I was about to end this series about selling health care insurance across state lines but then a picture of my local bank popped into my head. The reason why this picture made me think is that the bank isn’t there anymore.
None of the local banks are around anymore! Why? They deregulated the nation’s banks about twenty years ago. (Banks were not allowed to cross state lines before then.) Do you remember small local banks? Are any of them still in your area?
The big banks gobbled up the small banks and the bigger banks gobbled up the big banks once they were allowed to open branches in other states.
My fear is that allowing our federal government to reduce regulation on the insurance companies will have the same impact on the industry as deregulation had on the banking business. Our coverage options will diminish, but eventually we will forget the smaller insurance companies just like we’ve all but forgotten the smaller banks that used to compete in our market.
It is entirely possible that this simplistic idea will result in less competition in the health insurance industry and not more. More competition resulted in less competition in the banking business.
Why won’t it do the same to the insurance industry? Will we wind up with fewer insurance companies to choose from when we need insurance coverage for health care?
If we allow the federal government to do this, who wins? The biggest insurance companies win. Who loses? You and I lose.
Allowing American health insurance companies to more freely sell across state lines could result in higher prices for those who need it most! I know that we have heard politicians on the news stating just the opposite time and time again, but I sincerely believe that they are wrong.
Although with proper regulation, additional competition can result in lower rates for all, unbridled competition could result in the destruction of our private health insurance system and real damage to those who have medical conditions. Deregulation won’t be good for business owners nor will it be good for consumers.
Why? A new company is likely to attract a disproportionate number of younger and healthier policyholders. This means that they will be able to charge less and they will be able to get more business.
Isn’t this a good thing? It could be, but it could also backfire in a big way.
The following is not based on my view as a Democrat or a Republican, but my view as an experience as an insurance agent who has been around the block a few times.
Health Care Reform Has Already Hurt Children!
It could backfire just like their mandate that was supposed to force the American health insurance companies to insure all children already has. You may want to watch my video about how health care reform is hurting children.
Have you had a chance to view this information on the news? Are the politicians working feverishly to correct their mistake, or is it being swept under the rug.
Once the older established companies enough of their healthier clients to the new company, their rates will go up very rapidly over a short period of time. The older and sicker policyholders may not have the option of switching to the new company and they get hurt by deregulation.
The new company can come into the state and offer a low price but not lower the average cost of insurance! Moving into the new state will be a good business decision for the new insurance company.
However it will not create a better situation for the average policy holders of that state. Although the healthier policyholders who are able to switch may benefit for a time, the sicker policyholders may get be forced to pay more and more and more. Their premiums may go up to the point where their coverage is completely unaffordable.
I’ll give you one big reason why allowing health insurance companies to sell across state lines won’t solve our problems: They are already selling across state lines!
Although Connecticut has only 1.5% of the nation’s population we have a significant amount of competition in our health insurance markets. We have 8 companies competing in the individual medical insurance market. We have 17 health insurance companies that compete in the group medical insurance market.
Almost all of the companies sell in multiple states. We have a Blue Cross Blue Shield franchisee. We have a United Health One subsidiary (formerly United Healthcare). Aetna and Cigna also sell in Connecticut.
The issue has been misrepresented by many people who are supposed to know what they are talking about. The issue isn’t whether or not insurance companies should be allowed to sell across state lines. The issue is about taking the states power away and making it easier for the insurance companies to sell across state lines.
Insurance companies want to get approval from one regulatory body and then be allowed to sell across the country. Allowing companies to do this will increase competition in theory, but in my opinion it will backfire in the long run.
This issue is smoke screen at best. And at worst it is part of a conspiracy to make the rich insurance companies richer and the rest of us poorer.
I never heard my Great Uncle Reverend McFadden accuse anyone of telling a lie. He would at times inform us that someone that we told a “falsehood.” If you say something that isn’t true it is only a lie or a sin if you know that what you said was not factual when you said it.
In honor of Reverend, I’m not going to call the politicians and others who have created and promulgated this myth liars. They could be stupid and/or uninformed. It actually does sound like a good idea until you think about it a little and do a little arithmetic.
Increasing the competition among private health insurance companies by allowing the companies to compete more easily across state lines could help a little. But it could also be the one of the worst things that you could do to those who need health insurance coverage the most.
There are several reasons why simply increasing the competition among medical insurance companies won’t have the positive impact on health insurance plans that many people think it will. We’ll just cover one in this post.
Let’s say that there are two kids in your neighborhood who are competing to be the kid who gets to buy your groceries for you. Little Bobby wants to charge you $5.00 and little Suzie wants to charge you only 60% of that or $3.00.
If you decide to use Suzie’s services, she will go to the store for you and buy your groceries. How much money will she ask you for? $103. Why? She will be buying $100 worth of groceries for you.
So she’s a little cheaper than Bobby, but not enough to make an impactful difference. If you give them both the same shopping list and they do their buying at the same store, they are both going to cost about the same.
