Heads You Win, Tails I Lose

It is November in Northeast Ohio. Homeowners are faced with an annual decision – buy a new snow shovel, buy/tune up the snow plow, or hire a plowing service. I was lucky enough to have always had a snow service when I had my house in Shaker Heights. For $250 a guy in a pick-up truck would magically appear every time there was as little as 2” of snow on my drive. He would clear the drive and make it safe for me and my family. Sometimes he would even sweep the snow off the walkway. $250 for six months. If it snowed only three times – $250. If it snowed thirty times – $250. I wasn’t purchasing the number of times he visited. I was buying peace of mind and security. And if it never snowed in Shaker Heights? Let’s not be silly. One year’s easy winter would surely be followed by a snow belt classic.

If you believe, as I do, that the Patient Protection and Affordable Care Act (PPACA) is designed to change who pays for health care in our country, then you had been waiting anxiously for yesterday’s decision from the Obama administration. Florida has aggressively fought the President’s legislation from day one. The latest salvo was a special request for a waiver of the 80% Minimum Loss Ratio (MLR) regulation. This special waiver has required a mound of paperwork and nearly a year of preparation.

And the verdict from the Centers for Medicare and Medicaid Services (CMS) was (drum roll please) – – – Come back in 30 days.

First, what is an 80% Minimum Loss Ratio? In the simplest of terms it means that for ever dollar of premium an insurance company receives, it must spend 80 cents on health care claims. That leaves 20 cents for taxes, administration, reserves, marketing, advertising, and profits. If the consumer has a good year and has fewer claims, the law requires the insurer to issue a rebate of the excess premiums. If the consumer has a really bad year, oh well.

I think you can see where this is going. Most of my clients are small businesses with fewer than ten employees. Some have only one or two employees. Many of my groups have little to no claims per year, while several of them more than make up the difference.

If a small business consists of three families, each paying $1,000 per month, we have an annual premium of $36,000. What happens if one of the spouses has a quadruple by-pass at $180,000? Where does the insurer get that money if it is returning excess premiums each year to the healthy clients?

The goal is to have a loss ratio between 65% – 80%. This goal is for the entire book of business, not on a client by client basis. We are pooling the risk, sharing the possibility of major accidents and illnesses among a large group of people. The MLR regulation effectively ends that. And in the end, it effectively ends private major medical insurance.

Insurers are threatening to pull out of the states that don’t get the federal waiver. At the very least, they will be forced to significantly restructure their product offerings. It is not an idle threat. This is all part of the process that began in March of 2010.

The Supreme Court will soon hear arguments about the individual mandate, a concept championed by Newt Gingrich and Bob Dole in the early 1990’s and pilloried by the Republicans today. This is a side-show. The Minimum Loss Ratio rulings will have far more impact on who pays for your healthcare in 2015.

I could have purchased a “pay as I go” snow service when I was a homeowner. What I couldn’t afford back then and can’t afford now is “pay as I go” healthcare.

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6 Responses to Heads You Win, Tails I Lose

  1. Anita Dacanay says:

    Dave, let’s be clear about something. “Health insurance” is not a need. HEALTH Is a need, and qualified healthcare is a need. Americans pay more for their healthcare (and get less) than other first world countries because we feed the healthcare INDUSTRY.

    Let’s forget about nit-picking over this type of legislation, and just agree that the current system does not, in any way, benefit the “consumer” – A.K.A. the citizen who has the audacity to want to stay alive, and preferably without pain or crippling disease.

    The top reason for bankruptcy in the USA is a medical crisis in the family – and the majority of people who declare bankruptcy are people with insurance. The premiums, copays, and deductibles that we are expected to pay are outlandishly high, and we get less and less coverage for those prices. Bottom line: even WITH insurance coverage, I personally cannot afford to go to the doctor. I am paying only for the right to walk in the door and get treated, and for the “discounted” prices that the insurance company negotiates. But, in reality, even those prices are too high for me to truly afford. I pay my premiums, and still can’t afford to go to the doctor. What kind of sense does that make?

    Simple answer: do what the rest of the civilized world does and create a single-payer healthcare system. Everyone chips in through their taxes, everyone can rest easy knowing that their family will have healthcare. If Australia, the UK, and Canada can do it, so can we. It’s really not that complicated, actually. It’s a matter of priorities. We need to decide that, as a civilized society, we prioritize the health of our citizens. You know, promoting the “general welfare” and such.

