While intended to be helpful, the federal mandate included in the health reform package will automatically increase your health insurance premiums by 50%. The math is so simple a 6th grader should have no problem understanding.
As part of health reform, legislators have demanded that 80 cents of every dollar be used to pay for care. Sounds very straightforward and simple. The 80 cent figure is known in the industry as the loss ratio – that is, money to be available to pay all claims, including reserves for claims in the future. That leaves 20 cents to pay for state premium taxes, overhead expenses, distribution cost and profit. What’s more, currently, most insurers operate with a loss ratio at about 70 cents.
Wow! The Democrats have a clear victory against the big, bad insurance companies and are even squeezing 10% more from those money grubbing overpaid executives!
But, wait. Here come the unintended consequences…..
Percentages are nice and easy to deal with, but you have to look at the hard numbers to understand why your insurance premiums will automatically go up. And don’t focus on the 80% going to pay for care. The real number is in the cost insurers must pay for state premium tax, overhead, distribution and profit. The real cost of these things won’t drop just because the Democrats want reform. Today, these costs represent 30% of an insurance dollar. Once reform passes, these costs will represent 20% of an insurance dollar. Let’s do the 6th grade math.
Currently: $.30 (state premium tax, overhead, distribution, profit) and Loss Ratio of 70%
$.30/(1-.7) = $1.00 Insurance Premium Cost
Health Reform: $.30 (state premium tax, overhead, distribution, profit) and Loss Ratio of 80%
$.30/(1-.8) = $1.50 Insurance Premium Cost
So, following health reform, your premium will go from $1.00 to $1.50 just to satisfy the politicians desire to say that more money will be spent on care than ever before. While true, what is more important is that it will cost you more than you anticipated and more than you should really have to pay.
