2009 January 23 Friday
Few Unemployed Can Afford Medical Insurance In US

In the United States those who received employer-provided medical insurance while employed and who lose their jobs can pay to continue their medical insurance for 18 months. But people who have lost their jobs lack the income needed to pay for that medical insurance. Turns out only 9% of newly laid-off workers opt to pay for continued medical insurance under COBRA.

New York, NY—As unemployment rates reach the highest levels in 16 years, a new analysis from The Commonwealth Fund finds that few laid-off workers—only 9 percent—took up coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA) in 2006. Unemployed workers who also lose their health insurance would need substantial financial assistance, covering 75 to 85 percent of their health insurance premiums, for their premium contributions to remain at the levels they paid while they were working, according to the report, Maintaining Health Insurance During a Recession: Likely COBRA Eligibility, by Michelle M. Doty, director of survey research at The Commonwealth Fund and colleagues.

The ability of employers to buy medical insurance in pre-tax dollars while individuals have to buy it with after-tax income puts people in the position of depending on employer-provided health care. They can't save up pre-tax dollars while working to pay for medical insurance when they lose their jobs.

The inability of unemployed people to afford medical insurance creates political pressures for a larger government role in providing health care.

The report also finds that low-wage workers are at a particular disadvantage—with only 38 percent eligible to receive COBRA benefits—because they don't receive health insurance through their jobs, work for small firms that aren't required to offer COBRA, or are uninsured to begin with. Coverage options for low-income workers remain limited especially for childless adults because most lack a public coverage option. The authors say that policymakers should consider temporarily expanding Medicaid and SCHIP eligibility to unemployed adults with low incomes, with assistance for premium shares, to provide critical support to families.

Sixty-six percent of all current workers, if laid off, would be eligible to extend their health insurance under COBRA But for most people, COBRA payments are unaffordable, about four to six times higher than the amount of money they contributed to their health insurance when they were employed. According to the report, millions of the eligible could keep their coverage if they could get assistance with their premiums, which average $4,704 per year for an individual and $12,680 a year for a family.

The connection between a job and medical insurance also ties people to jobs and therefore makes the labor market less efficient. While some commentators call for an end to the tax advantages for employer-provided health care I think that would just make the pressures for government provision of health care even greater. We are better off with businesses funding health insurance than governments doing it.

What we need are medical accounts where while working one can accumulate money pre-tax that can be spent on insurance premiums and health costs when unemployed. The Health Savings Accounts are a step in that direction. But most people have other medical plans where they work and therefore can't accumulate pre-tax money while employed.

Here is the report referred to above.

Update: The ability to put aside money while working for future COBRA payments would also increase the rate of new company formation because it would reduce the risk and difficulty of starting new businesses. Our current medical insurance system is an obstacle to small company formation and therefore it lowers the rate of innovation.

Share |      By Randall Parker at 2009 January 23 11:44 PM  Economics Health


Comments
Wolf-Dog said at January 24, 2009 3:59 AM:

What happened is that for more than a decade, the annual trade deficit was much greater than the government deficit spending, and the ordinary citizens paid the difference by extracting money from their assets. But not only did they get impoverished by that amount, but more importantly, many millions of manufacturing jobs (and even service jobs) were permanently dismantled and lost. Basically, we were living off the labor of foreign nations without working, and this capability is coming to an end. This is the bottom line.

But on the plus side, not all the Ponzi economy of the last two decades was short-sighted: although there was a serious misallocation of human resources, the human resources were still extremely well trained, as measured by the dramatically increasing quality of college-educated people. If Obama takes the right steps to reduce the foreign trade deficit, this would create a lot of local jobs. If Germany and Japan, which are overpopulated and which have minimal natural resources, can have trade surpluses, there is absolutely no reason the United States cannot do the same.

HellKaiseRyo said at January 24, 2009 4:08 AM:

"If Germany and Japan, which are overpopulated and which have minimal natural resources, can have trade surpluses, there is absolutely no reason the United States cannot do the same. "

Ironically, there are people who want more immigration in Japan such as the Washington Post today.

