Unsustainable Health Insurance Plans

On Sunday, December 6^th, President Barack Obama paid a visit to Senators on Capitol Hill to urge them to pass health care reform. Senate leaders are working to rally 60 supporting votes to get this bill passed. This health care bill will purportedly reform the admittedly flawed health insurance market through the innovation of an insurance exchange. Will this exchange be an improvement? Also, will enforcement flaws inherent in the exchange make the health care bill even less economically sustainable?  According to the WhiteHouse.gov,

“The health insurance exchange is a marketplace that will offer affordable high-quality health insurance options. It will provide relief to families who have no insurance or do not get adequate insurance at work and cannot afford to buy it in the costly individual or small group market. It is also for small businesses that cannot afford small group health insurance. It is one-stop shopping that will enable you and your family to find a plan that is right for you.”

Ezra Klein, parroting this sentiment, touted the miracle of the exchange in a June Washington Post article, saying that: “Unlike your employer, it will have a wide array of competing providers offering different plans with varying benefit levels, emphases and price tags.” In stark contrast, Robert Moffit of the Center for Health Policy Studies wrote in July that the exchange’s “major function would be to provide a platform for a government-run public health plan that, using Medicare-style administrative pricing, would ‘compete’ against private health insurance.” Of course, the implication is that the private sector cannot possibly fairly compete with a government-subsidy plan.

Under the Senate bill, employers who do not provide insurance to their employees would be required to pay $750 annually for every full-time worker if even one of their employees receives a government subsidy via this exchange.

The Congressional Budget Office’s (CBO) recent health care plan cost estimates severely underestimated the costs of this alleged $829 billion dollar bill, explained Morgen Richmond in a December 12^th BigGovernment.com article. The CBO estimated that there will only be a three percent reduction of individuals receiving employer-based health insurance under the Senate bill. Richmond argued, however, that

“it would be more cost-efficient for employers of low-wage employees to pay the $750 per person and drop coverage and likely more cost-efficient for the employees where under the insurance exchange it would limit their annual cost to no more than 2-3% of their income – thus dumping millions more into the exchange, increasing the annual subsidy cost by billions.”

Richmond assumed that the CBO estimates were low (and they usually are) and so calculated a case where instead 5% of employees lose their employer-based coverage and enter the exchange; this would add another 3 million workers to the exchange and cause an additional annual subsidy cost of nearly $15 billion, and increasing that ten-year cost-estimate by another $50-75 billion.

James C. Capretta, a Fellow in the Economics and Ethics Program at the Ethics and Public Policy Center (EPPC) said at the American Enterprise Institute (AEI) on December 4^th that with this much subsidy on the table, people will find their way to the money—breaches will inevitably happen and will greatly increase the costs of the exchange. He explained in a related article in The New Atlantis that “All but the smallest employers would be required to offer qualifying coverage to their full-time workers to avoid hefty taxes, and the employees would have no choice but to take what is offered to avoid paying a penalty tax themselves.” A “firewall” will be put in place, he said, that would prevent workers from exiting employer-based plans for the insurance exchange. Yet, this firewall is built of brittle substance. When the government inevitably increases the cost of compulsory health insurance, low-wage workers will push for the entitlements allotted for only those in certain ranges of the poverty line, argued Capretta. “In order for the plan to stay within CBO’s budget prediction,” wrote Capretta, “there would not be room for any breaching of the firewall.” Thus, he argued that “It would be only a matter of time before Congress responded to the inevitable political pressure and expanded the entitlement.”

Eugene Steuerle, a Senior Fellow at The Urban Institute, said at AEI that this insurance exchange would increase government spending to an unsustainable level and would be “like creating a whole new welfare and tax system.”

Sarah Carlsruh is an intern at the American Journalism Center, a training program run by Accuracy in Media and Accuracy in Academia.