Universal Health Insurance

Virtually everyone agrees that it will take some time before the details of the recent health insurance reform law are dissected and understood. Our company and the businesses we work with have significant time and money invested into this project. As patterns emerge, we will comment. Early indications of winners and losers can be extrapolated from movements in the stock price of health care companies and Web site traffic patterns on sites like FreedomBenefits.net that follow the health insurance exchange project. We are certain that additional patterns will emerge over time. So far, these are some of the clear winners and losers of the reform battle:

Winners

1. Health care providers – total expenditures on health care will increase while the cost of regulatory and accounting controls will decrease. As a result, most health care providers will show significant profits. Smaller providers are unlikely to acknowledge a windfall but will feel the effects just the same.

2. Health insurance companies – the ability to expand enrollment to high risk individuals combined with the guarantee that rate increases will be adequate to cover future claims are making the insurers smile. Insurers especially like the opportunity to sell their products through a new tax-subsidized distribution channel that may reduce marketing costs and divert some pressures to the government.

Losers

1. Small businesses – there is no surprise here since the U.S. Chamber of Commerce and many other small business advocates were among the loudest opponents to the reform. When the dust settles, small businesses will bear a disproportionate share of the overall cost increase.

2. State governments – we already see indications of emasculation of state insurance departments that have historically been the strong arm of health insurance regulation. 

3. The voluntary opt-outs – About 9 million uninsured Americans making up 1 out of 5 of all uninsureds have good incomes but choose not to buy coverage. This is the fastest growing segment of the uninsured population. They can afford coverage, but most simply choose not to buy it. A rising level of stress among these “conscientious objectors” could, by itself, triggers a new round of health problems as govenment pressures increase against these people. It seems important to emphasize that this is a physchological barrier rather than a financial obstacle to paying for their share of the public health care tab. It would be stretching the truth to call this a “values-based” objection (as invoked by the term “conscientious objector”) yet psychological resistance can be at least as challenging as other types of public policy obstacles.

We expect to expand this list as patterns continue to emerge.

While the battle over the details of health reform will continue for years, we must still form a plan, both as individual consumers and as a business in the health field, on how to proceed from here. We are most concerned with the likely effects on individual and small business health insurance over the next 1-3 years. After hearing from our closest affiliates within the health insurance industry this week, we believe these effects are almost certain. It is clear from these discussions that some health plans are already making provisions for the transitions listed below.

1. Insurance rates will rise more sharply than in the past based on the Congressional intent to increase levels of coverage and limit out-of-pocket risks. Insurance companies will not pay out significantly higher benefits without collecting significantly higher premiums. The final outcome is uncertain but clearly destined to be a major source of much more debate. Our best guess on the outcome is that government will allow insurance benefit payouts to be trimmed far below the envisioned by Congress at this time in order to keep average premium increases in a politically passable 10-15% per year. Premium rate increases over the short term will be higher; some could be shocking. Those who purchase insurance within the next two months (before pending rate increase requests are approved by the state insurance departments) with a rate lock of 6-24 months may gain a short term advantage.

2. Optionable coverage riders that are not included in the base policy will become obsolete. Coverage for pregnancies, abortions, AIDS, prescription drugs and some diabetic supplies are excluded from a basic policy but may be elected by an applicant as an upgrade on the core policy. Optional coverage riders have not been popular in the past. As the cost of these riders increase in the future even fewer if any applicants will purchase them. We already see this consumer purchasing trend in specific states and this pattern will simply expand to a national basis. While the Congressional intent was to decrease out-of-pocket expenses, some individuals will actually face higher costs by items no longer covered by insurance. Since coverage for these specific items are severely limited under basic individual insurance policies (as opposed to employer-provided group plans), the price gap between individual and group policies will expand even further. By making some of these items riders instead of core coverage, insurance plans will be able to eliminate pricing differences between the sexes, but not in the manner expected by proponents of unisex rates. Applicants who are likely to face higher out-of-pocket costs anyway may be better advised to consider a short term major medical policy for 6-36 months that excludes all of these items. Taking the up-front premium cost savings is far better than a shock later on items not covered by a regular qualified health plan. 

3. Insurance pricing will increasingly depend on an applicant’s online medical records rather than on statements made on an application. Recessions will no longer allowed so insurance companies will be unwilling to rely on health statements from an applicant. Companies with a technological advantage in this automated underwriting area like Celtic Insurance are likely to have an advantage now in being able to screen applicants quickly and efficiently to issue low cost coverage to preferred risk children and adults.

4. Expansion and promotion of high risk pools will have no effect. These plans are already available in most states but are ignored by most people who could be best covered by these plans. A premium subsidy and a penalty for not enrolling will be ineffective unless that combination. Assuming a typical penalty for not having insurance is $600 (3% of $20,000 earnings) and a typical government subsidy is $3,200 (2/3 of the cost of insurance) and a basic insurance policy costs $4800 per year, then the net out-of-pocket cost for the individual is $1,000. We believe that few uninsured individuals with significant health issues would be willing or able to make this payment. We expect that these are more  likely to continue the trend toward minimal benefit low cost plans like Basic Health Insurance that have no deductibles and are priced at $50 per month or less. Major medical insurance is both the least available and least attractive to individuals in this category. Advising these individuals will continue to be difficult.

5. Expansion of the individual health insurance exchange will immediately increase demand for enrollment support service like OnlineAdviser. We observe that about half of all health insurance buyers obtain “live” assistance before making a decision to enroll online. Currently there are few national providers of assistance to the health insurance exchanges. Yesterday, on the first day after the passage of the health insurance reform bill, FreedomBenefits.net had a record number of individual consumers and professional seeking information on the insurance exchange. We recently expanded online support and will continue to put resources into methods that allow individuals to gain fast low cost access to a live adviser with the specific knowledge to help answer health insurance questions.  

We recognize that these ideas are drafted very early in the reform implementation process and are likely to evolve over time. An understanding and incorporation of these immediate effects of the reform bill will help Freedom Benefits advise consumers on the health plans that provide the best value during this time of transition.

Despite all of its flaws, the passage of a house health insurance reform bill is a huge step forward toward universal coverage for Americans. We concluded, more than 25 years ago, that passage of health insurance reform without underlying health care reform is destined to cause problems.

This bill is a financial gift to the low cost health commercial insurance companies, the FreedomBenefits.net online insurance exchange and our enrollment support services as was predicted. Those who invested in firms like ours over the past few years in anticipation of this health insurance reform are likely to see handsome profits over the next few years. Yet the path is anything but certain. We expect that our next year will be marked by a ragged and hotly contested period of transformation of the individual health insurance market.

Despite this turmolltuous political and economic climate that we see ahead, Freedom Benefits will continue to focus on helping individuals find the best value in health insurance.