The Lack of Young and Healthy is Not the Cause of Health Care’s Death-Spiral

According to the Kaiser Family Foundation’s website, 49% of Americans obtain their health insurance as a fringe benefit at their place of work (the employer-provided group), 36% obtain their health insurance through a social program (mostly Medicare and Medicaid), 7% purchase their own health insurance (the self-payer group) and, 8% have no health insurance. Combined, the employer-provided group and the self-payer group represent the entire private-sector health insurance market in America (56% of the population).

When a member of the employer-provided group becomes catastrophically sick and/or injured, they can no longer work and therefore lose their employer-provided health insurance. They fall into the self-payer group just at the time when their health care costs are extremely high. The COBRA law allows them to stay on their employer’s health insurance plan for 18 months. However, they would have to pay the full cost of the employer’s plan. Since they are out of work, they cannot afford this. Instead, they purchase an Affordable Care Act (ACA) plan that is eligible for ACA subsidies.

Falling from the employee-provided group into the self-payer group just when the individual has developed the need for copious quantities of health care is risk dumping. The employer-provided group is saved the cost of the required health care and the self-payer group has no choice but to suck it up. Employers can choose who they hire (healthy), but the self-payers have no choice in who joins their group (unhealthy).

Of course, dependents of an employee (spouses and children) may become catastrophically sick and/or injured and remain on the employer’s health plan. Furthermore, some working couples obtain health coverage from both of their employers. Therefore, the risk that gets dumped may only be 10 to 20% of the employer-group’s overall risk. However, even 10% of the risk from that large group is almost equal to all the risk that is native in the 7% self-payer group. Thus, large annual premium increases for the self-payers will be an on-going occurrence in the current, flawed design of the law.

Prior to the ACA, self-payers purchased health insurance as individuals based on their own level of healthiness. The ACA forced self-payers to purchase health insurance as members of a group and therefore caused the healthy to pay more so that the unhealthy could pay less. This was the “shared responsibility” theme of the ACA. Since the healthy may someday become unhealthy, this seemed fair. However, the ACA created a system where the self-payers shared the responsibility for unhealthy people from both the self-payer group AND the employer-provided group.

The self-payer group has become the high-risk-pool for all private-sector health insurance. Because of this, the little-guy is paying outrageous premiums, and businesses are being shielded from the true cost of health care in America. This has caused the ACA self-payer death-spiral.

Although it makes a small contribution, the lack of the young and healthy purchasing health insurance is not causing the death spiral. The death spiral is caused by risk-dumping.

If the constitution had a uniform premium clause similar to the uniform tax clause, the ACA premiums would be ruled unconstitutional. The little self-payers’ premiums cover the cost of the risk for their co-inhabitants of the self-payer group PLUS for a good portion of the employer-provided groups’ risk.

We are beyond the point where the ACA’s preexisting-condition-safety-net would ever be eliminated. Therefore, we must fairly distribute the ACA’s "shared responsibility" among everyone in the 56% group of the private-sector health insurance market. After all, it is the entire 56% that is realizing the risk-sharing benefits.

The solution is to create a single, private-sector risk-pool where the premium for each individual’s health insurance is based on the average healthiness of that new risk-pool. Employers will still provide health insurance to their employees but they must purchase that insurance through an insurance company. Businesses would no longer be allowed to self-insure their healthy group of employees. Instead, they would pay an insurance company the premiums for their employees as members of the new risk-pool. Insurance companies will be prohibited from offering a plan to a business unless they offer the same plan to self-payers. This will assure fair play and provide health plan choices to the self-payers.

There will still be self-payers and employer-provided groups but they will be in the same risk-pool. This is a single-market, not a single-payer solution.

To demonstrate this proposal with numbers, consider that, per the New York Times, the 2017 nation-wide average premium increase for self-payers was 25%. According to a PricewaterhouceCoopers report, the 2017 nation-wide premium increase for the employer-provided group was 6.5%. The weighted average that results when combining these two groups is 8.8%. There are a lot more people in the combined group with which to share the risks.  8.8% is still too high of an annual increase when inflation has not seen 3% in a long time. More still needs to be done. But, compared to 25%, this is the biggest, single step forward we can make.