The Regressiveness of Health Premiums

Health insurance premiums are unlike the cost of other forms of insurance that each of us carries. The price of most insurance we buy is progressive, that is, related to our income. We usually buy life insurance as a multiple of our income, so if we earn more, we buy more, and pay more. If we earn less, we buy less, and pay less. Our home owner's insurance is related to the value of the property we are insuring. If we have a large home, we buy more coverage. If we have a modest home, our coverage needs and costs are lower. Our automobile insurance needs are related to the value of the car we are insuring, and our own driving record, items that are related to our income, in the first case, and under our control, in the second. If we buy disability insurance, its cost is related to the income we are protecting, and our age.

Health insurance costs, however, are regressive. They are inversely related to income. It costs as much to do open heart surgery on a man who earns the minimum wage, as it costs to operate on a Goldman Sachs executive. The operation consumes several years' worth of the income of the minimum wage earner, but only a tiny fraction of the year-end bonus of the Wall Street executive. As a result the health premiums that protect against these costs are regressive too.