A new health care bill American Health Care Act passed in the House. Just like the new tax plan outline, who knows whether it will pass in the Senate or what will change.
From the previous post Health Insurance As A Tax we came to know that health insurance isn’t really insurance when you pay the same premium whether you are healthy or sick. It’s more of a forced subsidy from the young and healthy to the old and sick for the greater good.
Because people are self-interested, the young and healthy won’t just volunteer the subsidy if they are left to their own devices. They have to be coerced.
Health Insurance From Employer
To those who get health insurance through their employer, the coercion takes the form of a part of their total compensation being held back from them no matter what, just like a tax. If they don’t sign up for health insurance, they still forfeit a part of their total compensation anyway. Within the employer’s walls, everyone gets universal health insurance, funded by a “tax” on everyone.
The ACA uses the individual mandate penalty fee as the coercion. For well known reasons (relying on self-declaration, no teeth in enforcement, penalty amount too small), that coercion is very weak. The penalty, if you pay it at all, is only a small fraction of what you otherwise would have to pay for insurance. As a result, not enough young and healthy sign up for health insurance from the ACA.
The House bill to replace the ACA uses late enrollment penalty as the coercion. It says if you have a lapse of 63 days or more in the previous year you will pay 30% more for one year when you sign up. Compared to the self-declared penalty fee for not having insurance, the late enrollment penalty is much easier to enforce. At the time you sign up for insurance, if you don’t show evidence you had continuous coverage you will pay more.
Is this 30% penalty for one year strong enough to make people sign up right away? We can infer from Medicare, which also uses late enrollment penalty to make sure healthy seniors sign up even when they don’t feel they need it.
Medicare Part B
Medicare Part B covers doctor visits, lab tests, surgeries, and supplies. Enrollees pay only 25% of the total cost of the program. Currently the premium is $134/month for most seniors. You would think the value alone would make people want to sign up at the first chance. Besides, people over 65 have a stronger incentive to sign up because they need more health care services.
To make sure that people don’t wait until they really need services, Medicare Part B imposes a late enrollment penalty. The penalty is 10% of the premium for each year of waiting. You pay the penalty for not just one year, but permanently. If you wait two years you pay 20% more forever. If you wait five years you pay 50% more forever.
Medicare Part D
Medicare Part D covers prescription drugs. It’s also heavily subsidized by the government. The current average premium is about $35/month. Even so, to make sure those seniors who don’t take much prescription drugs sign up and pay their small share when they are first eligible, Medicare Part D imposes a late enrollment penalty of 1% of the premium for each month of waiting (12% penalty for each year of waiting). Again, the penalty is permanent. If you wait you pay more forever.
Paying only a small fraction of what it really costs plus the permanent late enrollment penalty makes seniors enroll in Medicare Part B and Part D right away even when they feel they are still healthy at 65. The premiums paid by the healthy 65-year-old’s go toward subsidizing the sick 85-year-old’s.
Stronger Force Needed
When people over 65 need a late enrollment penalty this strong to make sure they pay their small share, 30% higher premium for just one year on the young and healthy won’t cut it. In order to have the desired effect, the late enrollment penalty has to escalate the longer you wait and it has to be permanent, just like in Medicare.
When you want the old and sick to afford insurance, you have to make the young and healthy pay, either in taxes or in premiums or both. There is just no way around it. Think someone young and healthy who makes $60k with benefits versus another person who makes $70k without benefits. A large part of the $10k difference goes to cover other old and sick employees at that employer. The person making $70k without benefits is used to getting 100% of the income in cash. They need a stronger incentive to part some of it for the benefit of the old and sick in the society.
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