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10 years ago · by · Comments Off on Should Insurance Companies Compete Across State Lines?

Should Insurance Companies Compete Across State Lines?

There is a belief that insurance companies should compete across state lines because increased competition will result in lower prices. This may be true to some degree, but the increased competition will not address the basic problem.

The cost of health care drives the cost of health insurance. Insurance company profits are not the primary problem. Competition may or may not lower the profit each insurance company makes per policy, but even if profit were eliminated we would still have health insurance policies that cost too much.

Would we end this crisis if health insurance prices went down 5% and everything else stayed the same? In fact, 5% is a lot more than many companies make per policy.

Of course large insurance carriers make tons of money because of their volume. However, when you divide that profit by the number of policies you will have a pretty modest figure. You would have a figure that will have little impact on the national health care crisis

Increased competition isn’t necessarily a bad thing, but it could have unintended consequences. It could temporarily drive prices down for those who buy new policies but drive prices up for those who stay with their old plan.

Let’s talk about a fictional state where there is only one insurance company. This insurance company has a monopoly, but it is also regulated. 80% of the money it takes in has to be paid for providers of medical services such as doctors, hospitals and pharmacies.

This means that they can only overcharge by some figure that is less than 20%. Remember they are spending 80% to care for their policyholders. Out of the 20% come all other costs including payroll, real estate costs, administration, paperclips and everything else.

Let’s call this company “The Old Health Insurance Company.” The Old Health Insurance Company sells one policy series and has 100 policyholders who have no dependents. Each policy costs $100 a month. This means that the company pays an average of $80 per person per month.

“The New Health Insurance Company” can provide the same level of coverage for $60 a month while spending $48 to care for their policy holders. Why is this?

Ten of “The Old Health Insurance Company” policy holders are very ill and are responsible for most of their carrier’s expenses. “The New Health Insurance Company” won’t have to deal with that level of expenses for several years. They will have plenty of time to raise their rates before their expenses climb.

This is not because of the age of the policyholders, it is based on the age of their underwriting. Virtually no one has a heart attack or a stroke within one year of buying an underwritten policy.

The old company has clients in their fifties and sixties who were perfectly healthy when they applied in their twenties and thirties, but who now are very ill. They will not be able to lower their prices to compete with the new company.

“The New Health Insurance Company” will selectively take on new clients. It won’t take the unhealthy costly clients from “The Old Health Insurance Company,” but it will happily take on the healthy ones who want to get a competitive health insurance plan. This will drive The Old Health Insurance Company’s prices up as they spread the cost of the unhealthy policy holders over a smaller number of policy holders. It could even force them out of business and thereby eliminate the only company willing to insure their unhealthy clients!

I know what you are thinking. We should force the new company to insure everyone regardless of their medical history. This won’t work. If we keep the new company from cherry picking that will open up an entirely new can of worms that I will discuss on another post.

Tweaking our present system won’t work. It might make things a little better, but we will still have a crisis.

Even though there are negative aspects of socialized medicine, the positives of socialized medicine may outweigh the negatives. That being said, it has to be done the right way. The pro and cons on universal healthcare need to be carefully considered.

There are always more ways to do a thing wrong than to do a thing right. Something as complex and important as health care for our country needs to be done right. We need to do something. But we need to do the right something.

The people questioning whether or not insurance companies should compete across state lines, thinking that will solve the problem, have no understanding of how to make things better.

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10 years ago · by · Comments Off on Getting Insurance without Sharing Personal Info

Getting Insurance without Sharing Personal Info

A lot of people balk at the idea of sharing their personal information with an insurance company. They feel that it is an invasion of privacy and often get quite prickly about this issue.

We often feel that we have a right to insurance, especially medical insurance. Perhaps our government should provide medical or personal care insurance programs for its citizenry. There are pro and cons on universal healthcare but maybe we should all be covered. The debate on Obama’s health care program goes on as we question how much will universal healthcare cost the US.

However, even if the government should cover us, a private insurer has no such obligation. They are in business to make money and expecting them to lose money by insuring people who had serious medical problems BEFORE they purchased insurance from them is like asking a race track to allow people to place bets after the race has been won or expecting a grocery store to give away free food to the poor.

If you are looking for a loan, you will have to share personal information with the bank. If you are looking for home owners insurance in California, want personal medical health insurance in Arizona or are interested in private health insurance plans in New York, you will have to provide the information they ask for to get coverage.

Getting insurance without sharing personal information may be something that is in our future. However at this time we cannot expect an insurance company to insure everyone regardless of medical history. They will go out of business if they did that. We don’t expect Donald Trump to allow the homeless to rent his buildings without a background check. Private businesses should be fair and ethical, but it is the job of the people to cover those in need.

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