    Sidenote: Gary and I cannot even afford the $250 per winter to have a guy plow our drive, as good of a deal as that is. So we both get off of our butts and shovel it ourselves – which happens to be good for our health, since neither of us has heart disease, thank heaven! If only I could perform surgery on my own aching foot, plagued by arthritis and a horrible bunion – but alas, THAT is not a do-it-yourself job. 😉

    • dave@cunixinsurance.com says:

      But the legislation IS THE PROBLEM. I have contended on this blog for nearly three years that the current system is unsustainable, but changing Who pays for care without an honest discussion of What care and HOW much care should cost is unproductive. The lack of transparancy along the way has only contributed to the problem. Businesses have been forced to make expensive changes based on ever changing rules. That, too, drives up costs.
      Nothing is free. Until we, as a country, are ready to have an honest discussion about what we think is important enough to pay for, we will be plagued with legislation such as the PPACA.

  2. Anita Dacanay says:

    Ah, yes. Well, that does make sense. Yes, I agree that the legislation in question will not solve the problem by any means. I should think it would be clear by now to everyone that the current “healthcare” system is totally unsustainable. We started talking about the “healthcare crisis” decades ago – and yet nothing has been done to change the system in a fundamental way. I personally think that there is no way that we can reform the system – we need a complete restructuring for the reasons you cited, and more.

    I understand that it is fun to belittle the #occupy protesters for being vague – but I am EXTREMELY impressed by the fact that one of the most complacent populations on the planet has been incited to take to the streets en masse. Americans like to be comfortable – but there are far too many of us who are decidedly uncomfortable because we cannot afford basics like healthcare. This is what is scaring the powers that be. It is NOT only hippy kids and extreme radicals in the movement. There are lots and lots of average folks out there in the streets right now saying “Enough is enough!” Only real desperation has gotten U.S. citizens off of our collective duffs to address the fact that our “representative” government no longer represents our needs! The government, as Dylan Ratigan says, is bought. We KNOW this now! The jig is up.

    What the movement is trying to address, and what I was trying to address in my post is that we need to take back our government. I don’t think there is anything vague at all about that sentiment. That is the important discussion to be having: HOW do we reclaim the government that is supposed to serve the collective good? Again, Ratigan has the right idea on where to start: get the money out of our democratic process. Publicly funded federal elections – no more “bought” government.

    The “idea” behind this legislation is a good one. I am just NOT going to feel sorry for the health insurance industry as a whole at the idea of them having to actually provide an actual service for the money they squeeze out of us. But the legislation will not work because we have become slaves to the notion of unfettered capitalism – even at the expense of people’s lives. Again, single-payer healthcare! Taxes to support it. Tax the billionaires and trillionaires. There will be enough money. We can make it happen if we want to. Let’s all chip in and reclaim some ethical fortitude! I hope we are on the path to doing just that.

    Thanks for listening me sound off, Dave.

  3. dave@cunixinsurance.com says:


    Truly happy to provide the forum.

    1. This blog has contented for the last 18 months that the insurance industry, at least the major companies, would welcome some form of single payer. They would make more money selling supplements to fill the gaps of the government program and make a tidy profit helping to administer the paperwork. Remember, no plan is going to pay 100% of everything.

    2. We still have to control costs, an issue that plagues the systems of all countries.

    3. One of the problems of shifting the burden completely to the taxpayer is that it is the people who pay little to no taxes that are the main proponents. It is never “WE”. It is always “THEM”. This argument cuts across every major issue this country is facing. Until a solution is created that convincingly discussing a shared burden, there will be little action other than finger pointing.

  4. Anita Dacanay says:

    Dave, I will confess that I have not been reading your blog regularly, because discussing healthcare in America angers me to such a degree that it tends to put me in a sour mood! It is interesting to me that you think the majority of health insurance companies would support a single payer system. Why the heck isn’t it happening then? Is it just because the Repubs feel the need to shoot down every effort to address that possibility? I suspect it is because of the incredible over-reaching influence of the ultra-rich. As Bob Dylan said, you gotta serve somebody.

    I understand that rising medical costs are part of the problem. But again, it’s really a matter of priorities, isn’t it? We “find” or borrow money to pay for a “pre-emptive” war against Iraq, we find a way to bail out the banks when they go bankrupt, but we can’t find money to pay for providing healthcare? Baloney!

    What would be helpful is an entire paradigm shift away from thinking of healthcare as an industry or business, and a shift toward thinking of it as a public service. It is in the benefit of the greater good for all of us to have a society of healthy and productive individuals.

    No, I am not an economist or an expert. But I am a reasonably intelligent and sensible human being. I’m quite sure that if we collectively decided to prioritize making healthcare affordable and accessible, we could, as Captain Picard used to say, “Make it so.” That is why I get so angry. What could be more pressing than solving this dilemma?

  5. Darin says:

    Large lover on this blog, a handful of your posts have really helped me out. Awaiting posts!

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