Anti-Youth Health Care
by John Goodman
Issue 142 - October 28, 2009

Here we are at the eleventh hour, about to enact Obama/Baucus/Kennedy/Waxman Care and no one other than the insurance industry executives seems to be aware of how genuinely foolish this reform is likely to be.

At the top of my list of foolish things is the idea that no one should ever have to pay the real cost of his own health insurance. The most popular alternative is having everyone pay the same premium although, as previously reported, community-rated premiums are not even good for sick people.

We do not as a rule find this attitude in the market for other important goods. For example, most of us think people should pay the market price for the food they eat, the clothes they wear and the house they live in. We also don’t seem to have a problem with people paying market prices for life insurance or disability insurance.

So what’s so different about health care? There is always the possibility that someone cannot afford to pay an actuarially fair premium. But there are also people who cannot afford to pay for food, clothing and shelter. We solve these problems through public and private programs to help people out. No one is seriously proposing to socialize the food, clothing and housing industries. And if people can’t afford — or otherwise neglect — to buy life or disability insurance, we have programs to deal with the sympathetic cases there as well.

I have often said (and each time it provokes a reaction from Uwe Reinhardt) that everyone’s I.Q. falls about one standard deviation when thinking about the health care system. With same-premium-for-all life insurance, we all seem to grasp the problems very quickly. With health insurance, the mental wheels grind more slowly.

Take a healthy 20-year-old for whom the actuarially fair premium is, say, $1,000. Under community rating, he will have to pay, say, $3,000. But suppose he refuses and remains uninsured. What fine should he be assessed? Answer: $1,000. If we are going to allow him to obtain insurance even after he has a medical event (no pre-existing condition limitations), then society is effectively insuring him anyway and the social cost of that insurance is $1,000. So, a $1,000 fine forces the youth to pay the social cost of his decision.

Now in the insurance industry there is much worry and gnashing of teeth over the very real possibility that the youth will pay the fine and remain uninsured. (And, why not? It appears to be a sensible option.) Problem is, the $3,000 is the needed premium assuming lots of young (and overcharged) people are participating. If they opt out, then the community-rated premium will have to be $4,000 or $5,000 — thus encouraging even more people to pay the fine and opt out.

So the industry is apoplectic over the fact that the fine isn’t high enough. What they really want, in the above example, is a fine of $3,000 for anyone uninsured. In their words, “in order for insurance pools to work, we need healthy people.” This, of course, is poppycock (but remember, the mental wheels are still grinding slowly).

Private sector, same-premium-for-all plans do not need healthy people. They need healthy people’s money. More precisely, they need somebody to gouge in order to offset the people they are undercharging. A healthy person who pays a fair premium does nothing to help the finances of a health insurance pool.

But why pick on young, healthy people? If all we are doing is scrounging for money to subsidize the care of older, sicker people, does it matter where the money comes from? Why not levy a tax on the Physicians for a National Health Program? They seem to be gung ho for self-immolation and self-sacrifice in the name of wooly-headed schemes.

Ironically, both capitalism and socialism would seem to work better than the private sector socialism described above. Under socialism, everyone is enrolled and “premiums” are actually taxes — which are not optional and which are nowhere near the same for everybody. Under capitalism, premiums would reflect real expected costs. Our 20-year-old would either pay the $1,000 or self-insure. Neither system victimizes the young and the healthy, however, as would ObamaCare.

John Goodman is president of the National Center for Policy Analysis.

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