Tag Archives: insurance

Flo Knows

Have you ever noticed that you can see something a number of times before you really see it? I had an experience like that the other day. A commercial came on for Progressive Insurance. It’s the fairly scary one in which some nice folks are driving their car, when suddenly people start clinging to the outside of it, including the windshield.

Those people, according to the commercial, are “rate-suckers,” because they make insurance rates go up. But, if you use Progressive’s gizmo that plugs into your car’s dashboard, and if you drive sanely, you’ll earn lower rates. In other words, actuaries have determined that how you behave can affect your potential risk of having an accident, and using that insurance.

Simple enough. But wait! The founder of Progressive Insurance didn’t choose that name by accident. I’ve read that he is a true “progressive,” and a big supporter of our president.

So, keeping with the premises of the Affordable Care Act, Progressive Insurance should require that everybody have the same coverage at the same cost, irrespective of driving history, arrests, or other behaviors.

Okay, I admit that that’s a stretch, but the point remains that just as the “rate-suckers” in the commercial cause rates to go higher, people with higher health risks, like pre-existing conditions, smoking, obesity, family histories, drug use, etc., also cause higher rates, if we’re lumped in together with them.

I went to an informational talk by an insurance agent last week. He explained much about the Affordable Care Act that I hadn’t heard before. For instance, all qualified insurance plans must cover things like pediatric dental care and eyeglasses. Plans must cover maternity. Plans must also not take into account pre-existing conditions or medical history.

So, if I were a 60 year-old man with no particular medical problems, I’d still be required to buy a policy that covers maternity, and pediatric dental and eye care, along with many other things I wouldn’t need.

In other words, the price I pay has little to do with my needs or my health risks, but more to do with the “common good” for people who may need those services.

To be clear, I agree with the insurance agent who said that the pre-existing conditions problem has to be resolved. Wisconsin has had a plan for such people, and I’m sure other states do too, but I’m guessing that much more help is needed for people who have been uninsurable. I’m not sure the ACA approach is what I would have taken, however.

It’s also true that a person can choose not to drive a car, but we can’t choose not to have a body that will eventually need care – some of it pretty expensive. So, the comparison isn’t entirely fair, but the math is inescapable. I’m not that good at math, but the folks at Progressive Insurance are, so let’s not pretend to be surprised at how much our rates for health insurance are going to go up. Just ask Flo.

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Filed under 2013

Almost Done Reading

Remember when House Speaker Nancy Pelosi responded to a question on the Affordable Care Act with this: “We’ll have to pass the bill in order to find out what’s in the bill”? Polls at the time showed that most Americans were against the bill, but Congress passed it, so now it’s the law.

I’ve seen some headlines in the past few days which I treat with a major grain of salt. One referenced an IRS report that estimated the cheapest insurance plan for a family of four will be $24,000 per year. Another, from the Congressional Budget Office, says the number of uninsured Americans won’t fall below 30 million over the next ten years. So, the promise that this act would see to it that everyone will be covered, and that costs would go down, both seem not to be true.

Back in 2009, when this was all being debated, I wrote a column talking about the basics of how insurance works. Here are some excerpts:

The first thing to know about insurance is that it has everything to do with risk. People can buy all sorts of insurance to prevent risk, but then find themselves broke.

The risk factors that apply to the cost of healthcare are no different than those that apply to homeowners’ and car insurance. We pay insurance companies money, and in exchange, they make us feel secure. With car insurance, we don’t pay as much if we have a high deductible, which means we pay for some of the repairs. Also, we don’t expect our car insurance to cover new tires, windshield wipers, car washes, or oil changes. We don’t expect our house insurance to pay for new paint or siding. And, if we live near a river that floods, the only available insurance is from the government.

Somehow, over the years we’ve evolved into treating our health insurance in a different way. We think it should be inexpensive and all-encompassing.

But why does insurance cost so much? Well, car insurance cost a lot less when our cars were worth $3,000, like new Honda Civic back in 1977. Replacing a $40,000 car costs, well, $40,000, so the car insurance companies have to charge enough to cover your potential loss and make a profit.

Likewise, the cost of health care has gone up so much and so fast that health insurance companies are struggling to keep up. One example: the health insurance provider for the company I work for paid out more in claims for our company’s employees last year than they took in in premiums. So, they had to raise our monthly premiums for this year.

Some people have a hard time getting health insurance because they have risky lifestyles or pre-existing conditions. Insurance companies hire people called actuaries to help them calculate their risk. If you have had a couple of heart attacks, for example, the actuaries have a chart that shows how likely you are to have another one, and another chart that says how much it would cost them if you did.

Any insurance regulation that requires people with pre-existing conditions or risky lifestyles to be given insurance at the same rates as everyone else… well, that will cause everybody else’s insurance premiums to go up to cover the higher risks.

Of course, people can’t help that they have pre-existing conditions. That’s one reason most people think something should be done to help those higher risk people. But, I do know that any insurance company that is forced to ignore their actuaries and charge premium rates that cause them to lose money will go out of business.

Now, as 2014 approaches, we’re about to enter into the Affordable Care Act adventure. I wish you all good luck.

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Filed under 2013

How Insurance Works

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Filed under 2009