Private health insurance is in crisis

President Trump is entering the full swing of campaign season by asking the Supreme Court to snatch health insurance from tens of millions of people. The Justice Department filed a brief on Thursday arguing the court should strike down the entire Affordable Care Act. This would cause something like 25 million people to lose their coverage, and radically disrupt the employer-based insurance system, which has been overhauled in response to ACA regulations.

That decision will reportedly not come until after the 2020 election. But it might not even be the biggest threat to American health care. The coronavirus pandemic is already inflicting spectacular damage to that employer-based system where about half of Americans get their coverage — or at least they did before the crisis hit. Even before the crisis this system was becoming steadily more expensive and rickety with each passing year. If America had any sense, the pandemic would be the death knell of the private insurance industry.

The Kaiser Family Foundation estimated that as of May 2, about 27 million people were likely to become uninsured as a result of losing their employer-based coverage. That number has surely only increased over the following two months — since March, weekly unemployment claims have fallen from nearly 7 million per week to about 1.5 million, but even that is still about four times any pre-pandemic week. And now that the virus is surging and halting or rolling back state re-opening plans, those numbers are likely to increase once again.

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I would guess that by the end of the year, at least 50 million people will have lost their employer-provided insurance (or nearly a third of the total). A bit less than half of those may end up on Medicaid, and about a third on the ObamaCare exchanges. Meanwhile, insurers are certain to be hit with a huge number of COVID-19 claims. For a while it appeared as though the decline in elective surgery (as people are trying to avoid hospitals if they can help it) would counterbalance the flood of COVID-19 patients, but with the second wave — hospitals are already full to bursting in Houston and Phoenix, and worse is coming — that seems much less likely.

So we have a huge decline in the number of people paying insurance premiums, and a likely large increase in expensive, prolonged intensive care treatments. Analysts have estimated that next year private premiums will increase by between 4 and 40 percent, and again, given the second wave, the actual figure will probably be on the high end of that range. Insurance company executives have already promised to soak their premium payers if they end up facing higher costs.

Together these are a tremendous blow to an insurance system that was already starting to crumble. The average cost for an employer-sponsored family plan has increased from $13,375 in 2009 to $20,576 in 2019 (not adjusted for inflation). If we counted insurance premiums as taxes, American workers would be the second-most highly taxed in the rich world before any coronavirus price hikes take effect. It's one facet of skyrocketing medical cost bloat that is devouring the American economy from the inside out.

Indeed, many medical providers now offer uninsured people a steep discount if they can pay in full up front. Even insured people with high deductibles and premiums (increasingly common on both ObamaCare and employer-backed coverage) are often just paying for treatment out of pocket, since it is so much more expensive and difficult to use their coverage. In other words, a steadily-greater fraction of private insurance coverage is essentially illusory, and that fraction will be much larger after the pandemic.

It is frankly idiotic to tie insurance to employment. For one thing, it means coverage is funded through what amounts to a head tax — an equal payment per person. Millions of low-income workers are left out, and those that aren't have to pay a huge fraction of their income in premiums. And as we are seeing today, when a severe economic crisis hits, people lose their coverage by the millions — but that is just a more extreme version of something that happens all the time.

As Jon Walker argues at The Intercept, the smart way forward here would be to start scooping everyone onto the government's Tricare Select system for military members, which has both good coverage and could be expanded immediately at scale. Instead, House Democrats have characteristically proposed a massive bailout for private insurers. In their HEROES Act messaging bill, they proposed extra money for COBRA coverage, which allows people to buy the same employer-sponsored care if they are laid off (few people currently use it because they have to pay the entire gigantic premium when they have just lost their major income source). That means it is extremely expensive and poorly targeted, since richer people are more likely to have private coverage.

Joe Biden's campaign is reportedly working on new details for his health care plan. Let us hope he can do better than this.

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