Baucus Bill Encourages Americans to DROP Insurance Coverage

What if you, and every member of your family, had the chance to save $4,000 each?. Would you be interested? Under the terms of what's being called "the Baucus bill" -- Washington-speak for the bill the Senate Finance Committee will vote on tomorrow -- that is how much you could save by dropping your health insurance.

People might have thought that health care reform would lead to an increase in the number of people getting health insurance coverage. Indeed, the Congressional Budget Office claims the Senate Finance Committee's health care bill will reduce the number of uninsured in 2019 by about 29 million," but the financial rewards are huge for people if they drop their insurance. Amazingly the CBO makes this prediction of 29 million more insured Americans without ever once analyzing the financial incentive for those who are already insured to drop their insurance.

Consider some numbers. In 2008, the average price of an individual insurance policy was $4,704 and it was $12,682 for a family of four. But the Baucus bill explicitly states that insurance companies "would be prohibited from excluding coverage for pre-existing health conditions."

Thus, you may wait until you have been diagnosed with cancer or are pregnant or have some other problem to purchase insurance. True, there is a fine if you do not buy insurance but it is very small compared to the actual price of the insurance. The fine will eventually reach "$750 per adult in the household. This per adult penalty would also be phased in: For 2013, $0; $200 for 2014; $400 for 2015; $600 in 2016 and $750 in 2017." Even if the cost of insurance didn't rise by 2019, which is extremely doubtful, paying the fine and waiting until you're sick before you got insurance would easily save you $4,000 per person insured. -- Every American could save thousands of dollars, every year, by waiting to buy insurance until they are seriously ill or get pregnant. This would affect a lot of people. Although not everyone may immediately feel comfortable dropping their insurance, especially those with minor health problems, many people will. And more and more will do so as the price of the "same" insurance keeps on increasing.

Could you imagine what it would be like if you could buy auto insurance right after you have had an accident and then be allowed to immediately drop it again once the car was fixed? Everyone would understand that's not how insurance works. The "insurance" fee would be the price of what it costs to get the car fixed plus the administrative costs of handling the "insurance."

The same applies to health care. -- The more people who shy away from buying insurance when they are healthy, the higher the price of insurance will be for those who buy it when they are ill. -- There will be a quick unraveling of the insurance system as everyone suddenly realizes that insurance has become something you only need to buy when you are really sick. Of course, this means that insurance companies will stop insuring people and, instead, health care will be transformed into a fee for service system.

The proposed "Baucus bill" health care reform would thus both dramatically reduce the number of people with insurance and dramatically increase insurance premiums. Of course, that's just the opposite of how the program is being sold.

Mr. President, if this is what you meant when you said that you wouldn't "mess" with people's insurance if they were happy with it, we don't need your help.

John R. Lott, Jr. is a contributor. He is an economist and author of "Freedomnomics."