School me on group health insurance policies

[Pointedstick]

One thing I've always been confused about is the distinction made in the health insurance industry between "group policies" and the "individual market". I understand that when you buy into the health insurance policy offered by a large corporation, you're a part of a risk group shared by your peers, but how is this an efficient arrangement? Wouldn't it make more sense for the insurance company to spread the risk around to the largest possible group? Why is the "individual market"--where presumably people are grouped together with everyone else in the individual market--the costliest one?

How does any of this make any sense? When I buy car insurance, I don't have to worry about which group I'm buying into; I just buy my dang car insurance!

[MachineGhost]

Its because there's no legal mandate for all insurers to participate in a national risk-sharing pool as is done in Switzerland, so individual insurance costs more by being limited to sharing a single state risk pool.  That doesn't work too well in lesser populated states.  There are also other "interventions" that drive up the cost like "community ratings" which prevent insurers charging more to fat fuck, chain smoking idiots, but they're currently only in backwards states like New York or Kentucky (the end result being less competition and higher insurance costs, sometimes outright withdrawal of all insurance companies from the state).

You are correct to suspect that group insurance is not true insurance, just an expense sharing co-op.  Last year's total medical expenses result in this year's pro-rated premium increases.

Needless to say only the meddling economic ignoramuses in Congress could order up a system so dysfunctional.

[Pointedstick]

I know insurance companies are legally prohibited from offering policy rates in one state to out-of-staters for some ridiculous reason, but don't car insurance companies have state-wide risk pools, too? Or do they have nationwide risk pools?

I think car insurance is interesting because despite the fact that it's a mandated purchase if you drive (and 95% or so of the population does), it seems like a pretty healthy market. I--a safe, light driver with a single non-fancy car--can get a policy that covers me and my wife for a little over $40 a month. But both of us young, healthy people can't even get corporate-subsidized health insurance for less than $250! I've checked policies in the individual market, and that's about the same price as a bare-bones HDHP with a deductible that starts at like $8,000. Something is terribly wrong here!

[MachineGhost]

I think car insurance is interesting because despite the fact that it's a mandated purchase if you drive (and 95% or so of the population does), it seems like a pretty healthy market. I--a safe, light driver with a single non-fancy car--can get a policy that covers me and my wife for a little over $40 a month. But both of us young, healthy people can't even get corporate-subsidized health insurance for less than $250! I've checked policies in the individual market, and that's about the same price as a bare-bones HDHP with a deductible that starts at like $8,000. Something is terribly wrong here!

$250 for 2 adults and a baby isn't that bad.  In Switzerland it costs everyone $100 a month minimum and they are required to buy it in the private marketplace.

You should have gone on your college's group plan, its dramatically cheaper than anything else.  It may not be too late to still apply.

[D1984]

I know insurance companies are legally prohibited from offering policy rates in one state to out-of-staters for some ridiculous reason, but don't car insurance companies have state-wide risk pools, too? Or do they have nationwide risk pools?

I think car insurance is interesting because despite the fact that it's a mandated purchase if you drive (and 95% or so of the population does), it seems like a pretty healthy market. I--a safe, light driver with a single non-fancy car--can get a policy that covers me and my wife for a little over $40 a month. But both of us young, healthy people can't even get corporate-subsidized health insurance for less than $250! I've checked policies in the individual market, and that's about the same price as a bare-bones HDHP with a deductible that starts at like $8,000. Something is terribly wrong here!

Is that $250 the price you pay (i.e. what comes out of your paycheck every month...so $250 deducted if you are paid monthly or $125 deducted if you are paid every two weeks) or the actual price your employer pays (and you only pay a portion of the $250). If it is the former, it seems a little high but not outrageous; if it is the latter, your employer must have a very healthy workforce because $250 total monthly for a couple or a couple with a child is almsot unheard of. Are you saying the corporate policy is too expensive relative to another risk-rated form of insurance like car insurance, or are you saying the individual policy is too expensive relative to the corporate policy? $250 a month for an individual HDHP with an $8,000 deductible IS insane. I know the insurance you mentioned was for a couple (with a child IIRC) but in my state an individual policy ( $5K deductible; $6K OOP max; four $20 copay office visits per year before deductible structure applies) for a healthy young adult in their late 20s to late 30s goes for around $65 to $110 a month depending on whether it's PPO, POS, managed care, etc. It will be not quite twice that for a couple; maybe a little more for a couple with a child (although I suspect it will be a LOT more for a couple with a child once PPACA fully kicks in since pre-existing conditions can no longer be excluded).

