De-Linking Health Insurance from Employment Could Possibly Cut Health Insurance Costs By 50%
The chart above compares the average annual costs in 2009 (individual and family coverage) for: a) employer-sponsored health insurance (data from the Kaiser Family Foundation) and b) individual health insurance purchased privately (data from AHIP).
For employer-sponsored health insurance individuals pay only 17% of the total cost (employer pays 83%) and families pay 27% of the total cost (employer pays 73%), compared to private health insurance which is covered 100% by the individuals and families.
Maybe this illustrates one of the biggest problems with health care: our current system of tax-advantaged, employer-sponsored health insurance, which results in family coverage costing 111% more on average than private insurance, and individual coverage costing 62% more on average. Because of the tax advantage, and because consumers are insulated from about 75% of the full cost, there is a tendency to spend much more on health care insurance when an employer purchases it compared to when individuals pay on their own.
Solution: De-link heath insurance from employment. Jeff Jacoby has written about this here and here. Evidence shows that when families buy their own insurance they spend about half ($6,328) of what a typical employer spends ($13,375).
Update: Certainly the details (deductible, co-pays, etc.) and scope of the coverage are different between employer-sponsored and individually-purchased private insurance, as some commenters have pointed out. Another difference is that private insurance premiums are age-adjusted and young people get pretty low premiums (as low as $113 for singles and $214 for families), compared to employer-sponsored insurance which are usually priced the same for all age groups.
39 Comments:
What are the details of the two plans, I suspect the deductibles and co-pays are very different. To make the premiums comparable you would have to make the policies comparable. Typically most employer plans are more than high deductable and provide more coverage.
The issue with high deductible, is that for health care treatment postponed may lead to higher costs later. Until the medical profession comes out with an agreed on list of what to test for when, it becomes hard for an individual to decide what to do. An example is the PSA test, that just now some are saying is not cost effective.
FANTASTIC Table!
employer plans generally must take all applicants, pre-existing conditions included. private plans only take the healthiest applicants.
huge difference, but your table does not show that.
You still have to look at total yearly health care costs and not insurance costs alone. And you have to decide how much risk you want to assume either way. A lot of people have to file for bankruptcy because of medical bills that have good insurance.
I can understand why a young healthy person would not want to buy health care insurance. It’s just not a good investment and the reward simply does not justify the cost. After all, how much do they stand to lose if they don’t own anything? Not much. At the same time, these are the people you need paying into the system.
It will be interesting to see how this plays out, but I think the solution will be through a competitive market and a complete change in how health care is delivered.
A lot of people have to file for bankruptcy because of medical bills that have good insurance.
“The cost of health care now causes a bankruptcy in America every thirty seconds," Obama said at the opening of his White House forum on health care reform. The problem: That claim, based on a 2001 survey, is simply unsupportable.
The figure comes from a 2005 Harvard University study saying that 54 percent of bankruptcies in 2001 were caused by health expenses. We reviewed it internally and knocked it down at the time; an academic reviewer did the same in 2006. Recalculating Harvard’s own data, he came up with a far lower figure – 17 percent.
A more recent study by another group, approaching it another way, indicates that in 2007 about eight-tenths of one percent of Americans lived in families that filed for bankruptcy as a result of medical costs. That rings a little less loudly than “one every 30 seconds.”
ABC News
Beware. Everything, let me repeat that, everything, that the left uses to promote socialized health care is a lie or a deliberate manipulation of the data. Infant mortality, the administrative expense of running Medicare vs. private health insurance, medical bankruptcies, wholesale denial of care, better outcomes in Europe - all of it, everything the left has told you, is an avalanche of lies.
I feel sorry for you - I didn't realise that the health insurance premiums could be so high.
The National Health Service in the UK does offer comprehensive coverage to everyone through taxation - but can be inefficient.
What about if you combined the two systems. Healthcare financed by taxation and each individual has an allocation towards insurance costs in the form of a credit. The individual can then use the credit to sign up with a health care insurer/provider of their choice.
This would introduce market forces in the NHS and therefore improve the incentives to providers offer better healthcare; and in the US it would allow everyone to be provided with basic healthcare.
Nice idea?
Richard - Bristol - England
"The chart above compares the average annual costs in 2009 (individual and family coverage) for: a) employer-sponsored health health insurance (data from the Kaiser Family Foundation) and b) individual health insurance purchased privately (data from AHIP)."
This is obviusly false and skewed data. That's because the policies are priced such that the people who need health insurance cannot and do not buy them. If you only look at policies that are purchased, then you have skewed data, and if it is presented this way deliberately, then it is not only skewed but a deliberate falsehood as well.
