The hidden health care “tax”  

By Mitch Gurney

November 24, 2009

One of the arguments I hear most often in opposition to health care reform is some people are angered that the government will force them to get insurance. The justification often given is that some people don’t have insurance either because they don’t want it, or need it, or can’t afford it. They consider the current health care reform as an infringement on our freedoms. But folks I don’t get the freedom angle. Who do you suppose might be more upset about being forced to get insurance, the already insured or the uninsured? And where’s the freedom for the uninsured who can’t afford health care often making great personal sacrifices to get care when needed, or the underinsured who often suffer financial hardships after a major illness, or for someone denied coverage for a pre-existing condition, or for the insured who partially pays the bill for those uninsured?

As I listen to the debates that surround health care reform I have been thinking about the interrelated repercussions that we, as a society, have on each other. These thoughts came more into focus as I researched and wrote an article, Do States or Federal Laws Dictate Seat Belt Use?, recently posted on KAW.

Prior to researching into seat belt laws I never paid much attention to the issues surrounding it. But what I found interesting was to discover a debate that has lasted for many years over laws requiring us to wear them that some people consider an infringement on their freedoms. This particular argument is also central in the current health care debate. Understandably most of us do not like to be told what to do, even if it might be for our own good. But on occasion there are other factors that ought to be considered when weighing out national, state or local policy especially with issues like these.

It’s our civil duty and noble that we fight to defend our freedoms which seem appropriate with issues like freedom of speech, elections, where to live, what brand of TV to buy, what school to attend, or our careers, but doesn’t it seem a bit over the top when it comes to wearing seat belts or having health care insurance? Why don’t we have the same argument over laws that require us to stop at a red light or laws about drunken driving? You might be thinking I’m going to extremes in what I just wrote, but, am I really? At the core of this particular debate aren’t we talking about the same issue here; restrictions or requirements placed on us by some other entity affecting our freedoms? I understand the necessity that certain laws are designed to protect others and ourselves from physical harm, but there are other types of human interactions that cause impositions upon others besides those that inflict physical harm.

Unfortunately on occasion we all make some bad decisions. In fact we are inclined to make more wrong decisions than good ones. Some bad decisions have minimal repercussions on those around us while others ripple through society. Even if the cause is not always discernable we are impacted none the less. The reality is few things happen in a vacuum. In following the same line of reasoning as those given for opposing seat belt laws or health care reform as a restriction of our freedoms, for a variety of justifiable reasons our freedoms are often restricted in other manners we may not recognize as such since they are not directly associated with the government itself, or if we do we apparently don’t get all bent out of shape over them. For example, if I buy a new car the bank financing the loan requires that I get insurance, plus most states regulate and require auto insurance. When I buy a home the mortgage company requires that I get home insurance. We seem to comprehend the fiscal responsibilities for this.

Since we on occasions make bad decisions, where is the value in the freedom to decide whether to wear seat belts or not if it might cost us our lives in the process or sustain far more serious injuries? If the repercussions were to end right at the point of either the injuries sustained or getting killed in an accident that might be a different matter I suppose. But it doesn’t. Whether someone has insurance or not the repercussions ripple through society and we all pay for this somewhere along the line.

One of the arguments I hear most often in opposition to health care reform is some people are angered that the government will force them to get insurance. Déjà vu, the seat belt saga all over again. The justification often given is that some people don’t have insurance either because they don’t want it, or need it, or can’t afford it. They consider the current health care reform as an infringement on their freedom. But I don’t get the freedom angle. Who do you suppose might be more upset about being forced to get insurance, the already insured or the uninsured? And where’s the freedom for the uninsured who can’t afford health care often making great personal sacrifices to get care when needed, or the underinsured who often suffer financial hardships after a major illness, or for someone denied coverage for a pre-existing condition, or for the insured who partially pays the bill for those uninsured?

About the only people who might not “need” insurance are perhaps the wealthy that make up about 3 – 4 percent of the total adult population. Since a single hospital stay can wipe out our savings and more, there are few of us that can afford to go without some kind of health insurance – even if we’re healthy. Good health is not a lifetime guarantee. For those that are not wealthy and simply don’t want coverage how likely is it that they can afford to pay the hundreds of thousands of dollars for a serious illness? And for those that cannot afford insurance it’s a sure bet they can not afford to pay for their major care either.

We currently have over 45 million people who are uninsured and this number is expected to grow if nothing is done. We know that at some point these people will need medical care and perhaps need expensive care. If they can’t afford insurance or simply have decided not to get it and can’t pay for their medical care but are angered about being forced to get coverage what this essentially means is that those paying monthly premiums will partially pay for their medical bills because these costs are shifted in part to the insurance premium payers. This situation is not a healthy expression of freedom for anyone, no pun intended.  

