February 18, 2010

Understanding WellPoint: why ginormous rate increases are inevitable in our current health care system

Only one thing shocks me about WellPoint’s 38 percent rate hike to health insurance policyholders: I ’m shocked that people are shocked by it. The fact that WellPoint raised premium rates that much all at once? No, that doesn’t shock me at all. That’s just WellPoint acting like a business. That’s what businesses do. They determine how much profit they want to make, what to charge in order to make those margins, and what their terms are for doing business. As long as people are willing and able to pay, everything is dandy.

In WellPoint’s case, they’ve lost a lot of healthy customers who paid premiums but seldom submitted claims. In a lean economy, some of these consumers decided to roll the dice and go without coverage. My husband calls it “riding bareback.” Paying the mortgage or buying groceries became more important, especially if some or all of the income that supported premiums has been lost.

That leaves WellPoint with lots of customers who can’t be without coverage. Lots of unhealthy people, lots of claims, less profit. Meanwhile, the cost of care itself is rising. Without insurance, people pay for health care at rates that are scary enough to wake the dead. Remember, they don’t have the clout of an insurance company to negotiate rates for services, so they pay at the Mercedes Benz rate for all health care. When they go through all of their assets (homes, cars, savings and retirement accounts) they are finished.

That’s where you and I step in. Their health care costs (now and later) are built into the cost of our care. Hospitals and doctors must charge more to help make up the difference. WellPoint must charge more to make its profit margins. Anyway, that’s our free market system at work. Love it or hate it, but don’t be outraged when it works the way it’s designed to work.

Why can’t we see that everyone has a dog in this hunt? Today’s employers have a struggle that’s comparable to the individual consumer in finding affordable health care coverage for employees. That’s especially true for small businesses. As an employee, you usually pay just a fraction of the premium. A generous employer gets the full brunt of it. Believe me, lots of employers are struggling to offer health insurance coverage at rates that both employee and employer can afford. Who can look at the state of the auto industry in our country and not see the demise of employer-sponsored health care?

Most people are just one job loss or health event away from knowing how the health care system does and doesn’t work in our country. As a self-employed couple, my husband and I have been seeing annual increases of 20 to 25 percent for a long time. These increases no longer shock us. We’re just glad to be covered by group insurance where that’s all they can do—pass on increases they feel they need for our group to remain profitable. If we were in the unhappy individual market for insurance, purchasing without the clout of a group, we might find that no one even wanted to cover us. Yeah.

Here’s why: insurance is, by definition, designed to cover unknown risks—not known risks. By the time a person reaches 50, they are bound to have at least a few health issues. When you buy individual coverage, you get to share your entire medical history with the prospective insurer. The insurance provider gets to decide if they’d like to have you as a customer, what to charge and what to cover based on that medical history. Unlike group coverage, the insurer also decides when they no longer deem you a worthwhile customer. They can send you packing. Nifty, huh? Good luck finding coverage after that happens. Personally, we’ve never been brave enough to play ball in this arena, although we're savvy enough to know that we might have to one of these days.

Whether we’re talking about group or individual health care coverage, we must remember one thing: insurance is a for-profit business. When we decide that we don’t want government involved in our health care, then we give ourselves over to a for-profit system. Health care choices get made by people who make or lose money based on their business decisions. It puzzles me that we are unperturbed about for-profit organizations deciding what health care we can have, but we are outraged about pooling our money in a not-for-profit or government-run health care system.

In any system, someone has to make choices about what’s covered. It’s the only way to make the math work because no system can cover the world and everything adjacent to it. Don’t hate WellPoint for doing what businesses do. Just think about whether you are okay with that method of handling health care for you and your neighbor, in sickness and in health.

Here are five books for understanding the very complicated question of what to do about health care.

The Tyranny of Dead Ideas: Letting Go of the Old Ways of Thinking to Unleash a New Prosperity, by Matt Miller http://www.mattmilleronline.com/tyranny.php

Health Care Reform Now!: A Prescription for Change
, by George Halvorson and John J. Nance

How Reform Went Wrong: Health Care Reform in the U.S., Past and Present, by Michael E. Porter and Elizabeth Olmsted Teisberg

Health Care Reform that Makes Sense: A Detailed Plan to Improve the Health Care System by America's Leading Health Care CEO, by Alan B. Miller

When the Good Pensions Go Away: Why Americans Need a New Deal for Pension and Health Care Reform, by Thomas Mackel

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