So Why IS Individual Health Insurance So Expensive?

If you’ve ever been gobsmacked by an individual health insurance quote, and wondered just HOW could health insurance cost so much, health policy analyst John Goodman breaks it down for you:

The answer is simple: it isn’t subsidized.

Every other form of insurance coverage gets massive subsidies. Obviously Medicare and Medicaid, being government programs, get most of their funding from taxpayers. Government spending on Medicare was $555 billion in 2011 and $387 billion on Medicaid in 2009. Employer-sponsored health insurance is also subsidized — to the tune of over $300 billion a year, according to the Congressional Research Service (CRS). This is because the value of coverage provided by the employer is “excluded” from employees’ income. Unlike wages, employees escape both income taxes and payroll taxes on this benefit. Even the uninsured are subsidized. The Kaiser Family Foundation found that, while the uninsured paid $30 billion for their own care in 2008, they incurred another $56 billion in costs, three-quarters of which was compensated for by government.

Only people who buy their own coverage in the individual market get no tax break whatsoever. Actually, even that isn’t quite true. In recent years the self-employed have been allowed to take a deduction of their health insurance premiums from their income, provided they make at least enough self-employment income to cover the expense. I haven’t been able to track down the value of this tax break, but because they don’t get to avoid the payroll tax the subsidy for the self-employed is still less generous than the complete exclusion from income of employer-sponsored coverage.

So who is left? Only those people who do not get coverage on the job, who are not self-employed, and who buy individual health insurance. These are the only people in America whose health insurance is not subsidized by the government.

The Truth about the Individual Market, Part Two

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