How can Health Ins Cos make profit covering Pre-Existing Conditions?

heri _ cles

Let's say the Supreme Court or Congress take down what remains of Obamacare other than the regulations that require private health insurance companies to cover pre-existing conditions (and to not rescind coverage when a covered person gets a serious illness.)


How could a private health insurance company make profit when they have to assume risks that do not fit within their business plan ?


Trump promised on numerous occasions that his plan would cover pre-existing conditions.

I understand he lies, he didn't really mean that, blah blah blah, but is there any feasible plan whereby a for-profit private health insurance company could cover pre-existing conditions ?


Is the Republican plan something like this - if you get sick and your insurance company drops you, you pay until you lose house and home. Then maybe you can get Medicaid before Republicans take that down as well.


Maybe some of these progressives like Bernie are right - health insurance for profit is not cost effective and is fundamentally unfair.

And perhaps the so-called moderate/centrists that want to preserve the status quo - a for-profit health insurance industry, are just trying not to rock the boat while it takes on water and inevitably sinks.


SaveComment71Like3
Comments (71)
Thank you for reporting this comment. Undo
laceyvail 6A, WV(6A, WV)

Health coverage must not be for profit, obviously. It isn't in any of the 47 other developed countries that cover all their citizens. Even in Germany where people buy their health insurance from insurance companies, those companies are highly regulated and not for profit, so it works.

Only in the US, land of the free, are you free to lose everything you have and die because you can't afford health care. And the only country where you have to have a go fund me page for your illness. Or others run a bake sale for you. Or you go to the country store and there's a jar to help someone with medical bills. It's despicable. When you tell Europeans about these fund raising efforts, they're speechless.

12 Likes Save     Thanked by heri _ cles
Thank you for reporting this comment. Undo
cattyles

Private, for-profit insurance would have to be phased out and soon. All healthcare money has to go into one pot. When the candidates say private insurance can exist along with some kind of universal coverage, they are pandering.


I do not believe there should be different levels of care, either. Healthcare should be like clean water and air.

6 Likes Save     Thanked by heri _ cles
Thank you for reporting this comment. Undo
chase_gw

However, you could have a system like ours where private insurance companies exist to insure services not covered by universal/single payer. It is highly unlikely that single payer will pay for everything......but maybe that is the target.

1 Like Save     Thanked by heri _ cles
Thank you for reporting this comment. Undo
bry911

Pre-existing conditions is not a hard problem to solve. Without looking online I solved it under a minute, I suspect there are better plans out there which have been fleshed out for at least two minutes.

A simple solution looks like this... the insurer of record on the date of diagnosis must book the discounted cost of a patient's treatment on the date of diagnosis as a liability. Any future insurer would book that patient's costs for a condition as a liability on the date of transfer and book a receivable from the previous insurer.

In the end, payables and receivables would remain roughly equal for plans keeping a consistent size, but the cost would largely go away and profit would remain intact.

3 Likes Save    
Thank you for reporting this comment. Undo
Ziemia(6a)

Private insurance is huge business. I do not see it going away soon.

There are Americans who want to pay double for it. (Those who yammer on and on about taxes do it no matter the issue.)

Maybe we need special bankruptcy laws for those who insist on being under insured - using bankruptcy as a way to deal with huge personal bills.

Save    
Thank you for reporting this comment. Undo
heri _ cles

Pre-existing conditions is not a hard problem to solve. Without looking online I solved it under a minute


You don't know what you are talking about.



2 Likes Save    
Thank you for reporting this comment. Undo
bry911

"You don't know what you are talking about."

Well I am an accounting and finance professor, so if I don't know how to account for a transferrable (assignable) liability, then I really don't know who does.

In other words, I actually do know what I am talking about.

ETA: if you actually understand insurance and you understand liabilities, this is not a very complicated problem. It has never been a very complicated problem. The only complication is in calculation of the booked liability, you are going to have some inefficiency in liability standardization but that can actually lead to more efficient delivery.

ETA2: I am not saying this is a problem free solution, but it does solve the problem you presented, is there some specific issue with my solution? I will happily address that.

1 Like Save    
Thank you for reporting this comment. Undo
blfenton

That's what actuaries are for.

1 Like Save    
Thank you for reporting this comment. Undo
bry911

"That's what actuaries are for."

Actuaries would be needed to calculate the amount of liability that was booked, but requiring liabilities be booked, assignment, and profit would be GAAP.

1 Like Save    
Thank you for reporting this comment. Undo
Ziemia(6a)

Pre-existing medical conditions is a risk.

Insurance companies are excellent at that.

Regs have allowed them to avoid some risks. (Massachusetts insurance regs does address it)

Save    
Thank you for reporting this comment. Undo
whynottryit

I do not believe there should be different levels of care, either. Healthcare should be like clean water and air.

Like Flint and LA? Different levels of care are going to be unavoidable in the beginning of any program, I suspect. Basic Medicare is now standard but there are multiple levels of gap coverage by private insurance companies. We might see a drop in insurance jobs but I don't foresee a full scale elimination of private gap coverage.

1 Like Save    
Thank you for reporting this comment. Undo
Ann

I found Bry's under a minute solution to be very interesting! I immediately thought of actuarial tables, as I'm not familiar with GAAP.

