...or why PPACA was doomed to fail!
Figuring out our nation’s healthcare dilemma isn’t rocket science. Fundamental flaws were at the core of The Patient Protection & Affordable Care Act (PPACA).
These flaws have now lead to the implosion of the insurance exchanges and escalating premiums.
Steady declines in exchange participation have led to carriers withdrawing coverage in geographic regions, according to a report issued in late July by the Federal Centers for Medicare & Medicaid Services. The agency projects that residence of 49 counties will have “No” healthcare options to choose from. Several of those counties are here in Ohio.
So, what is the fundamental flaw? “Community Rating”. Here is the skinny, community rating is when (this applies to employer group plans and individual plans) everyone in that plan pays the same rate.
We see this approach with trade association group plans, chamber of commerce’s group plans, union plans and in State and Federal exchanges. Every person pays the same rate. This approach makes the false assumption that everyone’s claims will be the same…duh. Then why do insurance companies employ so many actuaries? Because the reality is age, sex, BMI and chronic conditions matter. By charging the same amount for someone who is healthier than you, they are funding part of your claims with their premiums. When that person or group learns they can secure the same coverage for less money because they won’t be funding your claims, they leave. This is known as adverse selection. The healthy leave the less healthy stay.
Then you have sky rocketing premiums with the remaining participants. This is known as a “death spiral”. According to Scott Flanders CEO of eHealth “What we are seeing now in Obamacare is death spiral pricing and in many states, only the heavily subsidized will be able to afford coverage in 2018.”
So, what is the answer? It is a threefold approach.
First, we all need to get healthier. Diet, exercise smoking cessation, adopt an overall healthier lifestyle. That is up to each one of us, wellness begins with each of us.
Secondly, we need to become better consumers of the health insurance we have available to us. We spend more time researching the purchase of our next major appliance or big screen LED TV than we do understanding how to maximize our health insurance. We need to take advantage of one of the positive elements of PPACA, annual physicals and other preventative procedures which are covered at 100% without office visit co-pays or out of pocket deductibles. We need to have a relationship with a primary care physician verses running to the ER every time we are sick. By being willing to accept plans with higher deductibles but utilizing a Health Savings Account (HSA) we are able to leverage the tools at our disposal to materially impact the costs associated with our care.
Finally, if you are an employer or individual, seek an organization that does not use community rating but rather underwrites each group or person. Sequent over the last fifteen years has employed “Prospective Underwriting.” Simply put our actuarial partner scores each of our client groups looking ahead to project what their claims might be. Then each group is charged a premium commensurate with their projected claims. Problem solved…no one or no company is subsidizing another thus no adverse selection, no death spiral and no skyrocketing premiums. Also, by aggregating hundreds of client companies together we create an “insulation” effect against unforeseen large claims.
Creating stability and predictability when it comes to healthcare insurance isn’t rocket science. All it requires is a little knowledge and a whole lot of common sense!
About the Author: Joe Cole, Executive VP Business Strategy, Sequent
Joe has been part of Sequent’s senior management team since 2002 and brings over 25 years of experience in business and entrepreneurial ventures. In his leadership role with Sequent’s business development team, and as a regional director, Joe’s extensive knowledge of the Professional Employer Services (PES) industry and the complex facets of the HR outsourcing industry serve him well in developing relationships and serving as a strategic business partner with clients.