President Obama held his much-anticipated summit on health insurance reform two weeks ago. His stated goal was to listen to Republican suggestions about health insurance in hopes of achieving a breakthrough on the legislation passed by both houses of Congress but stalled after Massachusetts voters denied the Democrats the filibuster-proof majority they needed to finalize the bill.
If the goal of the summit was to reach a consensus on health care insurance, it was a failure. While the Democrats took pains to suggest that they and their Republican colleagues were not that far apart on a host of issues, neither side was willing to concede anything to the other. The summit ended with no agreement on policy, nor even a commitment to find agreement.
As an insurance professional, I was amazed by the gaps in understanding of present-day health insurance and embarrassing gaffes some members of Congress made as they tried to discuss health insurance.
The most egregious misstatements were made by Representative George Miller, a Democrat from California. Miller wanted to dramatize the need for reform in the area of delaying or denying coverage for preexisting conditions, but it was obvious from his statements that, as a member of Congress for the last 35 years, he has no idea what life is actually like for someone seeking health insurance coverage.
He started out by trying to say that because he had two hip replacements, he would not be able to obtain health insurance if he had to change jobs. “I sit here with two artificial hips, a little bit of arthritis, and I have a kidney stone,” Miller said. “I’m dead in that insurance market if I have to switch policies or switch companies or look for another chance. Now, why should that be? Those hip replacements have been with me for 15 years and I have no trouble. But it’s a way of denying me care.”
Miller is wrong on several counts.
First, he would not be dead in the private health insurance market if he switched to another group health insurance plan, because group health insurance plans cannot deny or delay coverage for preexisting conditions by law.
Second, he would not be dead in the private health insurance market if he switched to an individual policy, provided he did so within 63 days of terminating his existing coverage. You would think Congressman Miller would know that, because he voted for the very law that guarantees portability in health insurance coverage, the Health Insurance Portability and Accountability Act (HIPPA). Passed by Congress in 1996, HIPPA states that anyone who obtains new health insurance coverage within 63 days of losing or ending an old health insurance policy will be deemed to have “continuous coverage.” As such, the period of coverage preceding the new enrollment will be subtracted from any waiting periods for preexisting conditions. By having continuous coverage for 35 years through the U.S. Congress, Congressman Miller will not have to worry about any waiting periods for his arthritis or kidney stone.
Third, Congressman Miller, who is 65, has the option of signing up for Medicare, the taxpayer-funded health insurance program for seniors, and he cannot be denied coverage for it because of preexisting conditions. I’m not suggesting that Representative Miller should drop his private health insurance altogether; he can use Medicare as supplemental care. But it is there if he needs it. More importantly, it underscores the fact that millions of Americans who have preexisting conditions cannot be denied coverage because they already qualify for government healthcare through Medicare, Medicaid, S-CHIP, Veterans Administration, and other programs such as California’s Healthy Families.
Not only were Representative Miller’s examples false, but his conclusion was wildly off the mark. Insurance companies are not evil entities, groping around for ways to deny coverage. As I have explained in this space before, they are functioning exactly as any insurer does, using actuarial science to maintain the balance between premiums and losses. Since they already are forced by law to accept people with costly preexisting conditions in their group policies, they need to draw the line at what they can cover without going out of business.
That is why I wrote my Congressman to tell him my idea about super funds for the truly uninsurable. If we want to show compassion for people in the late stages of a disease and care for them, fine. Let the taxpayers pay for those extremely rare cases. But there is no need to hijack the whole system for the sake of a few.
Representative Miller, President Obama, others who talk about people losing health coverage when they are sick are guilty of misleading the public about practices of the private health insurance industry. They tell sob stories about lost coverage, not because it is rampant, but because they are trying to manipulate the public. They know Americans are compassionate, so proponents of health insurance reform are using these stories build support for the legislation based on a false premise. That is why I say we should set up a separate fund for the truly uninsurable. Then we will know exactly how many there are, exactly how much it costs to care for them, and taxpayer money is going to cover them and only them.
Nine Essential Questions To Ask about a Health Insurance Policy
21 Feb
Posted by admin as Health Insurance
The total cost of a health insurance policy is a combination of policy premiums and out-of-pocket expenses such as coinsurance, annual deductibles, and copayments.
When comparing health care insurance providers and policies, be sure to ask these ten essential questions:
- What is the out-of-pocket cost of seeing a physician?