Heri, why would you say Bry doesn't know what he's talking about? It sounded very logical and very interesting to me.

Save    
Thank you for reporting this comment. Undo
patriciae_gw(07)

Bry's solution will not work because just like companies that accumulate too many injured workers claims (biggie in southern furniture factories) they declare bankruptcy and recreate themselves, on a somewhat larger scale of course. What does the person with the preexisting condition do whose insurance company of record no longer exists? No company is forever.

The Federal government offers insurance companies an opportunity to get into the lucrative Federal employee market by putting together a list of must meets and letting them make their offer attractive to get the business of the employees. They always had to cover births and birthcontrol and pre-existing conditions. The person with a beef about non coverage had someone in the feds to complain to. An Ideal group of course being the perfect age when most people are healthy. Still you could build on something like that. It is the scale of the thing that works. This gives an avenue to convert over. Insurance companies would be forced to actually pay for health care or fold as people would switch to companies that actually delivered health care instead of dividens to their owners.

Save    
Thank you for reporting this comment. Undo
bry911

I am keeping it simple as I am typing on my phone, but bankruptcy is not really a problem. Set up a guaranty corporation similar to pensions and establish sinking fund requirements, but these are all problems already solved.

Furthermore, the insurer is not paying forever, only when the insured transfers. This is not a network of different insurers paying, only booking and assigning liabilities.

Save    
Thank you for reporting this comment. Undo
bry911

I just want to reiterate, I am not arguing for our current system. As I have said many times, while any version of single payer may have problems, employer funded healthcare is the worst system.

I am, however, stating that this particular issue is played up as insurmountable because it is convenient to do so. The average person probably doesn't have the toolset to solve this problem and likely doesn't understand the solution if it is explained in too much detail. So it is a great issue to politicize.

1 Like Save    
Thank you for reporting this comment. Undo
Ziemia(6a)

There are insurance companies that are "fly by night' and in the business for a quick profit.

Insurance companies are largely regulated by states (and some chose no or little reg).

Many states allow the bad insurance companies to exist. (Living in a state with very strong insurance regs has made this very apparent.)

Save    
Thank you for reporting this comment. Undo
Jonnygun(zone 7)

Bry, if the solution is just to create a pool of insurance carriers similiar to those in place for life companies, what is your suggestion to garuntee participation? If a company with a large pool of participants and a large chunk of liability abandons a poor market, who assumes that? I guess this is just a prelude to the government assuming those liabilities?

Save    
Thank you for reporting this comment. Undo
heri _ cles

You have cancer or diabetes and want affordable health insurance. No problem. Call bry. You get dropped by am insurance company because the cost for your care now exceeds what they want to cover. Call bry. You want to sue a private insurance company in State Court for refusing to cover a preexisting comdution or a seriius heakrh issue that comes up while yiu have coverage. No problem. Call Bry And ask him for an example of someone who has successfully sued a private health insurance company based on the regs in tbe ACA. I think he is an expert in this law and knows the Statutory provsions including the specific enabling Statute that authorzes a private individual to sue an Insurer for failing to cover for a pre-existing conditions. And once you provide that, if you can, let us know what you think the chances a person already struggling with medical bills and probably too ill to work has against an insurance company's powerful law firm that specializes in defending insurance claims.

Save    
Thank you for reporting this comment. Undo
chase_gw

Heri, take a breath...I think you are typing too fast.

Save    
Thank you for reporting this comment. Undo
maifleur01

I guess few have figured out that each year you either agree by not doing anything or disagree with your current health insurance company by buying a different plan. All a company would have to do under the proposed droppage of preexisting health conditions is to not include it in the next years plan.

While there are things that the federal government can insist on being added most states have a Insurance Commission of some type that reviews what insurance companies sell in their own state. Some states may hold firm on preexisting conditions others will allow dropping it. Currently in this state it is required in one of the first sections of the overview of plans to list changes from the previous year. My options will also list in the body of the document what will and will not be paid.

Save    
Thank you for reporting this comment. Undo
maifleur01

Brys solution on the face sounds good but that only takes into account known preexisting conditions that existed at any moment in time. That strep throat you had as a two year old can lead to conditions later in life which until they happen they are an unknown. While not all rheumatoid arthritis can be directly traced to a specific strep infection it is known that if you had strep you are more likely to develop it later in life. This is the type of preexisting condition that the insurance companies could have a field day denying coverage.

Save    
Thank you for reporting this comment. Undo
maifleur01

Jonnygun those companies already exist although they are a loose pool. Think Lloyds of London. They are called Reinsurance companies. There are some that only deal with property but there are others that deal with health and life insurance. Insurance companies know that a epidemic could breakout at any time and do purchase coverage in case this happens.

Save    
Thank you for reporting this comment. Undo
patriciae_gw(07)

There are too many possibilities in the pre existing issue. How do I prove to my insurance company that my present cancer has no relationship to either my previous cancer or the treatment I had for it? How does an insurance company figure how much it will cost to cover an effect or extension of the pre existing cancer when the treatment had not yet been invented? How do they predict the future costs of such treatment? How do they predict inflation? If you have a diagnosed pre existing condition and never had any treatment for it is your insurance company on tap for when you get something associated with that pre existing condition? A child born premature or with a genetic anomaly would be a life long pre existing condition. this is not workable. Why don't we do what the rest of the world does?

