Below is a table of health insurance quotes we have received so far. Quotes are for 24 year old males with no dependents and no prior conditions.  Deductibles are given for individuals (family deductibles are normally double).  BCBS quotes are exact while Assurant and Companion Life quotes are estimates based on age and number of dependents only.  Prescriptions are not covered on HSA plans.

Companion Life quotes tended to be higher across the board so we are no longer considering them as a possible supplier.  Ideally we would go with Assurant because they have the best deal on the high deductible + health savings account plan (Almost 50% cheaper than the equivalent BCBS plan) but we are a little afraid of using an insurance company that is not part of the Bozeman Deaconess network (or Bozeman Deaconess is not part of the insurance network, I'm never sure).  Being the reasonably intelligent guys that we are we understand probabilities.  Because insurance companies face administrative costs and because insurance companies are risk adverse anyway  we know that we would never receive an actuarially fair price to be insured.  On the other hand it would be nice to know that should anything catastrophic happen we wouldn’t be bankrupted and forced to share a park bench with a hobo.  On the advice of some well respected economists, who suggest that people are often over insured when it comes to short term health insurance  we are looking at high deductible plans paired with a tax exempt health savings account. 

This seemed like an amply appropriate time for this article now that the debate over health care on the national stage has reached a fevered pitch.  One of my very favorite economists, Greg Mankiw, has been a very outspoken critic of any sort of nationalization of our health system citing statistics that point to the fact that America has very different demographics than other countries.  Because America is more obese, on average, and we have more accident related injuries and fatalities Mankiw states that looking at commonly cited statistics such as average life-span are not adequate measures of the efficacy of universal health care.  A better measure would be to compare survival rates among different diseases and conditions.  Using that measure America is very near, or at the top, of the rankings.  On the other hand another great economist, Nobel prize winning Paul Krugman, is an ardent supporter of universal health care.  Krugman argues that the market for health care is broken and the only reason we currently even have a quasi-functioning system is due to government intervention any way. Krugman states that too much money is spent on administrative and overhead costs, sometimes up to 30%, and that insurance companies are all too eager to drop someone from their plans any chance they get. Obviously there is no easy answer, and that’s what is so frustrating.

Over the past several weeks I have seen innumerable examples of anger and frustration wrought out on the public stage.  Town hall meetings have been rife with citizens afraid of roving death squads sent by the president himself to dispatch the enfeebled who would be too expensive to care for.  Ironically these individuals marked for death are often already taken care of by the government run medicare.  To my understanding the argument ultimately breaks down to whether or not an individual values having everyone insured which, due to the inescapable fact of supply and demand, will decrease the quality of health care or whether they would like health care to be cutting edge, but only for the people that can afford it.  Both stances are equally valid and it is disheartening that so many people, from both sides, attempt to turn this very complex issue into misleading sound bites.

As a business owner that is currently going through the insurance purchasing process here are my thoughts:

If the system is not broken it is at the very least inefficient.

Every single insurance agent we have worked with so far has been extremely nice and helpful; however, it has become very apparent that insurance agents are the ultimate middle men.  I do not understand why we can’t go to the Blue Cross Blue Shield web site and enter all of the information we had to hand write on the forms.  It’s not like the insurance agent is poring over mortality and accident statistics to figure out average cost to the company and then factoring in profit and overhead to figure out the exact best rate for everyone he serves.  Actuaries develop actuarial tables, insurance agent plugs in data in a form created by actuaries, form spits out rates.  Insurance agent prints off said rates and comes to our office to present them to justify his salary.  Cutting out the insurance agents could lower costs for the company allowing a larger percentage of the premium to be spent on health care.  Lowering administrative costs would also be a great way to get closer to the actuarially neutral pricing level.  

There is not enough competition.

By contacting almost every agent in town we were only able to get quotes from three companies.  There are hundreds of insurance companies in the United States and yet I can only get insured by three.  A simple free-market solution to escalation health care costs would be to allow any health insurance company in America to offer health insurance to anyone they wanted to.  Competition would drive down prices to the point where there would be 0 economic profit (different from normal profit) and more importantly it would curtail the practice of rescinding insurance policies after a major health related event because of an accidental omission on the original application or a pre-existing condition now deemed pertinent by the insurance company. 

A very illuminating article found here points out that while the reported probability of having your policy yanked is less than .5% the actual probability (because of conditional probabilities) is substantially higher at around 10%.  The author points out that half of the insured use essentially no insurance at all.  At the 80^th percentile people use $3,000 per year and at the 95^th percentile insurance subscribers are only using $11,000 per year.  It isn’t until you get to the 99^th percentile that you see large increases in insurance usage (approximately $35,000 per year).  Considering the average policy price when this study was done was $7,000 the insurance company only loses money on about 10% of its policies.  And because the insurance companies only have incentive to look at policies they are losing money on the half a percent drop rate reported by the insurance companies, while technically true, is very misleading.

Are we after insurance or health care?

Frankly, as insurance providers, I think insurance companies do a reasonably decent job.  Their job is to facilitate the hedging of health risk.  They accomplish this by pooling individuals and aggregating the risk across their entire pool.  This is much the same as a farmer insuring his crops against hail.  Using historical and current data, the insurance company comes up with a probability, p, that a local area will experience crop hail damage.  So long as p*(pay_out_if_crop_is_destroyed) is less than the premium paid by the farmer the insurance agent and company can make money, on average.  Likewise there is a certain probability that an individual of a certain age will require health services and so long as p*(cost_of_health_care) is less than the premium paid by the individual the insurance company is happy.  Where we run in to problems is insuring pre-existing conditions.  Just like it would seem ridiculous for the crop insurance agent to insure a crop that has already been destroyed by hail it would seem ridiculous to insure someone that already has a disease.  That’s where we cross the line in to health care and we are no longer talking about health insurance.  Health insurance companies are good at providing insurance they are not good at providing health care.  If, as a country, we decide that health care is a right that should be provided for, using for-profit health insurance companies as a proxy would be a terrible idea.  Health insurance companies are in the business of providing insurance, not health care, and trying to mold them into health care providers using government regulation and subsidies will not end well. 

As a citizen, economist, and small business owner I would love to see the government provide for catastrophic health care, say $10,000 and up.  They should also allow for unlimited tax-exempt contributions to health savings accounts.  If individuals wished to purchase insurance for the first $10,000 of health care expenses they could.  Following, insurance companies would be off the hook for outrageous claims or expensive pre-existing conditions.  Government run catastrophic insurance would probably meet with stiff resistance from the insurance companies as many healthy people would drop their insurance or opt for less expensive plans.  On the other hand a straight nationalization scheme would eliminate a great deal of the demand for insurance companies in general so having to choose between a government provided catastrophic insurance or a government provided comprehensive insurance becomes pretty easy.  Plus insurance companies could focus on what they are good at (insurance) and skip what they are bad at (health care).   Unfortunately I fear the reality may be that the health care industry has too much money and influence to allow for a truly sensible solution to come to fruition.  I can only hope that the government of the United States will prove me wrong!