Insurance mandates revisited

We have been trying to come up with a method to compel private health insurance without screwing up the free market. If the Government follows a plan of setting a fine (in some form or another) of a fixed amount for failure to have health insurance, that amount will become the new minimum for premiums. For example, if the amount is fixed at $3600 per annum, people who currently do not feel a need to have insurance would not pay more than $300/month for insurance because that is the fixed minimum to pay. The insurance companies could charge less to gain market share, but there is little incentive to go much below because they know everyone will have to spend $300/month if they don’t get insurance at all. In this situation, even HSA’s could see a dramatic increase in premiums. Tying the penalty to income makes much more sense. Setting the penalty to something like 7.5% of AGI means that insurance companies would not have a fixed minimum premium. For example, if a person earns $50,000/year (AGI), they would pay $3750 for failure to have insurance. For that individual, the $312.50/month is competitive with insurance that would provide benefits (unlike a fine). On the lower end of the scale, people with less income would not be forced to purchase expensive policies that they cannot afford. The $126.25/month for a $25,000/year earner would buy a catastrophic coverage plan and still put money into the risk pool. On the upper end, affluent people could save money (although they typically carry insurance now). The dollars from the penalties would be used to purchase insurance for the person from an insurance provider of the Government’s choice. Although there is the potential for favoritism, only idiots would pay to have the government choose their provider. While we are not fans of government over-regulation of private industry, at this point it is political reality that something is going to change. While they are disallowing exemptions for pre-existing conditions, disallow income based premiums. Insurance companies do not use income as a factor now, so that limitation would not be burdensome. Additionally, subsequent violations would  increase the penalties for failure to obtain insurance. An annual increase of 2% would soon make it unreasonable not to get insurance on their own and the additional dollars would pay for the poor. The government purchased minimal insurance savings as well as the additional money from increasing fines would help pay for insurance food stamps for the poor.

AX

This entry was posted on 10/07/09 at 01:48 and is filed under Amendment X. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.

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