Conference 7.286::digital

    Be very careful with this.
    
    Several years ago Vermont and then last January N.H. passed health care
    legislation that among other things, eliminated pre-existing conditions
    as a reason to reject healthcare plan applicants. 
    
    The plan backfired badly. Hundreds of healthcare insurers have pulled
    out of both states. That is, they no longer choose to insure N.H. and
    Vermont residents. 
    
    While the group plans are OK because premiums are figured against
    larger groups with better actuarials, the individual plans are in deep
    trouble. The reason that BC/BS and COBRA plans are so very expensive
    for individuals is that they are mandated by law to take all comers. As
    a result, they collect all the bad risks which drives the premiums sky
    high for everyone else. 
    
    Well, if all other plans are held to the same set of rules, then those
    companies likewise may start collecting an inordinate number of bad
    risks which would require them to jack their premiums out of sight. 
    
    In New Hampshire, we went from many many individual plans to choose
    from to just two - and both of them raised their premiums AND drove the
    deductibles through the roof. 
    
    While states may set the rules insurance companies have to play by,
    they cannot force them to do business in their state. I did not
    understand why N.H. insisted on moving forward with their legislation
    after being able to see what had happened next door - but they did
    anyway. By the way, these companies didn't pull out over time - they
    all exited on the same day - Jan 1, 1995, the day the new laws went
    into effect.
    
    So think twice before you jump on this band wagon. While the sick
    person does come out somewhat ahead on this deal, the thousands of
    healthy people get the big screwing - year after year after year .....  
    

  Sounds like an argument for a single-payer health system. That'd be
  the biggest risk-pool possible.

                                   Atlant

    Sorry - I forgot to clarify another point.
    
    What the N.H. and Vermont plans do in effect, is allow someone to apply
    for insurance after they get sick. 
    
    Let's assume the same deal applied to auto insurance. You run around
    for years with no insurance, and then the day after the accident where
    you maimed two people and wrecked a caddy seville, you apply for
    insurance which has to take you and pay your bills. A guy called my
    buddy the other day for health insurance. He needed two operations on
    his legs, and thought that now for the first time in 37 years he
    should have coverage. How soon could he report into the hospital he
    asked. You can see why insurance carriers would like to avoid this kind
    of situation.  
    
    What N.H. and Vermont intended to do was to pass a "portability" plan
    which meant that if you were sick, lost your job, and then got a new
    job, the new company's plan would have to pick you up. In the meantime,
    you still had COBRA and BC/BS as a fall back position. This was OK and
    acceptable to the carriers. 
    
    But, when asked about the personal plans, N.H. said, "Yeh - let's apply
    it to that too" and that's when everything turned sour. 
    
    If you are a family of three in N.H., husband aged 40, with no group plan,
    then the best you can do is an 80/20 of $5,000 plan of usual and customary 
    costs, after a 2,000 per person per year deductible @$177.08/month payable
    no less than quarterly. A family of four or more jumps to 216.03.
    That's potentially $5,000 out of pocket before major medical kicks in
    at 100% but with all costs second guessed under the U&C rates. You may
    reduce your premiums by raising the co-insurance limits and
    deductibles. Also, there are many exclusions. 
    
    This is what I meant by backfiring. There are many small companies in
    N.H that do not offer group coverage. Those employees are screwed under
    the new laws.  
       

    The key to getting this stuff to work is having enough states pass the
    laws--especially enough of the larger states. Then pulling out of the
    business no longer makes business sense, and all the insurers have to
    remember how to use community rating again. Witness Hawaii.
    
    You complain about your premiums. Because of a pre-existing condition,
    I could not change insurers. My condition is not life-threatening or
    terribly expensive, but it keeps me from switching plans so I won't get
    trapped in a high-cost segment of my group insurance pool. Moving to NH
    allowed me to change insurers. My premium went from $439/month just for
    me to $88. Granted, the coverage is not nearly as comprehensive. But
    after EVERYTHING is accounted for, I wind up better off. The more
    expensive plan available in NH, by the way, pays for more things but
    has half as high a lifetime cap; that premium would have been $138. A
    bargain!
    
    By the way, less than a week after I switched, my Maryland-based
    expensive insurer informed me that they are pulling out of the business
    there. My policy was about to be cancelled and leave me high & dry!
    
