Thursday, September 08, 2011

Come a Cropper?

Very few people willingly buy insurance, pretty much any insurance. Sometimes, the bank that holds our mortgage requires us to, or the state mandates "minimum limits" for those that wish to drive on the public roadways, or a personal desire to leave a financial legacy to the wife (or husband) and kids.

Sometimes it makes economic sense: health insurance to pay the big, unexpected claims or disability insurance to pay the bills.

Or crop insurance for farmers with mouths to feed (their family's and ours).

Now you might be wondering why I'd mention crop insurance here: aren't we mostly life and health guys?

Well, yeah, but.

A gentleman named Kent Olson recently penned an article for the PIA (P&C agents' professional association) bi-monthly magazine. The article urged Congresscritters to use the current crop insurance model for the new ObamaCare© Exchanges. The article makes a good (if not compelling) case for itself, but assumed (reasonably) that its readers would already be familiar with how crop insurance works.

I can (barely) spell it.

So I contacted Mr Olson, and we had a very pleasant chat. I asked him for the "nickel tour" of the product, and he gave me $100 worth, for which I am truly grateful. In order to understand Mr Olson's vision for Health Insurance Exchanges, one needs to have a modest understanding of how crop insurance works. Fair warning: some wonkery ahead, but I think you'll be glad you slogged through it, to see how someone not caught up in the day-to-day wrangling of health insurance views our future.

In the 1940's, through the early 80's, crop insurance (protection against financial loss due to poor yield) was financed and sold by a government agency, the Federal Crop Insurance Program. It offered limited products (one could insure only a handful of crop types), and was based on the one-size-fits-all model.

This program never really worked well, and was supplanted in the early 1980's by a newfangled partnership of government and industry (insurance carriers). The first major change is that it became privatized, with the carriers (and their reinsurers) taking the bulk of the risk, and the Fed's acting as a last-ditch backstop. The second major change is that the farmer himself also has "skin in the game;" that is, there's a hefty deductible (although it's not called that), as well as premiums based on a number of factors.

Soon, the plan was improved upon even further: new products were offered, additional crop types were available, and some premiums were subsidized to help make it even more attractive. The key, though, is that the product is marketed and sold by agents, not bureauweenies. And that's where we come to Mr Olson's take on ObamaExchanges©.

His thesis is that the "crop insurance program has succeeded due in large part to the involvement of private sector independent insurance agents. [ObamaCare©] can succeed as long as private sector health insurance agents and brokers are involved."

In short, he proposes that the Exchanges be true "partnerships" between the public and private sectors.

I was pleased as punch to see someone thinking "outside the bun" on this issue, and was especially grateful to see someone whose experience runs in areas of this business totally different than my own. This brings a fresh perspective to the debate, which is a good thing.

The problem is that insuring crops and insuring people are very different enterprises. While it's true that both crop and health insurance are based on the principle of indemnity, there are some key differences between the two.

For one thing, there is, in fact, limited underwriting that goes into crop insurance. Pretty much any farmer that wants to participate may buy in, but must do so by a certain date (say, early Spring). He can't, for example, come into the office in mid-August to buy coverage for his sere fields.

Contrast that with ObamaCare© circa 2014: Joe Shmoe, still undergoing chemo and on his way to the hospital for a liver transplant, can buy health insurance from the Exchange in between appointments, secure in the knowledge that he can't be turned down or made to wait for his pre-existing conditions to be covered, and that he'll pay the same rate as his perfectly healthy neighbor.

Of course, if he doesn't buy a policy, he faces a tax or prison sentence, because the government has mandated that he buy such a plan. And not just any plan: unlike the new and many choices available to the farmer, Exchange-eligible policies must include a myriad of special (and expensive!) benefits. And unlike the farmer, who has actual "skin in the game," HSA-style plans are now verboten.

And let's look at how that Exchange-participating agent might fare: after lengthy (and redundant) training sessions to become certified to sell each carriers' products, another intrusive background check and agreement to abide by strict (and stringently enforced) market conduct rules, the agent might be paid a nominal fee (not a commission).

While I certainly applaud Mr Olson's efforts, and truly appreciate both his expertise and his willingness to share it with me, I think this is a non-starter.

[Hat Tip: Bill M]

NB: At this time, no link to Mr Olson's article is available. I'll update the post to include it if/when that changes. HGS
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