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Insurance Company Abuses?

February 3, 2010

Chris Garlasco, Owner & Managing Partner - Founders Insurance Group

It’s hard to not watch the news of late and not hear the above term spouted off by some politicians. I heard it again during the president’s state of the union speech. So, are health insurance companies being abusive by refusing to insure those with pre-existing conditions?

The reason that we continue to hear from some politicians is that companies are either greedy or just plain evil. It’s an overly simplistic and populist statement concerning a complex problem. As one that believes that knowledge is power, I think that it’s important to understand the problem, and then we can choose agree or disagree. Before I begin, let me make two important points. The first is a point that I have made consistently on this forum and that is that the inability to obtain health insurance is a major problem that must be addressed. The second is that I personally fall into the uninsurable category myself, so this is not just a business issue, but a personal one as well.

Insurance is a product designed to help us afford another product that we simply can’t afford on our own. In this case, that other product is health care. The insurance product is no different than any other product in the marketplace today. If it costs you $2 to manufacture the product, it cannot be sold for $1. Following this logic, insurance companies cannot simply collect enough premiums to cover their expenses and claims. It is possible to insure anything as long as enough premiums can be collected. The insurance industry is regulated so prices must be approved by the state government. (How many of you didn’t know that?). The cost of the claims is so high in the pre-existing conditions group that the amount that would have to be charged would be astronomical and those rates would be very difficult to get approved and the product would be out of financial reach for many people.

Frankly, I have tried to be patient while those that are unfamiliar with the workings of insurance continue to call our industry greedy or worse. Truthfully, not only is it seldom based in fact, but it detracts away from the real problem. One hundred percent of the profit could be removed from the system and the problem would still exist and what little competition that exists today would be replaced by a bureaucracy that has a poor financial track record like Medicare. To make matters worse, just like the private sector, the government can’t sell something for $1 that costs $2 to manufacture either. Something will have to give somewhere. It will be high taxes or rationed care.

So are there solutions? The short answer is yes. Unfortunately they are complex and multi-faceted. It could be several more blogs to examine the possibilities. The purpose of today’s entry is an effort to bring understanding to the issue, something that seems to have been totally lost in the debate, often drowned out by populism and ideology. If the government forces companies to sell a product that costs our hypothetical $2 to produce for a market price of $1, the additional cost will have to be passed on to everyone else in the form of higher rates. This is a common outcome of mandates, but I digress.

In an effort to not totally dodge my own question, the answers lie in reducing health care delivery costs and that involves changes at insurance companies, increased competition in health care and in health insurance. Tort reform is another part of that solution as is giving the consumer a closer connection the actual cost of their care. The medical industry, the insurance industry, the government, the consumer and the legal community all would have to come together. That’s a tall order, but that’s where the true solutions will be found.

Have a great day!

Chris Garlasco

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3 Comments leave one →
  1. February 5, 2010 3:19 pm

    Chris, this is a fabulous post. I am often frustrated by people that don’t understand that an insurance company must make a profit to stay in business and that inadequate premiums will impact the ability to achieve this. I wish this could be printed on the front page of every newspaper in America and on all blogs and online news agencies.

  2. Chris permalink
    February 5, 2010 4:08 pm

    Thanks Pat! It has been a difficult year to hear some of the awful things that are being said day in and day out. Especially when the bulk of the stuff isn’t rooted in truth. Insurance is a tough subject to break down into 30 second sound bites.

    Chris

  3. Charity Garlasco permalink
    February 8, 2010 5:33 pm

    Great Post Dad!
    I’m going to pass this along to others my age so that they may obtain some grasp on the healthcare debate. Most are oblivious to the issues in healthcare and therefore believe whatever is written in the headlines.

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