Stephen said at January 24, 2009 5:25 AM:

Those prices are obscene. What do you get for $4704 a year???

I just priced some policies in Australia:

Single person basic cover: $750
Single person full cover: $1800

Family basic cover: $1600
Family full cover: $3200 (incl. IVF etc)


Jerry Martinson said at January 24, 2009 1:56 PM:

I pay about $13k a year for my family for COBRA and I'm in my 30s. It's an HMO plan with normal deductibles (e.g. $50 for MRI, $100 for ER, $15 for meds/visit) plus some dental coverage. I quit my job to start a company taking COBRA payments into full account in my decision in figure out how much nest-egg runway I have to burn. Literally the day after I quit my job to start a company I had a retinal stroke that for a while looked like it was very likely due to a variety of serious underlying problems that would seriously disable me or kill me. And then the financial crisis hit the fan the next week as well (although it seems to keep hitting fans). So it was great timing - and I just lost long term disability coverage that day. I was not terribly happy about this.

Fortunately, I was very lucky - the underlying medical problem turns out to be trivial (not just Steve Job's "trivial" - really trivial). My premium could go up to about $20k/year after a year when COBRA runs out on HIPAA if they decide I'm now considered to be in a higher risk pool. If I'm not in a higher risk pool it's still about $13k a year. I don't know why I'd be in a high risk pool since they did so many damn tests on me that I'm probably the least risky patient you could have right now but who knows how they decide these things. You can find a plan that superficially costs less but then there's more risk on you - and if you value out that risk it comes to an expected value of about $13k a year - it's not like car insurance where low deductible is a huge rip-off. So either way, it's about $13k/year. Hopefully I can get coverage for my company (and a salary) before COBRA runs out.

Health insurance/long term disability is definitely one of the things that makes it a little more personally risky and expensive if you want to start a company in the United States. You can't moonlight and start an ambitious company at the same time if you want to really have a good shot at succeeding. So if you're an entrepreneur, you're stuck with COBRA/HIPAA for a while unless you get some angel money to set things up right away (and this has it's own set of legal and financial issues). And you can forget about long term disability. So bad shit can happen to you in the US because of some timing gaps in social insurance. This is above and beyond business risks associated with forgoing regular income prior to funding. I fortunately dodged a bullet.

To end the story, I had an "exit" interview with the founder of my previous company while I was seeing black spots in my eye waiting for my Dr's appointment 30 minutes later. He was telling me that his wife was pregnant and wanted a stable income but he decided to quit his cushy job to enter the unknown world of entrepreneurship. The day after he quit was Sept 11th, 2001. If we had real social insurance in the US perhaps it'd be better for entrepreneurs, but perhaps it'd just make people fatter and lazier than they already are. I don't know. The fundamental dilemma is that the best qualified people who need to take the most entrepreneurial risks also are those with the most secure jobs and the most risk-averse personalities.

Stephen said at January 24, 2009 5:28 PM:

Horrific Jerry. Its like your system has been engineered to keep you feeling vulnerable.

In Australia we have parallel public and private systems. Everyone gets 24/7 access to the public system at no cost to themselves. Admission to public hospitals is rationed on a triage basis whereby emergency patients are treated immediately in front of less urgent patients. All of those less urgent patients are shuffled around in a series of waiting lists that start at 1hr delay until admission and stretches to six-months or more delay (depending on seriousness). Other factors are also taken into account - for instance, a child will always get priority over an adult etc.

Access to the private hospital system is rationed by money (eg health insurance) rather than medical urgency. There are still delays for private system access, but that's normally related to your chosen medical specialist's private waiting list.

Visits to a GP can cost $0 if the GP 'bulk bills' (ie, if the GP charges the same amount as the public health system pays him per treatment, then he just bills the government, otherwise the patient pays and then claims a rebate from the government).

The full coverage health insurance policies I priced in my first post have no deductibles (though the term might have a different meaning in Australia).

We still complain of course - especially if the tail of a particular waiting list gets too long.

