By Uwe E. Reinhardt January 15, 2010 8:56 am January 15, 2010 8:56 am
Uwe E. Reinhardt is an economics professor at Princeton.
In virtually every industrialized country outside the United States, the contribution people make toward their health insurance is divorced from their age and health status. While this arrangement — known as community rating — is taken for granted abroad, it is still astoundingly controversial here in the United States.
All the more astounding is how many Americans who oppose community rating on principle nevertheless are themselves already beneficiaries of community rating. Such beneficiaries include, by the way, members of Congress, who have their health risks pooled with those other federal employees (just as other employer-sponsored health insurance plans generally do).
Chris Kleponis/Bloomberg News Senator Michael B. Enzi
On his official Web site. for example, Senator Michael B. Enzi, a Republican from Wyoming, argues strenuously against community rating, arguing that
community rating, which forces insurers to charge near uniform rates regardless of health status or habits, drives up health insurance premiums. [The Congressional Budget Office] doesn’t think this has much effect, but costs inevitably rise when insurers aren’t allowed to price based on risk.
There are apt to be a good many like-minded opponents of the current health reform bills in the Congress who also decry the community-rating proposals now built into these bills.
Close your eyes now and imagine that upon hearing Senator Enzi’s cry of despair, God had sent an archangel to Washington to slip into our body of laws a requirement that all senators must purchase their health insurance with the premium based on their and their family’s health risks — “medically underwritten,” as the jargon goes.
Practically, it would mean that the federal government would grant each senator an identical, flat contribution equal to, say, 72 percent of the average premium paid for the health insurance of all federal employees. Each senator would then have to go into the market for individually sold, medically underwritten health insurance for the rest of their coverage.
Can you imagine the fiery oratory that this heinous idea would set off in the august Senate chamber? Why, its members would be likely to rise in unison, thundering in sonorous tones against the very thought.
To be sure, many senators are multimillionaires who could, in principle, absorb into their household’s budget the sometimes huge premiums of medically underwritten health insurance.
But can anyone imagine that Congress
would ever accept being pushed into that harsh market environment? My experience with rich corporate executives, for example, is that most of them would be horrified to be pushed into that market, which is why on retirement they invariably insist on lifetime coverage by their corporation for themselves and their spouses.
Allan Sloan of Fortune magazine pointed out in a recent column that senators benefit significantly from being pooled by the insurer they choose with all federal employees choosing that insurer. After all, the average age of senators is 63, and that of all federal employees only 43. In effect, then, younger federal employers routinely subsidize older senators with their health insurance premiums.
Mr. Sloan calculates that in 2010, the Blue Cross plan with vision and dental care for federal employees will cost $6,791 for individuals and $16,124 for families. Senators enrolled in that plan pay these premiums as well.
Were the senators treated as a separate risk pool, their comparable premiums would be $14,000 for an individual and $32,000 for a family, where these premiums would be community-rated, so to speak, over all 100 senators.
How much a senator with a history of serious illness might have to pay in the market for an individual policy priced on the individual’s health status is anybody’s guess.
This experiment, of course, could be extended to all employment-based health insurance, be it at large, self-insured companies or companies that purchase from group-health insurance from private insurers.
As I have argued in an earlier post. economists are convinced, on the basis of theory and evidence, that over the long run the cost of such coverage to the employer is passed back to employees in the form of commensurately lower take-home pay.
But two workers performing the same job, one young and healthy, the other older and chronically ill, will often receive the same take-home pay, even though the older worker represents a much larger drain on the collective health insurance pool for the firm. It means that, implicitly, there is cross-subsidization from healthier to sicker employees here as well, and that has always been acceptable to Americans.
In sum, the community rating that President Obama and the Democrats in Congress seek to impose on insurance companies is not nearly so revolutionary in America as may be supposed — and certainly much less revolutionary than would be the hypothetical idea to push senators into the individual, medically underwritten market for health insurance some of them so often extol.