by Brenée Goforth
Media Manager & Communications Associate, John Locke Foundation
This week, JLF’s Jordan Roberts wrote a research brief that provides an alternative to the current health insurance status quo. This alternative has the potential to protect those with preexisting conditions, increase wages, and end America’s “job lock” phenomenon. Roberts explains:
Preexisting conditions are defined as a health problem that exists before enrollment in a health insurance plan. In theory, though rarely in practice, unregulated insurers could impose waiting periods for benefits to start, exclude coverage for a preexisting condition or deny coverage altogether. Changing insurers could trigger such exclusions. For the majority of people who have health insurance through their employer, changing jobs would mean changing insurers, which would then leave them vulnerable to an exclusion. This fear of losing health benefits led many people to feel trapped in their jobs. It is a phenomenon called “job lock.”
Employer-sponsored health insurance gave birth to America’s job lock phenomenon. When America exempted health benefits from taxation in the early twentieth century, employers began offering health insurance coverage as a routine practice when hiring new employees. This led to the predominantly employer-sponsored health insurance market we see today.
When the Affordable care Act became law, it required insurers to accept those with preexisting conditions. This put high-risk patients in insurance pools with healthier patients, causing premiums for healthy individuals to rise. Roberts writes:
Insurance is priced based on risk. In a competitive market, a healthy individual would typically pay less than someone with a preexisting condition because relatively healthy individuals are less likely to require extensive or costly medical care. The creators of the ACA were trying to eliminate that differentiation. However, the way they chose to remedy this was to mandate insurance coverage for everyone, prohibit the use of health status when determining premiums, and force those without insurance to buy into the program.
Mandating these requirements, quite literally, equates to a massive wealth transfer disguised as health insurance.
An alternative to our current system would be to remove tax exemptions for employer-sponsored health insurance and subsidized high-risk pools. Roberts explains:
Fortunately, there is a better way to cover those who suffer from a preexisting condition that does not require raising the price of insurance for others. This would require removing the tax exemption on employer-sponsored health benefits and properly subsidizing the state high-risk pools that were in operation before the ACA…
Decoupling insurance from employment would allow individuals to purchase their insurance on their own. Instead of employers owning health plans, employees could maintain coverage throughout their lives without fear of losing it following a job change…
Employers would get out of the health insurance business, wages likely would increase, and employees could use a competitive, deregulated state insurance market to purchase health insurance untethered to a specific employer. Those who are uninsurable due to a preexisting condition would be able to find coverage in a state-run high-risk pool. Provisions in the ACA prohibit insurers from denying coverage or charging higher premiums based on health status, but an adequately subsidized high-risk pool would eliminate the need for those provisions.