At the Colorado Health Insurance Insider, I’ve written about how linking health insurance to employment may not be the ideal situation, even though it’s how most Americans currently get their health insurance coverage. But while I see flaws in the employer-sponsored health insurance system, I’ve never advocated for a mass switch from employer-based coverage to the individual health insurance market, without making major changes to how individual health insurance is set up.
In an op-ed piece this week in the Boston Globe, Jeff Jacoby advocates for a shift away from employer-based health insurance, praising John McCain’s tax rebate plan to provide money for people to go out in the individual health insurance market and buy their own policies. Jeff makes some good points regarding health insurance and consumer tendencies. It’s true that when health insurance policies cover the vast majority of medical care for most Americans, and when deductibles and co-pays are relatively low (compared with the overall cost of treatment), people don’t have a good understanding of what health care actually costs. And there’s little in the way of financial incentive for limiting the use of medical care, requesting generic drugs instead of brand names, and questioning the need for additional testing and screening. But as with many articles that advocate for McCain’s proposed health insurance tax credit, the issue of pre-existing conditions and eligibility for individual health insurance policies is missing from this article. The way Jeff sees it, “With a $5,000 refundable healthcare tax credit, Americans would have a strong inducement to buy their own, more affordable, insurance, rather than relying on their employer’s plan. As millions of empowered consumers began focusing on price, price competition would flourish. And as employers’ healthcare costs declined, most of the savings would return to employees as higher wages.”
This makes it all sound very clear and enticing. Who doesn’t want empowered consumers, more affordable health insurance, flourishing competition, and higher wages? But in reality, the waters are a bit muddier than that. I am concerned that people who are used to employer-sponsored health insurance might not have a good understanding of what health insurance actually costs. If your employer covers a good chunk of your premiums, you might only be paying a few hundred dollars a month for your family’s health insurance. In that case, you might be misled into thinking that the $5,000 tax credit would go further than it actually will, especially if you’re unaware of exactly how much your employer is paying on your behalf for your health insurance. It’s true that individual health insurance is less expensive than group health insurance, but that’s because individual health insurance is medically underwritten (which means that pre-existing conditions are a problem), and because individual health insurance doesn’t have to cover as many things as group health insurance (maternity benefits are a good example – while group plans cover maternity just like an illness, the vast majority of individual health insurance policies in Colorado provide no benefits for maternity). So while you can get coverage for a family in Colorado on an individual policy for under $5,000, it’s not going to be a low-deductible policy with coverage some may consider necessary. Personally, I’m a big fan of HSA-qualified plans, high deductibles, low premiums, transparency in pricing, and consumer involvement in health care. But I realize that this type of coverage would come as a shock to a lot of Americans who are used to more comprehensive health insurance policies. And I wonder if people who are in favor of the tax credit for health insurance really have a strong understanding of how far $5,000 (or $2500 for an individual) will go towards purchasing individual health insurance in the current market.
And that’s assuming that they can qualify for individual health insurance at all. As Jeff pointed out, comprehensive health insurance policies that provide coverage for minor as well as major care tend to encourage the over-use of medical care. If someone else is paying for it, why not use it? But for people who are applying for individual health insurance, prior medical treatment can be a stumbling block in the road to obtaining individual coverage. People with pre-existing conditions often find themselves having to choose between policies that charge them higher premiums because of their medical history, or policies that exclude the pre-existing conditions all together. And if the conditions are serious enough, they’ll find themselves on the receiving end of a polite decline letter from the health insurance carrier.
The current individual health insurance system works perfectly for some people. People who are healthy and willing to shop around for both health insurance coverage and provider. People who have a good understanding of what is and isn’t covered, and don’t need the non-covered services (like maternity). But I think that for a lot of people who currently have group health insurance, and especially those who have pre-existing medical conditions, a switch to individual health insurance would be painful, even with the tax credit.
