2010 April 21 Wednesday
New Disincentive For Buying Medical Insurance

Insurance broker Tim Tracy of Fairfield Connecticut points out that the new health reform measure in the United States passed by the Democrats provides incentives for some people to actually drop their medical insurance coverage.

I currently pay about $700 per month for health insurance for me and my wife, for an annual cost of $8,400. Under the new law, if I choose not to carry health insurance I would a penalty of 2.5% of my income -- that's only $3,750. It will save me $4,650 a year to go without health insurance.

It doesn't take a math wizard to figure this stuff out; it's really a no-brainer. If I get sick I can just purchase a policy when I need it because pre-existing conditions won't matter. As it's written now, the mandate is unworkable. I think this bill will actually make more people drop their coverage because that's the cheaper option.

A lot of people aren't going to be smart enough to figure this out. But some will. Pay the 2.5% until you get sick. Save your money until then. Once you get some serious illness buy medical insurance. The law (amazingly) forces medical insurers to sell you a policy even if you've just gotten diagnosed with kidney failure, cancer, or multiple sclerosis.

In a nutshell: This new "reform" provides new incentives for irresponsibility.

Update: On the other hand, medical care has very little influence on life expectancy for most people. Still, whether people buy medical insurance or not, they'll end up getting lots of expensive services done on them when they get diseases of old age.

Share |      By Randall Parker at 2010 April 21 07:30 PM  Economics Health


Comments
Sgt. Joe Friday said at April 21, 2010 8:06 PM:

"In a nutshell: This new "reform" provides new incentives for irresponsibility."

But isn't that what Obama and his party want? People acting responsibly, being productive, minding their own business, and not bothering anybody doesn't create the conditions necessary (or the "crisis," if you prefer) for government to start butting in and "helping" people.

That's why Obama wants to take up immigration reform next, rather than so-called climate change. He sees 12-20 million new clients for the welfare state, not to mention future Democrat votes. Trust me, if all the illegals were educated Asians or Europeans, his attitude would be "f**k them. They can go home."

kurt9 said at April 21, 2010 9:14 PM:

Medical care really does have no correlation with life expectancy. However, you need it in the case of traumatic injury or if you get an unexpected catastrophic disease or event (cancer, stroke, heart attack). This is the reason why I think ObamaCare has it totally ass-backwards. Its catastrophic health insurance (with high deductible) that people should get, not the bullshit comprehensive policies that ObamaCare mandates.

The fact is, many people will drop their expensive health care plans and then get insurance when they get sick. This is the moral hazard that ObamaCare offers to everyone. However, I have no intention of doing this. I will maintain the high deductible catastrophic policy I have for my wife and myself (which costs us about $400 oer month) for several reasons. First, the no pre-existing medical conditions clause of ObamaCare does not kick in until 2014, along with the mandate. The possibility of getting in a car accident or getting sick always exists between now and 2014. Also, I think much of ObamaCare is going to be either repealed or seriously altered between now and 2014. In fact, I would bet on this. I would not rely on this law coming into effect in 2014.

bob said at April 21, 2010 9:19 PM:

Hi kurt9

You said:

I will maintain the high deductible catastrophic
policy I have for my wife and myself ...

Are you sure? I have read reports that I interpreted as indicating these policies are now illegal....

Cheers,
--Bob

Charles Martel said at April 21, 2010 9:42 PM:

*** In a nutshell: This new "reform" provides new incentives for irresponsibility. ***

Well duh. That was the plan. Gte people to drop coverage, get employers to drop coverage. Eventually genuinely socialized medicine becomed a fait accompli.

The Left knows it can't get what it wants by being honest, or in a single step.

miles said at April 22, 2010 6:21 AM:


"

Charles Martel said at April 21, 2010 9:42 PM:
*** In a nutshell: This new "reform" provides new incentives for irresponsibility. ***

Well duh. That was the plan. Gte people to drop coverage, get employers to drop coverage. Eventually genuinely socialized medicine becomed a fait accompli.

The Left knows it can't get what it wants by being honest, or in a single step."


Charles,
Thats pretty much been my take on it. Companies that insure their employees supposedly can pay some small fine ($750 a year?), and drop their employees onto the government plan. When I was told this (admittedly haven't verified that one), I immediately thought that it was an intentional incentive for companies to dump a great number of their more marginal employees onto the new government plan, thereby taking many paying customers away from health insurance companies. The blogger Half-Sigma had a post detailing how it would just be better for individuals financially to pay a fee on their income taxes instead of buying their own insurance within the parameters of the legislation, in effect making it work out better for them to also drop their insurance much like Randall describes above.
This act really was a profoundly dishonest piece of legislation, but then again the cap-and-trade bill and the amnesty bill are also going to be very dishonest pieces of legislation. We are dealing with Herculean-liars, at least as unctuous as the Clinton administration.

MTJ said at April 22, 2010 6:24 AM:

Your last point, that medical care has very little impact on life expectancy is the most interesting though as I understand certain procedures have had a giant impact on life expectancy (e.g. infant mortality, defeating polio, the flu vaccine, etc), it's just that the inexpensive procedures have the largest impact and they are available even in relatively bad medical systems. This makes sense. There will necessarily be a 'curve' of usefulness from most useful procedure/dollar to least useful. Only rich countries will spend money on those 'least useful' procedures.

With that said, I do believe that if enough money is continued to put into health R&D we will begin to see an acceleration in the importance of medical technology as more and more key breakthroughs are made with the help of ever faster computers.

----
I support www.Brumberg2010.com (Throw the bums out.)

kurt9 said at April 22, 2010 2:21 PM:

"Are you sure? I have read reports that I interpreted as indicating these policies are now illegal...."

They are not illegal. They just simply do not meet the mandate that comes into effect in 2014.

dearieme said at April 23, 2010 1:57 PM:

"I understand certain procedures have had a giant impact on life expectancy (e.g. infant mortality, defeating polio, the flu vaccine, etc)": I assume you're right about polio. Recent research shows that the flu vaccine is ineffective.

Randall Parker said at April 24, 2010 8:56 AM:

MTJ,

For some very small fraction of the population the medical advances buy some extra years. For the person who dies suddenly from a massive heart attack the advances help not at all. To someone dying from Alzheimer's medicine has nothing to offer. Liver cancer? Pretty much a death sentence. Ditto pancreatic cancer.

Some procedures like hip replacements extend mobility and at a young age buy a person decades. But few people need such procedures.

I agree about the future benefits. Eventually doctors will be able to fix the damage of degenerative diseases. But right now the 17% of US GDP going to medicine isn't buying very much.

kurt9, bob,

The problem is that catastrophic coverage policies do not satisfy the requirements of this new mandate from the US government. So you end up getting fined or need to buy a more full policy. You end up having to ask whether the catastrophic policy plus the fine costs more or less than a compliant medical policy.

Mitt Romney in Massachusetts wanted a way to allow people to post a bond to get out of the requirement of a medical policy. Today I'd like to see a large balance in a Health Savings Account allow one to buy a much higher deductible policy like a catastrophic policy.

kurt9 said at April 24, 2010 1:24 PM:

Randall,

That's in '14, not now. I expect the mandate portion of the law to be repealed between now and then. I'm not that concerned about it.


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