Tuesday, October 20, 2009

What’s wrong with the individual market? A look into the uninsured.

Today’s healthcare reform has started with two goals in mind: 1) Lower the overall future cost of healthcare (dubbed “bending the cost trend”) and 2) cover the uninsured. Unfortunately, most of proposals currently being debated in Congress do little to attack problem #1, but they do cover quite a bit of the uninsured. What exactly does that mean though? To understand how to do it, it will help to understand what the uninsured population looks like in the first place. Unfortunately this may prove to be useful information. With unemployment trending higher and the young workers being more likely to be laid off (ie. Gen Y!), we may find ourselves dealing with finding insurance on our own sooner than we’d like.

Today, there are 45.7mm uninsured people in America. 17% of that population makes over 300% of the Federal poverty limit or $66,150 per family of 4. These people can generally afford some type of healthcare coverage, but they choose not to get it either because they feel that they do not need insurance or may not even know how. Another ~30% already qualifies for Medicaid – the state/Federal health insurance program for the poor. It may sound like a funny concept to qualify for such a beneficial assistance program and not take advantage of it. There could be several reasons for this. They may not realize their income (or lack thereof) qualifies them for the program. Some may be children of low-income families where the child qualifies but the parents do not. Whatever the reason, they qualify for Medicaid but aren’t in the program. (Incidentally, if you live in the New York, New Jersey, New Mexico, or California areas, there is a great program called Single Stop that helps needy families find programs and services that are already available to them. http://www.singlestopusa.org/) The remaining uninsured earn somewhere around $22,050 to $66,150 for a family of 4, which is a zone where buying health insurance would arguably constitute a significant burden on them.

Each state regulates its own insurance market today. Before we get into the exceptions, we can take a look at what a typical state looks like to understand why there are so many uninsured people. It’ll be pretty easy to see how broken this system really is. In the individual market, health insurers can underwrite individuals – nobody is pooled together and nobody has guaranteed coverage. This means that they can take an assessment of your health status and charge you a premium that they would expect to cover their costs + a profit. This works great for 3 parties: 1) healthy individuals, 2) the insurance companies, 3) the insurance brokers. For healthy individuals, they are getting charged a low premium because they don’t cost a lot in the first place. It’s certainly a lower premium than if they were pooled together with more expensive, older patients. For insurance companies, very few of them actually lose money on the individual market unless they are subject to special rules, so they’re typically making 5-15% of profits. The insurance brokers are skimming as much as 20% of the premium for their services. [Opinion alert – I am biased against health insurance brokers. They’re not taking on any risk like the insurance companies, and I don’t think that selling that product should warrant 20% of the cost. With online brokers and online shopping becoming more prevalent, I am sure this piece of the cost will shrink significantly.] If you take a step back, you see that as little as 60% of the premium is actually going to medical cost.

Really, it gets worse from here. I did say that it works great for healthy individuals. Part of that is the access to the discounts that health insurers get on drugs, hospital admissions or surgeries, etc. It’s great to have coverage if you need one-off care like mending a broken arm from a rugby accident or something. What isn’t very appealing is if you need chronic care. If you get cancer and need chemotherapy for the next 3 years or if you get diabetes or have heart problems, your rates will go up severely enough that you will either lose your coverage or won’t be able to afford it. [To be fair, in a market like this, it’s easy to argue that insurers aren’t taking significant risk either.] So for the sick or future sick, the individual health insurance market is not a pleasant place. While the individual insurance market is broken, we’ll look at various ways that some states have tried to solve it.

Kaiser Family Foundation - The Uninsured
Department of Health and Human Services

Next Post: What have other states tried? What can we learn from them?

1 comment:

  1. Good article, very insightful about the access to health care issue. If you're interested in a source for info for your next article, try this site: www.commonwealthfund.org. I used the recent results of that study for my opinion article in my medical school.