Wednesday, February 02, 2005

Okay, Smart Guy, Riddle Me This…

Another agent -- a close friend (and mentor) -- called me recently to pose this question:

“Hank,” he asked, ”how do you explain to your clients why health insurance keeps getting more and more expensive?”

Now, my wife insists that there are no coincidences, which is why I find it interesting that I received a call today from a (soon to be former, I guess) client, who complained that his rates had gone up AGAIN, for no good reason, and that he wasn’t going to pay any more.

Both calls really involved the same principles, and answers.

My initial response to Tony (the aforementioned friend) was tongue-in-cheek: I simply tell my clients that the rates go up so that I can make a bigger commission. The truly ironic part, of course, is that, for the most part, commissions keep going down. I went on to enumerate some of what I see as the primary contributors to recent rate increases:

First, the cost of prescription medications has become a bigger and bigger portion of the health insurance dollar. Of course, this is good in the sense that new medications (with the obvious exceptions of Vioxx, etc) mean improved health and quicker recovery. On the other hand, the cost of advertising the next “purple pill” drives the cost of the meds even higher. And, of course, we see the commercials and all flock to our physicians for a scrip for “that new pill.”

Second, “managed care” itself shares some of the blame. Let me explain that:

Years ago, managed care (HMO’s, PPO’s, etc) was touted as the answer to sky-rocketing premiums. And, for a while, bean-counting medicine seemed to work. But, as with so many such phenomena, it ran into the brick wall of diminishing returns. That is, there is a point where, no matter what you do, there is a minimum cost – a floor – below which prices cannot go. And when we hit that floor, a few years back, prices had nowhere to go but up.

Third on the list would be hidden costs, primarily in the form of government mandates. Insurance is primarily regulated at the state level, and each state requires (“mandates”) that certain coverages be included, regardless of whether a given insured actually wants or needs that coverage. Mandated benefits are estimated to account for as much as 17% of health insurance costs. Interestingly, Ohio is looking at ways to change this, by allowing carriers to offer “mandate light” plan designs.

Well, enough for now….more on this later.
BTW, I'd really love some feedback on this one (hint, hint)
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