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Is the U.S. Health Insurance Market Imploding?

Posted by Larry Jones on Jun 23, 2016 10:30:00 AM
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Is your health insurance premium going up?

Recently I received a call from a lady asking about health insurance. She currently has a policy through one of the major health insurers, and has received (another) notice of a price increase. Her premiums are going up $160 a month. Five years ago her cost was less than $250 a month. Now, it's over $700. "What can I do," she asked?

When I met with her, she unleashed her fury over the insurance company. "Aren't these companies accountable to anyone," she asked? "They just don't care about us at all! How much higher do you think they'll go?"

After considering her question, I answered her that, "in my opinion, in a couple of years you won't be able to get health insurance at all." She seemed surprised by this. She shouldn't be.

Blue Cross Blue Shield, United Healthcare, and Humana have all announced big cutbacks in their offerings of health insurance. They are paying their sales force pennies on a sale in an effort to discourage them from selling the stuff. When is the last time you heard of a major company discouraging their sales people from pushing the product that made them the company they are? A recent Wall Street Journal article declared that the health insurers are losing about 17 cents on every dollar of health insurance they sell.

How could this happen?

Pre-existing conditions.

Imagine that your wife or husband just passed away. You decide that you'd like to have some cash, and so you take out a million dollar life insurance policy on the deceased. Of course you know that's ridiculous. After all, your spouse is dead. He or she has what insurers call a pre-existing condition, in this case death. Common sense tells you that any insurance company that would offer a life insurance policy on someone who was already dead would soon go out of business. You cannot buy flood insurance after the hurricane watch goes up for the same reason.

Yet, that's what the health insurers are being required to do. The Affordable Care Act no longer allows insurers to use the hundred years worth of actuarial data they have accumulated to determine how to price a policy, nor can they turn you down for pre-existing conditions. Not for a cold. Not for cancer. No matter how sick you are, you must be granted coverage. 

That sounds good from a warm and fuzzy political candidate point of view. But for a functioning health insurance company, it's a recipe for disaster.



Is there something you can do?

There may be a more affordable alternative. It's called short-term health insurance. These policies are also sold by major insurance companies, and generally, are much less costly than the ACA plans. Here are some points to consider when evaluating whether one of these plans could work for you.

  • Short-term health insurance is not compliant with the Affordable Care Act

If you have one of these policies you are not considered ACA compliant. That means you'll be subject to a penalty at tax time. The penalty for 2016 is either $695 per person or 2.5% of your income, whichever is higher. For many, the cost of short-term coverage is still much less than an ACA plan, even with the penalty figured in.

  • You must be healthy enough to get it.

These policies are underwritten. That means you can be turned down for pre-existing conditions (that's also the reason why these policies are more affordable). 

  • There are some things it doesn't cover.

Maternit benefits aren't covered. There may also be limits on total coverage, usually a million dollars, minimum. There may be other things not covered, and each policy should be evaluated for your specific needs.

  • It's called short-term for a reason.

Short-term policies can be had for periods as short as 30 days, and usually go no longer than a year. Be aware that at the end of the policy period, if you want to continue coverage, you'll have to go through underwriting again. If your health changes significantly you may not get coverage. If that does happen, however, remember you can always go back to an ACA plan, but you can only do that during the annual enrollment period. You may find yourself with no coverage for a period of time.

 



Is short-term health insurance a wise choice?

It may be, depending on your situation. Just keep in mind the caveats mentioned above. What kind of savings can you expect with one of these policies? You can probably expect hundreds of dollars in discounts each month when compared to a similar ACA plan.

As with anything else discussed in these blogs, it's a good idea to discuss these issues with a financial professional to avoid mis-steps.

Until next time,

Larry

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Topics: health insurance

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