Friday, September 23, 2005

Asking the Wrong Questions...

Recently, I received an email from a good friend (who is NOT a client) lamenting the latest increase in his family’s health coverage. I happen to know that said coverage is through a well-known and well-established carrier, and is in fact an HSA plan. He wrote “(m)y Health Insurance premium just went up $400!” Now, there was no indication as to whether that was $400 a month, or a year, nor did he mention what percentage of his premium that $400 represented.
And really, that’s the important number: absent some yardstick, there’s no real way on knowing just how grievous that rate increase is. Look at it this way: if his annual premium before the rate increase was $3500, then a $400 dollar increase is about 12%, which isn’t really all that hateful. But I really don’t know, because that information is missing. The reason I mention this is that I often get calls from folks who give me raw numbers, but with no context, so I have no way of knowing whether or not I can help them.
The email went on to report that when he called the carrier to question the increase, he was told “TO BE THANKFUL that it was only a $400 raise - that most parts of the country went up 30%.” Now, the company rep shouldn’t have been so blasé about something so important, and it really doesn’t matter what rate increases other folks got.
The email concluded by asking “(w)hen will WalMart buy some hospitals and offer their own health care?” That’s really two questions, each easily answered: 1) never and 2) they already do.
All of which is background to the real point of this post [ed: ‘bout time you got around to that!] which is my reply to him: “You’re asking the wrong questions.”
So, what are the “right” questions?
Let’s start with the premise that my friend is hardly an exclusive case: lots of folks have health had their health plans for a long time, and have become frustrated at the ever-increasing rates. There are two primary reasons that one sees substantial rate increases on older business: one is “stale underwriting,” and the other is the legendary “death spiral.”
So the first question is “what’s stale underwriting?” The second is “what’s the ‘death spiral?” and the third is “what can I do about either or both of these?”
We’ll answer the first two questions in Part 2, and the last one on Part 3.
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