5 Reasons Why Health Insurance Premiums Are So High


Confused 1Last week, someone asked again, “Who’s to blame for rising health insurance rates?”

I was hoping that by now Americans would understand that blaming someone for a problem does not solve the problem.  Unfortunately, our national leaders have taught the average American that it is easier to blame someone else for a problem than it is to solve the problem.

In this post, however, I will offer some reasons why it is more complicated, than a person thinks, to understand why health insurance rates are rising.  There are several variables that must be considered.   This post only deals with 4 of them.

The first thing that anyone who wants to understand why health insurance premiums are so high needs to understand is that health insurance is NOT health care.

Health care is provided by doctors and hospitals.  Health insurance is nothing more than a bill-paying service provided by a private company.  The job of the health insurance company is limited to paying the bills the doctors and hospitals submit to them.  They combine the premium you pay with the premiums from all their members to pay the bills they get each year.

MLR

If they collect more than is required, they used to be able to keep all of it.  However, since 2011, the amount of the premium they are allowed to use for their overhead expense (e.g. offices, employees, supplies, etc.) is limited to 15-20% of what they charge.  If they do not spend 80-85% of what they collect on medical bills, federal law requires that they refund the excess.  That is called the Medical Loss Ratio (MLR).

TAXES AND FEES

Not only did the politicians in D.C. place a limit on the amount of money that private health insurance companies could collect, they added millions of dollars of new taxes and fees to insurance companies.

Although the health insurance industry has made a loud cry about the new charges, they have found a solution that would not cost their companies a dime.

The cost of those new taxes and fees are being passed down to consumers in the form of higher premiums.  Not only are insurance companies required to collect enough money to pay medical bills, they also have to collect enough money to pay taxes and fees.

NEW BENEFITS

Obamacare lists 10 “Essential Benefits” that every American is required to pay for, whether they need that type of coverage or not.  Basic economics will tell anyone that when you add a cost item to a bill paying service, the bill paying service has no choice but to increase what they charge their customers.

There are 10 “Essential Benefits” that the congress who brought you Obamacare felt were necessary to all Americans.  In the past, these benefits were optional.  Now, they are reflected in the premiums for health insurance for all Americans.  Many of them are “no-brainers” but there are a couple that are “head-scratchers.”

  1. Perhaps the hardest “Essential Benefit” for me to understand is the requirement for all Americans to pay for maternity coverage.  I leaned in Junior High School that there is no chance for a single, 23 year-old male to get pregnant.  In fact a 53 year-old, post-menopausal woman is not going to get pregnant either.  Since they will never use the maternity benefit, I do not see why that cost must be built into their premium, however, just in case a miracle happens, and they do get pregnant, the insurance companies have to pay their medical bills. (I understand why it would be a good thing for a 25 year-old female but I am a 53 year-old male.  I do not understand why maternity coverage would be an “Essential Benefit” to me.)
  2. I do not understand the maternity benefit, but the requirement that I pay premiums for “substance abuse” just offends me.  Like millions of Americans, I am a teetotaler and non-smoker.  (Unlike many religious extremists, I do not sit in judgment of the millions of Americans who drink alcoholic beverages responsibly.)  There is very little chance that I will ever need treatment for a substance abuse problem.  I am offended that the U.S. congress feels that I should be responsible to pay for other people to “get clean.”

STATE LAWS

Before Obama even declared health insurance a national crises in 2008, the states were responsible to limit the growth of health insurance premiums.  In light of some of the premiums that I have seen from the Obamacare plans, I must admit that in my state, TEXAS, they were doing a pretty good job.

Texas state law requires that every health insurance company that is authorized to conduct business in Texas collects enough money, each year, to pay for the anticipated medical bills for all of their members for the coming year.

Texas state law also requires all health insurance companies to have money set aside in a reserve fund, just in case the amount they anticipate is less than the medical bills they actually receive.

As long as doctors, hospitals, et al are free to continue to increase their charges and fees, health insurance companies, at least here in Texas, have no choice but to increase their premiums.  It is a state law.

MEDICAL PROVIDERS

The days of Doctor Quinn Medicine Woman, and “Doc” Baker from Little House on the Prairie are long gone.  Doctors are not willing to settle for a fresh pie, dozen eggs or a chicken as payment for their services.  They want, and deserve, cash.

The days when the practice of medicine was an altruistic calling are over.  Today’s health care professional has made the practice of medicine, his/her vocation.

People with the best, and brightest, minds in America have chosen to devote many years in the study of medicine.  They deserve a fair return on their investment.

Unfortunately, many have blown right past “fair return” and gone to “exorbitant expectations.”  There was a time, several years ago, when I was able to justify what, at that time, appeared to be high fees charged by a doctor so that he could pay his overhead and staff.

Unfortunately, doctors and hospitals have elected to raise their rates and fees faster than the increase in costs for other goods and services in the U.S.

Every time they increase the amount of their bill, your health insurance (bill paying service) is required to collect more money to pay those bills for you.

FIN

In this post I have briefly discussed some of the reasons why health insurance premiums are increasing.  If nothing else, I hope to convince you that the problem with high health insurance premiums is not as simple as the politicians and press make it appear.

The 5 variables that I discussed in this post are just some of the variables that must be considered when trying to understand why premiums are so high.  There are many more.

I do not understand why politicians in D.C. think they are better able to control the spiral of increasing health insurance premiums than state departments of insurance who have been working to control health insurance premiums for years.

Could it be that all this hub-bub about Obamacare has nothing at all to do with health insurance?  Since I have not heard of one instance when a president or member of congress who forced Obamacare on America helped pay for health care or health insurance for anyone outside their family, I am dubious about the sincerity.  Could it be that the goal, all along, has been to buy votes to keep politicians in a place of power?

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