Rising Insurance Premiums No Surprise

CalPERS, the retirement system for California state employees, wants Congress to do something about rising insurance costs. It complains that insurance premiums it pays for its employees, their dependents and retirees has increased 60 percent since 2003.

CalPERS president Rob Feckner says, “We hope [President Obama] doesn’t give up on the public plan option. We think that’s the right way to go,” though the Sacramento Bee adds, “he was expressing his personal opinion, and CalPERS has not yet issued a formal position on the controversial public plan option.”

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Uhm, sure.

Anyway, is it any surprise that CalPERS premiums … or those of any employer, are up? There are several causes, no doubt. But one important one is that the cost of health insurance is largely invisible to the insured, so the most powerful agent in restraining costs in any industry — a self-interested customer — is largely absent. The irony is that the burden is ultimately borne by employees themselves; when employers pay more for insurance, they have less money to give in pay increases.

On a related note, a few nights ago, I was talking with some neighbors, comparing notes about a hailstorm that came through a year ago. One woman suggested that she got payment for “damage” to her house that was not caused by the storm. She added, “Hey, insurance was paying, why not?” Take that scenario, multiply it a few times, and you start to get a comparable situation in health insurance.

It’s that kind of attitude toward health insurance that helps drive costs higher.

(Cross-posted from State House Call.)