Angie: October 2009 Archives

In our survey, the first in which Americans were given an opportunity to "design the bill themselves," we found that the adoption of three amendments to the Finance Committee package had the potential to significantly change public attitudes toward the bill. We found the single most decisive of the proposed amendments was reform of the medical malpractice system, which we defined as implementing independent medical reviews, mediation, and limiting non-economic damages.

A second opinion driver was the proposed elimination of the individual mandate, which would require everyone to have health insurance, with assistance for those unable to afford the premiums. The third amendment that produced major shifts in public opinion was adding a government-run "public option" to the menu of health insurance choices available under the bill. Together, the three most popular amendments would increase support from 27% to 57%, and decrease opposition from 59% to 41%, with 2% still unsure.

Despite all the disagreement in Washington, every proposal now before Congress to overhaul the nation's health care system includes creation of an insurance "exchange" -- a marketplace that would operate something like a Travelocity Web site for insurance policies.

In theory at least, the exchange would fix a fundamental flaw in the present system by giving small businesses and individuals a broad choice of insurance policies at competitive prices. Right now, such buyers typically have few affordable options.

The major drivers of health benefit ratios are (1) the size of the group for which a health policy is written, and (2) the economies of scale insurers can reap in the large-group market.

 

If the insurer writes one group-insurance policy covering all of a large firm's employees, the insurer can base the group premium on the prior claims experience of the entire group of employees, without having to ascertain the health status of each individual insured.

 

Furthermore, the insurer will not have to pay commissions to insurance brokers. In that case, a much smaller fraction of the premium is absorbed by the insurer's outlays on marketing and administration. Health benefit ratios then can be as high 90 percent and still yield the insurer a normal profit margin (defined as profits as a percent of premiums) in the 3-to-5 percent range.

 

On the other hand, let's say an insurer writes a policy for an individual applicant in a competitive market that is not subject to community rating -- that is, it is allowed to set insurance premiums according to how sick or healthy each subscriber is. In that case, the premium will be based on the insurer's best estimate of how much it will actually cost to cover an given individual for a given period of time, based on how much health care he will probably consume.

 

Arriving at that estimate involves what is known as "medical underwriting." It includes examining a detailed questionnaire on the applicant's health status, to be completed by the applicant ...  Medical underwriting may also involve a physical examination of the applicant by a physician under contract with the insurer.

Finally, the sale of the insurance policy may have been facilitated by an insurance broker who is paid a commission for brokering the deal.

 

All of these activities involve sizable expenditures, and absorb a sizable fraction of the premium paid by the insured to the insurer. The insurer's health benefit ratio therefore is correspondingly low without necessarily yielding a huge profit margin.

Health care legislation is taking shape in the House and Senate as President Barack Obama pushes to overhaul the system to cover millions of uninsured Americans and contain rising costs. Details are still being negotiated and any final health care bill would have to meld proposals from the House and Senate.