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Health care reform could drive more people to buy their own insurance

December 5, 2009

If Congress passes health care reform, more people will become like Juli Erhart-Graves, whose family spends nearly 18 percent of its income on health insurance and out-of-pocket medical costs.

The number of people buying insurance on their own—as Erhart-Graves and her husband do—will more than double by 2016, according to projections by the Congressional Budget Office, as health reform requires all Americans to have health insurance.

Families of four buying coverage on their own—instead of through an employer—will pay 16 percent to 19 percent of their income, according to the CBO, if they currently make more than $44,000 a year.

Those percentages are about equal to what most people pay now, said Erhart-Graves, who is president of the Indianapolis financial planning firm Worley Erhart-Graves Financial Advisors Inc.

“This is in line with what I see,” she said, speaking of her clients—as well as her own family. She added, “We feel like we’re blessed that we can still afford that. There are so many people out there that can’t spend 18 percent of their income on health insurance and health care.”

Indeed, Republicans have used the CBO report to attack the health reform proposals for failing to achieve President Obama’s goal of reducing costs and making health insurance more affordable.

But that’s not entirely true. The Senate health bill would extend subsidies on a sliding income scale to make non-employer health insurance less expensive for low-income families but more expensive for high-income families.

Sugato Chakravarty, who teaches a personal finance course at Purdue University, called the expected outlays “reasonable” for low-income and high-income families.

“It’s the middle-income group I worry about,” he wrote in an e-mail, referring to families making $33,000 to $77,000. “A lot of them may not be able to afford 15 percent [and more] on insurance premiums/health care.”

Families of four making $44,000 or less would pay somewhere between 8 percent and 13 percent of their income on health insurance and health care costs.

That’s a big improvement from the current situation. Families in that income bracket now pay 21 percent to 33 percent of their income on health insurance and medical bills, according to a 2007 study published in the journal Health Affairs.

The Health Affairs study found that families making $66,000 or more now pay 13 percent or less for health insurance and medical bills.

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