Step 2: Maximum Non-Medical Costs Per Policy
By Federal mandate, insurance companies may retain no more than $40 per enrollee's health care insurance policy for administrative costs and profits.
Covering the extra costs of healthcare
Walk into an insurance company to buy health insurance. Where does the money that you pay for premiums go?
When you buy health insurance, you are buying more than just healthcare. The individual who sells you the policy receives commission on the sale. The company who brokers the policy receives their cut. The insurance company hires administrators to decide how your healthcare is managed, approving this test and that procedure, this referral, and that prescription. These administrators are overseen by highly paid executives. Staff is hired to assist. Buildings are built and maintained. Advertisements are bought in newspapers, magazines, TV and other venues. Events are sponsored to further advertise services as well as improve community relations. Indemnity insurance is purchased to cover malpractice lawsuits. Lobbyists are hired to go to Washington. After everything it paid for, anything left over is profit to investors and stockholders if the company is a for-profit insurance company.
According to a November 2008 study by the California Department of Managed Health Care (DMHC) and the Center for Medicare and Medicaid Services (CMS), health insurance companies on average retain anywhere from 14 to 18 percent of insurance premiums to cover administrative costs and profits. The average California enrollee in 2006 paid $3,565 per year for their policy, which averages out to only about $300 per policy holder per month. On average, insurance agencies gleaned anywhere from $42 per month to $53 per month to cover administrative costs and profits, or $500 to $641 per year.
Nationally, policy holders paid an average of $3919 per year, about $326 per month, and insurance companies retained 11 percent, or about $36 per policy per month, or $431 per year to cover administrative costs and profit.
The state of California is considering regulating the health insurance industry in their state so that insurance companies may not charge more than 15 percent per enrollee for administrative costs and profits.
This appears to be a fair number. However, where it falls apart is in the percentages.
When you buy health insurance, you are buying more than just healthcare. The individual who sells you the policy receives commission on the sale. The company who brokers the policy receives their cut. The insurance company hires administrators to decide how your healthcare is managed, approving this test and that procedure, this referral, and that prescription. These administrators are overseen by highly paid executives. Staff is hired to assist. Buildings are built and maintained. Advertisements are bought in newspapers, magazines, TV and other venues. Events are sponsored to further advertise services as well as improve community relations. Indemnity insurance is purchased to cover malpractice lawsuits. Lobbyists are hired to go to Washington. After everything it paid for, anything left over is profit to investors and stockholders if the company is a for-profit insurance company.
According to a November 2008 study by the California Department of Managed Health Care (DMHC) and the Center for Medicare and Medicaid Services (CMS), health insurance companies on average retain anywhere from 14 to 18 percent of insurance premiums to cover administrative costs and profits. The average California enrollee in 2006 paid $3,565 per year for their policy, which averages out to only about $300 per policy holder per month. On average, insurance agencies gleaned anywhere from $42 per month to $53 per month to cover administrative costs and profits, or $500 to $641 per year.
Nationally, policy holders paid an average of $3919 per year, about $326 per month, and insurance companies retained 11 percent, or about $36 per policy per month, or $431 per year to cover administrative costs and profit.
The state of California is considering regulating the health insurance industry in their state so that insurance companies may not charge more than 15 percent per enrollee for administrative costs and profits.
This appears to be a fair number. However, where it falls apart is in the percentages.
Flat fees vs. percentages
If you are diagnosed with a serious disease, your insurance company can raise your premium. How high? As high as they want. The higher the better, in their minds, since higher premiums not only bring in more money for medical care, they also equal more money for profits and administrative costs.
In a system where commissions and profits are based on a percentage, prices are bound to go up. Why would I want to sell you an affordable $300 health plan and get $45 a month, when I can tack on risk factors, raising your premium to $2000 and getting $300 a month? I wouldn’t. I’d sell you the $2000 plan – every time.
By taking percentages in profit, rather than a flat fee, insurance brokers are motivated to sell higher priced policies.
However, convert this figure to a flat fee per “enrollee” and you suddenly have no incentive to artificially raise premiums. If an insurance agent understood that no matter how much your policy cost, he would still walk away with only $40 in his coffers, he has no incentive to pad the policy with unnecessary costs. Quite the contrary, he will offer you the absolute lowest priced policy he can which will suit your needs so that you don’t go to “Brand B” to buy your insurance instead of from him. In addition, he might even be inspired to shave off some of his commission so that he is more competitive. He will do better selling 100 policies at $300 per month per policy, than he will do selling 80 policies at $1000 per month per policy. He will be motivated to give you good service and keep his customers happy so that he can get referrals and win over even more customers.
