I’ve been keeping pretty close tabs on the “rate shock” debate—as a healthy twenty-something, it behooves me to know what other people are saying I should think. (I jest, but you all have some pretty firm opinions on that.) It’s a complicated issue, and prophecies about young adult enrollment, including my own, have relied on broad strokes and guesswork. But one thing in particular has been grating on me: when it comes to complaints about redistribution and overly-generous benefits in health insurance, why is the echo chamber limited to the individual market? Where is the outrage over employer-sponsored insurance?
Josh Barro hit the mark on this earlier in the week:
Redistributive public policy is even more of a theme in the group health insurance market, which is nine times larger than the individual market and the dominant source of “private” health coverage. […]
Employers are also limited in their ability to pick and choose whom they offer insurance to. You can limit coverage to full-time workers only, but you have to offer it to all of them on approximately the same terms, without premium adjustments for claims or health status. […] [T]hat benefit ends up being much more valuable to people with high health costs than with low ones.
Some 90% of people with private insurance receive it through an employer, and those plans are generally priced using “pure” experience-rating. This means the company serves as one giant risk pool, and a firm’s youngest employees have the exact same insurance premium as their eldest colleagues. The practice has roots in tradition and history; unions started negotiating these kinds of contracts after World War II, and other plans followed suit. But it’s also a matter of law: HIPAA and the ADA prohibit premium variation by health status. Age rating is constrained somewhat—though not entirely—by the Age Discrimination in Employment Act.
Yet, I’ve seen exactly zero Obamacare opponents railing to amend the employer-based practices that require most young healthies to pay more than their “fair share.” No one is plying Congress to amend HIPAA or the ADA so young invincibles can pay premiums appropriate to their health status. No one is calling out employers on their “redistributionist” policies, even though uniform insurance premiums force a substantial transfer from the young to the old. It makes histrionics over Obamacare’s 3:1 age band hard to take seriously.
As an anecdotal aside, I selected a modest HMO plan when I joined the working world at 22, the second-cheapest of my six options. Even so, my monthly premium was about $450 in untaxed dollars, after my employer kicked in their share. I’ve checked out exchange rates in Ann Arbor, and I could get a silver plan from the same insurer for about $270 a month before subsidies. The cheapest plan at my disposal is less than half of that. To recap: I, a healthy 24-year old, can buy an exchange plan that costs less than a third of what my employer-sponsored plan cost in 2011, without a subsidy of any kind (though all apples/oranges caveats apply).
Selective ignorance of employer-based coverage in the rate shock debate is an old gripe of mine. In posing this question to Twitter in the past, the responses I got tended to fall into one of two buckets:
“So what? Employers pay for most of the premium, anyway.” This is stupid, no good, very bad logic. A dollar towards health insurance premiums is a dollar taken out of wages; the evidence is pretty clear on that. It’s true that many Americans don’t realize the full cost of their health insurance because their employer foots a big fraction of the bill, but this is far less true of wonks. Ignorance is hardly a sound policy justification.
“Well, employer-sponsored insurance isn’t compulsory.” Right, it wasn’t compulsory—though Barro makes a good case that the tax exemption makes it coercive. Regardless, put in context with the ACA, it’s about as compulsory as individual market insurance. If you decline to take your employer’s plan, you probably won’t be recouped the full value of the plan you were offered. You’ll have to buy other coverage to avoid the penalty, and—because you have an option from your employer—you’ll be ineligible for subsidies. Moreover, your labor is worth the value of your total compensation package; when you decline benefits, you’re effectively being underpaid.
I know many conservative wonks find fault in ties between employment and insurance, but they haven’t injected that into recent critiques. If messaging around rate shock is more than opportunistic hackery—if it’s genuinely about how “health insurance” ought to be conceived—why are they leaving the most prevalent and most redistributive form of private coverage unscathed? Surprise me.