Jerry Martinson said at January 24, 2009 8:49 PM:

As it stands, I just need about $120 of pills a year for what I have but it took about $80k in tests to figure that out and yearly retinal angiograms that'll cost about $1500 (my guess). As far as co-pays, I paid about $150 for the whole thing on top of COBRA.

But I wonder, our frosty neighbor to the north has ideal insurance in Michael Moore's eyes. I waited 8 days for a 3Tesla MRI with all the slices and contrasts and radiology. It cost the insurance company $13k. I got outstanding diagnostic work done from serious and qualified professionals. I'm not unhappy that their caution is motivated by a legal system that seriously punishes missing crap. I googled on the web and people with my symptoms in UK will wait about 500 days on the NHS and our neighbor to the north about 5 months. One of the many things that could've caused my symptoms would be an fast growing acoustic neuroma.

Here's a guy in Canada that got one removed:
http://www.youtube.com/watch?v=vAgBCjxDsZg&feature=related

Sure he didn't have to pay since he's in Canada. But 1/2 his face is paralyzed. What if I was in Canada and had to wait 150 days for the MRI and it grew a lot and caused a lot more complications. This may not be relevant in his particular case but waiting 150 days in mine if it was serious is NOT "THE LINE I WANT TO BE IN" in Michael Moore speak. If you can pay, America rocks. America through its high costs, is also essentially funding the R&D by being the ultra lucrative market for drugs, vaccines, and equipment that the funding VC's count on. So we're paying the costs of being the snow plow while the "cheaper" countries are getting a free ride.

It's not clear to me what system is better. I don't think there's a magic bullet to figuring this out.

Randall Parker said at January 24, 2009 9:07 PM:

Jerry,

I would not want to go thru Canada's waiting lines (or worse, Britain's waiting lines) if I had something seriously wrong with me.

I agree that we fund an outsized portion of all drug and medical device development because we do not regulate prices and we buy massive quantities of medical care.

What I'd like to see: More automation of the system so that a larger fraction of the money spent goes to devices and drugs. Most money spent on salaries of medical workers does little to advance the state of the art. They just use existing techniques to deliver care. If a larger fraction of all spending was on devices and drugs then more money would flow in directions that fund new treatment development.

How long did it take you to get diagnosed from the time of your first doctor visit?

Stephen said at January 24, 2009 10:47 PM:

Its not an either/or choice. You can have both - a socialised system and a private system both operating in parallel. In Australia, if you have private health insurance costing a fraction of the amount you appear to be paying in the US, you get treated in a private hospital immediately. Paying six times more for private health insurance might be worth it if your outcomes are six times better, but if WHO stats are to be believed outcomes in the US appear to be worse than in other health systems.

Bob Badour said at January 24, 2009 11:04 PM:

Stephen,

The problem with what you are saying is the socialists will note the "unfairness" of a two-tier medical system and will agitate for a single-tier medical system. That's what happened in Ontario. Eventually, Ontario made it illegal to pay privately for your own medical care.

One time, I was very grateful for that. When my dog, Buddy, needed a CT scan, he got one in six days where a human would wait 16 weeks. Because private medical care is illegal in Ontario, the research institute that might have rented out its CT scanner for 16 hours a day to the hospital next door was prohibited by law from doing so. Since it was used for only 8 hours a day for research, it was available the other 16 hours a day for veterinary use. Buddy had to wait 6 days because the vet who operated it at night only did so one day per week. It sat idle 16 hours a day, 6 days per week while human patients waited 16 weeks for CT scans. Isn't that special?

That was the only time I was grateful, though. The rest of the time I found it obscene that I was effectively excluded from medical care because I did not have and could not get a family doctor. I had the means to pay for my own medical care out of pocket but I was prevented from doing so by force of law. Luckily, at that time, I traveled to NJ a lot where I made use of my "private insurance" -- the Visa plan with 100% copay.

You wait: It's just a matter of time before Australia falls down the same hole as Ontario.

Bob Badour said at January 29, 2009 2:55 PM:

On second thought, if we had private medicine, every vet could probably pick up a used CT scanner when private clinics upgrade, and then Buddy might have had same-day service.


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