The fatal flaw in healthcare reform

In their urge to have everyone covered by health insurance, Democrats have made sure to include a provision in their healthcare reform bills that would prevent insurance companies from denying coverage to those with preexisting conditions. Wisely, they realized that smart consumers might take advantage of this feature and wait until they came down with a serious illness before signing up for an insurance policy, so they mandated that everyone must buy health insurance from day one. To enforce that mandate, they added penalties for those who refused to cooperate.

But as Martin Feldstein explains, the penalties won't be enough to keep rational consumers from deciding it is in their best interest to be uninsured.

Consider: 27 million people are covered by health insurance purchased directly, i.e. outside employer-based plans. The average cost of an insurance policy with family coverage in 2009 is $13,375. A married couple with a median family income of $75,000 who choose not to insure would be subject to a fine of 2.5 percent of that $75,000, or $1,875. So the family would save a net $11,500 by not insuring. If a serious illness occurs--a chronic condition or a condition that requires surgery--they could then buy insurance. Since fewer than one family in four has annual health-care costs that exceed $10,000, the decision to drop coverage looks like a good bet. For a lower-income family, the fine is smaller, and the incentive to be uninsured is even greater.

And as Mark Perry notes, "What would make this choice to drop insurance and pay the penalty even more rational is the convenient, low-cost availability of basic health care from 1,200 retail clinics around the country, or through pre-paid plans like the No Insurance Club, or concierge medicine."

Ok, Congress, bring on your healthcare reform, if you dare! I'm looking forward to saving lots of money by dropping my own plan since I'm pretty healthy these days.