Save    
Thank you for reporting this comment. Undo
Ann

"Heri, take a breath...I think you are typing too fast."

Chase, you're making this suggestion:)

Save    
Thank you for reporting this comment. Undo
heri _ cles

Pre-existing condition coverage was seldom an issue for those with employer based heakrh insurance. It has always an issue for those wirh individial plans and for those without insurance that wanted to obtain health insurance but had a healrh condition.

1 Like Save    
Thank you for reporting this comment. Undo
heri _ cles

Whut do yu meen im typing tou fast

7 Likes Save    
Thank you for reporting this comment. Undo
blfenton

LOL. That's what I do sometimes and really quesiton wath I:ve wrtiien.

1 Like Save    
Thank you for reporting this comment. Undo
chase_gw

Yes Ann, unlike some I'm able to poke fun and have a sincere giggle over things like typos and lost periods......life is too short to be so petty as to take mean shots on such insignificant things. Don"t you think?

Save    
Thank you for reporting this comment. Undo
marquest(PA zone 6)

lie to shor to care.

Save    
Thank you for reporting this comment. Undo
numbersjunkie

"the insurer of record on the date of diagnosis must book the discounted cost of a patient's treatment on the date of diagnosis as a liability."

The only ones who would benefit from this type of system would be the lawyers. The " date of diagnosis" requires it be be clear-cut, when it is often not. Can you even imagine the games that would be played to "back date" or "defer" a diagnosis? What happens if a doc is extra careful or misses a warning sign? OMG. The cost of "healthcare" would skyrocket.

Save    
Thank you for reporting this comment. Undo
Prim Rose

Pre-existing conditions are never profitable. They are covered and the insurance company can be profitable because of the large pool of people paying premiums. Spreading the risk factor out is basic to how insurance operates.


And perhaps the so-called moderate/centrists that want to preserve the status quo - a for-profit health insurance industry, are just trying not to rock the boat while it takes on water and inevitably sinks.


I don't know how you reached that ^^^^ conclusion from your initial query. It amounts to an editorial and subjective statement. Which doesn't seem to be related to pre-existing condition coverage.

Save    
Thank you for reporting this comment. Undo
chase_gw

Threads like this make me thankful the term isn't even part of our medical nomenclature.

2 Likes Save    
Thank you for reporting this comment. Undo
Ann

"Yes Ann, unlike some I'm able to poke fun and have a sincere giggle over things like typos and lost periods......life is too short to be so petty as to take mean shots on such insignificant things. Don"t you think? "

And you don't think I was poking fun at the ironic situation of you, in particular, being the one making that comment to Heri? Lots of defensiveness from you on HT today. Just in case you wonder what I mean by defensiveness besides this example on this thread, here's another, and maybe just because I happen to think the Canadian healthcare system has some serious deficiencies? Life is too short to take political topics so personally. "Don''t you think?"

"...but I am so tired of trying to have a reasonable discussion with you on any of this. It's not what you want and I'm tired of humouring you so have at it."

"I refer to our system as a single payer, universal healthcare system . You can have one without the other .............and I don't give a flying fig what you call our system."

Save    
Thank you for reporting this comment. Undo
chase_gw

Ann, the last thing you were doing is having some light hearted fun.....you fool no one. You may choose to consider my posts defensive...but I will tell you they are anything but .

You are totally incapable of putting me on the defensive no matter how much you poke me in your very transparent PA style.

I'm just calling it like I see it.....and, as Rhett would say...frankly my dear.......

edited

1 Like Save    
Thank you for reporting this comment. Undo
Ann

"Ann, the last thing you were doing is having some light hearted fun.....you fool no one. You may choose to consider my posts defensive...but I will tell you they are anything but. Your PA attitudes and petty swipes are so blatantly obvious it's almost pathetic. ...but have at it if it's all ya got."

Chase, hmmmm, sounds like you are certainly attempting to insult me. "Don''t you think?" And that's weird after you just posted this 2 days ago. I guess you do attempt to insult posters after all, and maybe on a quite regular basis.

"It also annoys them I know as much as I do about American politics and civics...drives them nuts that I can argue the details....they have this notion that only Americans should care about what their President does. They have no idea of how he impacts the rest of the world. An indication of how small their view of the world is.

As I say I'm good (good with their attacks) ......I don't insult posters, I don't call people names, I call out hateful posters no matter their politics and I express my opinions being careful not to suggest what Americans should do in any situation ..........and it drives them nuts.......tee hee hee""

Save    
Thank you for reporting this comment. Undo
Ann

Chase, I see you decided to go back and edit the post of yours I quoted. Glad I was able to read it before you decided to make the modifications.

Save    
Thank you for reporting this comment. Undo
chase_gw

Not insulting you at all.....just rebutting your inaccurate claim that I am acting in a defensive manner. I am not. I'm simply responding to your deliberate attempts to prod and poke and get a reaction.

I'm done with this " conversation" . The others don't need to be subjected to this back and forth yet again...but feel free to have the last word.

