Individual health insurance following the reform bill


Now that President Obama has signed the healthcare reform bill into law, the dust kicked up by the battle is now slowly starting to settle. There is still fighting, but it has moved on to different ground. In this time of calm, we have the chance to reflect on what has been achieved and to speculate on how the insurance market will change. As we set out on this brief survey, we should remember it was the insurers raising their rates that gave the final encouragement to the lawmakers. Without that, they might have lost their nerve in this year of the midterm elections. The new insurance exchanges are to be in place by 2014. Once they are in operation, the premiums people pay will be capped. For those who earn less than four times the poverty level (at current dollar values, this is $88,000 for a family of four) the maximum will be 9.5% of their income as a premium. For those on or below the poverty level, the maximum will be 3% of their income. The government will subsidize people above their capped level of payment. This creates an interesting dynamic. With the government paying the difference, will the insurers try to hike the premium rates?

The answer is difficult. The premium is supposed to cover the medical costs, run the business, and leave a reasonable profit for the investors. In theory, the Administration has made a deal with the pharmaceutical industry to keep down the cost of drugs. Groups of hospitals have also promised some restraint. This should stabilize the medical costs. Now it all comes down to controlling the insurers’ greed. This is attempted through a few rules. Insurers cannot charge older people more than three times the rate for younger people. The insurers must give rebates if they spend more than 20% of your premiums on non-medical costs. And there are reviews of premium increases with states having the power to exclude health plans where the increases are not justified.

Why is the answer difficult? Because no matter what it says on paper, we have to wait to see it working in the real world. Naturally, the President expects premiums to be stable or fall over time. But the insurance companies have never been completely rational when it comes to pricing their cheap health insurance plans. Their philosophy has been to maximize the profit from both group and individual health insurance. Indeed, their greed was all too clearly on display early this year with major premium increases announced. Ironically, this proved a misjudgement because the President used these increases as a justification for pushing through the reform measures. If the insurers had held off or only asked for modest increases, the Democrat lawmakers might have lost their nerve and the bill would have failed. This opens the possibility the insurers might continue an aggressive policy to increase premiums and challenge the government to intervene. Since the Administration has been slow to take on the bankers over their bonuses, the politicians may be similarly reluctant to take on the investors in health insurance companies. In Ancient China, the words, “May he live in interesting times” was a curse. Sometimes, we seem to be living in interesting times today.

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