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  • Down in the Gutter With $30,600 a Year Plus Benefits

    Posted by Shannon Love on October 13th, 2007 (All posts by )

    The recent kerfuffle over the middle-class family of Graeme Frost who can’t “afford” medical insurance got me to thinking: Why do we think it unfair that some people must pay rather a lot for medical insurance?

    Bonnie Frost works for a medical publishing firm; her husband, Halsey, is a woodworker. They are raising their four children on combined income of about $45,000 a year. Neither gets health insurance through work. Having priced private insurance that would cost more than their mortgage – about $1,200 a month – they continue to rely on the government program

    Why do we as society seem to feel that a family who makes $45,000 should not have to accept the loss of lifestyle that paying $14,400 a year for medical insurance would entail?

    In a manner similar to the class structure of the medieval world, we expect people with certain incomes to be able to afford certain levels of consumption. We think a certain lifestyle correct and “fair” for each level of income. We feel unnerved when we see someone living below their economic “station.” We feel so strongly about this that we will consider transferring income from one person to another if the receiver cannot maintain the expected level of consumption on the same income.

    Most of us don’t write our own checks for medical care or insurance. A private or public institution does it for us. Most people don’t understand that if they make $50,000 a year plus benefits, that they are receiving anywhere from $12,500 to $16,500 worth of benefits, including medical insurance. That means that if they wanted to head out on their own, they would have to make between $62,500 and $66,500 to maintain their current lifestyle and still have enough left over to buy the same level of benefits themselves.

    Most of us have no feeling for how much compensation we actually earn. Anywhere from 25% to 33% of our total compensation gets diverted and spent by others. We never see it, never feel and never budget it, so we don’t include it in our intuitive model of the proper, responsible budget for a “fair” level of consumption.

    This lack of proper intuitive accounting leads us to feel that a self-employed person who makes $50,000 a year earns the right to the same level of consumption as a corporate employee whose earns $50,000 plus benefits. We feel it’s wrong that the self-employed person must consume at the level of a corporate employee who earns “only” $35,000-$40,000 a year plus benefits.

    In the specific case of the Frosts, we all intuitively empathize with them that if they earn $45,000 a year that they should be able to consume at the level of someone with benefits that earns $45,000 a year. We don’t want them, or ourselves, to have to live down in the gutter with those that make a mere $30,600 plus benefits.

    In the end, we respond to the threat of a loss of consumption on the part of the Frosts in the same way as medieval peasants responded to the sight of impoverished nobility. We feel in our bones the wrongness of it and wish to fix it even if we ourselves possess much less.

    We need to feel less and think more.

     

    16 Responses to “Down in the Gutter With $30,600 a Year Plus Benefits”

    1. Chel Says:

      I guess this is the reason why small businesses are often for a universal health care system. Those benefits are expensive! I have several friends that have wanted to live the American dream of starting their own business but can’t afford to not have employer-based benefits because they have chronic health problems that are expensive (though not debilitating). Actually one of my friends tried to make a go of it and found he couldn’t get individual insurance at any price due to his health condition, which is the situation Graham and his sister would be in without S-CHIP. (My friend now works for a big company, but he still fantasizes all the time about doing his own thing.) It really seems that universal coverage would be more conducive to entrepreneurship.

      I’m not sure why in America we think that only people who work for companies and institutions should get health coverage. It’s not just the people who work for big institutions that get to send their kids to schools, or use the postal service, or get police protection, or get the benefit of being defended from terrorists by the military.

    2. Ginny Says:

      Health coverage is changing. HMOs are now willing to deal with smaller numbers and small businesses are joining. That seems to me a better solution than nationalized care (though I’ve got to admit that HMO care often seems like state-run care; the difference is that at some point customers can get fed up). If that weren’t happening, I’d be closer to Chel’s position – almost all my full-time employees were spouses of people employed by our city’s big employer – the university. They wouldn’t have worked for me if their spouses were self-employed because at that time self-employed insurance was through the roof for them and really high for me.

    3. Jonathan Says:

      I’m not sure why in America we think that only people who work for companies and institutions should get health coverage.

      It’s a legacy of WW2 wage-and-price controls that, for political reasons, has so far been impossible to repeal. (It’s as difficult to repeal, and for the same reasons, as is the tax deduction for mortgage interest.) Back then, Congress allowed employers to deduct employee health-insurance costs as an expense, because that made it a little easier for companies to bid for workers in a tight employment market where it was illegal to offer raises. This deductibility continues even though we no longer have wage-and-price controls. Repealing the deductibility of insurance costs would make it far more likely that individuals would take on the task of buying their own insurance rather than leaving it up to their employers. This in turn would stimulate introduction of insurance plans that appeal to patients rather than to their employers.