Save    
Thank you for reporting this comment. Undo
chase_gw

...the fact I edited says something, I can look at a post and see that it doesn't read quite like I intended and change it. I didn't really change anything substantial just rephrased...and indicated I did so.

Save    
Thank you for reporting this comment. Undo
Prim Rose

Someone is paying waaaaay too much attention to a poster - who gets to edit their brains out if they choose.


1 Like Save    
Thank you for reporting this comment. Undo
Prim Rose

Oh, great. Now I'm gonna get RA because I had strep as a child.


This thread is depressing!!! :)

Save    
Thank you for reporting this comment. Undo
maifleur01

Prim Rose I only used that as an example as there is a genetic factor within who develops and who does not. However there are many childhood diseases other than this where they can damage parts of the body and the damage will only show up later.

1 Like Save    
Thank you for reporting this comment. Undo
bry911

I really do not have time now for an in depth response. I will compose one later. However, most of the problems expressed here are exaggerated or based on a misunderstanding.

The problem as stated: remove the profit penalty and possibly create profit from pre-existing conditions. Profit is revenues minus expenses. The simple answer is to treat preexisting conditions as any other accrued expense. Accrued expenses are not a new idea, if you have ever bought a product with a warranty the manufacturer accrued an expense for the estimated warranty cost even though they may not be paying for years. The only difficulty is making them assignable, that is going to take some standardization by some agency.

Again, something we already do and not a real problem. At that point the liabilities can be assignable and thus not an expense to the new insurer. This is not favorable to insurance companies and, of course, they would fight it. You are removing all benefits of dropping coverage for those with preexisting conditions.

It would probably lower profits and/or slightly increase costs, but preexisting conditions would not be a source of savings. Furthermore, if the market is efficient, you might see specialized insurance carriers who want those preexisting conditions as economies of scale would result in costs lower than the accruals.

Save    
Thank you for reporting this comment. Undo
Prim Rose

Specialized carriers to manage pre-existing conditions sounds like a nightmare for the patient.

2 Likes Save    
Thank you for reporting this comment. Undo
numbersjunkie

Why are we even twisting ourselves into a pretzel trying figure out a way for the insurance companies to make money on pre-existing conditions?

We're talking about creating all kinds of legal, administrative and financial systems to make it happen. Why? The government should take the risk, which will be managble because of the size of the "risk pool" they would create. They can farm out the administration to the insurance companies under a uniform set of rules that would allow the providers to do their jobs with less administrative hassle. This is what happens now under Medicare.
Believe me, they make a ton of money just doing the claims administration and fraud reviews.

The insurance companies aren't going away. They will find a way to survive and evolve. Why do "we" care? Do you think they care about "us"?

1 Like Save    
Thank you for reporting this comment. Undo
bry911

I don't care about insurance companies, I don't want insurance companies or employer based health insurance. However, this is not an insurmountable problem and shouldn't be presented as such.

Furthermore, this would not be a benefit to health insurers. This would absolutely be a regulation that would benefit consumers at a cost for insurers. The question wasn't about making insurers more profitable, it was about making a specific situation profitable.

1 Like Save    
Thank you for reporting this comment. Undo
numbersjunkie

Bry, I just think the burden should be on them to figure out how to survive. And I think your solution adds too many layers of administration that will add to the cost if healthcare and benefit no one except for the insurance companies.

There is one pundit who says it best. Our country believes in Socialism for the rich (insurance companies) and Capitalism for everyone else (survival of the fittest and the rest perish).

3 Likes Save    
Thank you for reporting this comment. Undo
arthurm2015(Micro-Climate, Zone 10b Sydney, Australia)

The USA will probably (Maybe Never) end up with a mixed public/private health care system. That best describes the system here.

Single Payer sounds so simple. Lol.

I've asked before, just how many private health insurers are there over? They must have zillions of dollars of reserves? You cannot wave a magic wand and make them go away.

Joined my health fund over 60 years ago and am happy with the Private Hospital cover it provides.

Save    
Thank you for reporting this comment. Undo
Prim Rose

Is Private Hospital an additional charge? Wondering, because I've heard that term used in Britain and thought only the wealthy could have Private Hospital care.

Save    
Thank you for reporting this comment. Undo
arthurm2015(Micro-Climate, Zone 10b Sydney, Australia)

The Health Fund I belong to is mutual, the Tax man/person/woman/monster will charge the medicare levy if you are earn above amount X. and if you do not have health Insurance. Doesn't seem to matter what sort of Insurance. Just some private cover to take some of the load off the public system which is funded by tax payers.

I do not know the answer posed to the question in the original post except to say that my wife has an auto immune problem that surfaced some time ago and her treatment in both the public and private health system is fine.

I've written previously about the $A48,000 hospital bill in the light of whether health care costs are increasing around the world. Paid about $A700 of that bill. Annual Premiums about $3,500.

Not many horror (losing home, going bankrupt) health care stories here.



1 Like Save    
Thank you for reporting this comment. Undo
Ann

Arthur, is the $3500 per person or per couple?

Save    
Thank you for reporting this comment. Undo
arthurm2015(Micro-Climate, Zone 10b Sydney, Australia)

That is for my wife and self. I am not an expert on health insurance, so do not take anything I write seriously.

