What you really need to know about health care and health insurance

Opinions are formed, positions taken, policy proposals made about health care, often based on misinformation and a misunderstand of how things really work.

For example:

  1. The primary driver of health care costs and hence the cost of coverage is the price and use of health care. That’s true whether the coverage is Medicare, Medicaid or any form of private insurance or other coverage.
  2. Insurance company “greed,” profits and CEO compensation are insignificant in the determination of the premiums you may pay.
  3. There is a direct relationship between deductibles, co-pays and co-insurance and premiums. The higher the former, the lower the latter.
  4. Insurance is based on a pool of people with different levels of risk and claims. Affordable premiums are dependent on a good mix of high, low and medium risks.
  5. The inability to underwrite that risk such a limiting coverage from pre-existing conditions, established enrollment periods or waiting periods directly results in higher health care spending and thus higher premium costs because it encourages adverse selection.
  6. The application of deductibles, co-pays, limited provider networks, pre-certification and concurrent review are intended to manage costs and to the extent that is successful it is reflected in premiums.
  7. Insurance company profit margins are in the 5-7% range, not much different than state regulated utilities. In most states insurance rates must be justified, are reviewed and approved by an insurance commission.
  8. Profits should be viewed on a per insurance contract basis, not in the aggregate. High appearing total profits can be driven more by volume of insurance contracts than by high premiums.
  9. There is no motive to charge higher premiums than necessary for a reasonable profit. High premiums drive away customers. The more customers in the pool, not only the higher aggregate profit, but also the lower risk of greatly fluctuating claim costs.
  10. High health care costs and the rate of increase applies to all forms of coverage. The majority of Americans do not have coverage actually using insurance. Most coverage comes from various government programs and large employers who are self-insured and thus no premiums are paid to an insurance company.
  11. The price of many prescription drugs are questionable, but before we jump on the issue, we need to understand the prices from start to finish and that is not accurately reflected in the rhetoric. And, overall prescription drug spending is still only about 10% of all spending.

3 comments

  1. If every voter read and understood the information provided here, it would result in a profound improvement in health care, both how we use it and how we pay for it.

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  2. I don’t understand why people do not understand health insurance. Do people not realize that they get charged different rates for car insurance or life insurance? That is why they call it a “risk” pool. The insurance companies are trying to figure out the likely number of car accidents of those that they insure and what the payout will be (is it a junk car or a new luxury car). They try to determine their risks to paying out more than they take in. The same is true for a life insurance. The number of healthy non-smoking people at age 20 will be more than smokers who are coal miners that live to age 80. Thus, the smokers will be charged more since the insurance company will have to payout sooner.

    According to the Declaration of Independence, “certain unalienable Rights” in the United States were “endowed by their Creator”. Healthcare was not one of those rights. Healthcare is a very modern invention. Germs and viruses, thus death, are an unalienable Right also given to you by your Creator. The notion of free healthcare is as bad as everybody should get free food and as much as they want eat. I am not much of a scholar in religion, but I thought Adam ate the apple.

    You can look to Europe and see the effects of “cheaper” costs in lives. In a year or so, the studies will tell us about nationalized medicine and how it worked (a lot of other factors may be at play). It Italy, they told doctors not to admit patients over 80 IF they need the resources for the younger more productive population, in other words healthcare rationing.

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  3. The sad thing is that it is likely that politicians of all political persuasions understand this. However, some like Sen. Warren and Sen. Sanders use the populist rhetoric that health insurance premiums are high because of greedy insurance companies and overpaid CEO’s. These dishonest politicians continues to lie to the uninformed public that if they only give control of the health care system in the U.S. over to the Federal Government, all folks would have health care at a reduced cost.

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