How I Would Fix Healthcare – Step 5B

This is a continuing series addressing the healthcare crisis in America and a possible alternative to President Obama’s healthcare solution.

Currently, health insurance companies charge higher rates for higher risks

One of the biggest complaints about America’s current healthcare system is that health insurance rates are based on risk factors, just as they are on most other types of insurance. Buy a house on the beach in Florida, and you will pay high premiums on home insurance to cover the possibility of hurricane damage. Get a few speeding tickets while driving and your car insurance rates will soar. Higher risk factors equal higher rates.

When buying health insurance, risk factors are also taken into account.

Are you a woman? Ka-ching!

Want to have children? Ka-ching! Ka-ching! Good luck even finding insurance to cover maternity expenses.

Family history of diabetes? Ka-ching!

Over 60 years old? Ka-ching! Ka-ching!

Had cancer when you were in your thirties? So sorry! You’re denied.

Healthy equals higher profits

An American who is labeled as high risk and cannot afford their higher than average health insurance rates will opt to not buy insurance at all. That’s perfectly fine with the insurance companies. They don’t want these potential “losses” on their books, anyway. They want healthy, “low risk” folks as customers. Healthy equals higher profits.

Even Healthy People are Penalized by Sex and Age

If you already have healthcare through your employer, you probably have no idea how people are charged for insurance. Even if you are extremely healthy and have low risk factors, you are still charged different rates based on your sex and age.

Aetna’s POS Open Access 1000 Plan

Aetna Insurance offers 30 healthcare plans and 2 dental plans in the state of Florida and will cover pre-existing conditions if the patient had “credible” prior healthcare insurance; or after 12 months of paying for the plan.

Aetna’s website includes a downloadable pdf of a brochure featuring plan descriptions and a brochure of current rates. A potential customer can easily compare each plan by perusing easy to read charts, and examining co-pays, items covered, and deductibles.

My favorite plan which Aetna offers in Florida, POS Open Access 1000, would allow me to go to a network doctor and only pay a 20% copay. If I had to go to the hospital or have outpatient surgery, this plan also pays 20% after an affordable $2000 deductible. Generic prescription drugs are $15, and brand name drugs would cost me $35 to $50 after a $250 deductible. With this plan, I can rack up to $5 million in hospital bills before I have to sell my car, mortgage the house, and file for bankruptcy to pay for the rest.

As a recent 22-year old college graduate living in Orlando, the POS Open Access 1000 plan would cost me $142 per month if I were a man. However, it would cost me $187 per month as a woman, even though the plan will not cover basic pregnancy costs.

(Keep in mind that a person earning minimum wage and living in Florida would not be able to afford even these wonderfully low rates, because they only bring home $1138.21 per month after Social Security and Medicare taxes are deducted, barely enough to cover food, clothing, transportation, and housing.)

Rates increase significantly from age 40 and upward, when a plan for a man would cost only $275 per month, but a higher $361 per month for a woman.

Women pay more for this plan than men until age 55, when prices are $563 per month for a man and $550 per month for a woman.

By age 64, before qualifying for Medicare, rates for this same plan are $819 per month for a man and $720 per month for a woman.

Who would have thought that your age and sex may make you “high risk?”

Poor health, age, and sex is not a matter of choice

Charging higher rates for higher risks makes perfect sense when determining prices for home or car insurance. As an American, I can choose to buy a house on the beach and pay higher home insurance than I would if I were to buy a house inland on higher and dryer ground. As an American, I can choose to drive like an impatient maniac, get tickets for speeding, possibly cause accidents, and see my car insurance rates raised through the roof.

Applying the same principals to health insurance rates is simply inhumane.

As an American, I did not choose to be born a man or a woman. As an American, I did not choose to inherit a gene which predisposes me to cancer, sickle cell disease, heart disease, osteoporosis, or diabetes. As an American, I did not choose to be in an accident and become disabled. As an American, I did not choose to catch hepatitis, pneumonia, or meningitis. I did not choose to suffer food poisoning, nor breathe in air pollution.

What is not a matter of choice, but is simply a matter of genetics or bad luck, should not be a factor in determining health insurance rates.

Insurance Companies Can’t Have it Both Ways

As long as health insurance companies practice the policy of charging substantially higher rates for those who are considered “high risk,” or denying coverage completely to those who are “too high risk,” there will always be multitudes of seriously ill Americans living within our communities who are without health insurance coverage. We as a country have no choice but to find some sort of solution to this dilemma.

President Barack Obama has suggested we solve this problem by having the federal government form a government run “public option” insurance to compete with private insurance. However, private insurance companies feel that this is unfair because the government will be able to charge lower rates and undercut them, driving them out of business.

Insurance companies have a choice: either change the way they evaluate customer risks or the federal government will have to step in.

Perhaps it’s time that healthcare insurance rates were based on services, not on pre-existing conditions, age, sex, or family histories.

Step 5B: Regulate Insurance Rates with Blind Menu Pricing

Rather than charge higher rates for people who are considered to be “high risk,” insurance companies should charge a flat rate. I call this “blind menu pricing” because the insurance company is “blind” to your pre-existing conditions, age, and sex.

