The current debate regarding health insurance and health care is really a discussion over two distinct issues. Health insurance is a risk management product sold by insurance companies, while health care involves medical services provided by hospitals and doctors. This distinction is very important when discussing the reforms proposed by lawmakers, and an examination of the issues surrounding each is important to reform.
Health Insurance
Health insurance is a product sold to those who cannot afford to pay for the service of doctors and hospitals out of their own pocket, and this includes most Americans. While there are various types of health insurance programs, they are all designed to accomplish one important task; to provide the funding necessary to pay for expensive medical treatments that the policyholder would otherwise not be able to afford. The economics of health insurance companies is based on a general insurance concept known as the “law of large numbers”. This means that many people together will pay money to an insurer. Some of them will need to use some of that money at some point, but not everyone will. The insurance company takes a chance that enough people will not need to use the coverage so that they will have enough money from premiums collected from everyone to pay for the medical bills of those who do need to use the insurance. In other words, everyone pools their money so that the sick and injured can get their bills paid. Insurance companies primarily make money from the investment income derived from the premiums. If there is money left over at the end of a year in premiums not used to pay claims, insurers will have what is called an underwriting profit. Insurance companies do not often realize an underwriting profit, especially during down economic times.
Insurance companies use people called actuaries to make a best guess as to what type of customer is more likely to need to use the insurance and health insurance rates are determined from this data. In some cases, those more likely to use the coverage are charged more, and sometimes the costs are spread around to everyone.
Health Care
The cost of medical care in the United States has risen at a rate higher than the growth rate of GDP since 1970, and the trend is expected to continue. There are many causes for this growth including technological advances in medicine, more frequent need for health care as baby-boomers age, and widespread fraud and waste. Many also argue that the high cost of malpractice lawsuits make medical care expensive.
When insurers pay more for health care, it follows that they will charge higher premiums to avoid an underwriting loss.
Reform
The current reform debate involves proposals that will change the way health insurance works, but may also change the way that health care is administered. This has become a very contentious issue as people consider the possibility that government administrators may have control over decisions that their doctors will make. It should be recognized that health insurance companies currently have a significant role in deciding what treatments are covered. With the current system of health insurance however, an appeal process exists that may not be available under a government run program.
Health care is simply too expensive, and that is why health insurance was developed. The problem now is that health insurance is also becoming too expensive for many Americans and that is why lawmakers are working hard on a reform bill to address this issue.
There is plenty of discussion about healthcare reform throughout the country these days. The bills currently under discussion in Washington thee days are over 2000 pages of ‘reforms’. In reality, the main emphasis these ‘reforms’ is who will pay the bill. There are some true reforms around the edges of the bills, but very little of real substance.
Rather than impose a government run healthcare plan on everyone, which many opponents claim will actually increase demand for healthcare (after all it’s ‘free’, right) and subsequently the cost; true reform would emphasize personal responsibility which would reduce demand and cost throughout the healthcare system. The current system which has developed over the years has no responsibility anywhere in the system. The three main players in the healthcare system:
The payer (usually the employer)
The provider (usually a doctor or hospital)
The patient (you)
all have different and opposing interests. Very rarely do all three parties get together in the same room and talk. The payer wants to pay as little as possible, the provider wants to get paid as much as possible for as little as possible, and the patient wants as much care as possible. These interests are diametrically opposed, so there is not much communication between the three factions.
No matter what happens in Washington concerning healthcare, you need to provide for your family’s healthcare One way to make sure that you are able to get the healthcare that you and your family need is through a Health Savings Account (HSA) also known as a Medical Saving Account (MSA) coupled with a high deductible, catastrophic healthcare insurance policy. There are many advantages to having an HSA in your own name:
• You have personal responsibility of your own health
• You can control your healthcare costs
• There is a true incentive to live a healthy lifestyle
• You can visit the providers that you want to visit
• The account is funded through tax advantaged dollars
• Your employer can contribute to the account
Here’s an example of how an HSA works:
You set-up an HSA through a ‘qualified’ trustee/custodian. These are banks, credit unions, or other entities set-up to handle an HSA. You must purchase a High Deductible Health Plan (HDHP) in conjunction with the HSA. Generally, these plans are much less costly than traditional insurance plans. The money you save on premiums may be enough to fund the HSA portion of the plan, which should be in the amount of the deductible of the HDHP. Routine medical costs are paid for through the funds in the HSA. Normal doctor’s visits, prescription drugs, chiropractic visits, licensed acupuncture treatments, massage therapy, and nutritional supplements can all be paid for through an HSA. If the deductible of the HDHP is met, (and the funds in the HSA are exhausted) the insurance portion kicks in to pay for medical expenses. If there is money remaining in the HSA account, that money can be rolled over into the next year, to help fund the next year’s HSA.
