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32 IRET Congressional Advisory 1 (1994)

handle is hein.taxfoundation/iretcgadv0031 and id is 1 raw text is: Congressional June 21, 1994 No. 32 FREE MARKET FOR HEALTH INSURANCE BETTER THAN PROPOSALS ON CAPITOL HILL A number of so-called insurance reforms are being pushed upon us as a result of the perception that the private insurance market has failed to serve the needs of the public. Among these reforms are community rated health insurance premiums, guaranteed issue or renewal of Insurance is insurance policies to all assessment o comers, prohibition of existing people hae condition exclusions, and poe ave i involuntary participation in c t ofpea national insurance schemes. cannot repea But many of the charges oly at our ph against the free market are approach to h false. In fact, the free market therefore, woi in health insurance has been so premium di) badly distorted by government premium tiff regulation that it cannot be bad thing. TI said to have been tried, a fairly pri consumers. A recent conversation with one of the country's leading actuaries has reinforced our belief that private individual health insurance can be strengthened and would be far more effective than the widely-proposed nationalized or government- regulated health insurance. In a private individual insurance system, individuals would purchase policies in their own names. The policies would be portable, not tied to their place of employment. (Individuals could still choose to purchase individual policies through group purchases at work, or through religious, social, or professional organizations to cut down on the time spent shopping and to obtain quantity discounts.) Any tax exclusion for insurance premiums and benefits would be extended to all individuals regardless of where they purchased their policies. (In current law, individuals are not required to include the value of employer-paid health insurance premiums or benefits in taxable income. Those who purchase their own insurance either get no tax break for premiums, or only a partial deduction in the case of the self-employed.) Individuals would be risk rated for many factors, including age, sex, geography, occupation, and existing conditions. Those with higher risks based risk. on the Different ifer-ent risks. These that policy makers 1, and can ignore eril. A free-market ealth care finance, ild indeed result in fferentials. But rentials are not a ley make insurance ced value to all the pool. There would be admitted to insurance pools with a differentially higher premium (a substandard load in the jargon). Once an individual entered a pool with an appropriate rate differential, renewal would be guaranteed, and his or her future rate increases would match those of the pool. If individuals are rated correctly as to the probability of illness when joining the pool, the insurance company should be able to accommodate the costs of those who do get sick within the expected costs of would be no need for a specific hike in the individual's premium down the road, provided the pools are large enough. Under a system favoring individual-based policies, individual pools would be far larger than are now possible, because the current tax preference Institute for Research on the Economics of Taxation IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote economic growth and efficient operation of the free market economy. 1730 K Street, N., Suite 910, Washington, D.C. 20006 Voice 202-463-1400 e Fax 202-463-6199 0 Internet www.iret.org

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