Systemic Health Care Failure: Small Business Coverage

Posted on December 27, 2009  Comments (2)

There are many significant problems with the medical care system in the USA. It makes sense that a system that costs over 50% more than other countries and has no better outcomes, from all that extra spending, suffers from many failures. Coverage for small business is one of the problems we face now – When Health Insurers Dump Small Companies:

In June testimony before the Senate Commerce Committee, Potter said insurers “dump small businesses whose employees’ medical claims exceed what insurance underwriters expected. All it takes is one illness or accident among employees at a small business to prompt an insurance company to hike the next year’s premiums so high that the employer has to cut benefits, shop for another carrier, or stop offering coverage altogether – leaving workers uninsured.”

Joy Mosley, COO of Biotest Laboratories, a 77-person medical testing company in Minneapolis, recently got such a “requote” from her insurer, Medica, after an employee was diagnosed with pancreatic cancer. Medica covered the million-dollar treatment, but then said the large claim warranted $156,000 in additional premiums – a 72% increase.

Not all entrepreneurs are equally vulnerable. About a dozen states prohibit insurers from basing premiums for businesses with 50 or fewer employees on workers’ health status. But in roughly three-fourths of the country, so-called ratings bands allow for considerable flexibility in pricing. In states with loose ratings bands, such as Texas and Nevada, one small company can be charged nearly 70% more than another. In Pennsylvania and Virginia, there are no ratings restrictions. No matter what state you’re in, ratings bands don’t apply to companies with more than 50 employees.

Just from an insurance perspective the companies are not providing what is needed. They are quick to say you can’t have healthy people remain uncovered and wait to buy insurance once for example, “their house is on fire” (they are sick). They are right. Well you also can’t have the insurance company cancel coverage during the fire and have a system that works.

Since a sickness can leave you at risk after the initial medical work is paid for it is not successful insurance that pays for the initial medical work and leaves you are risk for higher future costs (or completely uninsurable). After the initial medical bills have been paid you have this cost that the insurance did not cover – your increased riskiness to future companies. The insurers don’t what to cover you now that you are still on fire (or at least as they see it potentially still risk having an ember of your recent illness reignite your “fire”) and therefore they are not interested in insuring your burning house.

I understand that health insurance companies can see the future risk are higher for someone that has been sick. The problem I have is not with their desire to avoid covering risks that don’t provide adequate profit to cover their expenses and profits. The problem I see is this is a bad situation for the economic prosperity of those that must suffer from this system. The problem is, given this natural inclination of health insurance companies, why would we build a system based on having them make decisions on who gets coverage and who does not (because that is what happens).

This is but one, of many problems, with our current system. It can be partially addressed, while retaining the system that so many special interests have retained and continued over the decades. But, I am not sure why we should take our direction from those that that council the same old, proven failure of a system, over change.

Lean healthcare and improving the management of health care delivery is definitely one of the things we should continue to expand: healthcare improvement links.

Related: CEOs Want Health-Care ReformFixing Health Care from the InsideHeld Hostage By Health CareUSA Health Care Costs Now 16% of GDPOur Failed Health-care System

2 Responses to “Systemic Health Care Failure: Small Business Coverage”

  1. shaun sayers
    December 28th, 2009 @ 2:14 pm

    Thanks for this John. I got hugely irritated over the summer whenever I heard various people in America who were opposed to Obama’s reform proposals making all kinds of ill-informed and just plain incorrect observations about the British NHS, “state-sponsored euthanasia” was one example. Where does that come from? The NHS has problems, mainly relating to efficiency, but as an institution you’ll find few people in the UK who will say a word against its existence as a principle. Fox News found one or two, I know, but you always can if you know where to look. The efficiency problem, however, remains. It is endemic to all publicly funded organisations, and the larger the organisation, the worse it is. If we could solve this problem we really would be cooking with gas

  2. USA Spent a Record $2.7 Trillion, $8,680 per person, 17.9% of GDP on Health Care in 2011 at Curious Cat Economics Blog
    March 24th, 2013 @ 12:05 pm

    Per person personal health care spending for the 65 and older population was $14,797 in 2004, 5.6 times higher than spending per child ($2,650) and 3.3 times spending per working-age person ($4,511)…

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