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The Individual And The Group: NFIB Q&A, Part III

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Last Friday, Bob Graboyes, the senior health care advisor to the National Federation of Independent Business began to explain why his organization supports measure that build up the market for individual insurance. Today, that discussion continues. If you need to get caught up, you can relive every twist and turn in this series here.

INC.COM: You wrote in your comment to my original post that "our goal is not to 'push people away from employer coverage.' " However, the NFIB's principles state "Health care and tax laws should not push Americans into employer-provided or government-provided insurance programs and hobble the market for individually purchased policies" and "to the greatest extent possible, Americans should receive their health insurance through the private sector." (My emphasis.) Why isn't it reasonable to assume that NFIB would prefer to see more people trade employer coverage for their own insurance?

GRABOYES: We're getting hung up on semantics here and may be talking past one another. Since the 1940s, price controls, tax laws, and labor regulations have artificially boosted the penetration of employer-based policies and desiccated the individual market. Your employer can deduct the cost of health insurance on its taxes, whereas the individual doesn't get the same kind of deduction. Without this tax-induced distortion, we would certainly have a larger, more vibrant, more competitive market for individual policies, and there would probably be a shift in that direction.

With regard to your comments about the individual market, it is worth noting that it is not a matter of "pushing" them there, as you said. In fact, there are a lot of small business owners already in the individual market, particularly among the self-employed. The goal ought to be to transform the individual market so that the bias that exists today between large-employer, small-employer and individual markets no longer exists. Tax equity would be an example of how we can achieve that equity across all markets.

All in all, greater control over health insurance by individuals would probably be a good thing. But if firms want to continue providing insurance and individuals want to get insurance through their employers, NFIB isn't opposed.

INC.COM: But a small business, as marginal revenue to a large insurer, is thought to lack leverage when buying insurance in the competitive market. Wouldn't an individual consumer have even less leverage -- not just purchasing power but also in appealing claims decisions? (Daniel Gross makes this argument in a column for Slate, the online magazine.)

GRABOYES: If this is true with respect to health insurance, then why isn't it true with respect to every other kind of insurance or every other kind of good? If you work for a large employer, would you want that employer to purchase your auto insurance and your homeowners insurance? How about your groceries or your housing? The same argument ought to hold.

Here's the bottom line: We have a 60-year accumulation of legislation that hands leverage to large employers and denies it to small businesses and individuals. Then, we tout the large-group leverage as a reason to further shrivel the small-group and individual markets. It's circular reasoning.


***

As I wrote on Monday (jumping the gun a bit, perhaps) I'm skeptical when Bob insists that the distinction I'm trying to draw is merely semantic or trivial, because he doesn't answer critics' concern that a tax deduction would "cherry-pick" some people from group plans, making it more expensive to insure those who stay behind. (The young and healthiest people in a pool pay more for their insurance than their risk profiles might suggest, effectively subsidizing the older and sicker population in the pool. If these people can get cheaper individual policies and leave the pool, the group as a whole will be less healthy and more expensive to insure.) Hopefully, Bob will explain -- if you prod him -- how health insurance need not be a zero-sum game when it comes to the individual versus the group.

One thing I didn't point out on Monday is that some critics make the same argument about the interstate association health pools that NFIB favors. According to Families USA, which advocates for universal health care, "AHPs would be allowed to selectively market their plans, targeting employers with younger and healthier workers (a practice known as 'cherry picking'). AHPs would be able to offer lower rates to these select employers only because they would offer to cover just the healthiest workers, a practice that would not be permissible if they were subject to state regulations....As the overall risk pool for the state regulated market begins to include only older, less healthy workers, the premiums in this market will increase. Far more firms would face higher premiums than lower premiums, and those price increases would be larger than the price decreases." Critics of pooling also contend that interstate pooling would throw into disarray the mechanism by which each state insures high-risk patients, which is usually a separate pool funded by the insurers who do business in that state.

In our next installment, Bob explains why we can be rational consumers when it comes to health care.

Last updated: Apr 23, 2008




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