No matter where I buy my health insurance coverage from, I’ll probably visit the same doctor, go to the same pharmacy and use one of the hospitals that is a short drive from my home. Do you get the idea?
The bulk of the costs that matter are going to be the same whether my insurance company is in the State of Connecticut, the State of Wyoming or in Paris, France.
Your share of the cost of your fellow policyholders’ doctors’ services, medicines, hospital stays and other health care costs make up 80 to 90 percent of your monthly health insurance premiums. Most of the rest of the costs are expenses that any business or government agency that provided the same service would also have to pay.
We have been told a falsehood by the individuals we’ve seen interviewed on the news. We have been told that the problem is that insurance companies’ profits are too high and that this is the main reason our policies cost so much.
The next time you hear someone on the news tell you how high an insurance company’s profits are, find out how many people they insure. Then divide the profit figure by that number. Then divide again by 12 to get a good idea as to how much impact their profits have on what you pay for your policy.
(By the way, insurance companies are already competing across state lines and have been for a long time. They just have to get their plans approved by each state insurance department separately. They are many medical insurance companies that sell policies in multiple states a few are in almost all of them.)
A little extra competition could help things a little bit, but not enough to fix our problems.
Unbridled competition would destroy the system. I will explain why in a soon-to-come blog post.
You are likely to see changes to your existing health insurance policy because of the health care reform bill. You are likely to see increased benefits as well as increased costs at least over the short term. Over the long run it is possible that some of the changes will have a positive impact on prices, but that remains to be seen.
In January of 2010 certain employers became eligible for tax credits for offering health insurance to their employees. This could have resulted in your employer offering health insurance to you when they would not have otherwise.
Effective in April of 2010, states are eligible for matching funds to help them insure more people through Medicaid. This might have meant that you were offered coverage when you would not have otherwise.
In June of 2010 many Medicare recipients who participate in Medicare Part D received money to offset their prescription costs. If you had high prescription bills, you may have received a $250.
If you have a Part D Prescription Drug Plan and reach the prescription “donut hole” in 2011 you will find that name brand drugs will cost you less. The manufacturers will be subsidizing the cost so that you will pay about half of what you would have paid before.
Effective in June of 2010 the Early Retiree Reinsurance Program started helping employers help their former employees who retired early. Employers who participate in the program will receive money from the federal government to help them continue to provide insurance for those who retired before they were eligible for Medicare. Dependents, spouses and surviving spouse may also get coverage through this program.
Effective in June of 2010 new options were made available for those who have pre-existing conditions. Your state has the option of offering a policy to you. If they don’t do so, the federal Health and Human Services will create a program for the state’s residents. In order to qualify, you must have been without coverage for that pre-existing condition for at least 6 months.
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.
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.
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.
The belief that uninsured people already get free medical care is one of the arguments when people discuss the cons of universal healthcare in America. I find it specious for two reasons. The first reason is that if this is true, we are already paying for that medical care. The second reason this is specious is that the care may cost more under this system because emergency care is better covered than preventative care.
If a doctor or hospital gives care to someone who doesn’t have private medical insurance and can’t pay their bill, the provider will be forced to add a little bit to the bills of their paying patients. You and I are paying for that care in extra premiums to our health insurance companies and/or in extra dollars that we pay to our healthcare providers. Shifting these costs to our taxes may not mean that we necessarily pay more; we may just pay differently. This could mean that although it is probably not true that universal healthcare will not create higher taxes it may be true that it won’t cost us more overall.
There is no way around this. This is true for supermarkets as it regards shoplifting. This is true with companies in all industries that have outstanding accounts receivable. So this fact of business life isn’t just for Californians without health insurance or Arkansas who don’t have Arkansas group insurance the costs of those who don’t pay is always transferred to those who do pay. Does it matter that we currently pay this extra money in insurance premiums as opposed to extra tax dollars?
Free expensive emergency health care – limited cheap preventative care
The current system is biased towards providing emergency care for the uninsured and against providing cheaper preventative care.
Hospitals that want to get Medicare dollars are mandated to accept people in emergency situations whether or not they can pay for their care. They don’t have to accept people who have chronic conditions that are all but destined to get worse.
This means that they don’t have to accept the person with high blood pressure and help him prevent a costly heart attack. This heart attack may keep that person from being a productive member of our society. However they do have to help him when his wife drives him to the hospital after his heart attack. Which do you think costs you and me more?
Another issue regarding this so called free care in the hospital is that the patient will be billed. Their wages my be garnished and their credit may be ruinde. The uninsured patient may own a house and have that house taken away from him. This may cause major disruptions in that person’s life and the life of his or her family. It may cost the community as well. The loss of credit and/or assets may mean that a child doesn’t complete their education and isn’t able to be as productive a citizen or pay as much money in taxes as he or she would otherwise.
I’m one of few health insurance agents who likes the concept of universal healthcare. However, as with almost everything, there are more ways to do it wrong than to do it right. I do have strong concerns about how we might implement universal healthcare, but we may be a better country after we have a better healthcare system in place.