I, for one, cannot buy private health insurance at any price. I know, because I've tried. I have chronic diseases, and although these are minor, easily controlled and do not affect my daily life, they also mean that I cannot buy insurance.
Because I have arthritis and my feet hurt, I cannot have my heart insured, not in the private world anyway. Because my insurance compnay claims that my wife has asthma (which she does not), she cannot get coverage either.
I was once insured in the corpaoate world and paid premiums for thirty five years. Then I got severely ill, lost my job and my health insurance, all in one month.
Health insurance is the only product you pay for for and don't use for 35 years and then don't get when you need to use it.
Disability insurance (fortunately) works just the opposite: when you need it you stop paying premiums, and they still pay you until you get well.
The good news is that once the proper diagnosis and treatment was found, I was well enough to go back to work. The bad news is that, once diagnosed, I lost ANY ability ot get private insurance.
So, while I might like to start my own business, work for myself or even retire, I'm now tied to a corporate salary, just because of the health insurance.
I'm as conservative as anyone about free markets and all that, but I don't think it is anywhere in the conservative mindset that corporations should be allowed to charge for something they don't provide.
---------------------
A major reason that the public seems to fear the health insurance plan is that they think it may mean they will lose their corporate coverage. To suggest that we should do just that: divorce health insurance from employment only plays up to those fears, knowing full well that we are not about to divorce health insurance from employment. This is really an argument for continuation of the status quo.
But the practical result of that is that people who might otherwise be self employed are not. This is a huge disincentive to the very entrepreneurial spirit and new business development that conservatives claim they are promoting.
If they keep up this kind of disingenuous blather they will drive many sensible people out of the flock. Anyone can see through this as indicated by th ecomments above: I don;t see how we think we are doing ourselves a favor by talkind as if everyone else is an idiot.
And if the Republicans succeed in stonewalling this issue they may do the Party irreparable harm.
Hydra
"A more recent study by another group, approaching it another way, indicates that in 2007 about eight-tenths of one percent of Americans lived in families that filed for bankruptcy as a result of medical costs. That rings a little less loudly than “one every 30 seconds.”"
Both sides are guilty of distorting the facts. In this case the implication is that one every thirty seconds is not correct. But .008 of 350 million works out to 2.66 people (aproximately one statistical family) going brroke every thirty seconds.
The two representations are equivalent and both of them represent a huge avoidable tragedy and a huge avoidable cost.
Worse than that, long term care for diseases such as Alzheimers are not covered under health insurance and not counted as health related expenses. So if you go bust after supporting mom-in-laws nursing home for ten years, well, that is not included in the above statistics.
Rather than focusing on what are lies, we should focus on what is true: health insurance companies are in the business of charging for what they don't provide.
Hundreds of thousands DO go broke, and millions do not have insurance.
We can argue about how much more expensive our present system is than others, but the fact that we do spend more and get less than some other countries is probably unavoidable. At the same time, countries such as Norway, France, Spain, and UK that provide health care also have larger per capita NATIONAL debt than the US does - even post bailout.
This suggests that we probably cannot prevent personnal medical bankruptcies for free, but it says nothing about whether it is worth doing.
It is too bad that we have to rely on ideas from Richard in England because people like Anonymous 12:03 wnat to play sniper against any and every idea that does not fit their preconceived agenda. I'm sure anonymous 12:03 must have some good ideas, so lets hear them.
I'm also sure that those promoting the current bill don't know everything. If Anonymous 12:03 does happen to come up with a crackpot idea designed to sabotage the system, those promoting some other crackpot idea ought to at least listen. They might learn something.
Hydra
Well is anyone else seeing commericials on television in their area where individuals and families can buy non employer connected health insurance with all sorts of options?
Here in the St. Louis, Mo we are seeing quite a few of them all the time...
these are not apples to apples comparisons. most employee and small biz plans have a much wider scope of coverage than individual plans.
i was deeply surprised by this when i started my own business and bought an individual plan. labs - not covered. imaging - not covered. phys therapy - not covered. etc
that said, once i figured this out, i just went and bought a better plan that covered the things i thought were important. it cost more, but i mad a choice ans went with it.
so saying that individual plans cost less than employer plans is a bit like saying that hondas cost less than porsches.
many of us would rather drive a porsche if someone else were paying for it, but with our own money, make a different choice.
this is the whole problem underlying third part payer systems.
also keep in mind that because employer based policies are tax advantaged, you are, for the most part, comparing after tax spending for an individual to pretax spending for a corporation. that 30-50% differential is not insignificant.
"i was deeply surprised by this when i started my own business and bought an individual plan. labs - not covered. imaging - not covered. phys therapy - not covered. etc"...
