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Insurance premiums should drop in new health insurance exchanges
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Sen. Jack Reed, D-R.I.,second from right, accompanied by, from left, Sen. Robert Menendez, D-N.J.,
Consumers Union President and Chief Executive Officer Jim Guest,
and Sen. Debbie Stabenow, D-Mich., right, speaks during a news conference
on Capitol Hill in Washington to discuss "the urgent need for health insurance reform".
(AP Photo/Alex Brandon)
Insurance premiums could plummet for participants in proposed health exchanges. According to staff at the House HELP Committee, the exchanges will function as both marketplaces and risk pools for the purpose of setting premium rates.
The function of health insurers:
Health insurance rules and companies, fairly or not, lie directly in Congressional crosshairs; targeted for significant change. Insurers have developed in the only reasonable way a free market could have expected. They exist to maximize profits for their shareholders.
Risk pools:
The whole notion of health insurance has to do with the idea of risk pools. If an insurer looks at a group of people, it would expect some people to remain healthy and others to become ill during any given year. If everyone in the group contributes a payment (called a premium) into the fund, then enough money is available for the fund to pay the expenses of the poor souls who get ill.
It is possible to predict statistically (based on a number of factors) how many people in a group are going to require help from the fund. Young people become ill less frequently than older folks. People whose families have a tendency toward overweight are likely to become sick more often. People who have had an illness are more likely to become ill again than those who have always been well.
Insurance companies have people employed called actuaries who review groups of potential insureds, predict the money required to take care of those groups, and, with others called underwriters, determine premium rates.
Managing costs, premiums, and profits:
Since these most companies are in business to maximize profits for shareholders, it has been in their interest to limit risk. They have done through a system called rating. Older people and people with pre-existing problems have been excluded or priced out of the market. By kicking these older and sicker folks to the curb, insurers have successfully managed premiums and profits.
Even in the way they define their costs, insurers have made clear that their primary goal is the bottom line. Instead of titling payments to insurers benefits paid, they name these paid for benefits “medical losses.”
Employer based coverages:
People who work for large employers usually enjoy the lowest total health premiums by virtue of the size of their risk pools.
Exchanges will constitute risk pools:
According to the press operation at the House HELP committee, the new health exchanges will act as both marketplaces and as risk pools. Anyone who purchases through one of these exchanges will contribute a member to the risk pool. The pool is currently estimated at 36 million people nationwide for actuarial purposes.
Since the uninsured are fundamentally those who are either young enough to think they won’t get ill or those who have been rated or priced out of the current market, an exchange based diverse risk pool should ensure affordable premiums by current underwriting standards.
Other proposals:
In addition to the exchanges, the bill provides start up funding for health coops. Help for early retirees, protections for those already retired, and repeal of the anti-trust exemption are all included.
If the House HELP committee guidance is correct, a national exchange would enjoy a risk pool in the millions to determine rates. The law of large numbers would seem to say larger risk pools will by definition result in the lowest premiums.
Al Portner is a former daily newspaper editor and publisher in seven states and author of the forthcoming “Mark Twain and the Tale of Grant’s Memoir.” He can be reached at alanportner@gmail.com
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