- What is the out-of-pocket cost of an x-ray?
- What is the out-of-pocket cost of a lab test?
- What is the out-of-pocket cost of outpatient surgery?
- What is the out-of-pocket cost of a hospital stay?
- Does your health insurance plan provide wellness benefits? What are they?
- What is the out-of-pocket cost of prescription drugs?
- Are you responsible for paying an annual deductible? How much is it?
- Is there a maximum annual out-of-pocket amount you are responsible for? How much is it?
By matching the answers to these essential questions to the health requirements of you and your family, and you will be able to better compare health insurance policies.
A lot has happened since my last writing. The people of Massachusetts voted to fill the Senate seat left by the death of Senator Edward Kennedy last year. In the hush of the voting booth, the people spoke loudly and clearly, electing Republican Scott Brown by a 5-point margin, 52% to 47%, over Democrat Martha Coakley in a state where Democrats outnumber Republicans 3-to-1. The vote made headlines across the nation because it was in large part a referendum on the health insurance legislation pending before Congress.
Scott Brown made health insurance reform a central issue in the campaign, vowing to be the final vote needed to block the passage of the health care insurance bill in the Senate. The people of Massachusetts heard that pledge and gave Brown a resounding, “You go, Senator No.”
Now, the president has invited Republicans to share their ideas about health insurance reform at a meeting to be held February 25 and televised by C-SPAN. This meeting has all the signs of being nothing but political theater. You can almost hear Admiral Ackbar screaming, “It’s a trap!” Nevertheless, the Republicans have little choice but to attend the health insurance reform meeting and put forward their own suggestions for health insurance reform. I suggest they show up with a new negotiating option: Superfunds.
Malpractice superfund. Pass meaningful torte reform that insulates doctors from gigantic malpractice awards that drive malpractice insurance rates up and force doctors to order batteries of unnecessary tests just to protect themselves against lawsuits. Freeing doctors from practicing defensive medicine will go a long way toward controlling—even decreasing—health costs. This idea isn’t new, of course, but Republicans could give it a twist in the name of compromise.
Democrats will not abandon their trial lawyer constituency nor their parade of victims of the rare but dramatic malpractice injuries, so Republicans should not insist on capping malpractice awards outright. However, they could suggest that the government—i.e. taxpayers like you and me—pay any malpractice award over, say, $1 million dollars. We’re all in this together, right? Doctors would still need malpractice insurance and they would still face financial penalties for carelessness, but a $1 million limit on the amount private insurers would pay would drive malpractice insurance costs down, ultimately benefitting the health care consumer.
Meanwhile, trial lawyers could still earn their exorbitant fees by winning $10-, $20-, or $30-million lawsuits. The difference is that the taxpayers would be on the hook for the malpractice awards. This might make judges and juries think twice before making such awards in the first place, but whether it did or not, it would be a cost-effective way of driving down healthcare costs. Really large malpractice awards are few and far between, but their effects on the actuarial reality of malpractice insurance are huge. In addition, having government assume the cost of huge malpractice awards would be extremely transparent. The tax dollars in the malpractice superfund could only be used for one thing: paying malpractice awards. Everyone would know where the money is going. The cost of the program would be far less than the current proposed legislation. Keep in mind, it would take one hundred $10 million malpractice awards to equal just $1 billion. The savings from lowered malpractice insurance rates and less defensive medicine being practiced would be in the tens or hundreds of billions of dollars. Proponents of health insurance reform love to point out that Americans pay more for health care than any other people in the world, but they neglect to point out that a large chunk of what we pay is for defensive medicine.
Uninsurable superfund. I have suggested this before, but it bears repeating. President Obama and the Democrats make it sound like health insurance providers routinely deny coverage to people because of pre-existing health conditions. This is false; as a matter of fact, the vast majority of people with pre-existing conditions are covered with no waiting periods because they are part of group health insurance plans, which by law cannot delay or deny benefits because of pre-existing conditions.
Furthermore, those who are over 65 and qualify for Medicare cannot be denied benefits for preexisting conditions; nor can the poor who qualify for Medicaid; nor the young who qualify for S-CHIP, Health Families, and other programs; nor anyone connected with the U.S. military. The only people facing exclusion from insurance based on preexisting conditions are non-military people over 18 and under 65, too well off to qualify for Medicaid, not covered by an employer or other group insurance, and who also has a serious preexisting condition. How many of these people are there?