    Bonnie D. Huval

    You raise good points relative to people with conditions and who may
    take advantage of group plans. The carriers had no serious issues
    regarding the new lawas as they applied to group plans. It was the
    individual plans that the state laws fouled up. 
    
    As I attempted to clarify in my second entry, the portability goal was
    worthwhile and do-able; but forcing all carriers to accept all risks
    thus eliminated good comprehensive programs for folks with sound
    medical histories but not qualified for group plans. 
    
    Work needs to be done to make good coverage available to everyone -
    but, the states need to be more careful when instituting across the
    board rules that have bad down sides. There were far more people hurt by
    N.H. rulings than were helped. 
    
    The irony here was that the legislature, made up primarily of older 
    semi-retired and retired folks had one goal to reduce the premiums for 
    retired folks; what they got was a pull out of carriers, leaving many of 
    the older folks high and dry with not much to choose from.
    
    
       

>    The irony here was that the [NH] legislature, made up primarily of older 
>    semi-retired and retired folks had one goal to reduce the premiums for 
>    retired folks;

  The demographic imbalance of the NH legislature has been an issue for a long
time. Because the pay for NH legislators is very low, and the time spent is
too much to fit into most employers' vacation time, few people below the age
of 60 can afford to be legislators unless they are independently wealthy. This
has caused a demographic imbalance in the legislature toward older and weal-
thier people, and this affects a lot of legislation; this is just one example.
  This is not just a NH problem, but it seems to be worse here. Keep this in
mind if people try to talk you into voting to reduce (or not increase enough
to match inflation) pay for state legislators.

    re:non-coverage due to pre-existing conditions
    
    	It almost sounds like some are saying that insurance companies
    should not be forced to accept people with pre-existing conditions,
    because it will drive everyone elses rates up (or cause companies 
    to pull out of a state).
    
    	A few years back, before downsizing (layoffs) became so fashionable,
    pre-existing conditions were much less of a problem. I suspect it is now 
    one of the single biggest factors in driving up health care costs. There 
    aren't less people in need of health care today, just less people able to 
    pay for it.
    
    	Since hospitals are businesses too, they wind up rolling the cost
    of unpaid care into their cost of doing business. This in turn drives
    the rates up, which puts insurance out of the reach of even more people. 
    The cycle continues.
    
    	As I said before, we have health care consumers and health care 
    providers. The most cost effective plan would be one in which everyone
    pays for coverage, and other than admin costs, all money goes from the 
    consumer to the provider. The large profits made by some HMO's alone
    would go a long way toward reducing health care costs and/or getting
    everyone covered.
    
    	Ray

RE: << Note 4722.4 by STAR::HUVAL "Bonnie D. Huval" >>>

>    The key to getting this stuff to work is having enough states pass the
>    laws--especially enough of the larger states. Then pulling out of the
>    business no longer makes business sense, and all the insurers have to
>    remember how to use community rating again. Witness Hawaii.

Let's see.  They take a loss on each policy but make it up in volume.

    Yea...

If the law alows people to make there INITIAL health insurance purchase
AFTER they need coverage for a serious injury/illness then it is virtually
impossible for insurers to do business.  Pulling out will make a LOT of
sense -- quiting the business instead of loosing money makes good sense
to me.  As an investor, I'd surely take my capital elswhere!

Using "community rating" is only workable if all or nearly all of the
community is covered and paying.   If you only need to buy insurance when
you need it, nobody reasonable will be in that "covered and paying" catagory
until and unless they become a catastrophy.

Although there have been some problems with what Hawaii put in place, it sure
seems to be working better than what the rest of us are living with. Part of
their plan was finding a way to make sure very few people remain uncovered.
There was much moaning about making businesses cover employees, the pool that
covers the poor, etc. Businesses would go under. There were also predictions
about soaring health care costs.

Instead, last I read about 95% of their population is covered one way or
another. Absenteeism at businesses went down, and the cost of the program turned
out to be generally not nearly as big a burden as many people predicted. Health
care costs actually went DOWN. Now that the insurers have to take all comers,
they have realized the value of preventive care. They cover it there, and as a
result their per-insured costs have dropped. The insurers are making money, not
losing money.