Hmmm, thanks for that morganovich for that info...
But .008 of 350 million works out to 2.66 people (aproximately one statistical family) going brroke every thirty seconds.
Nice try, genius. It's 330 million and that includes infants and children. Why don't you look up the bankruptcy statistics for them?
... diseases such as Alzheimers are not covered under health insurance and not counted as health related expenses.
As someone with an extended family member who recently died of Alzheimers, I can testify that this assertion is complete garbage.
... health insurance companies are in the business of charging for what they don't provide.
What color is the sky in your world?
Anonymous 12:03 wnat to play sniper against any and every idea that does not fit their preconceived agenda.
Do you read your own comments?
I heard that the French Healthcare system is superior to the one in the UK and mean't to be one of the best in the World - they also manage to offer free Healthcare to all. Did the Obama administration take a serious look at the world and at what works and doesnt work across the globe before putting forward their policies?
The US spends a much higher proportion of GDP per head on healthcare than many other nations - despite the fact not everyone is covered and the US GDP (per head) is one of the highest in the World. When you take into consideration that not everyone is given the care they need - this seems like quite an expensive system.
Richard - Bristol - England
Health insurance is the only product you pay for for and don't use for 35 years and then don't get when you need to use it.
This is actually a very strong argument for Health Savings Accounts. Had your medical benefits belonged to you personally, in the form of an HSA, you would have had 35 years worth of savings and interest and an insurance policy that you would not have lost when you lost your job. Having your health insurance tied to your continuing employment left you vulnerable.
As for covering pre-existing conditions, the cost of insuring an event with a 100% likelihood of occurrence is the cost of the event plus administration costs and profits. Insurance companies do not write these policies because it makes absolutely no sense to do so since they would cost more than the event itself. Further, if insurance companies are forced to write these policies, people would simply wait to purchase insurance until they got a bad diagnosis, hoping to pass the costs of their treatment unto those who responsibly kept themselves insured all along.
I'm curious, weren't you offered an opportunity to extend your coverage through COBRA and to buy an individual policy from the same company without underwriting? I've had several work instances, a company bankruptcy and a company closing, where these things were offered to me. Now I have an HSA and I love it.
The US spends a much higher proportion of GDP per head on healthcare than many other nations ...
This is meaningless since Americans are allowed to purchase as much health care as they can afford, while under socialized systems care is rationed.
If any of you would read the source documents Perry provides links to, you would see that 29% of people aged 60-64 are denied coverage under private insurance plans (pre-existing conditions). And 13% of all people are denied coverage.
Is that really a working health insurance system or just a working for-profit health insurance system?
I heard that the French Healthcare system is superior to the one in the UK and mean't to be one of the best in the World - they also manage to offer free Healthcare to all.
PARIS (Reuters) - The French government is looking at ways to plug a gaping hole in its health care budget and may charge patients more for hospital stays, Budget Minister Eric Woerth said on Monday.
France's health system is largely financed by the state and has been hailed as the best in the world by the World Health Organization. It is also one of the most costly and the government constantly struggles to control spending.
After a 4.4 billion euro ($6.31 billion) shortfall in the health budget in 2008, Woerth said he expected the deficit to hit 10 billion euros this year and 15 billion next, with the economic downturn denting social security contributions.
Reuters
There a numerous reasons to be skeptical of WHO ratings including the fact that they give extra points for having a socialized system and make apples to oranges comparisons of infant mortality, life expectancy, treatment outcomes, etc.. But, that aside, the article points out that there is no such thing as "free health care".
In the UK you can also pay for private healthcare if you wish - it's your choice. It's just that everyone is guarranteed healthcare whatever their background, job, location or wealth.
Still I am not denying introducing market forces does usually result in efficiencies where ever genuine choices are present.
Richard - Bristol - England
greg-
but isn't that a bit like saying, "wow, auto insurance companies refuse to cover people for accidents they had right before they bought the policy?"
waiting until you get old or sick and then buying coverage is a risky strategy. (and rightly so)
sorry you didn't plan ahead.
even if you lose your job, there's COBRA and or medicaid and or loads of private insurers that waive pre existing conditions if your coverage never lapses.
the one way you can really get screwed though is moving to a new state. that can make it really difficult to take your coverage with you and is a VERY strong argument for both HSA's and for allowing insurance to be sold accross state lines.
Is that really a working health insurance system or just a working for-profit health insurance system?