In the vast majority of cases, these unfortunate few are not denied coverage outright. They usually have a waiting period prior to receiving benefits. But once the coverage kicks in, it stays. Republicans could offer a safety net to those who really are denied coverage by paying their medical bills directly through an uninsurable superfund. Again, we would find out exactly how many people there are who fit this category, and the program would be extremely transparent. The money could only be used to insure the uninsurable. Whatever the program costs, it will be a lot less than the current reforms will cost. It will have the virtue of controlling health insurance rates by preserving the actuarial integrity of private health insurance. This measure would end the debate over the uninsured without threatening those who do not care to have insurance with fines and jail time.
Our health care system works pretty well. Its costs can be controlled by creating government superfunds that will preserve the integrity of private health insurance while protecting real victims of malpractice and those who are uninsurable.
I am writing today not just as an independent health insurance agent, but also as a concerned American citizen. The topic, as it has been for several weeks, is the health care insurance debate taking place not just in Washington but across the United States. Today, voters are going to the polls in Massachusetts in part to weigh in on this issue that will affect every citizen and resident alien in the country.
I don’t know what the outcome of today’s election will be or what message the pundits and politicians will take from it. What concerns me is that the White House will not care one way or another. President Obama’s senior advisor, David Axelrod, made this clear in an article in the Washington Post entitled “Senate election in Massachusetts could be harbinger for health-care reform.” Dan Balz and Chris Cillizza quote Axelrod as saying, “The only way to win this debate is to get the bill passed and implement it.”
This is a stunning remark. In fact, I consider it to be the most outrageous and sinister statement made by an official of our government in my lifetime. I am not being hyperbolic. Let me explain.
First, Axelrod is admitting that supporters of health care insurance reform have failed to win popular support. Polls indicate that the number of people who support the president’s health insurance reform initiative is just over a third of voters—about 35 percent.
Nor is Axelrod optimistic about turning those numbers around. In fact, the longer the debate lasts, the worse health insurance reform legislation fares. What we are seeing is a replay of the 1993 health insurance debate: The more people learn about what the legislation will entail, the less they like it. That is their right, of course. That is why we have debates. When it comes to public policy, especially policy that touches every person’s life, the devil really is in the details.
Many ideas that sound wonderful in the abstract become unpopular or even repugnant when transmogrified into rules, regulations, restrictions, and taxes. Universal healthcare is the ultimate example of this phenomenon.
Universal health care is not a new idea. It is an idea that has been tested in the court of public opinion for more than one hundred years, and it has lost every time. Supporters of health insurance reform claim that an evil cabal manages to torpedo the legislation every time it comes up. As a writer to the editorial page of the New York Times recently put it, “A powerful economic minority in this country wants to deny the people a basic human right: health care.” That letter writer has it exactly backwards. Believing that their businesses would be hurt more by opposing health insurance reform legislation than by working with the government to create a feasible plan, health insurance and pharmaceutical companies initially supported health insurance reform. It is the majority of the people—the little guys—who have rebelled against this legislation, as they did in 1993 and every time it has been seriously entertained.
This is what frustrates Axelrod. He believes that he, President Obama, and the Democratic majority in Congress know better than the American people. They believe they are right, even if they can’t persuade the voters that they are. The people, Axelrod believes, are too stupid to know what is good for them. The only way to “persuade” them is to impose the program on them. Once it is in place, the people will learn to love it.
The arrogance of this belief is breathtaking. So is its resemblance to a dictatorship. All dictators believe they are smarter than everyone else, and that everyone will see the wisdom of their policies once they live under them for awhile. King George III thought he had all the answers, too, but our forefathers fought a bloody Revolutionary War to establish the principle that governments can rule only by consent of the governed. In America, we are less interested in end results than we are the process. The American people sometimes get things wrong, but at least we rule ourselves. If we lose the right of self-determination, then we have lost everything.
That is what makes Axelrod’s statement so pernicious. It is antithetical to the democratic principles on which this country is founded. His statement is something you would expect to hear in the presidential palace of a banana republic, not in the White House.
Finally, Axelrod’s statement is self-negating and illogical. Passing health insurance reform legislation without popular support and implementing it against the will of the people is not “winning” the debate. It is losing the debate and not caring. It is losing the debate and forging ahead. It is saying you don’t care about persuasion or politics, only power. It is small-minded, regressive, brutish. And that is frightening.
