Healthcare thoughts from an Insurance Industry worker

March 7, 2010


Here are some thoughts on health care reform from the perspective of one who works in the industry.

The main issues driving the spiraling cost of medical insurance are:

1) The tendency of people to not carry medical insurance when they are younger and/or healthier. Such individuals tend to use the insurance less, so to them it is a reasonable transaction, where they do not pay premium but do not have coverage.

2) State “reform” measures in many states prohibit insurers from excluding pre-existing conditions (medical problems that were diagnosed by a medical professional prior to coverage being purchased).

3) People living in these “reform” states wait until they need to use the medical benefits before purchasing insurance, and the insurance company is prevented by “reform” from excluding the conditions. This drives premiums up because the group of those insured (the pool) has a very high percentage of people who are making claims that have to be paid versus those not using the benefits.

4) Many states also mandate coverages for a variety of treatments that typically are outside the norm for medical coverage. These additional coverages have their own costs, which get added to the premiums as well.

5) A MAJOR driver in medical costs is the skyrocking costs of pharmaceuticals.

6) Lack of malpractice tort reform

These are at a high level the main drivers pushing medical insurance premiums up. So, how many of these will Obamacare help?That’s right, none.

While it features a mandate that is supposed to make people purchase insurance (which is unconstitutional), the fine for not doing so is less than buying the insurance, so people will just pay the fine.

The other issues are actually made worse by Obamacare, as its making the requirement to cover pre-existing conditions nationwide will simply amplify the current problem of young, healthy people not buying. It adds even more odd coverages that plans have to cover, does nothing about runaway malpractice litigation and does nothing about pharmacautical prices.

Even worse, it also implements “community rating”, which means insurers cannot charge more for customers with pre-existing conditions or indeed any sort of factor that would normally increase risk. So a schoolteacher and someone who taste tests plutonium both must be covered and at the same premium.

So, how to fix this mess? While the ideas floated by conservatives would help they don’t go far enough.

1) The requirements to cover esoteric procedures must go. How an insurance company fashions its product should be totally up to the insurance company as long as what they fashion is completely and clearly explained prior to purchase.

2) The “reforms” requiring pre-existing conditions to be covered need to be rescinded. To handle these conditions, promote the establishment of special insurance plans specifically to cover those conditions. If you have to have a government function perhaps it could be to fund a “stop loss” on these plans where the insurer stops paying after a certain level thus enabling lower premiums. However I would prefer a private solution.

3) Let insurers create products aimed at the young and/or healthy. These products could provide medical coverage for big ticket issues for a low premium. That would get them into the pool.

Now add these things to the other things already proposed (tort reform, competition across states and such) and we can really get somewhere.