I'm reminded of the Russian proverb above when I hear people moralize about the "outrageous behavior" of the health insurance industry.
The wolf is the product of its evolution and its environment. Its behavior reflects those elements.
In much the same way, the health insurance industry is the product of the regulatory environment in which it has grown over the last 75 years or so, since the emergence of the first Blue Cross and Blue Shield plans, and the subsequent entry of commercial life insurance companies into the health insurance business.
(Recall that, until relatively recently, life insurance companies sold health insurance coverage as sort of a loss leader: a product which it was necessary to sell to get group customers to buy group life products, which were much more profitable. The emergence of mega-health companies is a product of the last thirty years or so.)
In general, companies selling fully-insured products, whether to groups or individuals, are strongly influenced by state regulations. And since the regulatory process is very closely monitored and managed by insurers, some states have very special and industry-friendly regulatory standards. In Ohio, for example, insurers operate under a special set of accounting rules which enable them not to report investment income on their balance sheets.
And since most states' regulators have as their primary mission the protection of the solvency of insurers doing business in their states, instead of advocacy for the consumer, how insurers account for their costs of doing business tends not to receive too much skeptical oversight.
As the federal government begins to take up a much broader role in industry oversight, some of the cracks in the existing state regulatory structure are going to become increasingly apparent...as will the magnitude of the challenge which federal regulators will begin to confront as they attempt to exercise more control over insurers' behavior.
Late last week media accounts pointed our (rather shrilly) a perfect case study in regulatory inconsistency and the role of the federal government as overseer. Ostensibly in the face of the new federal requirement that health insurers reduce maintain an administrative cost ratio which must not exceed an average of fifteen percent of premiums, accountants at Wellpoint reportedly have reclassified some 500 million dollars in administrative expenses as patient care expenses. Community outreach programs, brochures created for distribution at health fairs, material promoting nurse-on-call programs...the company apparently sought to dump any expense they could possibly justify as patient care into the medical claims cost bucket, in an effort to reduce their administrative cost ratio in advance of the new law's taking effect.
Needless to say, this is not what Our Friends In Congress had in mind. Their focus is on the 25-27 percent of small group premiums, and the 30-40 percent of individual health insurance premiums, which insurers keep as administrative costs. And their intention is that insurers find ways to become more efficient. The combination of the enhanced use of technology and simplified underwriting provide insurers with opportunities actually to reduce their spending.
But of course, the new law doesn't say precisely HOW insurers are to bring their administrative cost ratios down. So Wellpoint just did what insurers typically do: play accounting games to create the appearance of compliance with the law without actually changing their behavior.
The next two or three years will produce dozens and dozens of similar stories. Federal regulators are going to have their hands full trying to bring the wolves to heel.
Showing posts with label " politics. Show all posts
Showing posts with label " politics. Show all posts
Thursday, April 22, 2010
Monday, August 10, 2009
A "Young Invincible" Worries About Health Insurance
Insurance people often talk about a group of the uninsured they call "the young invincibles"...young, healthy people, usually in their early- to mid-20's, who don't buy health insurance because they don't believe they need it. The insurers' pitch is that forcing all these young, healthy people to purchase health insurance coverage will solve the health insurance crisis.
The reasons, they say, are twofold: first, these young folks (mainly young men, the legends have it) are leading candidates to wrap their cars or motorcycles around a tree, fall off a hang-glider or bungee-jump into a canyon and bust their skulls on a rock, thus requiring extensive treatment for trauma for which they don't now have coverage; more prosaically, they tend to pay more in premiums than they use in benefits, and therefore are very profitable for the insurers, and so (the pitch goes) they add cash to the "risk pool," which somehow helps keep costs down for everybody else.
Set aside for the moment that, as usual, there's almost no objective third-party research which would indicate that any of this is particularly true or likely, except that young males are slightly more prone than average to experience an auto accident.
The fact is that young people who HAVE their own health insurance are far from worry-free, for the same reasons their elders worry about their own non-group health insurance.
When our son "aged out" of our group health plan, we helped him find his own individual health insurance coverage. He was 23 and in good shape, healthy lifestyle, the ideal young insurance customer. We found him a decent plan for about $125 a month. He was a college student, and now works only part-time, but he keeps up with his premium payments.
Except he's afraid to use his plan.
He's very concerned that while he may be healthy now, he could develop a chronic health condition, like his cousin. When he was diagnosed with a chronic
gastrointestinal disorder, his cousin's health insurance premiums quadrupled because, unlike with group coverage, there are no limits on how much insurers can raise the rates of individual customers based on their health.