As expected, the U.S. Senate passed its own version of health care insurance reform over the holidays. With both houses of Congress now committed to changing the way health insurance policies will be written in the future, the new year is shaping up as the most pivotal year for health insurance since the introduction of Medicare and Medicaid two generations ago.
The two health insurance bills produced by Congress must be reconciled into one, so the final form of the health insurance legislation remains a mystery—a strange situation given that the people paying for the reforms have not been told how much it will cost them. Here is what we know so far:
• Every person not covered by an existing health insurance program—Medicare, Medicaid, or veterans benefits—will be required to have private health insurance of some kind. Those who do not get coverage through their employer will be required to buy it individually.
• Tax credits for purchasing health insurance will be provided for people earning up to 400 percent of the federal poverty level—about $88,000 for a family of four.
• Those who do not obtain private health insurance will face penalties—fines at least and possibly incarceration. Initially the fines may be small—as little as $95 per person for the first year (2014), growing to $750 per person per year.
• Uninsured people, self-employed individuals, and small businesses may be able to purchase insurance from statewide exchanges that may be operated by private insurance companies on a not-for-profit basis or possibly run by the government (the “public option”).
• Large employers (50+ employees) will be required to provide health insurance for employees or face fines.
• The IRS will be responsible for tracking who has insurance and who does not, and it will have the power to levy fines, just as it has the power to seize bank accounts and other assets for unpaid taxes.
• Insurance companies will not be able to delay or deny coverage for anyone, regardless of their physical condition.
• Insurance companies will not be able to charge higher premiums for preexisting conditions.
• Insurance companies will not be able to charge higher premiums based on gender.
• Insurance companies will be limited in the amounts they can charge based on age.
• Insurance companies will not be able to cap benefits for policyholders.
What all this will mean is open to debate. Supporters of the bills believe that the number of people without health insurance will shrink from the current 17 percent of the population to 11 percent, leaving 24 million people uninsured. This assumes that the $95 penalty for an individual who does not get health insurance in 2014 will cause millions to get insurance—a doubtful proposition at best. It also assumes that large companies that do not offer health insurance will be induced to do so based on a $750 penalty per employee—also questionable.
It also assumes the private health insurers will find a way to stay in business despite the fact that the various government mandates violate the actuarial science that is the foundation of private health insurance. In other words, insurance companies will be forced to pay out massive benefits to the terminally ill, those with chronic diseases, the older population, and pregnant women (including those with complicating health issues), yet will not be able to charge the at-risk groups the proportional amounts needed to pay for these skyrocketing benefits.
None of this takes effect until 2014, so the best thing for everyone to do is to continue buy private health insurance for the next four years at least. In the mean time, there will be two election cycles and four sessions of Congress to address the shortcomings of health insurance reform legislation.
I have spent a great deal of space in this blog discussing how the health insurance reform legislation being considered by Congress ignores actuarial science, creating an unsustainable government entitlement. This is a huge concern in the long run, but the question to ask right now is: How much are these health insurance reforms are going to cost you—per week, per month, and per year?
I find it astounding that no one can answer that question. Even worse, we will only learn the answer after the health care insurance legislation is passed.
It’s like every American is writing a blank check and giving it to Congress, so they can fill in the premium amount.
Some would say it is more like Congress is forging a check drawn on your account. After all, you have no say in the matter.
When did we give Congress the authority to make buying decisions for us? The new law is going to require every working adult to enter into a contract, to purchase a good, whether they can afford it or not.
As a health insurance agent who believes in the value of health insurance, I should be thrilled with the idea that everyone will be forced to buy what I sell, but I am not. It goes against every principle of business I adhere to. People should not be coerced into doing something, even if it appears to be good for them.
One thing I have learned from my years in health insurance is this: People do what is in their best interests. If they decide not to buy health insurance from me, or at all, they likely have a good reason. They might be too embarrassed to say what it is, but it is there.
Often—especially when people are between jobs—they simply cannot afford health insurance premium costs. When people have to choose between health insurance and food, or health insurance and shelter, health insurance loses. People who are just barely hanging on to their homes would rather pay for their drugs and occasional doctor visits out of pocket. I respect that decision. They are running a risk of incurring bank-breaking expenses if they have a serious accident or illness. But in this economy, millions of people are underwater in their home loans, have gone through their liquid savings, or are willing to risk bankruptcy if that is needed. It is their life, and I respect their choices.
