President Obama unveiled his compromise between the House and Senate health care reform bills this week, and I’ve been browsing through his version for the last couple days. I think it’s great that he’s so focused on bringing health insurance and access to care to the millions of Americans who are currently uninsured. But I just wonder how the logistics will work, considering the lofty goals in terms of consumer protection, but the very weak requirements that everyone participate in the health insurance system.
The recent debate over the Wellpoint premium increases should be a warning sign that premiums will not be controllable unless we add more healthy people to the insurance pool. When I read through the President’s proposal, I see lots of things that will be beneficial to the average insured person – especially those of us who buy our own health insurance on the individual market. No more denials because of pre-existing conditions, no annual or lifetime benefit caps, and plenty of tax subsidies for a lot of families. But the mandate requiring everyone to carry coverage is still very weak. I guess it makes sense that it isn’t dramatically changed, given that the President’s proposal is a compromise between the House and Senate bills, but it’s still disappointing.
In the President’s compromise, the annual flat dollar penalty for those who can afford health insurance but choose not to carry it would start at $325 in 2014, and go up to $695 in 2016 (indexed thereafter for inflation). The alternative penalty (people would be charged whichever amount is higher) is based on an percentage of income, and would start at 1% in 2014 and go up to 2.5% in 2016. To Obama’s credit, the percentage of income penalty in his proposal is significantly greater than what was proposed in the Senate bill (0.5% in 2014, going up to 2% in 2016). But I just don’t think this is going to get the job done.
Let’s look at the average American family earning $50,000 a year. Let’s say they choose not to carry health insurance. 1% of their income would result in a penalty of $500 in 2014. By 2016, that penalty would equal $1250. My own family has a “bare bones” health insurance policy that will cost us about $4000 in premiums this year. We have a high deductible ($5000) HSA qualified plan, and other than some preventive care, all of our expenses go towards our deductible (although we do get some great network-negotiated rates). It would be tough to find a less expensive policy (in Colorado anyway) without significantly increasing our out of pocket exposure or ending up with lots of holes in our coverage. So even with a high deductible policy, our premiums are eight times as much as the penalty that would be assessed against the average family for not carrying health insurance, in the first year of the program.
If people know that they won’t be penalized for pre-existing conditions and that health insurance companies will have to accept everyone, a penalty that is just a tiny fraction of the cost of coverage might be the preferred option for a lot of people. And without a large pool of healthy insureds, I just don’t see a way that premiums won’t increase significantly. I’m keeping an open mind, but I’m skeptical that we’ll be able to provide all of the proposed consumer benefits with such a lax enforcement of mandatory health insurance.