And when his cousin tried shopping for coverage elsewhere, he found that his health condition rendered him "uninsurable" by any other insurer. So he bought a cheaper plan which featured a $5,000 annual deductible and which didn't pay out a dime in benefits till the deductible had been reached. And instead of paying $400 per month out of pocket for prescription coverage, he bought his medication on-line in Mexico for $55.
Ultimately, facing cancellation of his coverage, his cousin changed jobs so he could be covered by a large company's group health plan.
The advocates of "consumer-directed health plans (whatever they are)" like to say that high deductibles and co-pays make consumers less likely to "abuse" their health plans. But the best research shows that such individual health plans generally produce short-term savings for insurers when their customers put off necessary treatment or medication is too expensive to pay for on lower-wage jobs.
Our son looks at his current health insurance policy as a "placeholder" till he can find a job with group health insurance coverage.
Insurers, especially those who sell a lot of non-group health plans, like to tout the contention that "individual responsibility," which for them means dividing the world into actuarial universes of one, and selling each person a "custom-tailored" and individually-rated health policy, will somehow reduce net spending on health care services.
The reality is that in general, non-group coverage costs more, covers less, and is much less stable and reliable than any sort of group plan. And anybody covered by one knows he or she is just one illness or accident away from either dramatic increases in premium or outright cancellation of their health plans.
They are, however, extremely profitable for insurers, because until they experience that illness or injury, these "young invincibles" pay in far more in premiums than they take out in claims. Which means that insurers can either a) use the surplus to subsidize health coverage for everybody else, or b) keep the money.
Want to bet what really happens?
The reasons, they say, are twofold: first, these young folks (mainly young men, the legends have it) are leading candidates to wrap their cars or motorcycles around a tree, fall off a hang-glider or bungee-jump into a canyon and bust their skulls on a rock, thus requiring extensive treatment for trauma for which they don't now have coverage; more prosaically, they tend to pay more in premiums than they use in benefits, and therefore are very profitable for the insurers, and so (the pitch goes) they add cash to the "risk pool," which somehow helps keep costs down for everybody else.
Set aside for the moment that, as usual, there's almost no objective third-party research which would indicate that any of this is particularly true or likely, except that young males are slightly more prone than average to experience an auto accident.
The fact is that young people who HAVE their own health insurance are far from worry-free, for the same reasons their elders worry about their own non-group health insurance.
When our son "aged out" of our group health plan, we helped him find his own individual health insurance coverage. He was 23 and in good shape, healthy lifestyle, the ideal young insurance customer. We found him a decent plan for about $125 a month. He was a college student, and now works only part-time, but he keeps up with his premium payments.
Except he's afraid to use his plan.
He's very concerned that while he may be healthy now, he could develop a chronic health condition, like his cousin. When he was diagnosed with a chronic
gastrointestinal disorder, his cousin's health insurance premiums quadrupled because, unlike with group coverage, there are no limits on how much insurers can raise the rates of individual customers based on their health.
And when his cousin tried shopping for coverage elsewhere, he found that his health condition rendered him "uninsurable" by any other insurer. So he bought a cheaper plan which featured a $5,000 annual deductible and which didn't pay out a dime in benefits till the deductible had been reached. And instead of paying $400 per month out of pocket for prescription coverage, he bought his medication on-line in Mexico for $55.
Ultimately, facing cancellation of his coverage, his cousin changed jobs so he could be covered by a large company's group health plan.
The advocates of "consumer-directed health plans (whatever they are)" like to say that high deductibles and co-pays make consumers less likely to "abuse" their health plans. But the best research shows that such individual health plans generally produce short-term savings for insurers when their customers put off necessary treatment or medication is too expensive to pay for on lower-wage jobs.
Our son looks at his current health insurance policy as a "placeholder" till he can find a job with group health insurance coverage.
Insurers, especially those who sell a lot of non-group health plans, like to tout the contention that "individual responsibility," which for them means dividing the world into actuarial universes of one, and selling each person a "custom-tailored" and individually-rated health policy, will somehow reduce net spending on health care services.
The reality is that in general, non-group coverage costs more, covers less, and is much less stable and reliable than any sort of group plan. And anybody covered by one knows he or she is just one illness or accident away from either dramatic increases in premium or outright cancellation of their health plans.
They are, however, extremely profitable for insurers, because until they experience that illness or injury, these "young invincibles" pay in far more in premiums than they take out in claims. Which means that insurers can either a) use the surplus to subsidize health coverage for everybody else, or b) keep the money.
Want to bet what really happens?
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