Personal Accountability And Health Insurance
Earlier this week, I wrote about the idea of employers charging an additional premium to obese employees who don’t make an effort to slim down. Bob at InsureBlog has written about the topic aswell, and his post was included in the Cavalcade of Risk this week.
Bob takes a similar view to mine – basically that employers pay a huge sum of money for their employees’ health insurance benefits, and if they want to pass on a little more of those costs to employees who are obese, or those who smoke, they are well within their rights to do so. We know that smoking and obesity lead to higher medical costs, so it makes sense to have those employees contribute more towards their premiums.
But the comments on Bob’s article are where things get interesting. Whenever this topic comes up, there are invariably references to people who are overweight because of conditions beyond their control. I do not dispute that this is the case for some people. Just as some people are born with heart defects that make them more likely to suffer from heart disease later in life. But there are also a good number of people who eat poorly, lead sedentary lives, and then end up obese or with heart disease – or both.
In Colorado, nearly one out of every five people is obese. And we’re the thinnest state in the US. Across the country, the numbers have been rising for years, and obesity accounts for a huge amount of health care spending. It makes sense to me to charge additional premiums for things like smoking and obesity, which are generally self-inflicted, and absolutely increase health care expenses in the long run. Overall, I don’t agree with the idea of charging people for their health insurance based on their actual health care usage – that could be a slippery slope to defeating the purpose of health insurance. The idea is to spread risk over a large population, with everyone paying into the system so that those who end up needing care (and we never know who that might be) can get it without going bankrupt. I am not advocating for a change to that ideal. But if an employer wants to pass a little more of the cost on to an employee who makes choices that ultimately end up costing the group more money in health care expense, so be it. (Employers still shoulder most of the weight of the premiums on group health insurance plans, even with these small surcharges for smoking and obesity that we’re seeing lately).
So then there’s a discussion about whether obesity is generally a self-inflicted situation (I don’t think this is really debated for smoking). For some people, with ailments like Cushings Disease or PCOS, weight gain is a result of the underlying condition. But instead of looking at individual scenarios, let’s look at the big picture. And just for the sake of making a point, let’s take an extreme view. What if everyone in America were to become a vegan tomorrow. And had to start biking or walking anytime they were going somewhere within five miles of their home. Extreme, maybe. But I warned you. Anyway, what do you think would happen to our obesity rates? If obesity in the US is not self-inflicted, one would expect to see no changes in the levels of obesity following a dramatic change in our lifestyles. Of course this experiment isn’t likely to happen any time soon, but if you had to make a bet one way or the other, what would it be?
Louise:
You wrote that you don’t believe people should be charged premiums on their actual health care usage.
Neither do I.
I believe premiums should be based on affordability.
What good is it to charge a family $1,000 a month, if they can afford only half of that amount?
This is why premiums should be based on a defined contribution model, at least up until a separate catastrophic coverage “rider.”
As Jay pointed out, catastrophic premiums add little to the total cost, so having $1,000,000 of catastrophic coverage shouldn’t be too much less expensive than $5million of benefits.
An effective break-point between underlying coverage and catastrophic coverage is from $25,000-$50,000.
This is where the defined contribution benefits should be placed, in my opinion.
It would work like a retirement plan in which coverage varies directly with contributions made, less claims incurred.
What do you think?
Don Levit
Don:
Good ideas. I’m curious what your personal or professional relationship is with defined contributions plans? If I google “defined contribution plans,” will the wikipedia page for “Don Levit” be the first result? Just kidding around……
Getting to the point of a rider for catastrophic coverage though:
When the catastrophic lifetime maximum (say $5 million) is bundled with the policy, the risk is spread over the entire pool of insureds. So the small number of people using it have the cost spread over the entire pool. And thus, we have textbook definition of insurance.
So, in my opinion, it is pointless to break it up like that because:
- The price is nearly the same to have the extra coverage anyway, because the risk is being spread.
- If people on the policy get bankrupted by catastrophic events, it’s not insurance.
- What is the point of complicating things if combining them makes it basically the same price and offers good coverage?
Jay:
Agreed. While the coverage is separate, I would make the catastrophic coverage mandatory.
I do think, however, people should be able to select the various levels of catastrophic coverage.
In short, everyone in the pool would have catstrophic coverage.
What i am trying to accomplish with the underlying defined contribution plan is 2 things; make the premiums affordable, and encourage the healthy to stay in the pool.
Don Levit
Good ideas Don. “Mandatory” is always a hard sell politically. Another thing I would do is have the plans be non-profit.
Jay:
Correct.
Optimally, we don’t want to force people to drink; just to realize they are thirsty.
What are the advantages to being a non-profit?
Don Levit
A big problem with the current system is that the companies are torn between:
- an obligation to their shareholders, employees, etc to make a profit and grow from year to year.
- insureds who cost them money with claims
For example, Ford did a cost-benefit analysis of adding an $11 part to the gas tanks of the Pinto and found that it was cheaper to handle lawsuits stemming from burn deaths and injuries than it was to add the part.
Now take a health insurance company that does a cost-benefit analysis of paying claims according to the specified contract vs. having a talented legal team to take on these clients that don’t have enough money to even hire a lawyer and are now dealing with a major illness on top of everything. It’s a no brainer for the insurance company. When you have cancer is not the easiest time to fight an insurance company that isn’t living up to their end of the bargain.
Being non-profit removes the conflict of interest a little.
(to save myself time, the example was a copy and paste from a comment I made on another blog recently.
Jay:
You make some excellent points.
There’s not a whole lot for an insurer to lose on an ERISA plan, other than the benefits it was supposed to pay.
I like non-profits a lot as well.
In addition to having less conflict with shareholders, non-profits are supposed to operate differently than for-profits.
Included in the operational aspect is offering plans which are not provided by the for-profit insurers.
For example, in the past, non-profits were looked to be insurers of last resort, or insurers that offered community ratings. They were looked to provide benefits for the community, whereas their for-profit competitors were looking to provide profits for their shareholders.
In addition, if a not-for profit does not sell products to the public, but rather to a limited, defined group, it has additional incentive to set itself apart from those insurers providing plans to the public.
Don Levit