The Lords Insurance Blog

Making Insurance

How health insurance is about to change

CORPUS CHRISTI — The Congressional Budget Office recently sparked some confusion when, in a report, it said that the median income for a family of four is $94,900. That number is much higher than most commonly accepted estimates, which tend to be closer to the mid-to-high $70,000 range (the U.S. Bureau of the Census Bureau is the traditional source of these data, hence the confusion).

It turns out that the CBO was including all forms of compensation, like the value of employer-provided health care plans. It’s an unusual way of doing things, but it helps highlight something that the average earner does not recognize: Just how much of their total compensation goes to pay for health insurance.

The architects of the recent health care reform bill — the “Patient Protection and Affordable Care Act” — are counting on consumer ignorance when it comes to insurance to divert attention away from regulations that will, inevitably, increase the cost of their health care.

Financial literacy starts at home, so it’s important to understand the four reasons your health care costs will soon be going up.

The Affordable Care Act requires one-size-fits-all insurance programs. It limits the selection of health insurance plans to “qualified” government-approved plans, rather than consumer-approved plans. Why does the government want single males to purchase insurance that covers pregnancy, or childless couples to purchase pediatric coverage, or twenty-somethings to purchase care more suited for the elderly? They claim it’s because such benefits are essential for an insurance plan to be valuable. In reality, it’s just costing you more money.

Then there’s the fact that people can game the system by waiting to buy insurance until after they get sick. This is absurd: Imagine a system where people could buy home insurance after their house caught fire, or auto insurance after their car was wrecked. Under the new law, healthy people will pay a small yearly penalty (equivalent to one-fifth the amount of money one would pay in premiums annually) and then purchase insurance after incurring an illness or suffering another malady — meaning that only the sick will be insured. Some estimate that this requirement will cause premiums to increase by 50 percent all on its own.

Young people will be hardest hit by the new regulations. New rules will limit the ability of insurance companies to charge the elderly (who use more health care services) higher premiums than young adults (who use relatively little in the way of health care services). The Rand Corporation estimates that premiums for the under-35 set could jump by 17 percent as a result.

Finally, the new health care law raises revenue by massively increasing taxes and fees on drug companies, medical-device manufacturers, and insurance companies. These new taxes will generate $107 billion in revenue for the federal government — $107 billion in expenses that the federal government’s chief Medicare actuary estimates will be passed on to you, the consumer.

Remember: It’s not what you earn, it’s what you keep. Ensuring that you don’t get hit with unspeakably high returned check fees or mounting credit card debt is an important part of personal finances, to be sure. But it’s important to be aware that some of the biggest costs we face are largely beyond our control — and the Affordable Care Act in its current form will make things even worse. Do we really want the government forcing us to pay even more in the guise of misleading legislation that promises to bring down costs?

Mark C. Schug is professor emeritus at the University of Wisconsin-Milwaukee, former director of the UWM Center for Economic Education, and a full-time economic education consultant and an adviser to Econ4U.org.

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Written by lordsinsurancelog

May 17, 2011 at 9:21 pm

Posted in Insurance News