Understanding the Uninsured Surcharge: What’s In Your Wallet?

11 Aug

While the town hall meetings continue to devolve into shouting matches and fisticuffs and the rhetoric of socialized medicine has yielded to outrageous claims that Obama wants to euthanize the elderly and disabled examined by Ezra Klein, Democrats seem to be continuing their mild-mannered efforts to persuade the public that health reform is “the right thing to do” by presenting over and over the same list of facts as evidence supporting the need for reform. Guess what? It doesn’t take the likes of Uwe Reinhardt to know that it isn’t working. In another piece Klein laments this demise of democracy.

As I’ve previously written, however, when it comes to political debates, issue framing trumps facts every time. This isn’t news. Nor are Democrats going to win in a shouting match. I just don’t see anywhere near the same level of outrage on the left as I do on the right. Some are saying that the indignant masses are bordering on “crazy” and doing more harm than good, but I’m not so sure. In fact, I’m thinking that we ought to work with the UFC (that’s Ultimate Fighting Championship to the uninitiated) to sponsor a series of health reform town hall cage matches as a way of embracing the madness. Here’s a look at where we are so far:

All kidding aside, continuing to do the same thing while expecting different results is the definition of insanity. Democrats need to accept the fact that there are an awful lot of very outspoken people who are not going to be persuaded to accept health reform on the merits of its societal benefit.

While many of us talk of a “right to health care” or an “obligation” to our fellow man, I think appeals to “obligation” be they of any variety (moral, societal, political) are useless in this debate because of the difficulty presented in attempting first to identify the obligation and second to convince others that such an obligation does indeed exist and is sufficient to warrant action (e.g., health reform).

I prefer to accept the premise that men are motivated by self-interest, and I find, therefore, that appeals to self-interest are far more likely to be persuasive than appeals to our unspecified obligation to “make society better.” Once we allow people to experience the facts for themselves, we won’t have to do much persuading at all.

This is why I like to remind people that we are currently paying for all of the health care consumed in this country. When an uninsured person receives “charity care,” the costs of that care are simply passed along, ultimately inflating the costs that all of us who are blessed with insurance coverage wind up paying. That means that your current insurance premiums are more expensive than they ought to be, because you are already subsidizing your “share” of uncompensated care.

People are—and have always been—very “anti-tax” in this country, and that, combined with self-interest, creates a huge push-back when people are made to believe that they will be paying a tax that will benefit someone else. What if, however, your monthly health insurance premium was itemized the way your auto insurance is? When GEICO sends me my invoice, I am able to see just exactly how my total premium is broken out. There is a certain amount for collision, a certain amount for bodily injury, a certain amount for property loss, and so forth. What if your health insurance was as transparent?
According to a 2005 Families USA report, the average individual health insurance premium includes an additional $341 because of uncompensated care, and the average family plan $922. By 2010, the report predicts that these figures will rise to $532 and $1,502, respectively. Now, imagine that your monthly premium for an individual policy was $509 (the national average). Of course, unless you have non-group coverage you aren’t likely to know that you’re paying that much. But you are. There’s the portion you have deducted from your paycheck, which is probably somewhere around $100 a month, and there’s the portion you never get in your paycheck at all, because your employer uses it to pay for the other $409 instead of increasing your wages.
Now imagine that instead of simply seeing one figure each month, you saw an itemized account that added up the total cost of your coverage (i.e., $509) labeled as follows:

Foregone wages: $409

  • Health coverage: $376
  • Uninsured surcharge: $33

Deducted benefits: $100

  • Health coverage: $89
  • Uninsured surcharge: $11

Total: $509

  • Health coverage: $465
  • Uninsured surcharge: $44

The “uninsured surcharge” amounts to 1% of annual income for individuals earning $53,200 a year and families earning $150,200 a year. For lower income families, it’s an even greater proportion of income. Since half of all U.S. households earned less than $50,233 a year in 2007, we’re not talking about a trivial amount of money or a small number of affected persons.

Don’t you think people would be on the phone with Blue Cross immediately demanding to know what this extra uninsured surcharge fee was for? Of course they would. The lack of transparency about these costs allows us to ignore the problem. Ignorance, as they say, is bliss.

As Ezekiel Emanuel and Victor Fuchs write, the idea of shared responsibility (i.e., government, employers, and the public) for health care financing is a myth. You and I are the source of all of the money that pays for health care. It all comes out of our pocket in one way or another.

Whether you believe that the solution involves a public plan or not, whether you think tort reform is needed or not, you should be able to support the position that you should be paying as little as possible for the care others receive. That’s going to require more transparency, and I don’t think that the insurance industry is in much of a position to self-regulate. If they were, wouldn’t they have done so already? It is in precisely such cases that government should intervene. The particular design of that intervention is debatable. The need for it is not.

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Posted by on August 11, 2009 in Uncategorized


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