Commentary on Demand

                                    Editorials by Request

                                             Fuel your discussions

New Health Insurance Product

 by Thomas F. McMasters     Candidate U.S. House of Representatives

None of the proposals I see in the health insurance debate solve any of the problems with the current health insurance products.  One of the main problems not addressed is that insurance premiums still must be paid by people that may be too sick to have any income.  Another major problem is that for the poor and middle class a single moderate or severe illness puts them into bankruptcy.  This is true even if they have insurance.  A third major problem is that the current health insurance products are the main cause of why medical costs are so high.  I would like to see industry start to offer a product that more closely resembles life insurance.  Specifically, I would like people to be able to purchase a plan with a fixed monetary benefit that becomes available when a person needs medical care.  This insurance would work as if the person had a savings account that could only be used for medical needs.    

The premise for this health insurance starts out like life insurance.  First just like in life insurance once the event that causes the payment trigger happens the insurance company is obligated to pay the debt until resolution.  In life insurance this is obvious, once a person dies the premium stops and the insurance company pays the death benefit.  For this health insurance if a person has a heart attack then the insurance company is on the hook to pay for the care of that heart attack until the care for that heart attack costs more than the person chose to carry in insurance.  That leads into the second analogous comparison with life insurance.  A person decides to buy a set amount of coverage, for most people the coverage is cheaper if you decide to buy when you are younger and more expensive to acquire as you get older.  If you decide to buy $1 million of insurance coverage when you're younger and then decide you want more as you age, you can go out and purchase additional insurance at the current rate for your age.  Beyond the life insurance analogy, I envision the health insurance companies offering this product would go out and negotiate prices with network doctors.  Then the person with the insurance can either pay the bill out of personal funds or use up some of the benefit purchased from the insurance company.  I'm thinking the company may offer some kind of incentive for the person to use their own funds such as offering dividends to people based on the amount of premiums they paid compared to claims submitted.  For the purchaser this type of insurance would have two main purposes; protect the insured from the bills triggered by major medical procedures and provide the insured with insurance provider rates for procedures the insured decides to pay out of pocket.  This type of insurance once widely established would help reduce or nearly eliminate health care inflation.

Let me recap this new insurance with a more specific example so you get a better feel of the mechanics:  After the recap I'll state the benefits.  An 18 year old gets her first job.  Now because she is an informed consumer or a federal mandate she goes out and shops for health insurance.  She decides to buy a $1 million policy that costs her $300 a month.  This premium and minimum coverage amount are set for the rest of her life.  At 19 she decides to get an annual check-up.  She picks an in-plan doctor.  Instead of the $180 the doctor charges uninsured people the doctor presents a bill for $65.  She has a choice to make - does she pay the bill herself or does she have the insurance company pay the bill?  If the insurance company pays the bill then her $1 million dollar policy is reduced by $65 and she may lose out on an incentive the insurance company has set up in order to get her to pay the cost out of pocket.  This year she decides to pay the bill out of pocket so she still has $1 million of potential coverage in her policy.  In fact, for the next few years all she has are minor colds and other routine visits and she continues to choose to protect the benefit.  When she is 24 she is gets pregnant and delivers a baby at an in-plan facility.  Instead of the $14,000 for prenatal visits and delivery cost the hospital presents a bill for $6800.  Our new mother decides to allow the insurance to pay this bill.  This is a tough decision since she knows she no longer has $1 million in coverage.  Instead she has $1 million minus $6800.  Unfortunately, when she is 35 she is diagnosed with Multiple sclerosis.  The disease is aggressive and she can't work.  But the disease was diagnosed before she stop making premium payments on the insurance policy so even though the policy was cancelled due to non-payment the insurance company had planned for this and she still has the rest of her balance available to treat the disease and the complications of the disease.  She tries a year of treatment by in-plan physicians.  The cost for treatment even in plan is $25,000 for the year. Then she hears of an experimental treatment plan by out of plan doctors that she believes shows promise.  The cost for this procedure - $125,000.  Now she gets to make the decision -- does she try the experimental procedure?  If she does it reduces the number of years she can be treated in the traditional plan by 5 years.  But this is her choice.  Instead of just signing up for the experimental procedure she goes to the doctor and negotiates a better price.  In fact, though out her life she had been active and aware of all the medical costs and procedures.  That's because even during her pregnancy she evaluated whether it was cost effective for her to have an ultra-sound done every visit.  When she went in for her annual physical and mentioned her hand hurt occasionally she really thought about and evaluated if that $100 wrist brace was worth a try.  When she consulted the doctor for headache medicine she investigated and made an informed decision on generic or named brand medicine. 

I think you can see this type of insurance product is better for most individuals at providing protection against bankruptcy.  It allows the insured more choices for care.  Compared to uninsured individuals it reduces out of pocket expenses.  And the greatest potential benefit is it provides incentive for people to become involved and monitor the medical costs associated with their care. 

I believe this type of insurance plan can be viable for both the insurance industry and the majority of consumers.  I also believe the government can provide a vital role in establishing the playing field.  For instance the government can provide the initial actuarial analysis of the monthly premiums a person could expect to pay if they chose to purchase this type of insurance.   They may define required disclosures.  For instance a company might have to declare the specific coverage a beneficiary can expect if illness or injury causes the person to stop making payments.  The company will be required to indefinitely cover all injuries and illnesses identified while the person was making payments but the company may chose to establish their premiums high enough so that the entire policy remains in affect if the illness causes the persons income to drop significantly.  The government could also define when and how family members are required to be covered.  For instance if a couple has a child will the child be covered on the parent's insurance?  If the child is covered what is an appropriate premium increase?  The government could define the rules for portability between jobs.  The government should also consider what will happen to the person should they exhaust their benefit.  In fact, the government can provide to individuals recommended coverage amounts based on statistically appropriate models of the costs associated with the most likely illnesses or injuries.  Government policies may also be written so it is obvious to people it is better to participate in the system than it would be to try and go it alone.

This article is an outline of a new type of Health insurance which I believe industry and the government should investigate because it will significantly reduce medical inflation and protect the most vulnerable from having their coverage dropped while keeping the majority of them out of bankruptcy court.

Post Script:  When talking about this plan with my wife she correctly points out someone making $30,000 a year does not want to spend $3600 a year on premiums.  This is especially  true if they do not think they will be getting sick soon.  This is especially true when traditional insurance doesn't protect their finances during a medical emergency.  It will help pay the doctor but the insured end up broke so in their eyes what is the point of having insurance?  I agree with her on this point.  However, for those low income families that decide they want to purchase insurance this system better protects them from bankruptcy.  In a traditional insurance policy the deductibles and co-pays are high enough to put most families making $40 or $50 thousand dollars into financial peril.  In this policy, the family doesn't go into financial peril until they run up against the benefit they chose to purchase.  Today a million dollars goes along way for most medical coverage but if a family really thinks they don't like that payment plan they could chose a $250,000 policy for probably 1/3 the cost of the million dollar policy.  This would still give them access to the rates those people with insurance get for medical coverage.  I readily admit other suggestions are needed for those people making $0 to $20,000.  I just don't believe any of the suggestions I've seen in the national debate are useful. They solve the doctor not getting paid problem but they don't solve any problems for the uninsured or even the costs for those of us that are insured.