[FoRK] Adverse selection in insurance

Gordon Mohr gojomo at boxbe.com
Mon Oct 19 09:50:56 PDT 2009


J. Andrew Rogers wrote:
> There is a significant path dependency component to the implementation 
> of systems in various countries. The US ended up with employer-based 
> health insurance -- a bad idea -- as a direct market consequence of 
> ill-conceived regulation under Roosevelt and has never been able to get 
> away from it since even though the regulations that caused it have not 
> existed in a very long time.

All true, but it is also important to note:

One of the biggest distortions that bias the US towards an 
emplyer-provided system still exists: employer-paid health insurance 
costs are free of income taxes; individual-paid insurance costs are not.

We don't even know what a US individual-insurance market would look like 
because it's been placed at a ~15-40% cost disadvantage to an 
employer-centric system by tax policy.

An incremental approach to fixing the problems in US health coverage, 
one by one, and letting people and companies adjust should start with 
removing that tax policy distortion. A few years later, we might find a 
vibrant competitive market for portable health insurance, making the 
remaining problems easier to address. Or not. But until it's tried we 
don't know.

As far as I can tell, there are a couple big reasons the ruling party 
doesn't consider this first step:

(1) the ruling party's key union constituency has negotiated a lot of 
high-end health coverage dependent on unlimited deductibility of 
employer-paid health insurance -- and extending this same unlimited 
deductibility to individual insurance would be a budget-buster. (Capping 
the deductibility could make equal treatment of employer- and 
individual- costs revenue-neutral, but such 'progressive' taxation of 
health benefit income is resisted by the unions who are 'rich' in this 
one dimension.)

(2) the ruling party prefers the system to get worse before it gets 
better, to feed a useful crisis mentality, helping them finally get the 
single-payer system they really want

- Gordon


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