OBAMA AND THE COST OF INDIVIDUAL INSURANCE

September 16, 2009

Speaking of health-care distortions, as President Obama likes to do, consider his assertion to Congress that "buying insurance on your own costs you three times as much as the coverage you get from your employer."  He liked that one so much that he repeated it over the weekend in Minneapolis, this time as a swipe at "the marketplace," says the Wall Street Journal.

The media's "fact-check" brigade hasn't noticed, but this is simply false, says the Journal:

  • The Congressional Budget Office (CBO) expects premiums for employer-sponsored coverage to cost about $5,000 for singles and $13,000 for families this year on average.
  • Premiums for policies purchased in the individual market, adds CBO, are much lower about one-third lower for single coverage and half that level for family policies.
  • Similarly, the federal Agency for Healthcare Research and Quality finds that the growth rate for premiums is also lower for individuals over employers.

Obama's health team surely knows this dynamic, given that the CBO report was issued under the auspices of Peter Orszag, now the White House budget director.

  • One reason that individual policies are cheaper is that they generally require more cost-sharing by consumers.
  • The reason that employment-based plans seem cheaper is that on average workers only pay 17 percent of the premiums directly if they're single, and 27 percent for family policies, according to the Kaiser Family Foundation.
  • Businesses pick up the rest by paying lower wages, thus hiding the real costs.
  • Meanwhile, in the individual market, consumers pay with after-tax dollars because Democrats won't allow individuals to have the same tax subsidy that employer policies receive.

This tax differential is the core of "our inefficient and inequitable system of tax-advantaged, employer-based health insurance," writes Jeffrey Flier, the dean of Harvard Medical School, in a new commentary in the Journal of Clinical Investigation.

"While the federal tax code promotes overspending by making the majority unaware of the true cost of their insurance and care," he writes, "the code is grossly unfair to the self-employed, small businesses, workers who stick with a bad job because they need the coverage, and workers who lose their jobs after getting sick. . . . How this developed and persisted despite its unfairness and maladaptive consequences is a powerful illustration of the law of unintended consequences and the fact that government can take six decades or more to fix its obvious mistakes."

Source: Editorial, "Another Health-Care Invention: Obama and the cost of individual insurance," Wall Street Journal, September 16, 2009.

For text:

http://online.wsj.com/article/SB10001424052970203917304574412813119441566.html

 

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