Simply Junior

The game played by politicians is to take an idea from their own agenda and then frame it in a way that sells it to the other side. When the politicians meet in the middle, bipartisan solutions to problems emerge. This reflects the fact there is no monopoly on good ideas, only simple good solutions to difficult problems. In the healthcare debate, one of the solutions proposed by the GOP was to allow people to buy their insurance across state lines. This sounds a good idea. As the law stands, every state regulates the sale of insurance within its own borders. This limits the size of the market. If insurers had to compete with each other on a regional or national level, the premium rates would fall and every citizen would get a better deal. Well, let’s look a little more closely at how it would actually work.

At present, every state has a Department of Insurance to regulate the insurance companies licensed to sell policies. This is a reasonably effective system for consumer protection. But if regional or national insurers could sell policies into many states, it would break the regulatory system. It would no longer be local supervision of local companies. Insurers would decide where to establish and would, of course, choose the states which had the weakest consumer protection regulations, i.e. where they could make the most profit. Think banks and finance companies. These companies broke the US economy and produced the recession because their sales of subprime mortgages and associated derivatives were unregulated. Now apply the same thing to interstate insurance. As a final thought on this issue, remember all US states have different laws and one state cannot enforce another’s laws. That is sovereignty for you. So the state where an insurer is based cannot protect consumers under another state’s laws.

Secondly, opening the market across state lines allows insurers to cherry pick the best people to insure. Without regulations to limit the right to discriminate against people for pre-existing conditions and to increase premiums as people get older and fall ill more often, insurers will just take their profit from all the healthy people and forget about the rest. Thus, instead of increasing consumer choice, it would have the reverse effect. Most insurance companies would close their branches in individual states. Those that remained would keep all the aging and less healthy people. As their claims rise, the companies will make a loss and close. Without a law to mandate regional or national companies to offer some health coverage, it is likely the number of uninsured people would rise.

When you add all this up, it is a good thing the GOP’s proposal was rejected. Health insurance plans are complicated enough without having to change a whole mass of federal and state laws to allow interstate sales. This is not to say that consumers might benefit if there was more competition in the insurance market generally. With a real free market, properly regulated, consumers would get a better deal both in the terms of coverage and in the premium rates they pay. As it is, you must get multiple quotes to find cheap health insurance. Anticipating their profits will take a hit following this reform, insurers have been raising their premium rates. You must shop around to find the most affordable policy.

There’s a strange contradiction about insurance. It’s an annoying burden every month when the time to pay the premium comes around but, if the worst should happen, it’s a wonderful thing to have had that insurance policy in place. With the family budgets really tight as the recession shows little sign of going away, the monthly bank statement shows the insurance instalments disappearing. You look at your own health. That’s great. You have never had a day of serious illness in your life. It’s the same for your partner. You cannot avoid feeling a little resentful. All those dollars, every month. And then there’s an accident or one of you does unexpectedly fall ill. It’s then you discover whether that plan you have been paying into is actually worth the money.

The market for health plans is divided in a slightly complicated way. It’s really to ensure the insurance companies make a profit as the cost of treatment keeps on rising way faster than inflation. So it reflects a balancing act between allowing the patients some say, and denying them any real control, over access to treatment. The plan most popular with the insurance industry is Managed Care. This requires you to get the insurer’s permission before you attempt to access treatment. The first contact doctor must be from an approved list, and he or she must refer you on for further diagnostic tests or treatment. Failure to get this referral usually means the insurer will refuse to pay. The second option is a Fee For Service Plan where you pay a lump sum at the beginning of each year, followed by monthly instalments. This covers you for the medical services listed in your policy. Basic plans only cover consults with your doctor and a simple set of tests. More expensive plans have a better range of coverage but there are usually co-payments.

Health Maintenance Organizations (HMOs) are networks of healthcare professions. If you stay within the network, your medical needs are covered although, in most plans, co-payments will be required. The next step up is a Point of Service Plan (POS). This is a variation on the HMO and allows a networked doctor to refer you to an outside expert. Finally, there are Preferred Provider Organizations (PPOs) which offer more choice than an HMO or POS both in the doctors you can access and the treatments you can have, e.g. usually include preventative medicine.

