.09 @ 8:13AM|#

The same people covering them now, since the "uninsured" obviously get care.

Yes, Johnny, but they'll get more once they "deserve" it and it's "free" for everyone.

|7.22.09 @ 8:46AM|#

The study cited of individual health insurance policies is probably not a good estimate of the real cost of providing insurance, since this is a very selective market of healthy people for the most part. I work for a large self-insured company and looked at our premiums. They are much higher than the individual policy costs cited in this article. I also read the referenced report on this costs, and noted that in some areas, like Masacchusetts, the costs were much higher than average, because that state mandated coverage for everyone. Consequently, I think the Obama plan costs are likely to be more realistic than the individual policy costs.

Xeones|7.22.09 @ 8:49AM|#

I, for one, have long been awaiting the day that going to the doctor's office could be even more like a visit to the DMV than it already is.

My plan is to rely on my rockin' immune system and longevity genes to get me through, but what are you people going to do?

Gilbert Martin|7.22.09 @ 8:53AM|#

The idea that the government can create another entitlement where a bunch more people will get something or something more that they aren't paying for and somehow have it cost less is absurd on it's face.

People generally aren't stupid enough to swallow that nonsense.

What the Dems are really trying to convince people of is that THEY will be on receiving end of an increased benefit and some "other" will be stuck with paying for it. The "other" of course being:

a. The "evil" insurance companies.
b. The "evil" drug companies.
c. The "evi" doctors and hospitals
d. The "evil" rich who aren't paying
their "fair share"
e. All of the above.

|7.22.09 @ 9:01AM|#

"Is Mr. Obama going to "create" 10 million more physicians?"

I beleive the proper term is "create or save" 10 million physicians.

creech|7.22.09 @ 9:27AM|#

Dr. Sowell makes a point in his column today that "Years ago, a study showed that Mormons live a decade longer than other Americans. Are doctors who treat Mormons so much better than the doctors who treat the rest of us? Or do Mormons avoid doing a lot of things that shorten people's lives?" Health care is largely a personal responsibility. While it is gratifying to see the collectivists using a libertarian argument ("Why should the taxpayers or private insurers pay for the medical care of those who don't have insurance?") their answer of forcing everyone to pay is nowhere near as satisfying as ditching the role of an enabler and telling those who can buy insurance but spent their money on other things to "Pay up when you receive care, do without, or seek the charity of your friends."

Gilbert Martin|7.22.09 @ 10:02AM|#

"While it is gratifying to see the collectivists using a libertarian argument ("Why should the taxpayers or private insurers pay for the medical care of those who don't have insurance?")"

I wouldn't exactly characterize that as a libertarian argument since the collectivists gloss over the fact that it is government that is forcing others to pay by mandating that Hospital emergency rooms treat people regardless of any ability to pay. The libertarian solution would be to remove the mandate and allow them to flat out refuse treatment.

Flex Nasty B.I.G.|7.22.09 @ 10:08AM|#

I've been arguing about this with my lefty friends, and not getting much of anywhere. I've come to the conclusion that it's not enough to just point out the many flaws in Obama's approach. They're taking that as a defense of the status quo.

The answer I keep getting is "well, what we're doing now isn't working." So, I've come to the conclusion that we capitalists need to present a clearer vision for how to reform health care in a free-market direction. In other words, we need to offer a compelling, comprehensive, well-articulated Plan B.

|7.22.09 @ 10:16AM|#

The answer I keep getting is "well, what we're doing now isn't working."

So, apparently their position is that any change, any change at all, should be supported without regard for consequences.

Hard to argue with people that stupid.

Gilbert Martin|7.22.09 @ 10:40AM|#

"Hard to argue with people that stupid."

If they were stupid enough to vote for Obama in the first place, it's not likely they've received any infusion of intelligence since then.

|7.22.09 @ 10:53AM|#

In other words, we need to offer a compelling, comprehensive, well-articulated Plan B.

This is true, but first we need to let them know what problem we are trying to solve.

Personally, I don't view anybody's lack of health insurance as a problem that I (or the State) needs to solve.

I do regard the fundamental insolvency of our governments at every level as a problem that the State at every level needs to solve.

I suspect your Obamatron friends will disagree, at which point any conversation about reforming government healthcare programs will end.

|7.22.09 @ 11:14AM|#

Flex,
If you bring up "Free Markets" to a leftie, you know as well as I do what answer you'll get.