I spent 5 days in a public hospital a few years ago because that is where you go in an emergency. Had difficulty talking to the cat. Treatment was free and fine and my insurer reimbursed the public hospital ....as I said mixed system here.

If I'm still here in ten years time these threads will probably still appear.


2 Likes Save    
Thank you for reporting this comment. Undo
bry911

I said I would write more when I had more time, and I guess I have a bit of time now.

Let me begin by saying, I disagree with the idea that health insurance is working well. The ACA's preexisting conditions requirement were always a recipe for abuse and will remain so until someone stops insurance companies from abusing people.

I respect the idea that any bandaid to make the current system more workable diminishes the chance for some version of a government sponsored program. However, I would remind people that a bird in the hand is better than two in the bush, there are a lot of abuses by insurance companies and a lot of people suffering those abuses and they need to stop sooner rather than later.

Somehow, many got the impression that my plan would be good for insurance companies. Nothing could be further from the truth, my plan would eliminate much of the abuse by insurance companies. In fact, most abuses listed by Heri_cles above would be gone.

--------

The ACA was never a great plan, it proclaimed things but didn't disincentivize abuse. Health insurance itself isn't great, you have a for profit system that is supposed to help care for people, when the best method for profit is obviously pay out less. It is a model that wants to insure healthy people and not insure sick people. The easiest way to fix this is to book all expenses related to the condition immediately. At that point there is no savings for not covering a treatment.

I am afraid that anything other than a simple example will lose people, yet am afraid that people will assume a simple example can't handle more complexity, which it can.

Suppose I run a small very specific insurance company and only insure against a single illness. Suppose I cover 20 people and know that 2 of them will get this illness in the next 10 years and need 5 years of care at $10,000 per year. So we know my cost to cover the condition for both people is $100,000. We also know that 20 people over 10 years is 200 annual premiums so to break even I need payments of $500 per year.

Now suppose a person is diagnosed with the condition after three years.

Under our current system if I can get them to quit my insurance after only one year of care my total cost to cover the condition goes down to $60,000 and my annual premiums will go down to 194 so my break even goes down to $309 per year per person. This system makes money by getting people to quit.

Under a contingent liability system if I can get them to quit my insurance after only one year of care my total cost to cover the condition remains at $100,000 (as I am already obligated to pay) and my annual premiums will still go down to 194, so my break even would go up to $515 per year per person. In this system, it is more profitable to keep (or attract) preexisting conditions.

Just because it is more profitable to keep or attract preexisting conditions, doesn't make it more profitable for insurance companies in general. It just removes the profit motive from dumping people or refusing to accept people with preexisting conditions.

----

In reality we would add discount rates, risk premiums and premium payments, and we would certainly have to modify our system of self insured employers. However, though this seems really complicated it is a lot less complicated than many accounting practices of insurers already.

1 Like Save    
Thank you for reporting this comment. Undo
patriciae_gw(07)

Bry, there is no one set of expenses related to a diagnosed disease. Every person has their own personal set of what should or could be done. There are usually a host of possibilities that depend on each persons reactions to treatments, presentation for surgery. Results vary so much and parameters change as medicine changes. That is why pre-existing is such a crock. The medical possibilities of what one person can take and prosper with when the next person with the same disease would be killed by what saved the last person are just endless. It doesn't work. Infinitesimally tiny variations can mean life and death, cure and not cure.

1 Like Save    
Thank you for reporting this comment. Undo
numbersjunkie

Bry, I know you have financial expertise, and have given this a lot of thought, but here's why I don't think your plan will work:

"Suppose I cover 20 people and know that 2 of them will get this illness in the next 10 years and need 5 years of care at $10,000 per year."

The problem is that that just one of them could need care that would cost a million a year for several years. And even with employer plans that, prior to ACA, had no pre existing limits, they still had annual or lifetime maximums. To provide comprehensive care in this environment, you can have no pre existing condition limits, no no dollar limits. That's just too much risk to spread over any limited group size that a private insurers might have. The government can spread that risk over all insureds, and they have the ability to negotiate/control costs in order to bring costs under control.

To try to "assign" that risk to a single company that just happens to be the insurer of record when a condition is " diagnosed" ( whatever that means ) is problematic and from a legal standpoint and may put that company out of business.

As I said before, it seems like a solution that has us twisting ourselves into knots in an attempt to keep the insurers in the game. For what purpose? Our first priority should be to make sure our people are cared for, and have access to the the care they need.

Save    
Thank you for reporting this comment. Undo
bry911

Bry, there is no one set of expenses related to a diagnosed disease. Every person has their own personal set of what should or could be done.

There doesn't need to be, there just needs to be an actuarial average. Contingent liabilities don't need to identify individual costs just group averages. Insurers are great at assessing and spreading risk, why in the world do you think they can't do what they are already doing?

We can book retirement benefits in your first week of work based on a salary that you will be making 40 years in the future, trust me, we can book expenses for medical conditions knowing that some of the liabilities will be low or high. I am sure we all know the actuary joke, Two actuaries are duck hunting. They see a duck in the air and they both shoot. The first actuary’s shot is 20 feet wide to the left. The second actuary’s shot is 20 feet wide to the right. The actuaries give each other high fives, because on average they shot it.

