An Editorial – How to Reduce Costs of Health Insurance In America

September 9, 2009

There are four big problems with Health Insurance in America. There are probably more but these are the key ones as I see it.  Addressing these will lower costs.

• Individual state regulations which vary across the country
• Figuring out insurance rates for each company or each individual is done on a case by case basis
• Pre existing condition exclusions
• 12% cost of administration (in 1990 it was 24%)

1) PROBLEM: Every State has separate regulations outlining a minimum coverage plan for their state and every state is different. No wonder claims agents do not know what coverage you are entitled to!

SOLUTION: If Congress is to be involved, they should legislate that the broadest of these State minimums be applied across the country for ANY company engaged in national insurance coverage. If an insurance company operates only in one state, they can use the state minimums if they wish.

This kind of power grab by Congress is probably unconstitutional, and would make me really angry if it wasn’t my idea.

However, any American should be able to buy any insurance package from any provider anywhere in the country. This will level the playing field. Every company will be offering the same coverage; they will have incentive to compete on efficiency.

2) PROBELM: Individual ratings of the possible health insurance costs of each company or each individual. The argument behind providing separate insurance rates to each company is that every company provided unique exposures to the insurance company.
This is why rates go up every year in every company.

SOLUTION: All insurance companies have to use National statistics to underwrite the rates of their policies. This means that if the likelihood of a person getting cancer in America is 1 in 100,000, all insurance companies have to charge rates based on this statistic. They cannot charge more to a company whose occupations may result in higher injury rates or higher likelihood of cancer. Why? Because all these people are already accounted for in the national statistics and because injuries on the job or as a result of the job should be covered by worker compensation insurance policies.

Again, this will simplify the administration of the policies by reducing the amount of time spent rating and reviewing policies.

3) PROBLEM: Unless you are continuously covered by an employer’s insurance policy, certain pre-existing conditions may be excluded for up to one year.

SOLUTION: Ban this practice.

4) PROBLEM: The cost of Health Care insurance administration in the United States is 12%. This might not sound bad but it varies by size of the group insured. Individual policy holders pay 40% of their premiums as admin costs; groups of 100 or less pay more than 15% of premiums to cover administrative costs. When there are 10,000 or more in the group, however, the administrative costs are only 4.5%.

SOLUTION: All insurance companies provide a “National” plan that corresponds to the National statistics they are using to apply to the insurance rates. This Mutual Benefit insurance plane would include all of their currently insured companies and individuals and reduce administrative costs to 4.5%

I believe that the biggest reason for insurance coverage is to reduce financial risk in case of large cost injuries and diseases. I personally do not care if all my doctor visits are prescriptions are covered, but I would be wiped out if I was involved in a serious accident or if I got a disease that took my medical costs into the catastrophic level. Why not have employers buy catastrophic health coverage for their employees and put the rest into a Heath Savings Account, one that rolls over from year to year. You can use it for ANY health cost except more health insurance. This provides an incentive to stay well and save the money for the “rainy day” we hope never comes.

SUMMARY: The key to reducing costs is to make one large insurance pool out of all the little insurance puddles in the USA. Yes, the big insurance companies will get bigger and may crowd out the smaller firms.  Oh well, that is capitalism at work.

Thank you to BeHeardNotHerded.com

Information Sources:
Sources: http://www.pnhp.org/publications/nejmadmin.pdf



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