I would strongly recommend that those who cannot afford health insurance at least open a Flexible Spending Account (FSA) so they can use pre-tax dollars to pay for incidental medical expenses. Depending on their tax bracket, this could increase their buying power by 20 to 50 percent. But I would never dream of requiring them to buy health insurance from me or anyone else.
Make no mistake, Congress is forcing people onto the health insurance rolls because they need a source of revenue to pay for this gigantic government program. Backers of the bill rightly fear that, left to their own self interest, a certain percentage of people will continue choose to pay for their own medical expenses out of pocket. As I pointed out in my last post, these mostly will be younger people. The government needs their participation in the health insurance program, even if it comes by threatening fines and incarceration.
Whatever happened to choice?
But the iron fist of punishment will not be enough force everyone to buy health insurance.
Knowing that insurance companies will be forced to insure them even if they develop a serious illness, many people will forego health insurance until such a need arises. In fact, guaranteed acceptance of insurability regardless of preexisting conditions is a much larger incentive to forego insurance than the fines are deterrent to doing so.
What we need right now is a pause to reconsider this whole thing.
This may sound egotistical, but lately I have been wondering if members of the national media have noticed this blog. For three months I have pointed out that forcing every person in the country onto the health insurance rolls will overburden the healthcare system, creating shortages of care and even the rationing of treatment. Then last week I heard a report on a cable network discussing health care shortages resulting from health insurance “reform” legislation. The analyst echoed my point about the massive influx of new patients, then added that doctors on the cusp of retirement likely will decide to hang up their stethoscopes rather than deal with the red tape and bureaucracy of government-run health insurance.
The country already faces a shortage of nurses, and health care insurance reform will make the situation worse. For more than a decade, American nurse placement companies have been recruiting nurses from English-speaking countries around the world, including India, South Africa, Australia, and New Zealand. The main lure to foreign nurses was the higher pay that American hospitals were able to offer.
Government-managed health care in the United States is going to level the international playing field. Fewer nurses in foreign countries will see the advantage in coming to the United States. Other nations also facing shortages of health professionals will appear as inviting or more inviting than the United States. Competition for nurses will be fierce, and the United States will not prevail as it has in the past.
The other theme I have been sounding concerns the actuarial unsustainability of health insurance reform measures. This theme also was echoed last week. The media ran reports on a study by the Urban Institute that shows that the health insurance measure passed by the House of Representatives will increase the cost of health insurance of younger adults as a way of offsetting mandates of coverage and pricing for Americans over fifty years old. For example, a single person in their twenties or thirties will see their premiums rise by as much as $1,100 a year under the House plan. The reason? Rather than following the actuarial models of private health insurance, which calculates premiums based on likely expenditures, the House bill mandates that people over fifty cannot be charge more than twice as much as younger people. This, despite the fact that people sixty to sixty-four years are responsible for five times the medical expenses as younger people.
Reflecting this actuarial reality, older Americans currently pay premiums that are four to five times higher than young people. Or, to put it another way, young people are able to get the health insurance they need at quarter or a fifth of the cost of older people precisely because they are healthier and require fewer expenditures.
The House health insurance reform bill ignores this actuarial reality. It does not allow older Americans to be charged for the share of health services they use. To keep the system from going broke before it begins, the House measure forces younger people to pick up the tab for their elders.
This is not the first program disproportionately paid for by the young. Medicare, the government-run health insurance program for those over age 65, is funded mainly through payroll taxes on the middle-aged and the young. Likewise Social Security is not funded through a lifetime of contributions, as is often thought, but rather through the ongoing payroll taxes on younger workers. If the House bill becomes law, the budget for the entire healthcare system also will be balanced on the backs of the young.
Not surprisingly, the American Association of Retired People (AARP), the nation’s largest membership organization, 40 million strong, supports this cost-shifting scheme. An odd position to take, considering the organization’s credo is “To serve, not to be served.”
The actuarial shenanigans of the House bill would not be so menacing if there were a way for young people to opt out of the insanity. The House has seen to it that scofflaws will pay a hefty fine or even face jail time if they fail to sign up. Maybe Congress thinks young people are too busy listening to iPods to notice. I doubt it. I look for this text message to go viral among younger Americans: “Note to Congress: No way, we won’t pay.”