There is a true emphasis on preventative healthcare through the availability of alternative car and nutritional supplements paid for with pre-tax dollars. The incentive to staying healthy is real because you are spending to own money on healthcare. Personal responsibility is also emphasized, because you are spending your own money. Any money not spent from the HSA is carried over, and grows tax-free, similar to a self directed IRA. If executed correctly, an HSA can save money and actually provide you with better overall health and the peace of mind that you are covered in the event that you require extensive medical treatment.
Many employers cringe at the thought of having to offer California group health insurance to their employees. They feel as though the process is long, difficult, and overly expensive. Employers want to provide good coverage, but they do not want to bankrupt their company while doing so. On the flip side, many employees feel as though good health insurance should always be provided, and that employers should only choose plans that benefits employees the most, regardless of cost. CA group health insurance plans can offer great options for all parties involved. Below are the benefits of group insurance from both the employee and the employer’s prospective.
Benefits For The Employer
In 1992, The California State Legislature passed Assembly Bill 1672 to regulate health insurance companies operating in California. This piece of legislation modified the laws and made practices fairer for consumers. The major components of the bill included: allowing coverage for companies that have between two and fifty employees and are classified as either a sole proprietorship, an LLC, an LLP, or a corporation; guaranteeing insurance coverage for these companies; and imposing mandatory price limits on coverage.
These changes allowed employers to purchase benefit packages, at a fair price, with no question of coverage for all employees and their dependants regardless of health condition. Insurance companies could no longer deny or cancel coverage for individuals with a history of poor health as long as the coverage was purchased as a CA group health insurance plan. The mandatory price limits imposed on such coverage dictated that insurers had to limit the price range that could be charged for specific small groups. Insurance providers now had to base their pricing on the ages of the employees, and how the overall company fit into the established Risk Adjustment Factor (RAF) for the county it resides in. For example, if a company has all healthy employees, the insurance provider may offer a maximum reduction in price of up to ten percent below the set RAF. On the other hand, if the company has several employees with health conditions, the insurance provider cannot charge more than ten percent above the set RAF.
These legislative changes helped to put employer’s minds at ease, by allowing them to offer better coverage options without the worry of inflated costs.
Benefits For The Employee
Quite possibly the number one benefit for employees seeking group medical insurance in California is that he or she will not be denied coverage, even if he or she has pre-existing health conditions. Unlike with individual health insurance plans, small group plans cannot discriminate amongst employees or deny coverage for any reason.
In addition to not being denied coverage by the insurance company, employers must offer insurance to a certain number of workers. Employers who elect to go with a small group plan must offer coverage to, and must enroll, a minimum of seventy-five percent of all eligible employees. Employees are considered eligible if they work at least thirty hours per week. Only employees who are covered by another group plan (usually through a spouse’s employer) can opt out of the offered coverage.
Finally, employees do not have to worry about paying full price for health insurance. Employers cannot defer one hundred percent of the monthly cost of CA group health insurance to the employees. California state law states that an employer must contribute a minimum of fifty percent of the employee only cost of the insurance plan selected. This safeguard was put in place to further guarantee that participation requirements could easily be met and that fair business practices would be carried out.
While group medical insurance in California can be expensive, and it is sometimes difficult for a business owner currently offering no health insurance to begin paying $2,000 or more per month, there are several benefits for both parties. Lower rates, guaranteed coverage, price limits, and guaranteed renewal are benefits that are worthwhile for everyone involved.