Because the service offered by this site is free, you can get as many health insurance quotes as you like for each of the main types of plan. This gives you more information on which to make your decision. But it’s fair to say the decision is not an easy one unless you read the detail of each plan with some care. With all the health insurance quotes available, you are often forced to balance coverage against cost, i.e. you buy the amount of coverage you can afford. This makes the choices something of a gamble. Do you pick emergency care in the event of an accident or focus on a list of the most common diseases or disorders? Do you include long-term care against the possibility you might be more permanently disabled by whatever happens? There is no right or wrong answer to these questions. In the end, it all comes down to what you can afford and what helps you to sleep best at night.

The insurance companies will always reward you for driving less. If you rarely put wheels on the road, the chances of a claim are small and all your premium will be “profit to the insurer. So how does this work? In theory, it could not be more simple. The insurance company looks at who you are, when you drive and where you drive in deciding how much of a risk you represent. If you live 50 miles from your work and have a daily commute along a busy Interstate, the chances of an accident are high. But if you live on a bus route to work and only use your vehicle for odd journeys at off-peak times, the chances of an accident are small. When you answer the questionnaire, you will see questions covering these possibilities. Remember, if you get caught out in dishonest answers, the insurer will cancel your policy and leave you without any coverage.

The first question is where you live. Although some states like California have outlawed setting rates according to your zip code, the majority of companies focus on your home address. If there’s a high accident or theft rate among people living in your area, you will all pay a higher premium. The only choice, if you can afford it, is to live some place where the crime and accidents rates are lower. You look for the middle ground between the worst inner city crime hot spot and a house on the prairie where you never see another vehicle from one day’s end to the next. All the discounts favor drivers who only drive off-peak during the day, and restrict their annual mileage. No more late night and early morning driving when the majority of other drivers may be tired or affected by alcohol and/or drugs. This raises the question of monitoring. It’s easy to answer the questionnaire and claim the maximum discounts. But the trend among insurers is to ask people to drop their vehicle in for a regular inspection of the recorded mileage. The maximum discounts are given to the drivers who agree to devices being installed which collect all the data on driving and transmit it to the insurers. These devices have a GPS element that records where you drive, the time and, in some cases, some measurement of the quality of your driving, e.g. how often you brake. The reward for accepting this invasion of your privacy can be discounts of up to 25% on top of the usual discounts. Obviously, it’s not a good idea to use your own vehicle to rob a bank since the insurance company will know you were there.

This set of discounts is somewhat frustrating. In the larger cities with well-developed public transport, it’s usually not too much trouble to get where you want on time without using your own vehicle. Assuming your vehicle is safely in a garage to reduce the risk of theft, you should break even or better, i.e. what you save on the insurance pays for your use of buses and trains. But the most of the US has poor public transport, so there’s little choice. Remember the car insurance quotes are not the final word. Call the company, explain your circumstances and discuss how you might qualify for discounts. In discussion, you often discover options not included in the website. So, treat the car insurance quotes as the opening offer and start negotiating. Investing a little time often saves you money.

The main thing to understand about discounts is the thinking behind them. The insurance companies want to encourage you to act in ways that favor them. If you are contrary and do the opposite, you will probably cost them money so your premium rates will be higher. Let’s take a few examples and see how it works. Obviously the point of insurance is that, if you have one of those unfortunate accidents or someone steals your vehicle, you get to claim money from the insurance company. From the insurer’s point of view, this is bad news. It wants to be able to treat all your cash as profit. The more it has to pay out, the more it should raise premiums. Except, at some point, you throw up your hands and say, “We’re not going to pay that.” So a balance has to be struck. The insurer wants all the safe drivers like you, and aims to discourage all the drivers with bad records – they are the ones who get the really big premium hikes. Although loyalty bonuses go some way in the right direction, there are more ways in which the insurer can save money. It all starts with the make and model of vehicle you are driving.

