First and foremost, I apologize for this post. It’s going to be a bit rambly, and a bit disjointed, but tough…deal with it.
Since Obama has announced his health care plan, I’ve been considering some of the bill’s various implications. I assure you, I have no earthly idea whether or not it’s a good idea as the health care system is far too complicated for me to adequately understand or appreciate. All I know is 2 things, and the rest is just over my head:
- The system is far too costly as is and health care costs are growing enormously fast. The National Coalition on Health Care has estimated that health care spending will grow to 20% of GDP over the next decade.
- Any system where there is a decoupling between the beneficiary and the payer seems to be odd to me. When I go to the doctor, I pay $20 for my copay, but I have no idea how much he charges my insurance company, but when I go to a restaurant, I know exactly how much I’m paying for my steak.
Anyways, back to Obama. What he has laid out is essentially a POLR (provider of last resort) for insurance. I’ve been playing devils advocate over the last week or so in my random musings on the “public option”, which is always great fun. So here’s what I’ve been thinking: if I’m the CEO of an insurance company, and I see the government is a “come one, come all” kind of insurance policy, why don’t I just start denying all of my high-risk policy holders coverage? Why don’t I just cancel every obese/elderly/smoking individuals policy and have them go to the government for insurance? I could effectively lower my rates for all of my low risk policy holders, competing even more effectively with the government while the government would likely have to raise their own rates. Everyone still has coverage, so this is hardly an “evil” plan, but it does make me wonder if this is more efficient.
It also has led me to wonder why insurance companies don’t do this now, which is why I asked my much more intelligent and better educated girlfriend for help (it helps that she has an advanced degree in economics). While she doesn’t have any experience with the health care industry per se, she postulated that because an insurance company has a greater portfolio of risky policy holders (which allows them to raise the rates for everyone including non-risky policy holders), this more than makes up for the greater cost of the risky policy holders. It’s an interesting thought, and one that certainly could be right, but this led me to start thinking about Geico (not as random as a diversion as you might think).
Geico got its start as a niche auto insurance company, offering insurance policies only to risk averse government employees (who are statistically less likely to get into accidents). Because they had a less risky portfolio, Geico was able to dramatically lower its rates, and cleaned up the competition. So why is there no Geico health insurance for low risk, young, active, healthy adults? What are your guys thoughts? What am I missing?
[image compliments of thinkpanama]