Television reporters often compress complex issues into short sound bites because they fear getting “into the weeds” of details. Sometimes, however, they go too far. The result can be confusion at best and misunderstanding at worst.
When talking about health care insurance reform, for example, many reporters have adopted a shorthand explanation of the proposal to guarantee health insurance coverage to everyone. The reporters say the new law is designed to “end the health insurance companies’ practice of denying coverage to those with preexisting conditions.” This oversimplification is extremely misleading. It suggests that anyone with a preexisting condition is uninsurable. This, of course is nonsense.
As a matter of fact, the vast majority of people with preexisting conditions are insured with no waiting period for their preexisting condition. That’s because most people get their health insurance through a group plan, and it is against the law to deny or delay coverage for preexisting conditions to people enrolling in a group plan.
Nor can health insurance providers deny coverage to someone seeking individual health insurance, provided they have had “continuous coverage” as outlined by HIPPA (Health Insurance Portability and Accountability Act). If you lose your group health insurance, you have a 63-day window to obtain new coverage to maintain your continuous coverage. Another significant portion of those with pre-existing conditions remain covered through HIPPA.
The only people really at risk of having their health insurance denied are those who are seeking individual coverage without HIPPA protection. Even in these cases, however, the health insurance providers do not deny coverage for most preexisting conditions; they merely postpone it for a waiting period. In the meantime, the health insurance company will cover all other illnesses and injuries.
Finally, those who are aged 65 and above—a large percentage of those with preexisting conditions—are covered in full by Medicare. The very poor and those with disabilities are eligible for coverage through Medicaid, regardless of preexisting conditions.
The number of people who are denied coverage outright because of preexisting conditions is very small. Keep in mind, however, that such individuals can make use of a flexible spending account (FSA), a savings account specifically create for paying medical costs. The beauty of an FSA is that the funds can be deposited before federal and state taxes are withheld, increasing the account holder’s buying power by 30 to 50 percent.
Should the unfortunate few denied health insurance beyond a waiting period because of preexisting conditions receive more help from the federal government? Perhaps, but the entire health insurance system does not have to be overhauled to do so. A targeted solution would be to provide outright grants to FSAs. This would preserve the actuarial integrity of private health insurance while covering those who need it. Such a program also would be more transparent, because its true cost would be known, rather than hidden in the cost of health insurance.
As the Democratic majority in Congress puts the finishing touches on the various health insurance reform measures, it appears certain that the proposed legislation will contain a “public option,” that is, a low-cost, government-subsidized health insurance plan.
Supporters of the public option say it will force private health insurance companies to be more competitive. Never mind that this assumes that private health care insurance is less than competitive now—surely a debatable point. It also ignores the fact that the best way to make private health insurance more competitive is to allow health insurance companies to compete for business across state lines, something the government prevents right now.
The reality is that the public option will drive private health insurance out of the marketplace because it ignores the most basic premise of insurance: shared risk.
The notion of shared risk has its roots in the aftermath of the Great London Fire of 1666 in which 13,200 homes were destroyed. In 1667, an English doctor and businessman named Nicholas Barbon conceived a plan to insure against future fire losses. He collected small premiums from a large number of people, invested the funds, and paid claims out of the company’s reserves, creating the first fire insurance company.
American inventor, publisher, and signer of the Declaration of Independence Benjamin Franklin popularized the idea of shared risk on American soil. He founded the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire in 1752. The company offered perpetual insurance against fire. Instead of charging periodic premiums, Franklin’s company accepted a single deposit from the insured. The company agreed to pay any losses during the term of the policy. When the insured cancelled the policy, the company returned the deposit to him or her. In the meantime, the company earned profits by investing the deposits.
For shared risk to work, the premium amount cannot be an arbitrary number. If the insurer charges too little, it will not be able to pay its claims. If it charges too much, it will not be able to compete in the marketplace. Premiums are based on actuarial science, balancing expected losses against expected earnings.
The public option ignores this actuarial balance. It assumes all the risk without sharing the costs.
