Health Insurance: Portability
Now that the public option appears to have been declared really, really dead, focus can brought upon the areas of health care reform that most people want. One of those is “portability”, the promise that someone with health insurance will be able to retain it after losing their job.
The problem with most of the promised reforms is that they ignore the principles that make insurance possible in the first place. As Howard Audsley notes in Conversations Around a Wood Stove:insurance is a social mechanism for the transfer of the risk of monetary loss from the individual to a larger group. The concept is that risk of loss fits a random pattern of probability. It works very well for things like lightning strikes, hail, wind, etc. Risk and the premiums charged for insurance vary directly with the probability of loss. Hurricane insurance premiums are greater for folks living in Pensacola than for those in Minneapolis. Car insurance premiums for a guy with 3 DWI’s and two at-fault accidents are higher than for grandma, who only drives to church on Sunday. Life insurance premiums for an aging rodeo clown who smokes and has a bottle hidden behind chute #9 are higher than for a young (straight) desk clerk. You get the idea.
Insurance doesn’t work when the pool is exposed to catastrophic losses (exclusions for acts of war, earthquakes, etc), or when the pool as a whole is exposed to a high probability of loss. Assuming a guy with 3 DWI’s still has his license to drive, he isn’t going to be able to buy insurance from a commercial company. It will have to be a low limit, state fund that sells him insurance. How about $1,500 a quarter for $10,000 liability only coverage? That is the way it works.
So how does insurance work when the premiums can’t be paid at all? The short answer: it doesn’t.
Most people don’t realize that their employer often picks up 80% or more of the monthly health insurance premium. The guy who thinks he is paying too much for health insurance at $300 a month doesn’t realize the full bill is $1,500. When he loses his job he finds that COBRA payments are the full amount (the law allows up to 102% of the total cost). So you can get your health insurance coverage, for up to 18 months, but it will cost you dearly. Right at a time when you cannot afford to pay for it. It is unreasonable to assume that insurance companies will be able to pick up the cost of covering people who are not paying for coverage. There is no free lunch, so premiums have to increase from the paying customers to cover those who are between jobs … and sometimes people are “between jobs” for a long time, especially if all their needs are met. Portability could be provided, and without using tax dollars to do it. Allow insurance companies to offer “loss of job” riders, allowing employees to pay extra each month to insure specifically for COBRA payments for unemployment. Some insurance companies already offer “loss of job” insurance; an example plan pays out $1,500 a month for up to four months for a premium of $70 per month. A similar product is found in the “mortgage protection plans” that pay your mortgage payments for up to six months (cost is about $40 per $1,000 of monthly payment). If we must, we could structure such a plan the same way we do the horribly inefficient “Worker’s Compensation” plans, with a state payroll tax of one to two percent of all worker’s wages. The problem is, like all government give-aways, such a plan is ripe for the same kind of fraud as Worker’s Compensation.