Rising Health Insurance – How to Win and Lose at the Same Time!

Industry Insights from Paul Meade, M. Sc, MPH

The front page of the Wall Street Journal announced yesterday that several health insurance companies are raising the premiums on their plans, which are likely to impact small businesses and individual policyholders. The reason cited for this unusually high hike in premiums is recent healthcare reform. The net result of all this it that the taxpayer pays for the added costs of healthcare reform, and the taxpayer pays for increased premiums that the insurance companies add as a result of healthcare reform.

This is like having car insurance, having an accident, and then watching your premiums quadruple for three years before returning to what they originally were before the accident. Guess who just paid for the accident? So why do we have insurance to protect us against an accident when ultimately we end up paying for the accident anyway?

Health insurance, like any insurance, is a risk game. Not for the insurance company, but for the consumer. If the insurance company lost enough money from insuring people, they would go out of business. So the game is simply this: take in more money than you pay out. If you pay out more than you expected in a given year, raise the premiums. If you pay out less than you thought you would, pocket the profits. So whom do you suppose loses in this scenario?

The health insurance companies take in a given amount of money to insure their clients, and the difference between what they pay out to healthcare providers and what they bring in is called the “medical loss ratio.” Paying out to healthcare providers is considered a “medical loss.” So it works like this: collect more money than you have to pay out, and you get to stay in business. It seems reasonable to me that businesses should stand to be profitable. So why the sudden increase in premiums based on healthcare reform?

The health insurance companies had to give in to a few concessions in the new health law, such as lifetime limits and pre-existing conditions. Since they may be at a loss to predict how much these changes will likely cost them, they are hedging their bets. Rather than these companies take the risk, they simply pass on that risk to their customers by raising the premiums, and not to their big customers, but to small businesses and individuals. The big customers have enough clout to say, “No way!” So the people who are the backbone of America get hit once again in this economic downturn.

And besides, isn’t that a bit like paying for your own car accident? We buy health insurance to cover us against unexpected healthcare costs, but we pay extra in premiums in case we have unexpected healthcare costs. Does this sound like a circular argument to you? For the health insurance companies, this is called “having your cake and eating it, too.” So now you know how to win and lose at the same time.

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