Supporters of the public option foresee an insurance bonanza as millions of Americans are forced onto the health insurance rolls. As I have written before, this will not occur because the newly insured will be determined to “get their money’s worth” out of the program by visiting the doctor more often. The premiums charged for the public option will barely cover the cost of the new enrollees, if that. It will not generate enough in reserves to cover the extreme costs associated with insuring those with serious preexisting conditions who will be mandated into the system.
Health care is not one of those industries that benefits from economies of scale. That’s because health care service is delivered one-to-one, from a physician or nurse to a patient. Dumping 20 to 40 million new patients into the healthcare system will not make it more efficient. On the contrary, the sudden influx of the newly insured will create a logistical nightmare.
With subsidies from the government, the health care system might mask its actuarial imbalance for a couple of years. A tipping point will be reached when tens of millions of Americans move out of private health insurance and into the public option. Some people will do this to save on premiums. Others will be forced into it when their employers drop private insurance in favor the cheaper public plan. Even when employers stay with private insurance, some employees will elect to enroll in the public option because it is less expensive. If enough employees drop out of the company’s group plan, the policy will be cancelled, moving even more people into the public option.
Eventually, inevitably, the public option health program will face an actuarial crisis, just as Medicare does today. As the rolls of the public option swell, so, too, will the costs. Because the risk is not shared proportionately, the system will face deficits, becoming another unfunded entitlement. The funds require to keep this bloated program afloat will cost the taxpayer even more than private health insurance. By then, however, private health insurance companies will be out of business. There will be nowhere else to turn.
It took awhile, but health insurance industry executives are finally speaking out about the future of health insurance under the various healthcare reform proposals being considered by Congress.
It is gratifying to see the leaders of major health care insurance companies echoing the comments I have made here.
In my September 14 analysis of the president’s primetime address on health insurance, I wrote, “These…mandates…will force the health insurance companies to spend billions of dollars in additional benefits with no way to recoup the expenses, upsetting the actuarial apple cart.”
Yesterday, a group of health insurance executives meeting in Colorado said virtually the same thing. The Denver Post reported that the executives believed that “insurance companies…would end up spending more to treat patients than they would receive in premiums.” Under such a scenario, said John Martie, president and general manager of Anthem Blue Cross Blue Shield of Colorado, “The whole system would collapse.”
That is what I called the “actuarial unsustainability” of the president’s proposals.
The health insurance executives expressed concern that consumers would buy health care insurance only when they know they need it, such as after a diagnosis for cancer or heart disease. “People would come in, pay premiums for a few months while they were getting their cancer treatments,” said Martie.
Supporters of health insurance reform dismissed the insurance company executives’ concerns. “They are assuming that people would game the system,” said Denise de Percin, executive director of the Colorado Consumer Health Initiative. “They are looking at the worst-case scenario. People aren’t stupid—they are not going to pay a penalty and get nothing,” de Percin said.
Percin is only half right: People are not stupid, but that is exactly why they would “game” the system. If people know they can get insurance at any time, regardless of existing health problems, they will wait until they are sick to get a health insurance policy. To do otherwise would be stupid.
To put it another way, fear of uninsurability is one of the main reasons that healthy people sign up for health insurance. They know that if they wait until there are sick to get insurance, they will not be able to get coverage for that condition.
Health insurance reform proponents love to trot out the example of automobile insurance to show that the government can force people to buy insurance. That analogy is false, however, because states do not require motorists to insure themselves, only the damage they do to others.
But since the analogy is out there, think of it this way: Forcing health insurance companies to write policies for people with preexisting conditions is like forcing car insurance companies to write policies for drivers after they have had an accident—and to pay for repairs stemming from the accident.
If drivers could wait until they had an accident to get insurance, they would. Likewise, a homeowner would not insure the home until it had burned to the ground. A boat owner would not insure the vessel until it had sunk. The list is endless.
This is the actuarial foundation of insurance: A large group of people pay a small amount of money, knowing that the insurer will pay a much larger sum, if needed. If no one pays premiums until they have a claim, the system does not work.
In its present form, the new healthcare system will not work, because it defies actuarial reality. It is not insurance at all; it is a scheme to drive private insurance out of business, leaving government to pick up the pieces. Proponents of healthcare reform should come out and say they plan to kill private health insurance, but that is not politically viable. So they pretend that they will simply improve the present system.
That’s the funny thing about words: They don’t come with “true” or “false” labels. It’s up to the individual to use common sense to discover the truth. Fortunately, that isn’t too hard with the current health insurance debate.