The IUSB Vision Weblog

The way to crush the middle class is to grind them between the millstones of taxation and inflation. – Vladimir Lenin

The Young Won’t Stand for this Health Care Bill

Posted by iusbvision on September 28, 2009

If the new ObamaCare bill passes it will generate two generations of Republican voters.

The shall issue mandate in current proposed legislation will cause premiums to skyrocket (details why below). Young people will not be able to afford it and as a result will be forced to opt for paying the mandated tax penalty. The penalty will still be much less than the premiums. The result, since the public option is gone, will be even more people who cannot afford health insurance, more employers who cannot afford health insurance for their employees, with both the poor, young and small employers paying higher taxes to subsidize the baby boomers.

It’s a rip off and there is a smarter way to do this.

Wall Street Journal:

Let’s have an honest debate before we transfer more money from young to old.

By Leavitt, Hubbard & Hennessey

Let’s start with basics: Insurance protects against the risk of something bad happening. When your house is on fire you no longer need protection against risk. You need a fireman and cash to rebuild your home. But suppose the government requires insurers to sell you fire “insurance” while your house is on fire and says you can pay the same premium as people whose houses are not on fire. The result would be that few homeowners would buy insurance until their houses were on fire.

The same could happen under health insurance reform. Here’s how: President Obama proposes to require insurers to sell policies to everyone no matter what their health status. By itself this requirement, called “guaranteed issue,” would just mean that insurers would charge predictably sick people the extremely high insurance premiums that reflect their future expected costs. But if Congress adds another requirement, called “community rating,” insurers’ ability to charge higher premiums for higher risks will be sharply limited.

Thus a healthy 25-year-old and a 55-year-old with cancer would pay nearly the same premium for a health policy. Mr. Obama and his allies emphasize the benefits for the 55-year old. But the 25-year-old, who may also have a lower income, would pay significantly more than needed to cover his expected costs.

Like the homeowner who waits until his house is on fire to buy insurance, younger, poorer, healthier workers will rationally choose to avoid paying high premiums now to subsidize insurance for someone else. After all, they can always get a policy if they get sick.

To avoid this outcome, most congressional Democrats and some Republicans would combine guaranteed issue and community rating with the requirement that all workers buy health insurance—that is, an “individual mandate.” This solves the incentive problem, and guarantees that both the healthy poor 25-year-old and the sick higher-income 55-year-old have heath insurance.

But the combination of a guaranteed issue, community rating and an individual mandate means that younger, healthier, lower-income earners would be forced to subsidize older, sicker, higher-income earners. And because these subsidies are buried within health-insurance premiums, the massive income redistribution is hidden from public view and not debated.

Mr. Leavitt, former secretary of Health and Human Services (2005-2009), has served as the administrator of the Environmental Protection Agency and a governor of Utah (1993-2003). Mr. Hubbard (2005-2007) and Mr. Hennessey (2008) served as directors of the White House National Economic Council.

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