The basic principle of medical insurance is to average the cost associated with health care among a group of premium payers. The purpose is to share the cost burden among the participants and to protect individuals or families from suffering what often are huge financial losses during a medical hardship. Health insurance premiums, as with insurance premiums in general within their respective fields, are determined by a range of statistical and probability data related to health care and include the operating cost and profit margins of the company issuing the insurance. Obviously the more premium payers there are the lower the premium can be for each premium payer.

For our freedom rider who decides not to wear their seat belts and gets in an accident most often result in more serious injuries causing larger claims against their insurance company for their care. These higher costs increase the cost that is averaged among the rest of the premium payers. There are years of accumulated empirical evidence that wearing seat belts lessens the degree of injuries plus results in a reduction in fatalities. Anyone with a lick of common sense can comprehend this even without studying the documented evidence. Less injuries result in lower medical bills and shorter stays in the hospital which can reduce or at least hold down premiums for every one else. It seems reasonable to strive to reduce injuries and fatalities if we know of a way to do so.  

It is estimated that over 30 million people are underinsured placing them at high financial risk which often result in a huge personal sacrifice when a major illness occurs. In those situations in which these medical bills go unpaid they too are partially shifted to the premium payers. As the cost of health insurance increases more people find themselves unable to afford insurance creating a vicious cycle of escalating numbers of uninsured people and higher premiums.

Medical cost have continuously increased over the years and as this chart shows, in 2007 medical cost have out paced for the past 30 years housing, food, and energy cost. In some decades the Consumer Price Index (CPI) of medical cost grew at double the rate and today is 75 percent higher than other essential items.

A recent report by FamiliesUSA.org stated:

Private health insurance premiums are higher, at least in part, because uninsured people who receive health care often cannot afford to pay the full amount themselves. The costs of this uncompensated care are shifted to those who have insurance, ultimately resulting in higher insurance premiums for businesses and families.

While people without health insurance often delay or forgo care, in 2008, the uninsured received $116 billion worth of care from hospitals, doctors, and other providers. Those costs were covered in the following ways:

• The uninsured paid for, on average, more than one-third (37 percent) of the total costs of the care they received out of their own pockets.
• Third-party sources, such as government programs and charities, paid for another 26 percent of that care.
• The remaining amount, approximately $42.7 billion in 2008, was unpaid and constituted uncompensated care.

To make up for this uncompensated care, the costs were shifted to insurers in the form of higher charges for health services. These higher charges are then passed on to families and businesses as higher premiums. The impact of this hidden health tax on annual premiums for families and individuals in 2008 was as follows:

• For family health care coverage, the hidden health tax was $1,017.
• For health coverage provided to single individuals, the hidden health tax was $368.

Many of us worry about paying higher taxes yet here we find a “tax” hidden in every medical insurance premium, although not all are paying this hidden tax. Under these circumstances some of us are in fact paying higher “taxes” year over year whether we realize it or not but call it by some other name and which is assessed on us through some other entity we perceive as less sinister than the government. We have over 45 million uninsured who are not contributing now thus shifting an extra burden on those who do. As noted in the FamiliesUSA.org report $42.7 billion was uncompensated care in 2008. Interestingly just a dollar from each of the 45 million uninsured would have at least covered that shortfall. 

According to CBO estimates an employment-based plan will cost about $13,000 for an American family of 4.  Although plans and terms vary the employer may pay about 70 percent and the family may pay about 30 percent - about $3900 for 2009. Included in that premium is the hidden health tax that the FamiliesUSA.org report indicated was about $1,017 in 2008. Compare this to a family of four in Japan, who has a social insurance plan in which all citizens are required to have insurance, and pays a total annual premium of about $3360 with the employer paying more than half, the family paying the other portion of about $1680 annually. Or compare this to a family of 4 who pays $650 annually for their total coverage in Taiwan, who adopted a “National Health Insurance” model in 1995 after studying other countries systems.

What has been proposed in the current reforms is to make sure everyone is either insured or at least contributing on some level. The plan refers to this as “shared responsibility.” As we know this is not currently happening and as we can see places a heavier burden on those paying for insurance. Additionally there are provisions to standardize coverage so that everyone has sufficient coverage so fewer medical bills are left unpaid and fewer people suffer personal hardship and sacrifice. As part of the reform the government would provide financial assistance for those who need it similar in what five other capitalist democracies with varying forms of national health care systems do.

Sometimes we need to step outside our individual spheres and consider the larger dynamics and the interrelatedness that plays out in our daily lives. Beyond the financial and other issues, at the heart of this issue the real story though is about people. In the current system everyone pays a price but the biggest burden falls of the uninsured, the people without insurance who need expensive medical care. As a society we need to recognize the benefits of our collective strength in sharing the high cost of medical care so that these burdens might be lightened for each individual and family.

Mitch Gurney

Posted on November 24th, 2009 by m_gurney
Filed under: Mitch Gurney, Tracking the Health Care Debate