Thursday, September 22, 2011

TANSTAAFL

An important and positive attribute of the Affordable Care Act was the provision allowing young adults to stay on their parents' health insurance policies until age 24.  Many of us faced this problem when our children finished college but were not yet established in employer-based insurance plans.  An article by Kevin Sack in the New York Times summarizes the effect of this and contains the chart shown to the left.

Kathleen Sebelius, the secretary of health and human services, understandably and rightfully claimed victory on this point.

But embedded in the article is one of those quiet give-aways that remind us that the laws of economics hold.  It reminds me of the old joke:  "Gravity.  It's not just a good idea.  It's the law."

The point made was that this provision, alone, accounted for an increase in insurance premiums.  "Mark F. Olson, a senior actuary with Towers Watson, the human resources consulting firm . . . and several insurance industry spokesmen credited it for raising enrollments and premiums by between 1 percent and 3 percent at many firms."

In another article, we learn that Hewitt Associates puts the average premium hike nationally at 8.8 percent, a result of several factors in addition to the health bill.  So, something like 1/8 to 1/3 of the average premium increase might be due to this provision of the law.

Is that a lot or a little? I personally think it is worth it and good policy.  But whatever the amount, it belies the claim made by the President during the health care debate that we could have access, choice, and lower costs. Indeed, when the law's provisions concerning guaranteed issue (e.g., eliminating exclusions for pre-exisiting conditions) come into effect in future years, there will be yet another bump up in rates to cover those people.

TANSTAAFL means "There ain't no such thing as a free lunch."

It's not just a good idea.  It's the law.

2 comments:

G said...

While it may be the law, there are some unintended consequences of this "law".

Prior to the mandate of requiring your child on your health insurance until he/she was 26, you had the option of putting your child on, at least if you were a state government employee. If you chose to put your child on, you faced the monetary consequences of paying extra now or paying extra later.

Paying extra now meant that you had extra taken out of your paycheck to cover the insurance premium for your child.

Paying extra later meant that although you didn't have the extra premium taken out of your paycheck then, you got smacked at tax time, because you then had to pay the taxes on the state portion of your child's health insurance premium.

Nothing like having your gross pay on your W-4 increase by $10,000 to sober you up to the realities of life.

Now with this mandate of requiring your child to be on your health insurance, while it may sound good to you, it certainly isn't to health insurance industry or even to the employer, because they now have to either pay or suck up the extra $10,000 worth of premiums.

As background, I am a payroll clerk for a large state agency, so I see the end result of some of these mandates as they're inflicted on the tax paying populace.

Anonymous said...

Your economics education is sorely lacking. If you are not on the PPF then there is such a thing as a free lunch. given how inefficient US healthcare is, there is no doubt in my mind that you are wrong in general, and likely wrong in particular.