Win-win for insurance companies
Since insurance companies nationwide currently glean about 11 percent on average from insurance policies, or $36 per month per average $3919 policy, limiting their potential profit to $40 per month per policy will essentially feel like a raise.
Only companies who are garnering significantly more for profits and administrative costs will feel the pinch. This regulation will inspire them to cut corners, pare down unnecessary administrative costs, and perhaps even slash a few salaries to highly paid executives.
Although this regulation will not solve the problem of increases in premiums for high risk policy holders, it will reduce one motivation for these increases – the one of profit. Healthcare costs will continue to rise as always, but will be based on actual medical costs, and not on the cost of operating the insurance company.
Reporting and regulation
Insurance companies will be required to submit monthly reports to an overseeing agency within the Federal government, listing the numbers of policies they have sold, the revenue they made, and how much was paid in non-medical vs. actual medical costs. Government accountants will audit each insurance company's books once a year.
Each year, the overseeing government agency will also re-evaluate the maximum $40 per policy per month maximum and adjust it for inflation or deflation, as the case may be.
Stay tuned for steps 6 and 7
If you are diagnosed with a serious disease, your insurance company can raise your premium. How high? As high as they want. The higher the better, in their minds, since higher premiums not only bring in more money for medical care, they also equal more money for profits and administrative costs.
In a system where commissions and profits are based on a percentage, prices are bound to go up. Why would I want to sell you an affordable $300 health plan and get $45 a month, when I can tack on risk factors, raising your premium to $2000 and getting $300 a month? I wouldn’t. I’d sell you the $2000 plan – every time.
By taking percentages in profit, rather than a flat fee, insurance brokers are motivated to sell higher priced policies.
However, convert this figure to a flat fee per “enrollee” and you suddenly have no incentive to artificially raise premiums. If an insurance agent understood that no matter how much your policy cost, he would still walk away with only $40 in his coffers, he has no incentive to pad the policy with unnecessary costs. Quite the contrary, he will offer you the absolute lowest priced policy he can which will suit your needs so that you don’t go to “Brand B” to buy your insurance instead of from him. In addition, he might even be inspired to shave off some of his commission so that he is more competitive. He will do better selling 100 policies at $300 per month per policy, than he will do selling 80 policies at $1000 per month per policy. He will be motivated to give you good service and keep his customers happy so that he can get referrals and win over even more customers.
Win-win for insurance companies
Since insurance companies nationwide currently glean about 11 percent on average from insurance policies, or $36 per month per average $3919 policy, limiting their potential profit to $40 per month per policy will essentially feel like a raise.
Only companies who are garnering significantly more for profits and administrative costs will feel the pinch. This regulation will inspire them to cut corners, pare down unnecessary administrative costs, and perhaps even slash a few salaries to highly paid executives.
Although this regulation will not solve the problem of increases in premiums for high risk policy holders, it will reduce one motivation for these increases – the one of profit. Healthcare costs will continue to rise as always, but will be based on actual medical costs, and not on the cost of operating the insurance company.
Reporting and regulation
Insurance companies will be required to submit monthly reports to an overseeing agency within the Federal government, listing the numbers of policies they have sold, the revenue they made, and how much was paid in non-medical vs. actual medical costs. Government accountants will audit each insurance company's books once a year.
Each year, the overseeing government agency will also re-evaluate the maximum $40 per policy per month maximum and adjust it for inflation or deflation, as the case may be.
How I Would Fix Healthcare
Step 1 – Employers must provide a minimum $300 health insurance policy allowance for each and every worker.
Step 2 – Insurance agencies may not take more than $40 per policy for profit and administrative costs.
Step 3 – Protect Health Insurance Surplus Coffers
Step 4 – Preventative Healthcare Maintenance Schedule
Step 5 – Improve Healthcare Access
Step 1 – Employers must provide a minimum $300 health insurance policy allowance for each and every worker.
Step 2 – Insurance agencies may not take more than $40 per policy for profit and administrative costs.
Step 3 – Protect Health Insurance Surplus Coffers
Step 4 – Preventative Healthcare Maintenance Schedule
Step 5 – Improve Healthcare Access
A. Institute a “public option”;
B. Regulate rates with blind menu pricing; and/or
C. Provide free clinics and access to community health centers
Stay tuned for steps 6 and 7
