Saturday, December 21, 2013

What is your health insurance premium?

Dean Baker makes a crucial point about the affordability of health-insurance premiums, referring to a NY Times article today. People who have insurance policies through their employer usually share the cost of the premium, with the employer often "paying" a greater share. "Paying" in quotes here, because who really pays for the insurance depends on what the wage or salary would have been in the absence of the insurance benefit. This is a question of incidence, as economists put it, and as Baker points out, most economists believe that most of the incidence of a tax or charge on labor, or a benefit, falls on the worker side. In other words, a worker whose employer "pays" most of her insurance premium is actually paying most of that herself, because her take-home pay is less than it would have been without the insurance benefit.

Consequently, as Baker shows, a couple with the U.S. median two-earner income would in effect pay nearly 20 percent of their income for the average family policy provided by American employers. This may be small comfort to the couple in the Times story, who would have to pay about 12 percent of their annual income for a policy from the individual marketplace under Obamacare. But it places the affordability of Obamacare in a rather different and less alarming light.

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