Daily News Updates - Health Insurance News

Analyzing the Divergence, Pt.2 – McCain’s tax credit refund: Short term; Long term.

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Granted, a momentary surge is expected at the beginning. Many people will shift over to individual health insurance plans. With the $2,500/$5,000 tax rebate, there may even be a little bit of change left over, with which to create a health savings account (HAS) to hedge their cheaper health insurance. But that will all begin to change from the starting point. After about the second year, many people will start losing money and that trend will continually grow as long as health insurance costs rise faster than inflation.

At the onset, this plan would be especially attractive for the young and healthy who will probably opt out of the shared-risk employer-based health insurance plans. They will shift over to the individual private health insurance plans. This will be attractive until the tax differential (between inflation and the rise of premium costs) overcomes the initial savings. After that, even those people will begin losing.

Meanwhile, those not young and healthy will get nailed in both cases. If they move over to the individual health insurance plans, they will lose their shared-risk averaging and see a substantial rise in their medical costs without it.

If they stay with their employee-based plans they will find that the effect of all the young and healthy opting out, causes the shared-risk average cost to rise. Undoubtedly, the shared-risk health insurance provider will reassess that situation and raise the shared-risk pool rates to compensate for the loss of the young and healthy element. An immediate advantage is seen for about the first two years. After that, an inflection will turn the curve back down.

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