      Another problem is that insurance is regulated on a state-by-state basis, which means insurance companies can’t offer national plans; every plan has to be approved by the insurance regulators of every state where that plan will be offered. And every state regulates minutely the provisions of each plan. An insurance company can’t just sell a plan that its customers want; it has to sell a plan that covers everything that state insurance regulators tell it to cover. That’s why it’s impossible to buy inexpensive major-medical policies anywhere. The consumer is forced to pay for co-payment provisions on office visits, mental-health coverage, and other pricey options that really drive up the cost of the policy. It’s as if buyers of automobile insurance were forced to purchase coverage for oil changes, new tires and car washing. Major-medical coverage alone is not very expensive, because like automobile liability insurance it covers only events — severe illnesses and injuries — that are relatively unlikely to occur.

      Eliminating the deductibility of insurance premiums, and nationalizing insurance regulation, would go a long way toward putting individuals in control of their own health care, and would IMO solve almost all of the problems of our national medical system.

    4. Shannon Love Says:

      Chel,

      I guess this is the reason why small businesses are often for a universal health care system.

      Your probably not old enough to remember that small businesses shot down Clinton’s first shot at mandatory health care. Small business and the self-employeed would love socialized health care on one hand but experience has shown them that the additional taxes would kill them.

      Its big business that really pushes for socialized medicine. The get out from paying their current health care cost, they get from under their retiree health care obligations and the taxes probably wouldn’t be worse than what they pay now.

      The problem wasn’t that Foster didn’t make enough money to pay for their children food, clothing, shelter and medical care. The Fosters could have gotten full insurance long before the accident, if and only if, they were willing to assume the lifestyle of someone who made about 14,500 less than they. They weren’t willing to do that. Most of us aren’t.

      The truth is that employees receive benefits worth about 1/3 their nominal salary. A person who heads out on their own must make 1/3 again as much in order to afford the same level of benefits. The Foster really should live the life style of someone with benefits who takes home around $30,000 a year. Instead, they chose to forego insurance and live like someone who brings in $44,000 without benefits.

      In reality, the Foster could have purchased very inexpensive catastrophic insurance, around $100 a month, which would have covered their children’s injuries and post-care. They would have been on the hook for $10,000 or so deductible but they could have managed that.

    5. david still Says:

      right. blame the victim./ In fact, no insurance, go to emergency room. They will take care of you and the bills will be added on to the bills of those with coverage and then the insurance companies will increase the cost of health insurance for those who pay for it…this is called a cycle.Or would you suggest that the parents simply let their kid suffer and/or die?

    6. Ginny Says:

      Victims might be defined as those who encounter difficulties because of choices they made but only when those difficulties would not have been foreseen by a sentient and rational person. I am not a victim of weight – which comes from stupid choices on my part – but am a victim if a meteor hits me as I’m walking to work.

      Nor is “holding responsible” blaming, but rather respecting (if criticizing the choices) another’s ability to choose. I do think much about our health care system is screwed up, but implying those on the other side are callous is not a useful tactic.

      And part of what is screwed up – as anyone who has chanced upon an emergency room can tell you – is a culture that uses these visits in the place of regular appointment as well as a time to catch up on social lives. Most are sadly in worse shape (and less productive and happy) than they would be with regular medical diagnoses.

      I can agree with part of your points Mr. Still but am likely to get my back up if you think any points of disagreement are from moral failings on my part.

    7. Elliot Says:

      Of course I blame the victim when the victim is someone who has failed to provide health care for his family, failed to secure full time employment, drives three nice cars, and has property worth $400,000. The guy is a loser and should be blamed.

    8. capitano Says:

      When I think about the industriousness and self-reliance of early Americans like my ancestors who fought in the Revolutionary War and later moved their families across the continent to settle and farm in a wilderness, I find it hard to believe that modern generations are descended from the same people.

      Early Americans would have understood caring for the least fortunate through private charity and church relief. But I can’t even imagine their reaction if they were told that we need to hurry up and get the government to subsidize health insurance for families who live beyond their means, so we can start planning for the government to subsidize mortgages for people who bought more house than they can afford.

      Aside from it being the antithesis of the new republic, they would be dumbfounded by the source of revenue for the the government subsidy. We can pay for it by raising the taxes on cigarettes because it’s …for the children. Who can argue with that? Well, other than the completely heartless.

    9. Ginny Says:

      Some of us nonsmokers suspect that expecting smokers to foot the bills for these wonderful schemes is a bit heartless as well. And foolish. If this weans some from cigarettes these programs, more likely to increase than not, will need other sources in the future.

    10. Shannon Love Says:

      David Still,

      …right. blame the victim.

      If a parent has years and years to plan for contingency for their children and yet never does just so they can support their material standard of living then yes, I will call them to account.

      You should reflect that there are families out there today, right now, in the same general circumstances as the Frost who planned ahead and sacrificed their material consumption to protect their children. The Democrats will not thrust them into the cameras and will not suggest programs to help them in the least.