[Pointedstick]

$250 is what comes out of my paycheck, so presumably my employer is paying much more behind the scenes. I don't know how much, though. I'm wondering three things:

1. Why individual coverage is more expensive than group coverage. Surely the residents of my state aren't more unhealthy on average than my co-workers, are they? Is it because the only people who buy individual coverage are unhealthy but not poor enough for medicaid and not old enough for medicare?

2. Why the the health insurers aren't able to pool more people into the individual market to spread the risk out more. It's not in their interests to make their product prohibitively expensive!

3. Why it's all so expensive to begin with, even my group coverage which apparently consists of people healthier than average, especially since my wife and son and I (the covered people) are healthy and devoid of "pre-existing conditions."

In the car insurance market, there's this whole complicated background checking process that the insurers perform to determine your risk of requiring a payout by examining your car, driving history, insurance history, credit score, occupation, age, race, zip code, etc... it seems very much like an actual, you know, insurance market! But for health insurance, it feels much more like a payment network, like a kind of "health club" that one purchases conditional membership in.

It bugs me because I can minimize my car insurance costs by behaving more responsibly and agreeing to take on more risk by canceling collision and comprehensive coverage, for example. But I can't really do that in the health insurance industry since healthy behavior doesn't seem to be factored into the premiums, and I can't really tell them not to cover certain things that I'm okay with paying for out-of-pocket.

[Pointedstick]

$250 for 2 adults and a baby isn't that bad.  In Switzerland it costs everyone $100 a month minimum and they are required to buy it in the private marketplace.

You should have gone on your college's group plan, its dramatically cheaper than anything else.  It may not be too late to still apply.

Yikes! I just checked and the college group plan would be charging us $8,000/yr -- $667/mo! Then again, I did go to college in a market-interfering nanny state (NY). The rate for just me alone would have been $207/mo. Clearly our current coverage is a better deal.

[MachineGhost]

1. Why individual coverage is more expensive than group coverage. Surely the residents of my state aren't more unhealthy on average than my co-workers, are they? Is it because the only people who buy individual coverage are unhealthy but not poor enough for medicaid and not old enough for medicare?

Remember, individual insurance is a true insurance risk pooling whereas employer coverage is just an expense sharing co-op.  All it takes is a fat tail in the employer co-op to drive up the premium costs for everyone participating in the co-op.  It may seem the same at the end of the day, but a co-op is an agreement to share in everyone's expenses, insurance is protection via Law of Large Numbers.  Can acturial statistics apply to a co-op?

But, employer co-ops also have bargaining/buying power to drive down the cost of providing mass coverage.  Individual insurance does not have that "feature".  It might purely be an administrative decision at the insurance company level not to consider that pool worthy of economies of scale.  I suspect that the individual coverage subsidizes employer co-ops to a great extent.

2. Why the the health insurers aren't able to pool more people into the individual market to spread the risk out more. It's not in their interests to make their product prohibitively expensive!

I'm sure its due to 50 terrorist bureaucracies known as Departments of Insurance.  They don't want a competitive playing field, but rather have their own little fiefdoms to rule over and make mountains out of molehills.

3. Why it's all so expensive to begin with, even my group coverage which apparently consists of people healthier than average, especially since my wife and son and I (the covered people) are healthy and devoid of "pre-existing conditions."

Now that one is easy to figure out.  Its because 98% of all aspects of "medicine" is government regulated that ignores economic reality.  There's no free market, so theres no incentive to drive costs down, theres no consumer-driving pricing decisions because costs are all hidden with a third-party that also pays.  Add on all the usual political ideaological worrywarts and you arrive at a dysfuncational, stagnate ecosystem where power, hubris, grants, stature, reputation and profits are overwhelming incentivizing than a measly quality of care end result.

It bugs me because I can minimize my car insurance costs by behaving more responsibly and agreeing to take on more risk by canceling collision and comprehensive coverage, for example. But I can't really do that in the health insurance industry since healthy behavior doesn't seem to be factored into the premiums, and I can't really tell them not to cover certain things that I'm okay with paying for out-of-pocket.

Vote Republican?  The enemy of your enemy is your friend.

[MachineGhost]

Yikes! I just checked and the college group plan would be charging us $8,000/yr -- $667/mo! Then again, I did go to college in a market-interfering nanny state (NY). The rate for just me alone would have been $207/mo. Clearly our current coverage is a better deal.

Wow, that is crazy!  It should only be like $20 a month as a student available to purchase until you're 26, then you can stay grandfathered.  Then again its a liberal arts college so likely the economically-illiterate idiots in the administration got their faces ripped off by the insurance plan provider.  Can't say I'm too sorry about that!

I posted this before elsewhere, but you'd do well so to read it again: http://www.fff.org/freedom/0692c.asp