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Commentary: How Much Does Your Health Insurance Cost

Nov 21st, 2012 | By | Category: Features, Front Page, Lead Article

How much does your health insurance cost?  If you are like the 56 percent of workers who have an employer-based health insurance plan, you can identify what it costs you by inspecting the health care deduction from your pay stub.  When you’re planning your personal finances or choosing whether to enroll in your employer’s plan or your spouse’s plan; this certainly is the best number to use.  In fact, it may seem that this is the only number that has any benefit for you or that you need to know.

As you may have suspected, this is not the real cost of your insurance.  Your employer, on average, pays about 73 percent of the premium for you health insurance plan.  Consequently, the real cost of your health insurance is about four times greater than what you are paying.  Why should this matter to you?  There are two important reasons.  First, if you lose your job or your employer ceases to offer the subsidy, you will be more prepared to act prudently in obtaining health insurance for you and your family.  As we all are so painfully aware, many more of us have lost jobs in the past few years.  Fortunately, provisions in the new health care law largely prohibit your employer (if it is a large employer) from dropping this benefit.  Second, as a citizen, you are being asked to help make policy affecting all Americans through your support for Commonwealth and federal law.  Recently, the most important of these requests relates to the passage of the Affordable Care Act (Obamacare) and the call for its repeal or partial dismantling.  An informed policy position on these matters requires knowledge of more than what you pay out-of-pocket for your health insurance.

Here are some of the facts.  The average annual premiums for employer-sponsored health insurance in 2012 are $5,615 for single coverage and $15,745 for family coverage (KFF).   It must also be noted that this is not the total cost of health care for individuals, since many plans have significant deductibles and co-pays.  So if you actually use health care, your cost can be significantly greater. Since 2002, average premiums for family coverage have increased 97 percent. During the same period, average wages have increased only 33 percent (KFF).  This is not a promising trend for the future.  One can get a feel for the cost of insurance when comparing these numbers to the average income. In 2011, the median household income was $50,054 and in 2010 the median personal income was $20, 152.

For those not covered under an employer-sponsored plan, the cost of an insurance plan is not the only challenge. This group includes the 44 percent of workers not covered by their employer’s plan (some of whom are covered under a spouse’s plan) and the unemployed.  Nearly all of this group must seek coverage in the individual health insurance market (employer subsidized insurance is part of the group market).  This is a difficult marketplace to buy insurance.  In the past 25 years, many carriers have decided to pull out of states in which guaranteed issue has become law.  Guaranteed issue means that the insurer is obligated to cover all those seeking insurance.  Guaranteed issue does not put cost limits on the premiums, however.  Community rates govern the range of premium costs.  Most states have laws that institute community rates (a rate band) for group plans but not for individual plans.  Individual policies generally have to be underwritten and rated.  Individual rates are dependent on the health of the insurance seeker.  Seventy-three percent of those who have tried to buy Insurance in the individual market did not purchase a plan (CF).  The primary reason offered for not obtaining coverage was cost.   Fifty-seven percent said it was very difficult or impossible to find coverage they could afford, 47 percent said it was very difficult or impossible to find a plan with the coverage they needed, and 36 percent were denied coverage or charged more because of a pre-existing condition, or had the condition excluded from their coverage (CF)Costs in the individual market have recently been slightly lower than group plans, but have higher out of pocket costs.  A 2009 study found that the average deductible in individual plans was $2,326, about 4 times higher than the average 2009 deductible for both employer-sponsored and preferred provider organizations.

All of this has left 48.6 million people uninsured in 2011.  This is down from 50 million in 2010.  The decrease was largely due to a provision in the Affordable Care Act that allowed young adults to be covered on their parents’ policy.

What does all of this mean to you?  First, it is a warning.  Be prepared if you lose your employer-based coverage.  Second, it is a call to more carefully evaluate your position on health care reform.  The current delivery system for health care and its access via the insurance market has resulted in many Americans having both poor access and poor health outcomes.  Even at its current inadequate configuration, it is not sustainable due to rising costs.  If you are fortunate enough to have good insurance coverage through your employer or are healthy and wealthy enough to obtain coverage in the individual market, then you are able to obtain first class health care.  For the many who are not; it means poorer health, poorer life-chances, and a poorer quality of life.  Regardless of your position on the Affordable Care Act, one can come to no other conclusion than the current health care delivery and insurance system is in need of substantial reform.  Dismantling the current law has consequences.

Sources:

(KFF) — Employer Health Benefits 2012 Annual Survey, Kaiser Family Foundation 2012.

(CF)—Commonwealth Fund

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  1. I have one additional comment for those who object to government subsidies within the proposed insurance exchange or object to public payment for health care users (Medicaid and other programs) to consider. Consider the following: The tax exclusion for employer-sponsored health insurance is the largest tax break in the federal tax code. In 2007, the revenue loss to the federal government was $147 billion (the latest figures available to me). By now, this total is well in excess of 150 billion. About 80 million workers are enrolled in an employee plan. This works out to a mean subsidy of about 2,000 dollars per employee. In addition, the average 10,000 dollar employer contribution to those on an employer plan is not considered income for the employee; so it is not taxed. In contrast, the total cost of insurance for those purchasing insurance on the individual market is considered taxable income. This is only one of the not-so-obvious structures constituting who and how we pay for health insurance. All of which should be considered in developing a position on health care policy.

  2. [...] November, the Elizabethtown Journal published the commentary, “How Much Does Your Health Insurance Cost” In that essay, it was argued that most individuals who are enrolled in employee-sponsored [...]

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