Risk assessment is done by the actuaries. These are the math wonks who collect details of every accident reported in the US. This is not just the data from claims on vehicle insurance. This is every incident reported to the police, attended by the firefighters or ambulance crews, or dealt with through claims on health insurance. Put all this together and the actuaries can tell you the probability of an accident in any make and model of vehicle, given its color, whether it was fitted with any additional features, who it was driven by, the time of day or night, whether the driver and passengers were badly injured, so on. Yes, it’s that detailed. Turning this around, if you drive a vehicle that’s statistically unlikely to be involved in an accident or stolen, your premium will be lower than average. Put a safe driver in a safe car and the chances of the insurer having to pay out are small and the profit is higher. Everyone is happy. So how do you find out which are the safest vehicles with the lowest premium rates? Well, you start with http://www.safercar.gov/, a site run by the National Highway Traffic Safety Administration. This allows you to get the safety ratings from all the tests carried out by the NHTSA. There’s a guide published at http://www.nhtsa.dot.gov/staticfiles/DOT/NHTSA/Vehicle%20Safety/Articles/Associated%20Files/2009_Insurance_Costs_Comparison.pdf which is also helpful. Finally, the Insurance Institute for Highway Safety publishes its own list of safe vehicles at http://www.iihs.org/ratings/

The safer the vehicle you drive, the greater the discount on the premium rate. So when you are filling out the questionnaire for those auto insurance quotes, aim to have a safe vehicle. If you vehicle is not safe and you cannot afford to change it, try to upgrade it by fitting safety features. Look at the questions asked in the questionnaire and talk to insurance agents to find out what features save the most money. Similarly, fit better locks and any systems making your vehicle more difficult to steal. Anything you can do to reduce the risk of a claim will be reflected in low rates in the auto insurance quotes you receive.

Perhaps this is an unnecessary statement of the obvious, but the point of insurance is to give people a financial safety net. Should an emergency or disaster strike, money you would struggle to find is paid out by your insurance company. But the squeeze has been on for the last decade as medical costs and the prices of essential drugs have been rising fast. In fact, so fast that the insurers cannot pass on all the increases to their policyholders. It was hard to raise premium rates while the economy was doing well. It became impossible to raise premiums when the recession hit without there being investigations by each state’s Commissioners for Insurance and complaints from everyone else. There comes a point when the insurer cannot get any more blood from the stone and has to sacrifice profits. This has left the medical profession, the hospitals and clinics in a winning position, while the pharmaceutical industry’s profits have continued to rise despite the recession. At the other end of the spectrum, the patients are the losers. There are some who discover the small print in their policies denies cover for the very illnesses they have. There are others whose savings are not enough to pay the deductibles and co-payments. And then there are those whose policies are cancelled when they make a claim for a chronic disease or disorder.

There is a new piece of research from the Commonwealth Fund, an independent, non-profit body. In 2007, it carried out a detailed survey among 2,600 people aged between 19 and 64. When their coverage was analysed, 20% were found significantly underinsured. Why was this happening? Because they were already spending more than 10% of their income on health coverage, whether as premiums, deductibles or both. When the underinsured were added to the uninsured, this represented 42% of adult Americans. Like the uninsured, this forces the underinsured to think twice before they have treatment with more than half either refusing treatment or struggling with debt because of treatment.

In the push for healthcare reform, the focus has been on the uninsured. But this fails to recognize the injustice suffered by the underinsured. No one should be forced to choose between refusing needed treatment and potential bankruptcy. It is therefore going to be an interesting year in prospect as the reform slowly comes into force. Both the poor and the middle class need access to cheap health insurance with reasonably comprehensive coverage. This will further squeeze the insurance industry because it will be denied the right to refuse coverage to those with pre-existing conditions and will be forced to establish group health insurance for those who have struggled to find affordable plans. In all of this, the key to success will be the ability of government and the insurers to impose more control over costs. President Obama has negotiated with the pharmaceutical industry and there is some agreement to hold down prices for those in Medicare and Medicaid. The for-profit healthcare industry also sees some self-interest in moderating its price increases and has given undertakings to the Administration. If some of the pressure is removed from the insurance industry, premium rates will stabilize and the reforms should offer a more fair system to all with a health plan. We can only hope for the best while we wait and see what happens.