Standardized Plan Menu

So that consumers can compare apples to apples, a federal government panel of representatives from the private insurance industry, along with available insurance commissioners, would help to create a list of standardized plans which will meet any American’s basic healthcare needs. Plans would range from the most expensive and offer complete coverage with a low deductible; to the least expensive and offer a percentage of coverage with a high deductible.

Every insurance company would list their prices for those standardized plans in an easy to read chart menu, similar to that published by Aetna, which potential customers could pick from.

The cost for adding a spouse and each dependent would also be standardized.

Insurance Companies Set Their Own Prices

Each insurance company would set their own prices based on what they feel they could afford to charge. Companies would compete to offer the best prices for the same plans.

Rather than charge a 23-year old man $142 per month and a 64-year old man $819 per month for Aetna’s POS Open Access 1000 Plan, everyone of any age, sex, or health status would be charged the same rate. This plan could be averaged to cost about $400 per person per month and an extra $200 per month for each dependent.

Pay a much higher deductible, and rates are much lower. For instance the Aetna POS Open Access 10,000 Plan has a $10,000 deductible and a $1 million cap and costs only $29 per month for a 23-year old man and $194 per month for a 64-year old man. This plan could be averaged to cost about $100 per person per month and an extra $50 for each dependent.

Standardized Plans Cannot Discriminate

None of the standardized plans should be written in such a way that they would discriminate by age, sex, or condition. For instance, a standardized plan must include ob-gyn and maternity care, or it would exclude women. Similarly, a dental plan must include dentures, or it would exclude older Americans. A plan must include access to standard treatments, or it would exclude sufferers of specific diseases, such as dialysis for kidney patients, and chemotherapy for cancer patients.

Add-On for Optional Insurance

Each insurance company would then be able to offer special add-ons or special options available through their particular company. For instance, optional insurance could offer free name-brand prescription drugs instead of requiring a co-pay; much lower cost healthcare insurance with no deductibles through a specific clinic, hospital, or medical facility run by that insurance company (such as in the case of an HMO); experimental treatments; healthcare coverage while traveling to other countries; and special sports packages including massages and physical therapy.

Penalties for Irresponsible Behavior

True, it does make sense that people who smoke, don’t go to the doctor for preventative care, and don’t follow doctor’s orders (such as not filling prescriptions) should indeed be charged a higher rate for health insurance. Likewise, a person who practices risky behavior, such as getting a traffic ticket for a DUI, being arrested for soliciting a prostitute, or having a hobby like ski jumping could be required to pay a higher rate for healthcare insurance. However, these are all behaviors which would be easy to quantify and evaluate subjectively.

What should not be considered as irresponsible behavior are conditions such as high blood pressure, high cholesterol, high blood sugar, or obesity, because these conditions can be the symptoms of disease, and not a matter of choice.

An example of “Blind Menu Pricing:” AAA roadside assistance insurance

Currently in America, we have an excellent example of insurance based not on risk factors, but on services.

The American Automobile Association, commonly known as AAA (Triple A), offers three types of memberships based on the services you would like to receive. Plans are listed here and costs are listed here. AAA Classic starts at $64 per person per year and includes emergency assistance (think of this as catastrophic health insurance for your car) in the form of towing up to 5 miles, battery service, flat tire service, and fuel delivery for when you run out of gas. The deluxe membership, AAA Premier, costs $122 per person per year and includes a rental car for one day (think of this as a hospital stay for your car). Motorcycle and RV drivers (think of them as people who are “high risk” by choice) can pay an extra $30 to $80 per year for this coverage. Additional drivers (your spouse and dependents) each cost an extra $30 per year for the classic membership and an extra $63 per year for the premier membership.

In addition, AAA offers trip planning and free map books (think of this as preventative healthcare maintenance) for all of their plans.

AAA also offers additional add on packages for specific services. You can buy additional travel insurance to cover everything from lost luggage to cancelled trip reimbursements.

The reason AAA can afford to provide road service assistance for such an affordable price is because they have enough members paying into a large pool which is used to pay for assistance when it is needed. Rates are set at a reasonable enough level that consumers are willing to pay for the “peace of mind,” even if they never need the insurance.

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

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

Budgeting by carrying only cash — An experiment in self-controlled spending

For the first time in about twenty years, I went on vacation with just cash in my pocket: $500 for 5 fun-filled days in New Orleans over the Thanksgiving holiday. I picked the amount of $100 per day arbitrarily out of a hat. I had no idea if it would be enough for both my husband and myself, and if not, if I’d be able to resist the urge to pull out the “plastic.” We had a free place to stay at my Cousin Carla’s house, so we only needed to cover meals, entertainment, and souvenirs.

I haven’t lived on a cash budget since college in the late 1980s, when I took $20 out of the ATM every week and spent it until it was gone. My boyfriend at the time took up the slack, treating us to dinner out at restaurants with his weekly allowance of $40 from his parents (I had to work for mine).

In those days, neither of us had a credit card and couldn’t have gotten one even if we wanted. Credit cards weren’t given out nearly as readily as they are now, which was a good thing. I didn’t qualify for a major card until I was out of college, working full time, and only after building my credit score by successfully managing an account from a major department store (JCPenney) for a little over a year.

