Yesterday, Investors.com posted a story on what is happening in the health insurance industry in Massachusetts. The story was posted to shed light on some of the possible consequences of the national healthcare reform bill that was recently passed.
One of the arguments used in supporting the healthcare reform bill was that it would provide affordable health insurance coverage for all Americans. Under the recently passed bill, everyone must purchase health insurance of pay a fine. In theory this is a good idea--it provides a larger pool of covered people and spreads the cost around. However, there will always be people who take pride in gaming the system. That is what has happened in Massachusetts.
In Massachusetts the fine for not having health insurance covereage is about $900 a year. The cost of coverage is about $2000 to $3000 a year.
According to the article:
"Last year, Charles Baker, former CEO of Harvard Pilgrim Health Care, one of Massachusetts's largest health plans, noticed some health insurance brokers posting comments on his widely read blog. They were suspicious that people were applying for health coverage after a medical condition developed, got the care they needed, and then dropped the coverage."
Mr. Baker decided to look into this. According to the article, this is what he found:
"From April 2008 to March 2009, 40% of the individuals who applied to Harvard Pilgrim stayed covered for less than five months. Yet claims were averaging about $2,400 a month, about six times what one would expect."
Needless to say, this greatly impacts the actuary tables the insurance companies use to calculate rates. This has created a nightmare in terms of the insurance companies asking to raise their rates (the law of unintended consequences) when the legislation was supposed to bring down the cost of health insurance. We can expect more of the same in the national healthcare reform if it is not repealed and replaced.
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