The problem is that that just one of them could need care that would cost a million a year for several years.

Insurance already calculates this. The amount of care needed is not as important as predicting how many people need it. That is what spread risk is. These are fairly easy actuarial problems and no, they are not giant liabilities that will put companies out of business, as you will only book a discounted projected net obligation.

Which is much lower than the full amount, for example, care that costs a million a year for five years starting after 10 years would probably book for no more than $825,000.

1 Like Save    
Thank you for reporting this comment. Undo
bry911

Just for a second, can we assume that I understand that all medical treatments are not the same for every person, that cost can be much more, that premiums will be paid, that insurers have a fairly high discount rate, that treatments will evolve and some conditions will become more expensive, while other less expensive, that companies can go bankrupt, that there will be a challenges on diagnosis dates (not that these would matter to individuals and yes, I assure you that there will be little challenge to preexisting coverage legislation if it comes with a receivable).

I am not an imbecile. I am good enough at my job that these things occurred to me, as well as the hole in my plan which you all have not caught. The big problem is self insured businesses, which are now a major portion of the market, booking liabilities at much lower discount rate than insurers.

Again, this is not necessarily me advocating for this system, it is me answering a question, "is there any feasible plan whereby a for-profit private health insurance company could cover pre-existing conditions ?"

Save    
Thank you for reporting this comment. Undo
marquest(PA zone 6)

This is the United States of America. These insurance companies have been using the citizens for so long the only thing that will stop them from is if the US blew up and we started over again. The Highest CEO salary 2017 was 22 million, the lowest 9 million. There is no way they can continue to pay those salaries without a lot of people paying and not using the benefits and insurance co cheating people when they need the care.

What confuse me is why people are so happy with their employer insurance. Those policies are not cheap. The cost increased and covered less every year I worked. They would change insurance companies and sometime my doctor was not in their network. They covered some of my daughters med one yr the next company did not cover her meds.

Save    
Thank you for reporting this comment. Undo
bry911

As I said before, it seems like a solution that has us twisting ourselves into knots in an attempt to keep the insurers in the game. For what purpose? Our first priority should be to make sure our people are cared for, and have access to the the care they need.

I am a huge fan of the Australian system and have often advocated for it. However, I recognize that fools rush in where angels fear to tread. There are several unique problems with switching the U.S. over and quite frankly we don't know what will happen. Personally, I am hoping that employers who are relieved of the burden will hire more full time people and increase wages, many of us believe this will eventually happen.

But America pays a ridiculous percentage of all healthcare costs in the entire world. Current estimates are that we pay about 42% of all healthcare related costs yet have only 4% of the population. We don't consume that much healthcare, we just demand cutting edge healthcare much more than other places. In other words, Australia can pay $4,500 per capita for healthcare because we pay $10,225 per person. If we paid the same amount that Australia does, the world would lose a quarter of all healthcare spending.

While we hope a transition to some universal coverage will start high and eventually go down, it might also skyrocket costs or significantly lower costs and shock the entire world. These are not insignificant possibilities, so some integration with insurance might be the best option. With the government slowly taking over by starting out absorbing losses for major illnesses, and then moving to wellness care and eventually transitioning the entire system over by adding new coverage over time. This is essentially a single payer with an insurance overlay but the insurance overlay will shrink.

1 Like Save    
Thank you for reporting this comment. Undo
Prim Rose

We don't consume that much healthcare, we just demand cutting edge healthcare much more than other places.

Are you saying other peer countries don't have the same cutting edge technology for health care as the U.S.?

Why would the U.S. not consume that much healthcare? Is that relative compared to peer countries?

Confusing premises.

Save    
Thank you for reporting this comment. Undo
Jonnygun(zone 7)

What peer countries are you comparing the US to? Not a lot of peers when you consider population, size of economy and Democratic politics...

Save    
Thank you for reporting this comment. Undo
bry911

Why would the U.S. not consume that much healthcare? Is that relative compared to peer countries?

I mean that we don't consume 42% of the world's healthcare. We don't even consume 10% of the world's healthcare. Australians see the doctor about twice as often as people in the U.S. do. Americans tend to see the doctor less than most other advanced economies, and when indexed for general health we see the doctor far less than other countries. When indexed for cost we are incredibly low on consumption. I am not sure which part you are questioning so I am struggling to elucidate. Does this answer your question?

Are you saying other peer countries don't have the same cutting edge technology for health care as the U.S.?

Not exactly, but I am saying we are paying for it. It is a marginal cost problem, because medicine is so profitable in the U.S. it can be cheaper other places.

Here is a simplified example to understand the concept. Suppose you are a carpenter and you need to make $100,000 per year, and have 2,000 hours to work. The minimum that you will work for should be about $50 per hour. However, suppose a big client offers to pay you $100,000 for 500 hours per year. Suddenly all other jobs are marginally profitable. In other words you would not normally take jobs at $30 per hour but now if you do you will make $145,000.