Dr. Perry has posted numerous times on the profitability of health insurers. Insurance companies deny for pre-existing conditions because it costs more to insure them than to treat them. But even if private insurers were guilty of all this, the fact remains that they provide high quality, sustainable health care to millions of people. Both Medicare and Medicaid are on the verge of bankruptcy, they are not sustainable, and when they fail they will leave millions vulnerable. You're comparing a Ponzi scheme to a viable business, coming down on the side of the Ponzi scheme, and calling it compassion.
It's just that everyone is guarranteed healthcare whatever their background, job, location or wealth.
What the UK government gaurantees is access to waiting lines for care. What we pay for here is access to timely, actual care.
"Is that really a working health insurance system or just a working for-profit health insurance system?"...
Well GregL if you feel that way about why don't YOU cover the medical costs for those folks who are supposedly treated so shabbily by the insurance companies?
It's funny seeing people argue that these are different plans so the prices aren't comparable. The implication I guess is that there isn't real savings to be had.
If you compared average employer reimbursable lunch costs versus those same employee's average lunch costs, I'm pretty sure there'd be a big difference. And while in one case they're getting more things, it doesn't mean there's not savings to be had by giving something like a per diem instead.
Realistically, if people were newly responsible for buying insurance, hardly any would go out and replicate their current coverage. They'd be highly likely to trade down some benefits for a lower premium.
One simple example is maternity benefits. When I run quotes with a family just to compare, sometimes the company will quote with maternity and without. For some people that's a clear coverage they don't need.
I believe every single employer plan that I've been in has covered maternity.
But there would most definitely be more trade offs people would make. Substance abuse coverage, mental health coverage, lower maximums, lower prescription share, etc.
Sure they're getting less coverage, but who says they wanted and would pay for all that they currently have?
The comment about young people ignores accidents which the young never think they will have. Unfortunately accidents do happen you may not see the truck that is barreling towards you in time. Of course in one sense then the concept would be catastrophic coverage only for the young, which has been under discussion in this time. Plus or minus the admin costs beyond the catastrophic part of a medical plan its an hsa that any balance goes to others if not used. Note that there is also a tax concept that applies only to active workers called a benefit cost reduction plan that pays for the employees contribution to health insurance with pre-tax dollars as well as the employer contribution being pre tax.
I am coming to favor doing away with the exemption for health costs and instead making them part of deductible medical expenses, so that if you spend more than 7.5% of your income on medical expenses the excess is deductible.
This is about as useful as comparing apples to oranges to make conclusions about bananas. Time wasting for the sake of wasting time. Mission accomplished.
When I run quotes with a family just to compare, sometimes the company will quote with maternity and without.
Some states require maternity coverage. You have no choice but to pay for it. That's why conservatives are pushing for the ability to cross state lines when buying health insurance.
If the recent push to demand women not be charged more for insurance becomes law, men will start having to pay for maternity care and pap smears. If you can't charge women what they cost, then inevitably men must be charged the difference.
Yeah but employers are going to have to fork over more change....
All people want is do away with prior conditions restriction and everyone pays premiums....
New reader to the blog.
I agree with the economics of this decision. Its my contention that employees (or healthcare insurance consumers) are shielded from the actual cost of insurance. My company pays about 90% of my premium. Paying $150 bucks a month for a $1200 premium means that I dont feel the pinch each month. This is why it has taken so long for the consumer to realize there is a problem in the industry. We dont see the actual cost.
My solution would be for employers simply to provide an economic incentive to get health insurance. This would come in the form of an amount in lieu of premium payment. Employers then could compete DIRECTLY against each other for potential employees.
Company A might give a $500/month subsidy for health care while company B may provide $1000. An employee can then take that money and buy private insurance.
Needs some fleshing out but that is truly a market based solution.
Keep up the good work.
James
To answer anon at 1:31 pn 11/9. The issue is the nursing home costs for the patient, not the direct medical expenses. Nursing home care is not covered beyond a period where recuperation is possible by medical plans, thats what long term care insurance is about.
Of course there is a backstop here, once you are broke, you can get Medicaid coverage. Likely you need to divorce your spouse to get it, and there is a 5 year lookback period to prevent giving it away. Note that the other spouse can only have a small amount of assets. So both are forced into poverty.
Nice try, genius. It's 330 million and that includes infants and children. Why don't you look up the bankruptcy statistics for them?
I divided by the average family size to account for them. If the family goes broke, so do the infants.
Add 20 million for uncounted, undocumented if you want. it doesn;t change the calculation much.
Net result is still that both representations of the answer are equivalent: all we have done is try to attach different social spin to the same essential facts.
Attaching spin does not change the truth, it just obscures it.
But, if you don't like the emessage, just attack the messenger, moron.
Hydra
"Health insurance is the only product you pay for for and don't use for 35 years and then don't get when you need to use it.
