The Real Reason Why People Hate Their Individual Health Care

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Nov. 8 2013 12:29 PM

Here's the Real Reason People Hate Their Individual Market Health Insurance

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Too many people are satisfied with the sub-par employer coverage they're getting.

Photo by Joe Raedle/Getty Images

This post originally appeared in Business Insider.

At the top of this morning's Wonkbook, Ezra Klein says President Obama "shouldn't apologize for blowing up the individual market." Ezra's right that the individual market is a basket case. It does such a bad job of serving consumers' needs that fewer than 25% of Americans who lack coverage from work or a government program actually buy insurance through it.

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But I wouldn't focus, as Ezra does, on the fact that people who do get insurance through the individual market are highly likely to express dissatisfaction with their plans. Ezra attributes this dissatisfaction to the fact that, in the individual market, "all too often... people who do get insurance find it doesn't cover them when it's most necessary."

I doubt that's why they're unhappy, nor do I think it's a problem that they're unhappy. After all, most people with "junk insurance" never find out that's what they have; usually, they're not making big claims, and they can't test the proposition that their insurers will wriggle out of covering them if they do.

I suspect the higher levels of dissatisfaction come from a different source, one that has different policy implications: Unlike people on Medicare, Medicaid and employer-based insurance, people who buy coverage in the individual market know exactly how much they're paying for it. A plan that you would only rate "fair" when you have to pay $5,000 for it might merit an "excellent" if its apparent cost to you were only $1,000.

Almost all of us should be dissatisfied with our health plans, because the American health care system involves paying twice as much as people in other rich countries do to achieve similar health outcomes. People who buy in the individual market are especially likely to understand how expensive American health care is.

The real "satisfaction" problem is that such an absurdly large percentage of people with group health insurance are satisfied with the high-cost, medium-quality product they're getting. Conservatives like, for good reason, to talk about "fiscal illusion": When the costs of government programs are hidden, people will tend to support them even if they are not worth the price. Because our system of health insurance contains so much cost shifting and so many hidden subsidies, we suffer from "premium illusion": People love their employer-provided coverage because they have no idea how much it's costing them.

One of the reasons I like the disruptions created by Obamacare, and wish there were more of them, is that many of them involve exposing the true cost of American health care to consumers. The law requires employers to start reporting the cost of employer-sponsored insurance on W-2 forms, so people know how much of their compensation is eaten up by health insurance. It constricts the tax subsidy that pushes employers to offer ultra-cushy plans. And it adds many millions of people to the individual markets, where people must review and comparison-shop plan premiums.

As people become aware of how expensive health care is, they're going to be unhappy. Maybe that will make them more supportive of policies that restrain health care costs, instead of freaking out that any decision not to pay for a cost-ineffective procedure involves a "death panel" or demanding that insurance plans include the most popular providers, no matter what they charge.

The cost transparency that exists in the individual market is one of its few virtues. Successful health reform should bring that transparency to other parts of the market. That will make the public angry—not because they're being made worse off, but because they're finally realizing how bad they've had it all along.

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