Economics of Privately Sponsored Social Insurance | The Incidental Economist

on Taylor who is now blogging on The Incidental Economist blog pointed out an interesting essay on the Economics of Privately Sponsored Social Insurance by Uwe Reinhardt. The interesting part of the essay for me was his definition for employer-based insurance:

Employment-based group health insurance, American style, is publicly subsidized, privately sponsored, community-rated social insurance sold to American employees on formally organized health insurance exchanges.

He goes on to make an eloquent argument that the Affordable Care Act is just like employment-based health insurance but with broader coverage. I have a couple of problems with his analysis.

  1. Most of America will probably agree that our number one health care problem is the amount we spend on health care. Our spending is double what the rest of the developed countries are spending and its growing faster than our wages. All of the economists and politicians agree this is not sustainable and our solution according to Uwe is to do more of the same! On the other hand if you think health care costs are the primary problem we need to address, it is pretty obvious that we need to do things differently. Since most of the people in this country have health insurance, the cost growth has been driven by this strange public-private concoction we call employment-based insurance. It is probably safe to say employment-based insurance cannot continue in its present form if we want to reduce health care costs.
  2. An annoying trend in health care essays like this is the assumption that health care insurance is equivalent to health care. The logical extension of this argument is that with 100% percent insurance coverage we will have perfect health. More health insurance will probably help but as Austin might say, things are complicated. Delivering good health care still has a lot of major problems other than insurance. In my favorite low income neighborhood I don’t think much will change. They are still going to the emergency room for their basic care. Infant mortality will remain high because they are not going to change their lifestyle or go to appointments.
  3. He also continues the fallacy that the healthy, uninsured people should subsidize sicker Americans. I wish it was this simple. This argument falls apart when you look at a real life example like I did. I compared health insurance rates for my family in Ohio and with health insurance rates as if I lived in Massachusetts. It would cost me an additional $11,892 per year for the lowest cost insurance available in Massachusetts. This does not make sense. I doubt we will ever get a good explanation of why Massachusetts costs so much more but it is not because we are subsidizing sicker Americans.
  4. Although Uwe speaks highly of health exchanges, I remain a skeptic. It does look like we are spending money on something the business world can do a lot more cost efficiently. I used the Massachusetts Health Exchange to come up with my estimate of health insurance costs in Massachusetts. I used to come up with the low cost plan for Ohio. The lowest plan on would cost me $305 per month. In fact there were 15 plans available for less than $400 and 55 plans for less than $600. I got a lot more plans from So what exactly is our rationale for taking away’s business.