This is one of those topics that people don't like, because the group that they want to be the bad guys aren't the whole problem. It certainly isn't profit and CEO pay, at best that accounts for a quarter of the difference (really much less but I am rounding up). Let's put this into perspective, if every healthcare company traded on a U.S. exchange gave up all their profit, and every doctor in the U.S. worked free of charge, we would still pay significantly more per capita than Australia does.

Save    
Thank you for reporting this comment. Undo
Ann

"There doesn't need to be, there just needs to be an actuarial average."

Exactly! Those posters here who are discussing the person whose complications and bills with a particular illness will add up to a much higher than average amount are forgetting about the other person who will have terrific results and need less care than expected and the third guy with the same illness who might get hit by a bus tomorrow and suddenly need no treatment for the illness. That is precisely what actuarial tables do and why they are used for life insurance premiums, in determining monthly pension amounts, and multitudes of other purposes. You will simply be wrong (and silly) if you choose to disagree with Bry on this "actuarial average" concept.

Save    
Thank you for reporting this comment. Undo
Ann

"we just demand cutting edge healthcare much more than other places"

Yes, and many in the U.S. have grown accustomed to this, just as, for example, people in other countries have grown accustomed to waiting for a particular test or a particular surgery category due to limited availability of specialists or equipment/technicians/surgical facilities.

Patients currently on Medicare in the U.S. report high favorability with their programs regardless of whether they have selected a Supplemental or an Advantage program. I think if a Dem candidate like Sanders or Warren (or one of the others supporting Medicare for all) gets the nomination, there will be a lot of analysis, discussion, and information about just what impacts the 64 million people currently on Medicare will experience. If anyone on Medicare has the assumption that the implementation of Medicare for all in the U.S. would not impact the way their current Medicare functions, they'd have the wrong assumption IMO. As a person not too far from Medicare, this is an important topic to me. Also, I've recognized through these many healthcare discussions (and all the learning they've prompted me to do), that Medicare was indeed a way to make sure the elderly (in this country) did typically receive some of the best availability of healthcare in their lives and at a price that was reasonably affordable, especially considering all the services that are available and plentiful to them at those high healthcare consumption ages. When I read about situations like Finland, for example, the increase of the percentage of the elderly are causing serious issues with the sustainability (or collapse) of healthcare programs. Canada is another example experiencing issues with their growing elderly population. And, as we know, surgeries like knee and hip replacements are surgeries that are more needed in the elderly population, so if there are wait lists for orthopedic surgeons, the older groups are adversely impacted. I think it rather nice to learn that I'll have my best and most affordable healthcare options when I'm most likely to need them. It was a lot of deductions out of a lot of paychecks for a lot of years.

Save    
Thank you for reporting this comment. Undo
numbersjunkie

"The big problem is self insured businesses, which are now a major portion of the market, booking liabilities at much lower discount rate than insurers."

Almost all self insured businesses purchase stop loss coverage to protect themselves from catastrophic losses. The problem then, is the tail of the loss curve is separated from the more normal section of the curve.

I am currently working in this area - stop loss coverage. I can tell you that the insurers still want to make money on their employer groups, so as soon as large losses occur, they just hike premiums to the point where the group goes elsewhere, or they place a higher trigger point on the sick individuals to make the the employer eat more of the cost for those individuals - which defeats the purpose of the coverage. The employer is between a rock and a hard place.

I understand actuarial estimates (I am an actuary), but you can't regulate insurance on a federal level to "make" them book adequate reserves, even if there was a way to require liability for medical costs based on the date of diagnosis (which I think is highly problematic). And when you chop off the tail of the curve, you lose the ability to spread that risk.

It would just be too difficult to set up a whole new system to allow for private insurers to stay in the game and be able to make the profits they need. and want.

Maybe the Federal government could step in and act as the as reinsurer. Wasn't this part of the original ACA program - where the government operated a risk pool for pre-existing conditions or other catastrophic losses?

1 Like Save    
Thank you for reporting this comment. Undo
bry911

"I understand actuarial estimates (I am an actuary), but you can't regulate insurance on a federal level to "make" them book adequate reserves"

We already do this... Seriously, what exactly do you think GAAP is? Next, I am not sure what you mean by reserves. Why do you need a reserve to book a liability?

All of things you are saying can't be done are things we already do. In fact, the rules currently state that all probable liabilities must be booked unless they can't be reliably estimated. We book losses from lawsuits that haven't even been filed. I worked with a company that booked a multimillion dollar loss for a patent infringement that wasn't even known to the patent holder.

This isn't even a rule change for the accounting profession. It would simply be a clarification of existing rules. An estimate of medical expenses by a company whose profit is derived from estimating and monetizing medical expenses meets the reliability threshold.

---

"I can tell you that the insurers still want to make money on their employer groups, so as soon as large losses occur, they just hike premiums to the point where the group goes elsewhere"

Yes, if insurance has to pay out more, rates go up. You are not going to cover pre-existing conditions without a rate increase. Pre-existing conditions are not actually insurance, there is no spread risk when you have the condition, it is just other people paying for your care. Which is fine, but if we want insurance to pay more, you have to expect it is going to cost more.

"It would just be too difficult to set up a whole new system to allow for private insurers to stay in the game"

Your continued insistence on this doesn't make it true. It is not a whole new system, it is our current system. This is like saying booking pension liabilities was a whole new pension system. It wasn't it was just a rule change in accounting.