In fact, I bet everyone here knows, too. Come on, lets all say it together. "Free markets? Yeah, look how well that has worked for us so far."

The majority of them are still under the delusion that we've actually been working under a free market system. It's a canard that they won't likely drop at any time because it provides them an easy out that allows them to avoid any semblance of critical thinking.

|7.22.09 @ 11:28AM|#

Silentz, I don't even get to free markets in these conversations - because we can't even agree on what the problems are, the issue of solutions never comes up.

|7.22.09 @ 11:32AM|#

Can anyone tell me how much a true free market health care system may be dragged down by the millions(estimated numbers may vary) of folks seeking treatment with no ability to pay?
Is health insurance necessary for a free market to work? Does it refuse treatment of any kind to the uninsured?

Gilbert Martin|7.22.09 @ 11:38AM|#

"Personally, I don't view anybody's lack of health insurance as a problem that I (or the State) needs to solve."

Exactly.

The underlying premise is that healthcare is a "right" and we are all "collectively" responsible for ensuring that everyone gets it.

If you don't accept their underlying premise, there's not much point in discusing anything else about it with them.

JB|7.22.09 @ 12:29PM|#

The truth will set you free Obama. Too bad you are a slave to FDR's cock.

|7.22.09 @ 12:41PM|#

BB,
A lot of us believe that the reasons for the high cost of healthcare today are a result of government subsidy(Medicare/Medicaid) and the high cost of malpractice insurance that results from a lack of tort reform. So if the free market were allowed to work as intended, and some sort of tort reform were enacted, a lot fewer people would be unable to afford care because costs would be lower due to free market forces. Yes, there would still be a part of the population that couldn't afford care, but we have that now. People could still hit up the emergency room, and those costs would have to be absorbed, but again, that happens now.

T|7.22.09 @ 12:41PM|#

Can anyone tell me how much a true free market health care system may be dragged down by the millions(estimated numbers may vary) of folks seeking treatment with no ability to pay?

Just like the market for big screen TVs isn't dragged down by all those people who want a 50" plasma but can't pay for it.

Is health insurance necessary for a free market to work? Does it refuse treatment of any kind to the uninsured?

Insurance is never necessary for a market. Charitable organizations are also permitted in the free market. I would imagine you'd have charity hospitals such as used to exist in this country and England alongside regular profit based organizations. Doctors could also do pro-bono work. There's myriad ways to provide health care for the poor, it's just that all of them kind of suck.

|7.22.09 @ 2:46PM|#

We should remember though, that even if we magically did away with our current system and let everyone get (or not) insurance on their own we would still have a big problem.

Namely that insurance companies are getting way to good at picking their customers. So instead of insurance spreading the risk between high, and medium, and low risk people, the insurers are trying to just take the low risk people and leaving the rest to hang.

The only solution to that (that I am aware of) being an indvidual mandate combined with some type of op-out that says you won't get any services you can't pay for on the spot.

EscapedWestOfTheBigMuddy|7.22.09 @ 3:18PM|#

Can anyone tell me how much a true free market health care system may be dragged down by the millions(estimated numbers may vary) of folks seeking treatment with no ability to pay? Is health insurance necessary for a free market to work? Does it refuse treatment of any kind to the uninsured?

The phase you're looking for is "charity hospital". Which means wards rather than (semi-)private rooms, and more palliative care than expensive, invasive fixes. In short, the care isn't as good a Senator Kennedy gets, but it comes a lot cheaper.

It would also take a while for the private sector to return to a significant portion of this market: government intervention in charity drives out the private players.

But I have some money I can give for that purpose.

|7.23.09 @ 11:18AM|#

A key point is often omitted from the discussion. Insurance does *not* pay for healthcare.

Insurance is merely a service to flatten uncertainty. If you have a one-in-hundred chance of a $100,000 illness, then insurance lets you swap that for a $1,000 certain payment, viz. the premium.

The only valid purpose of insurance is price discovery for risk, not wealth transfer.

We confuse insurance and healthcare because of the blunder in World War 2 of making employer premiums pre-tax.

The proper questions are:

* Do we subsidize those who cannot afford healthcare? At some level the answer is yes, we help our most vulnerable.

* Do we jumble a risk service with healthcare provision? No, because that's as stupid as fixed cost "grocery insurance" for expensive food buying.