Misguided Govt Policies Mean Employer-Based Coverage Costs Soar
The cost of employer-based health insurance continues to reach new heights.
According to a report out this month from the Kaiser Family Foundation, premiums for a family health plan have risen 47% since 2011, and during that same period, employee earnings rose by 31%, while overall inflation ticked up just 19%.
What’s to account for the runaway cost of health coverage?
There are a number of causes.
Paramount among them is the fact that the government heavily interferes in the healthcare sector. Ever-more regulations plus massive government subsidies for healthcare are a textbook recipes for steadily increasing costs.
The Kaiser study estimates that the average premium for an individual employer-based health plan was $7,739 in 2021. In 2009, the year before Obamacare was signed into law, that figure was just $4,824.
Average family premiums have seen similarly stark increases during that period, rising from $13,375 in 2009 to $22,221 this year.
Kaiser goes to great lengths to chart the shifting balance between what workers supposedly contribute toward the cost of their health plans, and what their employers contribute.
However, that distinction is less consequential than it seems.
Every penny paid for a job-based health insurance policy — whether by a worker or a company — is an employee contribution. Health coverage, after all, is part of a worker’s overall compensation.
Employees might want to take an extra dollar of health coverage over an extra dollar of wages, because the value of the health coverage is untaxed.
But — it’s still part of one’s pay.
So from one vantage point, the inexorable rise in health insurance premiums represents a pretty big pay bump for American workers. But it’s probably not a raise they perceive.
Rising premiums are largely a response to rising healthcare costs.
Between 2000 and the end of 2020, prices for hospital services increased by more than 200%. Medical care services are up roughly 120%.
Over that same time period, overall inflation was 54%.
In markets in which there has been a great deal of competition, innovation, and improvements in productivity, prices declined over those two decades:
Television prices dropped 97%. The price of mobile phone service dropped 40%.
There’s no shortage of government regulations that have ratcheted up the cost of health care, as lawmakers and bureaucrats seem to be adding more every year.
Obamacare capped how much insurers could charge older beneficiaries at three times what they charged younger ones. The Affordable Care Act (ACA) forced all insurers to offer comprehensive coverage; bare-bones plans were more or less banned. As a result, young people, in particular, find themselves paying more for coverage than they would in a free market.
States continue to keep “certificate-of-need” laws on their books, which require healthcare providers who want to offer new services, build a new hospital, or expand operations to first demonstrate that their proposal meets the needs of the community. The laws effectively give government officials and incumbent providers veto-power over competition.
Or take occupational licensing regulations, such as those which severely limit the kinds of care nurse practitioners and physicians’ assistants can provide without a doctor’s supervision. These rules restrict the supply of care — and thus raise prices.
Federal subsidies for insurance have also helped drive up the cost of care. There is, of course, the open-ended tax exclusion for employer-sponsored coverage. People with generous coverage through work want to put it to use. If they were spending their own money, they’d likely be more price-conscious about the care they consumed.
In an ideal world, health insurance wouldn’t be tethered to employment. But as long as it is, capping the employer health insurance exemption — and creating a new refundable tax credit for individuals to purchase coverage — would go a long way toward minimizing the distortions under the status quo.
Staggering increases in employer-sponsored premiums are the predictable result of a health sector in which the cost-lowering dynamics of supply and demand, consumer choice, and market competition have been subverted by years of misguided policy. And yet Democrats are as determined as ever to bring more of our healthcare system under federal control.
In light of Kaiser’s latest report, that goal has never been less defensible.