It is important to realize this is largely an accounting income solution. It isn't like a company that books a condition at diagnosis has to pay more cash out than they would if they didn't book it. So the only cash outflow changes will be the result of not dumping people who you previously insured. Companies are not going to go broke, in fact, assuming a company doesn't eject people when they are diagnosed, profit would largely remain the same.

ETA: this is similar to the accounting for private insurance in most countries.

Save    
Thank you for reporting this comment. Undo
numbersjunkie

Bry,

Insurance companies are required to establish reserves to cover their claim liabilities. This is not just a number on a spreadsheet or a line in a financial statement that is reported to shareholders. They have to have real assets set aside, and each state has different rules. Their accounting is based on SAP (Statutory Accounting Principles)- different from GAAP. The focus of SAP is more on solvency issues.

Save    
Thank you for reporting this comment. Undo
bry911

First, can you tell me why a booked contingent liability must follow the same rules that claims liabilities currently do?

----

"Their accounting is based on SAP (Statutory Accounting Principles)- different from GAAP. The focus of SAP is more on solvency issues."

No... just no. Statutory accounting principles, are a regulatory reporting instrument and not a profit reporting instrument. Insurance companies still report profits using GAAP.

Here is an excerpt from Aetna: The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of Aetna and the subsidiaries that we control.

There are many industries that must produce multiple sets of financial statements for different stakeholders, they still report profits via GAAP. A change in GAAP doesn't necessarily mean a change in the alternate reporting method. The NAIC can require whatever they want and thus this doesn't mean a reserves change...

Save    
Thank you for reporting this comment. Undo
patriciae_gw(07)

A pre-existing condition is not what you had, insurance companies will not cover anything that they can somehow construe as being the result of either that condition you had or the treatment you had for it. They would make a case that a hangnail was the result of your treatment. maybe getting hit by a bus would be covered but then again some treatments make you vague. FEHB (federal employee programs) have always been required to cover pre-existing conditions and some how have survived and prospered.

Save    
Thank you for reporting this comment. Undo
bry911

Patricia

I am not sure who you were addressing with your comment. However, if it was addressed to me, it is implicit in my proposal that pre-existing conditions must be covered.

All insurers would have to accept all pre-existing conditions, my proposal eliminates the profit from raising the premium, or limiting coverage, etc. It was never a proposal to make insurers cover people it was a proposal to eliminate the incentives of to sneak around that rule.

Save    
Thank you for reporting this comment. Undo
numbersjunkie

Bry,

They may use GAAP for profits, but are still subject to SAP for regulation, which as I said, is concerned with solvency. TBH I couldnt care less about how they report profits, I'm more concerned about whether they can operate under your proposal with the solvency requirements they must meet, and which differ by state. I think solvency is the most important thing - Will the "cash" money be there to pay the huge claims? Or will they declare bankrupty and need a bailout from the taxpayers?

Also, how will the reserve requirements affect their ability to do what you are proposing? Will any insurers even want to play the game under those
rules?

Funny thing about insurance companies that I've found, is that they don't really like taking on risk when they can't control or manage it.

I do appreciate your effort to find a solution, but remain highly skeptical.

1 Like Save    
Thank you for reporting this comment. Undo
bry911

I feel like we are well past chasing this into obscurity and it has been a while since I looked at accounting for insurance. However, aren't insurers already required to book contingencies for future payouts by SAP?

I thought the major difference between SAP and GAAP was that insurers had to book all future claims when known. Essentially my plan was matching GAAP to SAP and adding a bit of portability. The only difference in SAP that I can think of is that those claims don't go away when the insured does, the insured can take it with them similar to 401k rollover.

ETA: I honestly didn't think about the regulatory statements that insurance companies have to produce, I was only thinking about the GAAP statements used for reporting profit to shareholders as that is where the incentive lies, in profits. As I was preparing to explain that booking contingent liabilities is one part of the solvency equation it suddenly occurred that NAIC requires that portion of my suggestion.

So most of the objections about the establishing the amount of the liability are already resolved. The only new part is not extinguishing that liability when the plan is transferred. Which is a significant problem as it will require some sort of clearinghouse and probably some guaranty corporation. However, both are workable problems, if we really wanted to implement this. I really don't want to spend more time working out the kinks in a plan that is not even being discussed by anyone with the power to get it done.

My original point was more about thinking outside the box (an expression that I hate). There are solutions to this particular problem, they are not perfect, nor is the system we have now. However, neither is a single payer system perfect.

Save    
Browse Gardening and Landscaping Stories on Houzz See all Stories
Kitchen of the Week Kitchen of the Week: What a Difference Paint Can Make
A bold move gives a generic Portland kitchen personality without a major overhaul
Full Story
Decks See the Difference a New Back Deck Can Make
A dramatic 2-story porch becomes the centerpiece of this Ohio family’s renovated landscape
Full Story
Budget Decorating 14 Ways to Make More Money at a Yard Sale — and Have Fun Too
Maximize profits and have a ball selling your old stuff, with these tips to help you plan, advertise and style your yard sale effectively
Full Story