Expensive health insurance premiums by design

After the passage of the Inflation Reduction Act, the average Medicare Part D premium increased 21% from 2023 to 2024 and is expected to grow “dramatic” in 2025. In contrast, it had been remarkably stable, growing only at a compound rate 9.2% from 2010 to 2023, well below the inflation rate.

The most important reason the premium jump requires the $2,000 co-payment mandated by the Inflation Reduction Act. No one pays more than $2,000 out of pocket, but everyone pays higher premiums as a result.

The Affordable Care Act has a similar spirit of shifting financial responsibility from a relatively small number of high-risk enrollees to all enrollees: insurance plans cannot determine premiums based on the risk profile of the registered participants certain services (such as mental health and substance use), or set a dollar limitation on annual or lifetime expenses.

As a result, the individual market premium increased 39% in the two years following the implementation of these provisions, compared to 6% prior. The financial burden of higher premiums was then shifted to shoulders of the taxpayer.

For any type of insurance, when coverage is limited, the premium is low. If we want a health care plan to cover all medical needs, without a deductible or co-pay for everyone, with the goal of equalizing medical spending, then we must be willing to pay extremely high premiums.

However, most Americans are not at major risk; in total, only half of the population is at risk 3% of total healthcare dollars, and 90% of the total population consumed only a third. The pattern is similar among seniors. Most of us would be better off with more out-of-pocket than more comprehensive insurance plans, and the goal of equalizing medical spending cannot justify forcing everyone to pay for the same expensive coverage.

We have diversified risk profiles and preferences for insurance products. We can buy other types of insurance based on our own taste, but not health insurance. Regulatory restrictions on the way health plans deliver benefits inevitably leave enrollees dissatisfied.

Individuals who choose a healthy lifestyle, have sufficient risk tolerance, avoid overdiagnosis and overtreatment, and are comfortable with comparison shopping should have the opportunity to purchase health insurance plans with more limited coverage, higher risk exposure, and cheaper premiums. Savings on premiums and reduced moral hazard are especially valuable for people on low incomes. More control over our health care dollars would also stimulate competition and innovation, putting downward pressure on prices and upward pressure on quality.

Importantly, high-risk, low-income individuals deserve a much better deal. Instant money transfers would allow them to pay premiums, out-of-pocket expenses and additional costs stop-loss coverageand social determinants of health as they wish. Current government programs, by indirectly subsidizing insurance premiums or sharing costs rather than directly helping individuals, leave them with no discretionary health care fund, no opportunity to benefit financially from health promotion activities, and no broad access to health care providers.

Allowing people to purchase insurance as they wish, accompanied by direct money transfers for high-risk, low-income patients, a much better approach then distorting the benefit design to drive up premiums for everyone. However, by removing regulatory complexity and shifting more control to patients, this approach may provoke opposition from special interest groups and policymakers who benefit financially and politically from perpetuating such complexities and control.

Their opposition would be less effective if we realize how much high-risk patients are underserved and denied opportunities to do so improve their healthand how low-risk individuals have been exploited to pay for things unrelated to medical care or helping others.

We deserve control over our healthcare dollars, access to insurance plans that meet our needs, and the right to reject any arrangement that prioritizes political and corporate interests over the interests of all patients.