In the United States, there are only a handful of major health insurance carriers. Though there are some differences between the carriers (i.e. size of their network, areas of coverage, claims servicing, etc), they all essentially operate the same way. At this point in time, they’re all also facing similar financial burdens, losing hundreds of millions of dollars in the health care exchanges.
Though the Affordable Care Act DID help millions of people by providing them coverage no matter how sick they were, it severely affected the bottom line of these major corporations tasked with the obligation to provide comprehensive health coverage to Americans. Simple math says that if a person goes to the doctor more, the company has to pay more for those visits and/or procedures. Those frequent visits then cause the carriers to have a bad loss ratio on their policies, meaning they’re losing more than they’re taking in.
This, coupled with the fact that the overall cost of care in this country is the highest in the world, due to the capitalistic greedy mindset behind health care, creates a recipe for disaster. Just like with any disaster, there are many casualties and collateral damage; in this case the public and small business owners.
The Problem - High Costs for coverage
Insurance carriers are still businesses which means they have a fiduciary responsibility to create profits in order to stay in business and keep shareholders happy. When businesses have losses, they have only a few choices to offset those losses. They can:
A. Sell more product - for health carriers, this wouldn’t work because of the saturation and volatility of the product
B. Downsize - this also wouldn’t work because the carriers need the staff to service the increase in their active policies
C. Increase prices - this is the only logical thing the carriers could do to offset losses given the overall situation of the healthcare industry in the U.S.
So that’s exactly what they did, and what they continue to do. The rising premiums hurt businesses and individuals alike, as they struggle with higher costs for lower coverage.
The loss ratio of a health insurance carrier affects all of the policies under that carrier because the performance of the policies are pooled together. That means even if there are policies where the insurance company actually made a profit, they are rated the same way as the policies that caused a loss for the carrier. This is particularly true for the small business business market; those with 100 or less employees.
The Solution - Lower Costs for coverage
The solution is based on the same premise that the problem is - the pooling of policy performances. Businesses have a way to make sure that their premium pricing is based solely on their employees policies performance. In other words, if the employees of a company are fairly healthy, the cost of their health insurance is significantly less than coverage under major carriers. These plans are known as Level Funded and are a subcategory of Self-Insurance.
Level Funded health plans usually require the employees to fill out brief health questionnaires. If the employer had previous coverage, the performance of their previous policies (usually a 3 year history) may be required prior to quoting. Rates are then determined using this information, allowing for significant savings while maintaining access to major networks. In some cases where an employer had previous coverage, lower rates can be obtained without a questionnaire.
With the health care costs of a company directly linked to the health of its employees, the employer has additional incentive to promote healthy lifestyles and reward employees for participating in them. Health care costs are usually shared by the employee, so they also see a reduction in costs but no reduction in health coverage. A healthier employee is a happier, more productive employee.
There are even more aggressive ways to save on health care costs for larger organizations. This is known as Reference Based Pricing. It has been around for a few years but has yet to gain sufficient traction in the industry as a popular option. It is a much more intricate method but can also yield bigger savings for healthcare premiums. There are many pros and cons with this option so research and advisement is definitely recommended when considering this.
The Conclusion - Don’t be afraid of new things
If something isn’t broke, don’t try to fix it...BUT if it is, then look at ways to fix it. Don’t be fooled thinking the government is going to make it all better. There are already plenty of options available to combat the high costs of health care. Granted, these options won’t be well known or heavily marketed with a clear conveyance, but the information is out there for those who seek it. It’s better to be proactive than reactive.
There’s no denying that these plans work. The only thing questionable is whether people will be smart enough to buy-in before they go bankrupt trying not to.