
Thursday, August 13. 2009
Insurance RABBLE RABBLE RABBLE
Kevin and I have been looking to purchase group health insurance for the company. I contacted several local agents, over e-mail, asking for rough quotes based on our ages, marital status, number of dependents, etc. We received a litany of replies ranging from a quick e-mail with rough rates to a couple of agents insisting on meeting with us in our office who then had us fill out detailed insurance application forms. The quotes we have received so far have all been fairly comparable ranging from approximately $250/month for $2,600 deductible and 0% coinsurance with Companion Life to $85/month for $5000 deductible 0% coinsurance with Assurant. So much more after the break…
Below is a table of health insurance quotes we have received so far. Quotes are for 24 year old males with no dependents and no prior conditions. Deductibles are given for individuals (family deductibles are normally double). BCBS quotes are exact while Assurant and Companion Life quotes are estimates based on age and number of dependents only. Prescriptions are not covered on HSA plans.
Plan Name | Deductible | Co-Insurance Rate (% we pay after deductible) | Maximum Out of Pocket | Price/person/month |
Health First HealthLink 50/50 (BCBS + Chamber of Commerce) | $1,000 | 50% | $3,500 | $176.57 |
Health First HealthLink 60/40 (BCBS + Chamber of Commerce) | $500 | 40% | $2,000 | $195.32 |
HSA HealthLink (BCBS + Chamber of Commerce) | $2,500 | 0% | $2,500 | $156.96 |
HSA HealthLink 2 | $5,000 | 0% | $5,000 | $131.38 |
Blue Solutions Option 1 (BCBS) | $1,000 | 50% | $3,000 | $166.59 |
Blue Solutions Option 2 (BCBS) | $500 | 40% | $2,000 | $187.73 |
EAM PPO CMM (BCBS + Employers Association of Montana) | $3,000 | 0% | $3,000 | $148.36 |
EAM PPO HDHP (BCBS + Employers Association of Montana) | $5,000 | 0% | $5,000 | $125.36 |
80 Real Choices II (Assurant) | $1,000 | 20% | $2,000 | $211.56 |
100 Real Choices II (Assurant) | $2,500 | 0% | $2,500 | $174.41 |
100 Real Choices II HSA (Assurant) | $2,500 | 0% | $2,500 | $150.96 |
100 Real Choices II (2) HSA (Assurant) | $5,000 | 0% | $5,000 | $84.89 |
Traditions Plus HDHP (Companion Life) | $2,600 | 0% | $2,600 | $232.77 |
Companion Life quotes tended to be higher across the board
so we are no longer considering them as a possible supplier. Ideally we would go with Assurant because
they have the best deal on the high deductible + health savings account plan
(Almost 50% cheaper than the equivalent BCBS plan) but we are a little afraid of using an insurance company that is not part of the Bozeman Deaconess network (or Bozeman Deaconess is not part of the insurance network, I'm never sure). Being the reasonably intelligent guys that we
are we understand probabilities. Because
insurance companies face administrative costs and because insurance companies
are risk adverse anyway
we know that we would never receive an
actuarially fair price to be insured. On
the other hand it would be nice to know that should anything catastrophic
happen we wouldn’t be bankrupted and forced to share a park bench with a
hobo. On the advice of some well
respected economists, who suggest that people are often over insured when it
comes to short term health insurance
we are looking at high deductible plans paired with a tax exempt health savings
account.
This seemed like an amply appropriate time for this article
now that the debate over health care on the national stage has reached a
fevered pitch. One of my very favorite
economists, Greg Mankiw,
has been a very outspoken critic of any sort of nationalization of our health
system citing statistics that point to the fact that
Over the past several weeks I have seen innumerable examples of anger and frustration wrought out on the public stage. Town hall meetings have been rife with citizens afraid of roving death squads sent by the president himself to dispatch the enfeebled who would be too expensive to care for. Ironically these individuals marked for death are often already taken care of by the government run medicare. To my understanding the argument ultimately breaks down to whether or not an individual values having everyone insured which, due to the inescapable fact of supply and demand, will decrease the quality of health care or whether they would like health care to be cutting edge, but only for the people that can afford it. Both stances are equally valid and it is disheartening that so many people, from both sides, attempt to turn this very complex issue into misleading sound bites.
