In ‘The Health Insurance Trade-Off Game,’ I’ll Take The 1% Premium Increase

Over at Reason, Peter Suderman laments the fact that the new rules requiring insurers to cover individuals to their 26th birthday would increase premiums by just under 1%. “Prices determine quality of service, mandates drive prices up, and regulations make implementation more difficult; none of this is terribly shocking or controversial. Yet supporters of the Affordable Care Act have largely dismissed these concerns as trivialities,” Suderman notes:

No matter what, though, the point is that the state’s regulations made the cost of business more costly and thus drove prices up. Naturally, no one wants to pay for these increases. But someone has to.

Those in government who want to regulate insurers and impose mandates on their products seem largely uninterested in dealing with these trade-offs, preferring instead to layer endless rules and regulations on top of each other in hopes that eventually a working system will emerge. That’s not likely to happen. They might not worry much about the trade-offs and costs of their policies, but it increasingly appears that the rest of us will have to.

It’s certainly true that forcing insurance companies to accept new individuals or cover more services will increase health care premiums (since the new individuals will be more prone to use the new services). But that’s only bad if we assume that allowing young people to go uninsured or asking less of insurers will lower premiums. And so far, it has not.

In the post reform environment any increase in premiums will be blamed on health care reform, but reformers should remember that while adding sick people to health care pools will increase costs for the first 10 years (again, more people will use more services). The coverage expansion is an investment to lowering costs over the next 20. The young people’s provision is a perfect example. Sure, it kind of sucks that policy holders now have to pay a tiny 1% more in premiums in the short term. But it sucks a lot less than having to pay thousands of dollars out of pocket to treat an unexpected health emergency if you’re uninsured (or to pass those costs on to the insured) or to let a condition go undiagnosed and spend thousands of premium dollars treating it once it becomes a chronic problem.

Also, as my friend Lester Feder of GWU and RWJF’s Health Reform GPS pointed out to me, “spending a little bit more in premiums up front will save families loads if their child gets sick. It will also save others on money we would have spent on their uncompensated care. This minimal increase in one area of health spending will reduce the amount spent in other places—for many, this represents net savings.” In other words, “we don’t pay more to pay more—we pay more to get a system with fewer land mines in it.”

The mandates that increase costs in the short term get everyone into the health care system and (hopefully) lower costs in the long term. In that regard, the policy makers who are unconcerned about rising costs aren’t the ones implementing the mandates, as Suderman suggests. I blame the generations of leaders who have avoided requiring everyone to enter the system and have allowed costs to skyrocket out of control.