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Health Insurance for the Few: The “Lexus” Model of Benefits

Bina PatelCascade Commentary

Summary

Government health insurance mandates intended to increase health care coverage for all, especially for lowerincome Oregonians, actually make insurance coverage more expensive and reduce low-cost benefits available to low-wage workers. Basic packages should be offered to allow more individuals to have some level of insurance, rather than mandating “deluxe” insurance packages employers and employees alike cannot afford.

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Health insurance costs continue to skyrocket, while the number of the uninsured concurrently increases. In “Access to Health Care and the Uninsured,” the National Conference of State Legislatures recently reported that the uninsured population is growing, totaling about 46 million Americans: “[t]wo-thirds of the uninsured are poor (making less than $19,971 for a family of four in 2005) or near-poor and 80% are from working families.” Why are the numbers of uninsured Americans rising so quickly, and why is the burden disproportionately on the working poor?

Increases in technology, complexity of health problems, and people living longer are factors in rising health care costs. One additional factor that we can better control is government health insurance mandates. Government mandates require that providers of insurance cover specified health care needs. Proposed mandates from the 2007 Oregon legislative session include: House Bill 2700 requires coverage for contraceptives, HB 2348 requires “coverage or reimbursement of medical expenses related to insured’s use of alcohol or controlled substance,” HB 2517 requires coverage for orthotic and prosthetic devices, Senate Bill 356 requires coverage for expenses occurring from motorcycle or bicycle accidents, and SB 486 covers infertility treatment. Generally, as noted in these bills, the mandate refers to both individual and group health insurance policies.

“While we attempt to legislate coverage of most health care needs, a tremendous unintended consequence occurs: A greater number of individuals and families are without any coverage at all.”

While we attempt to legislate coverage of most health care needs, a tremendous unintended consequence occurs: A greater number of individuals and families are without any coverage at all. We should ask ourselves, are we seeking universal health insurance or expansive benefit coverage for the few? Instead of having coverage for most people at the “economy car” level, government mandates have raised the bar to the “Lexus” model of coverage, which is unaffordable for many.

Insurance by definition is designed to collect regular payments from a group of individuals in order to provide security against the risk of an unforeseen, catastrophic event. The principles of insurance include that the risks covered be unpredictable and unintentional. Insurance is not an effective mechanism to provide maximum coverage for every foreseeable event for the greatest number of people. When predictable and regular costs are billed to insurance, in addition to unpredictable events, the cost of insurance increases. That is, more funds are needed to cover both risks and predicted events. When health insurance covers predictable and regular costs, it in fact becomes more of a “health benefits package” than “health insurance.”

Altering insurance into a benefits package by increasing coverage mandates on health insurers raises health care costs for all. Individually, each mandate may not cause a significant increase in cost. Research from 1997 shows that speech therapy and even minimum stay maternity benefits individually add less than 1% to a premium. Other mandates like alcoholism treatment and infertility raise premiums up to 5% each. According to the National Center for Policy Analysis, just covering alcoholism and infertility can raise the premium up to $280 annually on a $3,500 annual premium. Recent research estimates a 20%-50% increase in costs, depending on the type of mandated coverage. Oregon has 31 health coverage mandates, and several more are under consideration this legislative session.

“Insurance by definition is designed to collect regular payments from a group of individuals in order to provide security against the risk of an unforeseen, catastrophic event. … Insurance is not an effective mechanism to provide maximum coverage for every foreseeable event for the greatest number of people.”

Increases in health insurance costs are largely passed on to individuals. Unfortunately, the lower-income and middle working class bear the brunt of these costs. It has been widely shown that employers pass on the cost of increased benefits in the form of reduced wages. Because each employer has a limit on the cost of each employee, associated costs to employ someone must be constrained within this limit. In addition, employers pass on the increased cost through raising employee-paid premiums. Premiums rose 9.2% in 2005 and 7.7% in 2006. According to the Henry J. Kaiser Family Foundation, workers pay over $1,000 more in premiums annually than they did in 2000, an 87% increase. Wage growth in this same period was only 20%. Also, co-payments, co-insurance and deductibles are other areas where individuals share the burden of increasing health insurance costs.

Lastly and most significantly, increasing health care costs leads to reduced coverage. More individuals are not covered by employer-sponsored insurance, and they face increasing monthly premium costs. A startling statistic shows that on average, a minimum wage full-time worker brings home $10,712 annually. Coverage for a family of four costs an employer $11,500 in 2006, while the family’s share is $3,000. If this employee were single, the cost to the employer would be almost 50% of the worker’s income: $4,200. What options are available to the employer who sees the cost of one benefit outpacing the hourly rate? Employers alter workers’ eligibility for coverage by longer waiting periods, reducing hours worked, or hiring only part-time. The Kaiser Foundation also finds that 49% of employers plan to increase the workers’ portion of shared costs, and 39% will increase premiums to cover future increases.

Options are available to increase health care accessibility while meeting the health care needs of specific groups. Similar to car insurance, packages can be offered at a basic level to allow more individuals to participate and have some level of insurance. Adding specific packages at additional premium costs allows selected individuals to cost-share relevant benefits. At the least, we will see that everyone has basic care coverage.

Bina Patel is Director of the Oregon Asset Policy Initiative at Cascade Policy Institute, a think tank based in Portland, Oregon. To read other publications of the Oregon Asset Policy Initiative, visit www.cascadepolicy.org.

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