About that health insurance premium

Let’s say there are three people in a health insurance plan. 

Person A is young and has no health care expenses. 

Person B is a low user of health care and incurs $500 in bills. 

Person C is a heavy user and incurs $12,000 in bills. 

That means that three people must pay premiums to cover $12,500 in health care services. That’s a premium equal to $4,166 each BEFORE paying for reserves, and all other administrative expenses. 

Now, let’s say Person A drops coverage because of the high premium. Now the premium for B and C is $6,250; even more unaffordable. 

The following year Person A injures his knee and is told he will need a replacement knee so he does the smart thing and re-enrolls in the health insurance plan and promptly incurs $15,000 in charges. Can you say pre-existing condition. 

Person B and C incur the same bills as the previous year so now they each must pay $ 9,166 in premium just to cover claims. 

In the third year seven more people enroll, but incur no expenses while Person A incurs only $500 in follow up care and B and C have the same expenses. Now we have expenses of $13,000 and the premium for each person is down to $1,300. 

Is it all that simple? Not quite, but almost.  Incurred expenses must be paid for and the larger the pool of insured people, the less risk there is for each.  Adverse selection drives up premiums. To remain stable and affordable the group of insured must include people who use little or no health care in a given year. But sometimes these people don’t think they should pay for what they “don’t need.” That’s what’s driving the misguided Republican philosophy. 

Now the question is, is all this fair to A, B and C and all the other insured people? Well, it’s not a matter of fair, but fact because one way or the other we all pay for these expenses via premiums, taxes or cost shifting because of uncompensated care. 

One comment

  1. Hi Dick. Maybe we could say the first year a “new “ participant has to pay 80% of his claims, the second year 60% , the third year 40% , and the remainder 20% like we have too. That way there would be no incentive to hold out and a pre- existing condition would not kill the system coverage. Russ


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