Why Health Insurance Is So Expensive

It seems like Congress will take a more measured approach to passing Health Care Reform, one that better includes views from both sides of the asile as well as those from people like me that aren’t on either side of the asiles. That’s a good thing.

I’d like to take a moment to talk about why Health Insurance is so expensive and why the currently approved legislation is sooo expensive and will increase cost. True, as currently written, some people with low economic abilities will have their premiums subsidized by the Federal Government. But for most of us the cost will go up?

Why is that? Becuase Health Insurance is expensive because Health Care is expensive. We can debate as to whether Health Care should be so expensive (I do not think it should be) but whether it should or shouldn’t be, there is nothing in this legislation that will make it cost less.

Health Care Reform, where people don’t get turned down or have their claims denied for pre-exisiting conditions and where they shouldn’t be charged a small fortune if they have any of these, is the RIGHT THING TO DO. However, that costs money. Why, because the insurnace companies will have to pay more claims and pay more money on the claims they do pay. If you owned a restaurnat and the Federal Government required you to give everyone that placed and order more food, would you charge more. Of course you would. And if the Government says you can’t charge more but you have to give more, you’d close your business, either by choice or by economics.

Health Care Reform isn’t new. Back in 1998 the Federal Government passed a law called HIPAA. Most people are familiar with HIPAA because of the privacy statements you now have to sign at your doctors office, but HIPAA also contained a mini-Health Care Reform provision, one that said if you change employers and have a pre-exisiting condition and you had health insurance under your old employer you would not have to satisfy a new pre-exisitng condition exclusion. A very good idea. But guess what, it meant the insurance companies would have to pay more claims and pay more money on the claims they were paying anyway. When I ran the SE Underwriting shop for Aetna I priced out the impact of HIPAA for Aetna. The estimate was a one time bump up of 8% (to be felt over 2 years) and an annual additional increase of 2%. That doesn’t sound like much, but 12 years later, the 8%+2% means health insurance for small businesses and many individuals is 33.6% more expensive than it would have been.

I don’t know a single business owner or person who is happy with the cost of Health Insurance but I’ve almost not met a single person that understands the mini-Health Care Reform of 1998 is in large part responsible for the high Health Insurance Cost today. It should not be a surprize to any American except for the fact that it’s s not carried on CNN or FOX.

Last world on Health Insurance Cost. Most all insurance companies are regulated about how much money they must pay out and how much they can keep. If you have individual health insurance the number is close to 75% must be paid out and if you are with a very large employer (say 500+ employees), about 85% is paid out. You might not like those numbers but they are not new. So when Health Insurance Premiums increase, the % the insurance company pays out or keeps is the same. If you have any facility with math whatsoever, this should tell you that without changing the cost of Health Care, Health Care Reform, in its current format, will only make costs and therefore premiums, even higher.

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One response to “Why Health Insurance Is So Expensive

  1. There are a number of contributors to spiraling healthcare costs, but the two main drivers are: 1) We, as consumers, are demaining more and more services, we want the best care and we want it quickly.
    2) We don’t care how much it costs when someone else is paying the bill (Insurer/Employer). And the people that place the orders (our doctors) do not take cost into consideration.

    With my aging parents and witnessing the number of doctor visits, tests order, medical equipment sales, it is easy to see why we are spending so much on healthcare.

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