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Is Health Insurance Cheaper than You Think?

Opinion Editorial
February 3, 2005

By Linda Gorman

If people were better informed about the real cost of private health insurance, perhaps Patrick Lawler wouldnt be facing hospital bills big enough to bankrupt him.

Mr. Lawler, 23, was installing walls in a new home in Breckenridge when his nail gun smashed him in the mouth. According to newspaper reports, he endured a sore lip and a bad headache until his wife, 27, insisted that he get an x-ray. It showed that Mr. Lawler had had a 16-penny nail embedded in his head for six days. Removal required a team of surgeons and a stay in intensive care at an estimated cost of $50,000 to $100,000. A full recovery is expected, though Mr. Lawler was advised not to snowboard for the rest of the season.

Along with many other people his age, Mr. Lawler had decided not to buy health insurance. As he told the Rocky Mountain News, I didnt have the money for insurance, and I didnt really think Id shoot myself with a nail.

It was a reasonable gamble. On average, people in their 20s need little health care. And they are convinced, thanks to constant reminders, that health insurance is impossibly expensive. They also tend to underestimate what they will lose should major medical bills force them into bankruptcy.

In reality, true health insurance remains surprisingly affordable in states with good regulatory climates. A married couple the same age as the Lawlers living in Breckenridge, Colorado, can buy health insurance that includes drug coverage for $142 a month provided they accept a $500 drug deducible and a $5,000 deductible for major medical. Even if husband and wife earn minimum wage, two days of work by each of them would pay the monthly premium. Given time, friends, and family resources, most young couples can handle a $5,000 debt. The cost of brain surgery is another matter entirely.

When people like Mr. Lawler lose their bets they have to make arrangements with their creditors. The Kaiser Foundation estimates that uncompensated medical care in the United States totals about $40 billion a year. This sounds like an astronomical sum. But total reimbursed health care spending is about $1,306 billion, a loss ratio of about 3 percent. The credit card loan industry operates with a loss rate of about 7 percent.

Rather than encouraging the parties involved to work out new ways of dealing with people who fail to pay for health care, advocates argue that everyone should be forced to buy health insurance. But people without viable jobs cannot be forced to do anything, particularly when they think that they can rely on public programs like Medicaid to take care of their basic needs.

One proposal would require employers to pay for health insurance for every employee. For employees who would rather have cash than health insurance, this acts like any other tax on income. It increases the likelihood that they will decide to forgo taxable work, opting instead for the underground economy or tax funded welfare programs.

Those who think that more laws solve all problems favor forcing government to pay for health care for all, the crackpot Canadian scheme outlawing health care between consenting adults in favor of the tender ministrations of provincial bureaucrats. Duplicating Canadas impenetrable bureaucracies, antique hospitals, huge doctor shortages, astronomical taxes, and continuing revenue shortages is virtually certain to swell the armies of the sick and the unemployed. It will fail to eliminate uncompensated care. According to a study quoted by the Vancouver based Fraser Institute, 10 percent of patients in Vancouver emergency rooms have not paid their provincial fees and are therefore uninsured.

People obsessed with forcing health insurance on everyone also lose sight of the fact that countries with government care have far higher taxes and far larger fractions of their populations on the dole. The obsession apparently makes some people forget that having a job, even one without benefits, does far more for a person than a bare existence as an unemployed government dependent.

More young people will buy health insurance if it is less costly. Unfortunately, the last decade of state health insurance reforms have made policies for young people more costly. Community rating laws require that everyone buying insurance pay the same rate. Older people in their peak earning years end up paying less, the young pay more. In New York, a month after the 1993 community rating law went into effect, annual premiums for a 30 year old single male from jumped from $1,200 to $3,240. Guaranteed issue laws require that policies be issued to people regardless of their health status. They reward people who wait until they are sick to buy insurance. State mandates that dictate what policies have to cover make even Mormon teetotalers pay for treatment for alcoholism.

Reducing the price of health care would also reduce the price of health insurance. Freeing physicians, hospitals, and insurers from the expensive regulatory thicket currently ensnaring them, discouraging unreasonable litigation, and simplifying the intricate web of drug and device approvals can lower costs for everyone.