As a business owner that is currently going through the insurance purchasing process here are my thoughts:
If the system is not broken it is at the very least inefficient.
Every single insurance agent we have worked with so far has been extremely nice and helpful; however, it has become very apparent that insurance agents are the ultimate middle men. I do not understand why we can’t go to the Blue Cross Blue Shield web site and enter all of the information we had to hand write on the forms. It’s not like the insurance agent is poring over mortality and accident statistics to figure out average cost to the company and then factoring in profit and overhead to figure out the exact best rate for everyone he serves. Actuaries develop actuarial tables, insurance agent plugs in data in a form created by actuaries, form spits out rates. Insurance agent prints off said rates and comes to our office to present them to justify his salary. Cutting out the insurance agents could lower costs for the company allowing a larger percentage of the premium to be spent on health care. Lowering administrative costs would also be a great way to get closer to the actuarially neutral pricing level.
There is not enough
competition.
By contacting almost every agent in town we were only able
to get quotes from three companies.
There are hundreds of insurance companies in the
A very illuminating article found here points out that while the reported probability of having your policy yanked is less than .5% the actual probability (because of conditional probabilities) is substantially higher at around 10%. The author points out that half of the insured use essentially no insurance at all. At the 80th percentile people use $3,000 per year and at the 95th percentile insurance subscribers are only using $11,000 per year. It isn’t until you get to the 99th percentile that you see large increases in insurance usage (approximately $35,000 per year). Considering the average policy price when this study was done was $7,000 the insurance company only loses money on about 10% of its policies. And because the insurance companies only have incentive to look at policies they are losing money on the half a percent drop rate reported by the insurance companies, while technically true, is very misleading.
Are we after
insurance or health care?
Frankly, as insurance providers, I think insurance companies do a reasonably decent job. Their job is to facilitate the hedging of health risk. They accomplish this by pooling individuals and aggregating the risk across their entire pool. This is much the same as a farmer insuring his crops against hail. Using historical and current data, the insurance company comes up with a probability, p, that a local area will experience crop hail damage. So long as p*(pay_out_if_crop_is_destroyed) is less than the premium paid by the farmer the insurance agent and company can make money, on average. Likewise there is a certain probability that an individual of a certain age will require health services and so long as p*(cost_of_health_care) is less than the premium paid by the individual the insurance company is happy. Where we run in to problems is insuring pre-existing conditions. Just like it would seem ridiculous for the crop insurance agent to insure a crop that has already been destroyed by hail it would seem ridiculous to insure someone that already has a disease. That’s where we cross the line in to health care and we are no longer talking about health insurance. Health insurance companies are good at providing insurance they are not good at providing health care. If, as a country, we decide that health care is a right that should be provided for, using for-profit health insurance companies as a proxy would be a terrible idea. Health insurance companies are in the business of providing insurance, not health care, and trying to mold them into health care providers using government regulation and subsidies will not end well.
As a citizen, economist, and small business owner I would
love to see the government provide for catastrophic health care, say $10,000
and up. They should also allow for unlimited
tax-exempt contributions to health savings accounts. If individuals wished to purchase insurance
for the first $10,000 of health care expenses they could. Following, insurance
companies would be off the hook for outrageous claims or expensive
pre-existing conditions. Government run catastrophic insurance would
probably meet with stiff resistance from the insurance companies as many healthy people
would drop their insurance or opt for less expensive plans. On the other hand a straight nationalization scheme would eliminate a great deal of the demand for insurance companies in general so having to choose between a government provided catastrophic insurance or a government provided comprehensive insurance becomes pretty easy. Plus insurance companies could focus on what they are good at (insurance) and skip what they are bad
at (health care). Unfortunately I fear
the reality may be that the health care industry has too much money and
influence to allow for a truly sensible solution to come to fruition. I can only hope that the government of the