      Its an old story. Those who make sacrifices in the form of smaller houses, smaller cars, and those who save, insure and invest, get nothing from the welfare state. Those who consume, consume, consume; living for today and letting others worry about tomorrow get everything from the welfare state.

      We reward grasshoppers and ignore the ants.

    11. Don Says:

      “Why do we as society seem to feel that a family who makes $45,000 should not have to accept the loss of lifestyle that paying $14,400 a year for medical insurance would entail?”

      Sometime around the point we decided that the product of one’s own sweat and entrepreneurial skill was the property of the state and not one’s own. Well, at least everyone else’s capital. When it became ‘de jure’ to act without thinking about what is basically robbing someone to make ourselves feel morally better.

      What did we do fifty years ago, when a lot of this stuff wasn’t around?

    12. capitano Says:

      **We reward grasshoppers and ignore the ants.**

      Worse, we treat ants like suckers who are too square to get with the program, only rewarding behavior that makes them more dependent, not more self-reliant.

      Hillary: “Hey buddy, here you’ll like it …the first one’s free.”

    13. Elliot Says:

      Weaning people from cigarettes will be a disaster for state government budgets. They have a huge stake in cigarette sales because of the revenue stream they get from the tabacco settlemes of a few years ago.

    14. MIke Says:

      Don,
      Fifty years ago, 1957, the President was Dwight Eisenhower; Vice-President was Richard Nixon. The average American non farm family income was approx. $5200.a year – $200 higher than in 1947. The average American farm family income was approx $2500 a year – $500 higher than in 1947. A gallon of gas was about 24 cents, and the minimum wage was up to a dollar an hour. Dwight D. Eisenhower refused to push tax rate cuts for the high-income. Throughout Ike’s Presidency, the top tax rate on income over $400,000 stood at 91 percent. Our current top marginal rate: 35 percent. You tell me what folks did back in ’57? They didn’t leave it to beaver, though they did watch it.

      Although nearly 47 million Americans are uninsured, the United States spends more on health care than other industrialized nations, and those countries provide health insurance to all their citizens.

    15. Ginny Says:

      Some idle thoughts without appropriate googling:

      Actually, I’m a little curious about doctor’s salaries in the fifties. And the level of specialization. And the percentage of doctors in the population. I don’t know if these have changed. Maybe they aren’t important. Malpractice insurance has had an effect – how much? If health care were nationalized, what would happen to such suits? Would that improve or lower the level of medical care?

      The ability to diagnose has been improved remarkably by technology, but the ability to diagnose knowing the history of a patient and family history seems (at least in my experience) to have actually weakened. The HMO seems to attract doctors who are young, female and fertile. I’m all for babies, but I seldom see the same doctor two years in a row. They certainly aren’t the same doctors my husband or daughters see – or even his mother. My family is across the country and we seldom talk and when we do it isn’t about illnesses. It turned out we siblings share a problem – but all of us were diagnosed separately and had no idea until we were talking about it at a wedding. The specialists are far more numerous than the family practice physicians. Is my experience unusual? Is what I’m seeing important?

      I’m constantly thankful for current health care – my husband’s father died at 47 from a heart attack; I’m sure today he’d have lived decades longer. But costs were considerably lower – the birth of my daughter, who is turning thirty next week, was not covered by insurance but it wasn’t difficult for us to pay, even though it was my husband’s first year on the tenure track.

    16. Charles D Quarles Says:

      Ginny,

      I’ll partly answer your questions.

      1) Less than current levels on one level, similar on another.
      2) Much less than now.
      3) Malpractice insurance is one or two orders of magnitude higher now. Doctors now can expect to be sued twice on average. Back in the ’50’s doctors weren’t sued as often and much less likely to lose a suit. I remember my insurance going from $3K a year to $50K a year before I was forced out.
      4) There are a larger number of chronic diseases to deal with now than in the 50’s. Family history is less important because of the greater fragmentation of families and the fact that family sizes are smaller now. My maternal grandmother was the eldest of 11 children. My mother had two children. In my grandparents’ day, most of the extended family lived within 10 or 20 miles. I have family scattered over the lower 48, and we don’t keep in touch.
      5) Patient history is just as important as ever, but it is only as good as the patient’s recollection and/or the availability of records, many of which cannot be accessed even if they can be located.
      6) Insurance back in the ’50’s, to the extent it existed, was oriented toward catastrophic care. Beginning in the ’60’s, insurance became first dollar, no point of service payment oriented. Tacking on Medicare and Medicaid in 1965 didn’t help. The concept of paying cash out-of-pocket for routine care became an anacronism. I will suggest you research the effects of tax preferences for Kaiser Permanente in CA in the ’70’s, DRG’s in the early ’80’s, Rep Fortney “Pete” Stark, Rep. Henry Waxman, and a host of others behind EMTALA, COBRA, OBRA from the Reagan and Bush 41 years, and finally, HIPAA and welfare “reform” from 1997.