Oregon has also been trying some interesting experiments with health coverage,
with more success than the mainstream media has been picking up. I don't know
enough details about the good and bad there, though.

I don't know of anything half-baked that comes out good except maybe chocolate
chip cookie dough. I'm relatively new to NH but have noticed its first attempts
at a reform law seem to be half-baked. (I've also been bumping into real estate
laws here.) That doesn't mean the whole idea is bad. It means somebody needs to
go back and do it right.

- Bonnie D. Huval

    The idea about automatically taking previous conditions is alot more
    complicated than I thought! I'm not sure what the answer to that one
    is, but ...
    
    The idea of making you pay more because you belong to a smaller group
    is absolutely rediculous and pure profit making by the insurance
    companies. Let's face it, the reason why insurance companies exist at
    all is to spread the risk over it's entire insured base. Why should it
    matter whether you come from a small or large company?
    
    Dave

>    The idea of making you pay more because you belong to a smaller group
>    is absolutely rediculous and pure profit making by the insurance
>    companies. Let's face it, the reason why insurance companies exist at
>    all is to spread the risk over it's entire insured base. Why should it
>    matter whether you come from a small or large company?
    
(1) Smaller groups may cost more on a per-capita basis to adminster, so
there *IS* some justification for at least a small increment of cost.

(2) What constitutes the "entire insured base"?  The definition of "group"
insurance is that the group is the base.  Different groups have different
experience and expecations, hence different costs.  Perhaps this is not
how it SHOULD be, or how it WILL be in the future, but it IS how it IS
today.  It is not ridiculous for insurance companies to make a profit 
(or to break even in the case of mutual companies).  It they were unable
to do this, insurance would NOT be available at any cost.  

FYI, be aware that group policy premiums are often NOT determined on the basis
of risk for the GROUP. It is routine insurance practice to "segment the pool"
and base premiums on the expenses of the segment. Thus, although I had a group
health care policy designed for self-employed people, my premium was not based
on the "loss experience" of all the people who had the same policy. My group was
segmented by policy inception date (a very common way of segmenting a pool).

The industry presumes, correctly, that this method of segmenting combined with
exclusion of pre-existing conditions on new policies will make people with
health problems more reluctant to change policies than people without health
problems. The healthy folks will shop around for lower rates & switch policies
every couple of years.

After a while, the only people in the pool segments for older policies are the
ones with existing health problems. Thus, my premium was based on the average
"loss experience" of only policy-holders who have heart disease, cancer, AIDS,
emphysema, etc. and (by the way) any kind of chronic condition (mine being
relatively cheap & nowhere near life threatening). Segmenting the pool makes it
easy to clump together people who actually need to USE their policy more than
average, and artificially inflate the rate of their premium increases until they
can no longer afford coverage & conveniently drop out altogether.

- Bonnie D. Huval

P.S.--My brother works in insurance, else I would not know how this is done.

The REASON insurance companies exist is to provide
an infrastructure to invest for profit the funds 
received from people who cannot accept the risk of 
doing so themselves.

The hot market used to be life insurance. Now its
health insurance.  

    Re .10:
    
    > The idea of making you pay more because you belong to a smaller group
    > is absolutely rediculous and pure profit making by the insurance
    > companies.
    
    Small groups have a higher standard deviation of claims (relative to
    the size of the group).  That means a higher risk of higher costs. 
    Basic financial theory is that higher risk requires higher return. 
    Therefore the insurance company must charge more for a smaller group.
    
    The standard deviation of claim amounts of a group of 1000 people is,
    on average, only ten times the standard deviation of a group of 10
    people.  Yet their premiums, if equal, will be 100 times the premiums
    of the smaller group.  That makes them a less risky, and hence better,
    investment.  To make the two groups roughly equal in terms of
    investment value, the small group must be charged more.
    
    
    				-- edp
    
    
Public key fingerprint:  8e ad 63 61 ba 0c 26 86  32 0a 7d 28 db e7 6f 75
To find PGP, read note 2688.4 in Humane::IBMPC_Shareware.  

    However, the standard deviation of claim amounts averaged over 100
    groups of 10 people and that of 1000 people is probably the same.  So
    while the insurance company can justify higher claims for an individual
    small group of 10, the argument doesn't hold when they have lots of
    small groups.  What they lose on one small group they gain on the
    others.  (Clearly it's in the insurance companies best interest to have
    lots of small groups since they can charge higher prices for the
    group.)
    
