Why Voluntarily Upholding Obamacare Provisions May be a Red HerringJune 18, 2012
Three of the nation’s top Health Insurers have recently announced their plans to preserve certain provisions of the PPACA regardless of whether or not the law is struck down by the Supreme Court. Two of the key provisions include:
- Allowing young adults to remain on their parents' health plans (up to Age 26)
- Covering preventive services with no Out-of-Pocket fees
The first announcement came from United Healthcare, the Nation’s largest insurer with 70 million members nationwide, followed shortly thereafter by Aetna and then Humana. There is an expectation that by removing financial barriers such as out-of-pocket costs, consumers will have greater access to Preventive Care, such as Wellness visits and Cancer Screenings. This is intended not only to provide greater access but to improve healthcare outcomes.
What most people don’t realize is that the consumption of those services will be factored into the annual renewal process – the basis for which plan benefits, premiums, and cost-sharing patterns are calculated. Each year, insurers establish new and revised benefit plans and pricing to reflect trends in the marketplace. If there is an increase in utilization, whether or not it is due to Preventive Care, one can expect a compensating adjustment in consumer pricing to balance the equation. While each insurer will vary its adjustment according to its experience and market strategy, no insurer will be able to continuously absorb increased costs while not increasing consumer prices. Some even argue that the impact of preventive care on premiums will grow over time as additional services are defined as preventive and the cost of those services increase.
This dilemma illustrates the very basis of how insurance functions. Insurance companies are risk bearing entities. Put simply, they are business organizations that take financial bets, which we call “assuming risk.” For a given plan period — usually 12 months — the Insurer is betting they will collect more in premiums than they will pay out in claims. If they overcharge for their product, consumers (employers or individuals) will gravitate toward less expensive products, thus reducing an insurer’s market share and profitability.
If the insurer doesn’t charge enough to cover its expenses, it may wind up paying out more in claims than they have collected in premiums for that period. While insurers always carry a reserve, they cannot remain in business long if operating at a continuous deficit. The key is to strike a balance between profit and loss, while maintaining a high enough quality to attract and retain customers.
Overall, the decision to voluntarily uphold these key provisions is a benefit to our system, but it’s important to understand how costs are being shifted beneath the surface. It’s equally important to note that these costs shifts are not the result of malice or intent to deceive, but a basic reality of how insurance models operate in the marketplace.
We as healthcare consumers need to think critically about the choices we make every day when we utilize healthcare services. The more we consume unnecessary or superfluous services, the greater the financial impact on the next plan period, and therefore our premiums.
Topics: Healthcare and Life Sciences (5)