Thursday, January 24, 2008

Racing to the bottom

One of the core components of the failed strategy to sell Social Security privatization was an explicit intergenerational argument that the short term costs of Social Security would be borne by younger workers who would have no expectation of ever seeing any money from Social Security. This explict strategy failed, although we still see significant sneering among people my generation about Social Security. However Social Security is not the only place where there is an anti-gray power strategy in place; healthcare and health insurance is another area where explicit inter-generational warfare and the expectation that the social contract is either currently invalid or will soon be invalid.

USA Today reports on the trend of companies ending their group insurance plans and paying a small flat fee to their employees and hoping that they can find insurance in the individual market. It is not that bad of a deal for people in very good health and short time horizons, but a horrendous deal for anyone with any pre-existing conditions, intermediate term medium to high cost underwriting profiles, or long time horizons:

As health insurance costs continue to rise, some employers are adopting a controversial new approach: ending group coverage and giving employees $50 to $200 or so a month to help them buy their own.

The shift is touted as a lower-cost way for employers to offer workers some kind of health coverage, while making smaller and more predictable financial contributions toward that coverage. Like other companies considering the switch, Ilios will pay a portion of employees' medical costs into tax-free accounts that workers can tap. It also will provide a link to an independent website where workers can compare price quotes from a variety of insurers.....

Critics say the change would end the long-standing, implicit social pact to provide coverage to sick and healthy workers alike in favor of a more Wild West, go-it-alone approach that could benefit young and healthy workers but leave those older and sicker unable to get medical insurance.

That's because ending group coverage removes a key protection in group insurance plans. Insurers cannot reject members of group plans for health reasons, and everyone in the group pays the same premium.

In most states, insurers can reject individual applicants for health reasons and can charge widely varying premiums based on the applicant's age, health history and other factors. Only in a handful of states, such as New York, Massachusetts and New Jersey, must insurers sell coverage to everyone, regardless of their health....

Like some other employers contacted, Trikolas says he doesn't expect his employees, who are mainly in their 20s and 30s, will have a problem qualifying for individual insurance. If any do, he says the company will help them find coverage.....

Canopy's Kashyap says most people can get insurance. Those who cannot, he says, should be looked upon like bad drivers, who have to pay more for auto insurance. He expects health insurers, possibly with the help of government or employers, ultimately will develop coverage for higher-risk people.

This strategy is great for someone like me. I'm male (so I can't get pregnant), no pre-existing conditions, young enough that I have a good probability of staying healthy for a while, old enough that I am not inclined to be particulary stupid anymore and wouldn't mind getting a couple extra bucks in my paycheck. But there is a chance that I'll get hit with a cancer diagnosis tomorrow, however small that may be, and I could be hit by another car again. At the same time, I expect to get old and start to run down a bit.

Insurance in this case is a long term bet that things will even out instead of attempting to cash out today and look for assistance as soon as there is a problem in the future. I'll pay in a little more than my expected annual expense this year, and get a bit more out when I'm 55.

However the short term gain of wedging a young workforce against an older workforce will lead to an intensified incentive for older workers and voters to exert their gray power as the median voter is significantly older than the median American. As the social time horizons shrink, the incentive for all interested parties is "I've got mine (today), so screw you." And in that case, younger people will get screwed politically.

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