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A Project of The Annenberg Public Policy Center

Health Care Premium Costs

In last week’s final debate, Sens. John McCain and Barack Obama cited greatly different estimates for the average cost of health insurance, and a number of readers have asked us to sort it out.

Obama: By the way, the average policy costs about $12,000. …

McCain: The average cost of a health care insurance plan in America today is $5,800.

Both candidates were talking about the relative value of the $5,000 tax credit McCain wants to give to families and couples (individuals would get up to $2,500) to purchase health care policies. Both are correct, but they’re talking about two different things: The cost of employer-provided insurance for a family versus the price of a family policy purchased by an individual.

Obama’s figure comes from the Kaiser Family Foundation, which found through an annual survey that the average cost of premiums for a year for an employer-provided family plan is $12,680 in 2008. (It was $12,106 in 2007.) Obama was talking about the cost a family might face if their employer decides to stop offering coverage. But such a family likely would be able to buy a plan for less than that on the individual market.

McCain cites the average premium cost for a family that buys its own health care plan. According to a Dec. 2007 study by America’s Health Insurance Plans, the average yearly premium cost for a family plan on the individual market was $5,799 for 2006 -2007.

Both organizations have cited the other’s work, and both say premium costs, whether employer-provided or on the individual market, can vary widely:

AHIP study: For single policies, annual premiums ranged from $1,163 for persons under age 18 to $5,090 for persons aged 60-64. For family policies, premiums ranged from $2,325 for policies covering children under age 18 to $9,201 for families headed by persons aged 60-64.

Why such a difference between employer-provided plans and those you can get on your own? Several reasons: As AHIP says, premiums at businesses that offer insurance reflect the cost for a large pool of people, both the young and healthy and the old and the sick, with the same rate normally being charged to all workers at a company. On the individual market, people are “very price sensitive,” since they’re paying the full cost of the plans. (They may choose a lower-cost plan with high deductibles or copays.)

Also, the individual market varies, depending on who is buying insurance. In most states, insurers can price policies by age, which prompts younger people to buy coverage. In other insurance pools, people may have waited to buy insurance until they really needed it, causing higher premium costs for everyone in that pool. Only 14 million non-elderly people buy their own coverage, compared with 158 million who have insurance through their jobs, according to Kaiser.