Health Reform Fattens Big Insurance and Taxes the Young

A young adult now paying $500 a year for health insurance may pay closer to $4,000 after health reform
By Bernadine Healy, M.D., U.S. News & World Report
Aug. 19, 2009

The only institution that might surpass Congress in drawing the wrath of otherwise polite Americans at lawmakers' town hall meetings this month is the health insurance industry. Too many people have faced smothering increases in premiums, delays and denials of claims when they are sick, and fears of being cast aside altogether if they have pre-existing conditions.

The angry so-called mobs at these town halls may have sniffed out the Kabuki courtship dance taking place between Big Insurance and the Obama administration. Two months back, these two parties were holding hands at the White House, hellbent on getting health reform done fast—and before the public caught on to some pesky details. Details, for example, that show reform narrows—to tight government specifications—rather than expands health insurance choices for virtually all individuals. Or that reform will not save money but take a trillion or more of taxpayer dollars, not counting patients' own new spending.

Insurers agreed months ago to clean up at least some of their hated practices, such as denying insurance for prior illnesses and canceling coverage when someone gets sick. In return, they stand to get some colossal plums: a mandate not only that every American buy health insurance but that the mandated insurance be "comprehensive," another word for expensive. What polishes this plum even more is that the new clients these companies will pluck from the ranks of 45 million uninsured Americans will tilt toward healthy people who are young and working, a group relatively inexpensive to cover and a fount of revenue and profit.

Take a concrete example. Imagine a 25-year-old man, perhaps your son, just starting out in life, with good health but a skimpy income. Right now, despite being laden with school loans and a car that's not quite paid for and trying to save up for a house—all on maybe $35,000 a year—he can get health insurance that will meet his needs at this stage in his life and contribute toward the national goal of universal coverage. To do this he might buy a catastrophic-care policy that covers him for major medical events, like a bad skiing accident, that could otherwise bankrupt him. This might cost as little as $500 to $600 a year and typically comes with inexpensive primary-care access. But under Obamacare, he would have to pay a premium closer to $4,000—a potential back-breaker that might force him to take a government handout, further burdening his fellow taxpayers.

That's because, as mandated by the House bill, his premium must be no less than half the highest premium paid by an older, less healthy adult in the same plan. By tightly harnessing the premiums of the young and healthy to those of the old and sick, reform would redistribute dollars belonging to younger Americans—much as Medicare and Social Security already do. But reform would hide this spreading of wealth by folding it into premiums, rather than revealing it on paychecks. Forced by government and enforced by the Internal Revenue Service, these hefty premiums would amount to a middle-class tax.

These considerations alone paint a picture different from what's being sold by the president and many lawmakers. Despite what has been claimed, reform begins to resemble a taxation policy just as much as an excise tax on beer and Coke would. And contrary to what many assume, existing plans that people want to keep may vanish if the insurer finds bigger profits in its new plans.

Lawmakers of every stripe are no angels here and warrant the tough scrutiny that town-hallers are now demanding. Health insurance companies may be demonized by House Speaker Nancy Pelosi and her colleagues, but those same lawmakers happily take Big Insurance money and invite industry people to closed-door meetings where lobbyists are privy to information not available to the public.

The president has used anger toward private insurers to build steam behind his cherished public insurance option. Critics call the public option a Trojan horse that makes way for a single-payer—or socialized—healthcare system. Obama says no; rather, it's a way of keeping private insurance companies honest. Yet he keeps inviting the presumably dishonest scoundrels to the White House in search of their blessing. At the same time, lawmakers will not commit to adopting the public option for their own care. In any case, it now seems to be on life support. The Senate, which still has not released a reform bill, is rumbling about replacing the public option with an ill-defined, watered-down series of nonprofit cooperatives.

As the Kabuki dance goes on, insurers are licking their wounds but still have visions of sugar plums. One top insurance executive recently told me that he's not worried; insurance companies will make money from health reform whatever happens. After all, they already make good money, even on cash-strapped Medicaid, he told me. Maybe that's why insurers seem to wink at the barrage of criticism politicians are serving up as red meat to the voters. They tacitly support health reform and are eager to count the swelling ranks of indentured beneficiaries who will be subject to their escalating premiums, bureaucratic hassles, and denials of care.

With these conflicting messages and the uncertainty about what health reform will really do, we'd better cool off about ramming these bills through, as Obama insists he will do. Cooling off, however, does not mean squandering the focus on reform we have now, thanks to the president.

What we need is a new direction and real, not phony, harmony. Let patients and future patients have a say, even if they ruffle feathers at town meetings. And let doctors' diverse views be heard, not just those of the American Medical Association, which represents fewer than 20 percent of physicians. Use federal muscle to deliver reform that better regulates and referees the insurance companies so that they are more transparent about the prices they really pay for services and the premiums they charge or the way they deny treatments or claims. Above all, correct the fact that most people have little or no choice of insurer. Insurance companies should face vigorous competition from one another through an open, national insurance exchange where everyone can buy his or her policies in any state from any insurer. That should drive costs down and the quality of service up.

In short, insurers must make their money by offering the best health plans at the best price to people young and old. That's serving their customers—whom I'd prefer to call patients.