Sunday, September 20, 2009

Employer-Sponsored Health Insurance Insulates Employees From Full Cost, Promotes Overspending

Ezra Klein in today's Washington Post article "You Have No Idea What Health Costs" writes that "The average health-care coverage for the average family now costs $13,375, according to the the Kaiser Family Foundation's 2009 Employer Benefits Survey."

Actually that's not exactly accurate, since
Kaiser actually reported that "In 2009, the average annual premiums for employer-sponsored health insurance are $4,824 for single coverage and $13,375 for family coverage. Premiums for family coverage are 5% higher than last year ($12,680), but there was no statistically significant growth in the single premiums."

According to
America's Health Insurance Plans (AHIP), the Average Annual Health Insurance Premiums in 2007 were $2,613 for "individual market single coverage," and $5,799 for individual family coverage," or about half of the employer-sponsored health insurance costs quoted by Kaiser. The huge difference in premiums is likely because the AHIP data includes insurance for those not covered by employer-sponsored health insurance, including those who are self-employed or retired.

This difference in health care insurance premiums between Kaiser and AHIP highlights some of the major problems associated with employer-sponsored health insurance: a) it's a tax deductible expense for the business, b) it's non-taxable compensation for the employee, and c) employees are insulated from the full cost of medical insurance because they pay only 26% of the full cost, all of which serve to result in overspending on more expensive health care coverage, ceteris paribus.

Jeffrey Flier, Dean of the Harvard Medical School recently wrote:

There is our inefficient and inequitable system of tax-advantaged, employer-based health insurance. While the federal tax code promotes overspending by making the majority unaware of the true cost of their insurance and care, the code is grossly unfair to the self-employed, small businesses, workers who stick with a bad job because they need the coverage, and workers who lose their jobs after getting sick.


At 9/20/2009 10:19 PM, Blogger Jarod Wachtel said...

Something I've been thinking for a while...

I just wrote something very similar to this on Thursday morning. I posted it on my facebook but i'll post it on my blog if anyone would care to read. It is 5 pages long, but I think it's worth it.

At 9/20/2009 10:44 PM, Anonymous Anonymous said...

Federal tax code promotes overspending by making the majority unaware of the true cost of their TAXES, insurance and care.

If everyone paid direct taxes in cash, at the post office or grocery store, or as a utility bill, they would be more aware of how much of their earnings are diverted to spending by others.

Best wishes! --Redbud in Kansas

At 9/21/2009 12:06 AM, Anonymous Anonymous said...

Of course the comment made about withholding applies only if you don't pay attention to your pay check. No doubt its says gross pay deductions and net pay.
The issue is one very much like the issue of mortgages how to make people more financially aware.
Perhaps the pay check should say
you earned xxx, you paid uncle sam yyy for witholding zzz for social security, aaa for medicare ...
(just a change in terms call them payments made on your behalf not deductions from your pay check).

At 9/21/2009 3:03 AM, Blogger juandos said...

"Employer-Sponsored Health Insurance Insulates Employees From Full Cost, Promotes Overspending"...

Hmmm, where does this happen anymore?

I'm sure it does and at one time it did so for me but this alledged insulation has disappeared over a decade ago in the airline industry...

Now a days we pay for a portion (albeit a minority portion) of the health insurance premiums and out of pocket expenses have incresed even in good programs...

At 9/21/2009 11:25 AM, Anonymous Anonymous said...

Yes, but again, the companies are really negotiating the prices through a plan managewr, the insurance company. Many are self-insurers. When you buy casualty insurance, you don't negotiate directly with the insurance company..You hire a AON. Or you go through as mortgage broker for your mortgage.

At 9/21/2009 3:13 PM, Anonymous GregL said...

The major difference is that the individual market screens out sick people while the employer market doesn't. The screening occurs both upon application and upon major claim submittals.

In short, the big difference is that the individual market doesn't serve really sick people.


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