This is actually a very strong argument for Health Savings Accounts. Had your medical benefits belonged to you personally, in the form of an HSA, you would have had 35 years worth of savings and interest and an insurance policy that you would not have lost when you lost your job."
That's true, but it isn't a very good argument for health savings accounts. They are a good idea as far as they go but they are not insurance.
I once worked for a company that was self insured - funded its own medical savings account, in effect. That worke until they had one employee with a trully catastrophic and prolonged illness.
After that they bought insurance and stopped trying to insure themselves. It is even worse on an indivisual level: you simply cannot expect to ever save enough to pay for a catastrophic event.
In any case, the problem of paying for insurance that you dont get still needs to be fixed so that insurance and health savings plans can co-exist. Health insurance ought to work the same as disability insurance: you get sick, you stop paying premiums, but you still collect benefits.
As I understand it, the Chinese work sort of this way: you pay your Doctor every month: if you get sick you stop paying him until you are well.
Hydra
"But even if private insurers were guilty of all this, the fact remains that they provide high quality, sustainable health care to millions of people."
Nonsense: they don't provide health care, they provide insurance, and they often welch on that. They gladly provide insurance to healthy people who don't need health care; after that you are pre-existing and on your own.
"...even if you lose your job, there's COBRA and or medicaid and or loads of private insurers that waive pre existing conditions if your coverage never lapses."
Nonsense.
I was lucky that I could actually affford Cobra when I needed it, but it cost me $900 a month, so in the end I was even luckier that it only lasted 18 months.
Most people couldn't even afford that.
Otherwise, I was unable to find a single company that would insure me, not ata any price and not at any deductible.
Well not quite, I think there was one comapnay that offered me a catastrophic only plan with a $5000 deductible and $20,000 max payout per year.
The premium was $14,000 per year.
Hydra
"Realistically, if people were newly responsible for buying insurance, hardly any would go out and replicate their current coverage. They'd be highly likely to trade down some benefits for a lower premium."
That would be nice, if realistically, you could expect to collect those benefits. The problem is as much what is not said as much as it is what is said.
My wife's insurance was cancelled, retroactively, after she made a claim. The insurance company claimed that she lied on her application. They would not even tell us what they thought the lie was.
Only after protracted dealings with the state insurance commissioner involved did I learn that the insurance company claimed she had asthma, which she never had.
Nevertheless the insurance commissioner declined to intervene and the insurance, bought and paid for in good faith, was canceled. The reason it was ostensibly canceled had nothing to do with the real reason, which was that the insurance company did not want to pay for a colonoscopy, fearing that it would lead to a diagnosis of colon cancer.
You cannot trust the insurance companies to give you a straight up and realistic selection of choices to make - even if that was a desirable thing to do.
Hydra
"Of course there is a backstop here, once you are broke, you can get Medicaid coverage."
Which leads us to one reason that so many bankruptcies are medical related: it is a requiremnt to collecting medicaid.
nwasm
"- they also manage to offer free Healthcare to all."
It is not free, they just pay for it differently. And, unlike private healthcare insurance, they make sure that they actually get what they pay for.
Hydra
"As for covering pre-existing conditions, the cost of insuring an event with a 100% likelihood of occurrence is the cost of the event plus administration costs and profits."
Agreed.
So what? I already paid for health insurance for 35 years prior to getting my "pre-existing" condition.
It was ONLY "prexisting" to a "new" insurance policy or company once I lost my job and my previous insurance.
If that's going to be the case, then allow the new insurance company to back-bill the old insurance company for the risk they accepted premiums for and never had to pay claims for.
The way I see your argument it is really supporting the idea of mandatory portability or national health care under one uniform policy, which pretty much end up being the same thing: one risk pool.
And no, after Cobra ran out I could not gat any insurance, none, not at any price. But now that I'm employed again, the same insurance company that preveiously turned me down is happy to have me - even with the same continuing pre-existing conditions.
And I'm not even really sick. I take low cost medications that keep my chronic conditions at bay. One of them will eventually kill me, if I don;t die of something else first. But that could still be decades away, during which time they still collect premiums.
Sorry, you can apologize for the system we have allyou want, but it is broken, broken, broken.
To this day, all I want is ten minutes alone in the room with the CEO that wrongfully cancelled my wife's insurance.
Hydra
In all the talk about health care reform, I don't feel like there's enough discussion about understanding the real costs of health care. Why don't we ever know the costs of health care procedures and treatments? ?" I got a kick out of this fun, short video. Check it out. It makes you wonder why our health care system is set up the way it is.
www.whatstherealcost.org/45secondstoshare
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