Health Care Reform causes Premiums to go up?

Ric Joyner, MBA, CEBS, GBA, CFCI

The Wall Street Journal is saying that insurers are adding cost to the health insurance renewal for health care reform measures. Meaning that assume the renewal was going to be 9% as the “normal” year to year rate increase. There are two sides of the story.  The insurers are adding 5-9% MORE for health care reform on top of the 9%. But why?

1. No underwriting and everyone is accepted regardless of health. That means no one can be rejected. Thus, we move from insurance (managing risk) to a utility organization that the government can dictate fees, pricing and now even profits. If the insurance company can’t underwrite the policy then they can’t prevent bad risk. Thus everyone that is healthy will pay for those that are unhealthy. Is this bad? Perhaps. It depends on your politics. If you believe that everyone should pay for everyone else then it works great. But think about it. Our founding fathers wanted true freedom to succeed or fail as an individual. We are taking the ability to succeed or fail away and we end up with mediocrity. And that is why your frame of reference will depend on which politics you believe in. Liberals lean toward bigger government and taxes so that “wealth is shared around”. If there anything wrong with this? Yes because in general (not in all respects) the government is a hindrance rather than a help and all over the world countries that have socialized medicine are finding that rationing is the norm.  Medicare is 20% of the federal budget! Conservatives on the other hand, believe in less taxes (keeping what you earn and spending it where you see fit), much less government and letting market forces dictate how health care will be delivered. Each has flaws because there are those in the middle that can get swept away.

2. If you read the article closely you will find the Obama Administration is saying that raising rates now is out of line it actually makes perfect sense. If you cover everyone, where you weren’t before…there are more costs and remember insurance carriers that are for profit manage risk. They are looking to the future not just one year out and frankly it is tough to know what the cost will be when you have to accept everyone. Thus companies will pass on the costs to the employers and the employers will pass on to employees and then on to customers.

3. So the Obama Administration knew that this was going to happen. When you extend coverage to everyone you also increase cost. Economists agree that when the health care bill was conceived and passed the costs of coverage for everyone will go up as well. This bill helps people access insurance but doesn’t address the issue of cost.

4. Raising premiums at this juncture in the economy is hard on the economy and prevents hiring. So with tax cuts ending in 11 for small businesses and families, no wonder that companies are not hiring and hoarding cash. Why the left doesn’t get this is beyond my comprehension.

5. Mandating insurance carriers to pay out 80% of claims will cause premium increases. Currently, carries make 4% or less. Forcing them to pay out claims causes them to increase premiums to compensate. 

This is important for you to recognize as we move forward with health care reform costs are going up and you need to plan.