In order for Insurance companies to improve their chances, they assess each policy individually based on as much information as they can gather about the group’s potential claims (their risk). By risk assessing each group, they can stack the odds in their favor. They evaluate as much information as possible about the group (prior illnesses, claim trends, the age of the participants, their sex, their race) anything that will allow them to get a good handle on the potential of future payouts. Underwriters then estimate the odds on paying out claims on the group and calculate the total estimated claims based on overall population, trends and data collected. If the risk is too high and their state allows it, they will decline the group. If they are required by state law to offer a high-risk policy, they will increase the price as much as legally allowed.
In order to determine the appropriate premium to charge, each group policy is evaluated on its own merits and charged according to the risk of the group’s population. If they know someone in the group is sick, they adjust upwards the premium dollars to offset the known payout. If there have been high historic claim trends in the group, the insurance company may decline to offer a policy or will raise the premium to compensate for the additional risk of future claims. They do the same thing by looking at the age of the group.
The insurance company sets asides reserves to pay future claims. It pools some of the money received in the form of premiums together for that purpose. States requirements vary on the amount of reserves required. There are minimums and maximums and it is based on actuarial calculations and the probability of a claim.
Insurance companies try and vet out as much possible information on the health of a group as they are legally allowed. This improves their odds on paying out claims. By assessing as much risk as possible an insurance company can stack the odds in their favor. Insurance companies underwrite each policy based on the total risk of that policy.
Health insurance in the United States is primarily sold to employees in the form of group insurance through their employer. The insurance company looks at the combined risk of everyone employed at the company. They look at age, health, previous medical conditions and expected future medical conditions. Then they estimate the cost of claims for the year on the group of people as a whole. They then rate and rank the policy.
Groups with larger number of young people generally have lower cost insurance. Many insurance companies age base adjust premiums, since the older an individual is the higher the risk of loss.
In order for a health insurance company to underwrite an individual policy, they need to understand the risk of the individual. If there is any risk of paying out a claim on the individual, they build in the risk into the cost of the policy or they decline the coverage. Health insurance companies “cherry pick” healthier populations to skew the odds in their favor. That means, if the health insurance questionnaire filled out by an individual indicates a potential risk, like a pre-existing condition or a response to a question on a questionnaire that tilts the odds in favor of paying out a claim, they limit their risk by denying coverage to the individual.
If you have “Bad Odds”
Small groups and individuals with an “unhealthy population” often have no where to go. If an insurance company rates them unfavorably they generally join the ranks of the uninsured. Many states offer insurance to high-risk individuals through state mandated high risk insurance pools or policies. Insurance companies in some states are required to offer insurance to high-risk individuals or those that are deemed, “uninsurable”. Often the rates for these policies are high and many people cannot afford to purchase them.
Who pays for the “High Risk” individuals?
Taxpayers. Federal, State and local governments all share in the cost of those that are uninsured. That’s the kicker when it comes to insurance. Taxpayers are already paying for the most expensive of the sick. Those that become permanently disabled and the elderly are covered through Medicare and Medicaid. People injured in the military are covered by the military or veterans administration benefits and the elderly are covered under medicare. These are some of the most expensive claim groups in the country.
Sweet Deal if you’re an Insurance Company
It’s a pretty sweet deal for insurance companies, and getting sweeter. Many insurance companies while still putting on a “local face” are owned by extremely large mega corporations. In fact, the five largest own an estimated __% of the market and they are still gobbling.
Stacking the House
Insurance companies legally (and immorally) stack the odds in favor of higher profits and reduced claims. They intentionally embrace techniques and practices that allow them to deny coverage to those that are the sickest.
I wanted to add a note, many insurance companies have been consolidating at a rapid rate. They have been allowed to create health care monopolies, the results have been incredible profits and vast market consolidations.
The following health care companies are in the Fortune 100:
Aetna
United Health Group - they paid over $1 Billion in compensation and stock options to their former CEO Dr. McGuire during one calendar year. McGuire and other directors of the corporation were forced to resign due to "back dating" of stock options to maximize "personal" financial returns [aka insider trading]. They are being investigated. McGuire was forced to resign.
Wellpoint - consists of many states Blue Cross Blue Shield companies and Unicare to name a few. For orchestrating the merger between Anthem and Wellpoint, Leonard Schaffer was paid out over $167 million in stock options in a single year. The State of California, as a consolation prize for agreeing to the merger received $35 million for health clinics for the entire state.
And this is the health care system that the major progressive candidates want to leave functioning.
by
August Adams (10 articles, 0 quicklinks, 1 diaries, 467 comments)
on Wednesday, March 5, 2008 at 7:46:36 PM
I worked for a printshop in the 90s that printed a monthly health industry newsletter, so I saw first hand what the industry was up to as they expanded their empire.
One thing that was striking was the lack of competitiveness - as an industry, they were very tight and focused on targeting Congressional candidates. The newsletter instructed members to contribute to a "war chest" to help finance "friendlies" or the opponents of "unfriendlies" in an era where far fewer people were paying attention to this issue.
But the types of plans offered represent the worst in collusion. For example, before middleman health providers were marking up every medical transaction, we used to pay our doctors directly for most care. In the 70s, my dad's union plan was $29 per year for any hospitalization.
The companies banded together to kill this type of policy, a low-cost catastrophic-only plan. Remember when life insurance policies used to offer coverage for the loss of a limb or debilitating accident? No more.
Because there are no more low-cost "catastrophic" insurance plans offered anymore, we only have policies for "comprehensive" health care, meaning they mark up every transaction, no matter how small. Not only does this add to the cost, it affects our care - limiting doctor choice or treatment options.
The lack of a simple emergencies-only policy leaves us without a choice, we have to buy a marked-up, privatized plan or go without coverage. This strikes fear into our hearts - if something happens, not only are we hurt, but we will be financially ruined.
So August's casino metaphor may not be quite right. Perhaps we should picture it like a supermarket with a roulette wheel instead of a cash register?
In the end, this system is not so much like gambling as it is extortion. But to improve it, we need to do away with an entire industry, so it again points back first to campaign reform.
by
Gustav Wynn (67 articles, 44 quicklinks, 5 diaries, 309 comments)
on Friday, March 7, 2008 at 10:02:43 AM
Thanks for the added information. The health care system is broken in so many ways. In this article, I was trying to focus on how health care companies evaluate an individual, shift costs to the taxpayer, and underwrite policies.
You're comment, "meaning they mark up every transaction, no matter how small. Not only does this add to the cost, it affects our care - limiting doctor choice or treatment options". Relates to the individual "bet" of the health insurer. They insure that they will "win" by stacking the odds in their favor.
That said, your points about fear and collusion are well founded. Health Insurance companies are becoming "Blue Monopolies", the participate in price fixing, gauging and controlling the market through any means necessary.
They work our legislative processes 24/7/365 at the local, state and Federal levels.
They are "superhuman" and corrupt our political processes.
Thanks for the added information.
by
August Adams (10 articles, 0 quicklinks, 1 diaries, 467 comments)
on Friday, March 7, 2008 at 12:42:25 PM
3 comments
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