    ---
    
    Normally, market forces would result in insurance companies offering
    plans that appeal to consumers, and they do.  It's just that with
    companies being the insurance purchasers, the insurance companies offer
    palns that appeal to the companies, not to the people covered by
    insurance.  If each individual purchased their own health insurance you
    can be sure that the health insurance industry would look differenet
    than it does today.  Compare you health insurance options against your
    car, life, or home owners insurance options.
    
                                            August G. Reinig

    Re .15:
    
    > However, the standard deviation of claim amounts averaged over 100
    > groups of 10 people and that of 1000 people is probably the same.
    
    So 100 groups of 10 people negotiating together could probably get
    insurance rates similar to one group of 1000 people.  But individually,
    they're still a group of 10.
    
    > . . . the argument doesn't hold when they have lots of small groups.
    
    If the argument did not hold, then riskier stocks wouldn't have to
    offer a higher return on the stock market.  But they do.  Each
    investment is evaluated for itself, not for what it can be in
    combination with other things.  People just won't pay as much for a
    riskier stock, even if there are 99 other risky stocks they could buy
    as well.
    
    
    	    			-- edp
    
    
Public key fingerprint:  8e ad 63 61 ba 0c 26 86  32 0a 7d 28 db e7 6f 75
To find PGP, read note 2688.4 in Humane::IBMPC_Shareware.

    re:last few
    
    	So all that need exist is a group-for-groups and individuals. A place 
    where multiple small groups and other individuals could combine (on paper) 
    strictly for the sake of becoming part of a larger group. I'd imagine that 
    they would also have to be fairly close geographically unless the selected 
    carrier was state-wide. A *very* large group can probably leverage past 
    the pre-existing condition clauses too.
    
    	This is similar to what Canada does. Everyone in a given province
    is eligable. The whole province becomes the risk pool. In Canada though, 
    it's regulated and partly subsidized (from taxes) by their central 
    government, and administered by their state (provincial) government.
    
    	Even better would be a non-profit health care "club" made up of the 
    same people. Cost of care yearly would be divided amongst it's members, 
    and rates applied accordingly. Instead of any extra going back into some 
    insurance companies pocket, it would go back into the plan to reduce rates. 
    In this way, geographical borders could be eliminated if the "club" was
    able to deal directly with health care providers.
    
    	Ray

    Local chambers of commerce often set up such groups, as do some
    organsizations.  I believe that the National Organization of Women have
    such a group.
    
                                            August

re: .18

NOW is "National Organization for Women." Your error is a common one.

I was on the board of directors that first arranged for members to be able to
get group health insurance & group life insurance policies. The Board thought we
looked closely at the insurance carriers available & made the right choice. The
health carrier we chose, in addition to offering a policy that looked good at
suitable prices, also has a very varied workforce. That was appealing to us,
since it fit right in with our organization's goals.

After the program started up, the carrier turned out to be terrible about
settling claims. There were a couple of other problems, but that was the big one.

Unfortunately, a nationwide battle for control of the organization peaked at
about the same time. I gathered material documenting the way the policies were
being handled. I practically made a quest out of trying to get the Board to
either pressure the carrier into treating policy-holders right, or change
carriers. I got nowhere. I doubt the carrier has been changed. People who were
blocking me on the Board now occupy the executive offices.

Check the Best and S&P ratings for the carriers before you buy an "affinity"
policy. Don't just check one--the S&P rating gives you a better idea of the
carrier's financial ability to handle its claims obligations. If we had done a
better job of comparing ratings, we might not have chosen the same carrier.

Best ratings are available for about $9 from a 900 number, which I don't happen
to have available. S&P ratings can be found on the Web at
http://www.insure.com/ratings/index.html.

- Bonnie D. Huval

    
    Re .17 - Ray
    
    >Instead of any extra going back into some insurance companies pocket
    
    What percentage of U.S. health care spending is represented by
    the profits insurance companys make on their health care insurance?
    
    					Ed
    
    

    Folks, this note is straying away from the charter of the DIGITAL
    conference.  Let's try and get back on track.
    
    Thanks,
    
    Bob - Co-moderator DIGITAL