In his column today in the New York Times, Paul Krugman alleges that “private markets for health insurance, left to their own devices, work very badly.” Apart from anecdotes about patients with acne and broken hearts being denied coverage, his only evidence for his claim is that “only around 70 cents of each premium dollar actually goes to care.”
So what if unsubsidized private insurers spend 30 cents on the dollar to supply coverage if that coverage is good? I offer here real-world evidence from family friends that unsubsidized “direct” coverage is not only affordable and available, but also is better than government-subsidized and regulated coverage.
My friends, a couple in their mid- and late 40s, own a small business in D.C. and have two young children. They purchase unsubsidized private health insurance – directly from the insurer – for a monthly premium of $212. Their policy has an annual deductible of $10,000. This means that their maximum annual out-of-pocket medical expenses are $12,544. [($212 X 12) + $10,000 = $12,544] (And note that my friend told me on the telephone this morning that he has never paid more than $3,000 for medical care in any one year; fortunately, he and his family are sufficiently healthy that they don’t approach the $10,000 deductible.)
Does $12,544 annually sound like a lot? My family and I (who are about the same age as my friends, but with only one young child) get our health insurance through my employer (GMU), so it’s tax-deductible and subject to more government regulations of the sort that Krugman asserts are necessary to make private insurance work. For coverage with a $25 deductible per medical event, we pay out-of-pocket a monthly premium of $144, while GMU kicks in monthly $974. So the minimum amount spent annually to supply my family with health coverage is $13,416 – nearly $1,000 more than the purely private coverage that allegedly “work[s] very badly” compared to the government subsidized and regulated variety.
If income-tax advantages didn’t make employer provision of health-care insurance such a good deal for employees, I have no doubt that my annual take-home pay would be higher by approximately $11,688 — the amount that GMU pays toward my compensation each year now in the form of health-care premiums.