Premiums absolutely should be based on income and absolutely should not be based on age. I say that not just because I am in the 60+ age bracket and you likely are not. I say that because of my 25+ years in employee benefits. However, I do agree that there should be a penalty for delayed enrollment similar to what Medicare Part B imposes.
When you come right down to it, the whole health care debate boils down to two issues. How do you expand health care coverage and how do you pay for health care.
Expanding coverage is important because it spreads the risk among the sick and the healthy equally.
Make it straightforward and uncomplicated
But when it comes to paying for health care we are locked into a conversation that is driven by the cost of health insurance for an individual or a family. Consequently, in efforts to get money where it is needed we come up with goofy schemes like taxing “Cadillac” plans.
Instead we should think collectively. How do we transfer money from those who have more of it to those who have less of it? This is a principle we have already agreed to with Medicare and Medicaid and some employers charge their employees on a percentage of income basis – some even on a sliding scale.
The simplest, most straightforward, uncomplicated approach is to pay based on ability to pay.
My idea is that employers be charged a flat percentage of total compensation for health care. Total compensation needs to include all forms of compensation and should include payments for contract labor (sometime referred to as free lancers or consultants). These payments would be reduced by payments made for employer sponsored health care.
Focus on the main issue
The immediate consequence of this approach is twofold. High wage earning industries would subsidize the health care costs of low wage earning industries. Employers not providing health insurance would be paying a “fair share” for health care costs.
Several numbers could guide the actual premium rate. Health care consumes about 18% of GNP. According to the Employee Benefits Research Institute, employers in 2008 paid 7.9% of total compensation for health care costs. Employees paid between 65% and 75% of health care costs. That puts actual health care costs somewhere around 12% of total compensation. By my calculation, that puts the employee share at around 3% of total compensation. (I would appreciate any comment on the calculation of these numbers.)
So 6% is low as a percentage of total compensation, but high as a percentage of employee share.
If we want to lower those percentages, then we need to lower that first number – health care costs as a percentage of GNP.
To the extent that older workers tend to earn more than younger workers, there is an inherent age bias to this approach. But not all old people earn more money nor are they always sicker. Certainly, I am not sicker (knock on wood).
If the goal is to transfer money from those who have more of it to those who have less of it, then don’t confuse that goal with other objectives such as punishing only those over a certain income threshold or punishing the recipients of “rich” benefit plans.
This plan does not address the complications of how very small businesses should pay their share. But if we can agree on the first two goals I outlined above this should be a manageable challenge.