The cash method is a tried and true method of budgeting, still practiced by those who don’t trust putting their money in a bank. I’ve known many a man who turns his paycheck into cash every Friday, then pays any bills that are due before blowing the rest by having fun going out over the weekend. By Monday, he’s nearly broke and living off a tuna fish, frozen vegetable and macaroni and cheese casserole until the next paycheck arrives.

My husband and I loosely follow the cash method of budgeting with our weekly lunch allowances. However, this was the first time either of us had tried to follow a budget on vacation, a time when I tend to live high on the hog, then pay the price when I return home after racking up hundreds of dollars on my credit card.

To make the budget work, we didn’t include filling up the car with gas. First, there was no telling how much gas would be since prices yo-yo up and down like a bungee jumper from day-to-day and vary from station-to-station, as well as from city-to-city and state-to-state due to locally imposed taxes. Second, we had to have gas, so running out of money to pay for it was not an option.

The first road block to staying on budget occurred on the way to Louisiana. My car overheated in Tallahassee and my husband and I and the nice man at the Costco gas station couldn’t find any busted hoses, mostly because it was raining buckets and water was everywhere. Everyone we surveyed expected that the thermostat had gone bad, a cheap fix. I had to get a tow, but expected it to be free through my new AAA membership. It wasn’t — only the first five miles were free and the rest were charged at $5 per mile.

Cha-ching! Tow at $20.

I have a reasonably new car, still under partial warranty, and only felt comfortable getting work done by a licensed dealer. The repair shop found the problem right away – critters eating the hoses, probably squirrels – no kidding! Although many gnawed hoses could wait, the one to my radiator had to be replaced. (I got to keep the old hose with the gnaw marks for proof — knowing no one would believe me.)

Cha-ching! Dealer repair at $267

Unfortunately, the repair shop didn’t keep parts in stock and had to order them. It would take a day to repair, so we had to stay overnight at a hotel where the dealer got us a discounted room.

Cha-ching! Hotel room at $44.

Including meals, we had now spent $378 of our $500 budget and we hadn’t even made it to New Orleans, yet. Bah humbug! We had no choice but to break the budget and go to the ATM for more cash, a small portion of which we would use to pay for meals on the trip back home. This left us roughly $65 per day for two fun-filled days in New Orleans.

The details of how we spent the money will completely bore you. However, the attitudes of the people around us who we informed of our “daily budget” were both surprising and unexpected.

My cousin Carla watched with amusement our regular habit of pulling out our cash to see how much we had left. It didn’t sink in that we were serious about following our budget until we were nearly out of money that first night. “I would just use plastic,” she kept saying.

“Normally we would. But, that’s what gets us into trouble,” I explained. “I just paid off the credit card with my non-FDIC insured money market, since I had to close it out anyway.” Although there was nothing to stop us from racking up the credit card again, we decided we’d rather save the “plastic” for emergencies.

My cousin’s boyfriend, Ricky, was disturbed by my husband’s public display of cash. “You’ll get robbed. I know this town,” he warned. “Promise me, you’ll never do it again.”

“Okay, I won’t,” my husband promised and agreed to count his money inside his wallet, under the table. He wasn’t used to paying with cash and is very trusting.

“I’ll pay for it. Don’t worry about it,” said Ricky.

“Save it. You’ll need money tomorrow,” said my cousin Carla.

However, our goal was to spend all our money by the end of the night. The next day, we would start fresh with our next day’s budget. I didn’t want to be a leech, but agreed to let my cousin’s boyfriend pay for dinner because he really wanted to impress us and treat us to something nice. We would make up for it by buying their drinks the rest of the night until the money ran out.

The next day, when my cousin called her boyfriend to discuss the plans for that night, we heard her sigh and say, “They’re doing the money thing again.”

The money thing? Since when is budgeting with cash considered unusual and odd?

That afternoon, we met up with one of my husband’s friends from work with his wife, also in New Orleans for the holidays. We treated for brunch at the Café du Monde, which sells an affordable small cup of coffee for $2 and a decadent pastry called a beignet. The total cost for the five of us, plus a souvenir mug, was only $25. We mentioned to Carla that we had $40 left of that day’s budget, enough to pay for her parking and for the three of us to eat dinner at a sandwich shop we’d passed the day before.

What we didn’t anticipate was that my husband’s friends, who overheard us, assumed that we are hard up for cash. “We aren’t,” my husband tried to explain. “We’re just on a budget.”

At work the next week, the friend insisted on buying lunch for my husband, still under the impression that because we are limiting our spending, we must be in financial trouble. The friend is in his mid 20s and has carried a credit card since his teens. The concept of voluntarily limiting spending has never occurred to him and his young wife, who buy nearly everything on credit.

Although our budget did cause some awkward moments, we’re laughing all the way to the bank. I just balanced my checkbook and we actually saved a small amount of money last month despite going on vacation (a challenge after grocery prices and utilities went up this summer).

I only wish I’d used the same method of paying in cash to buy Christmas presents — I’m already over budget!