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August 18, 2009

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Greyshadow

First, let me give the caveat that I am in no way agreeing with what I am about to write. Here's the explanation I have been given and have pieced together, since my job deals with health insurance every day.

Insurance is based on risk and gambling. Insurance companies are there to make a profit. They do so by selling policies. In exchange for your premium, they agree to take on the financial responsibility if you have a covered loss. They want to win the bet, that you’ll buy a policy but never need it.

They price the policies based on risk...how likely are you to have a covered service. For auto insurance, they look at your age, the type of car you drive, the area you live in and your personal history of claims and come up with how likely you will have a claim in the future and how expensive will it be. Hence, teenagers and elderly are more expensive than middle aged females, cities are more expensive than country, etc. But, keep in mind, auto insurance companies can and do deny people coverage every day. People who have a history of a lot of accidents and losses are considered uninsurable. The likelihood of having the amount of money they spend on you being higher than the amount you pay them is too great for them to risk it. They know they will lose. So they will not offer a policy. The only option they have is to purchase a high risk policy, often through their state.

Individual health insurance is becoming the same way. Previously, the health insurance companies made enough of a profit off of other people so that they could continue to offer policies to high risk members. Now, with health care expenses out of control, most companies cannot afford to continue this policy. There are high risk policies available through each state but many commercial insurance companies would have such a high premium that the policies won't sell.

Most people are not impacted by this, since we live in a country where most of us get our insurance through our employers. Under employer plans, the insurance company does not price the policy per individual, but instead per group. They cannot turn down any one employee...everyone in the group must be allowed to join at the same premium.

The only issue for most people is if your plan has a lifetime maximum. Many plans have stopped doing this, but some plans still have it. A lifetime maximum means that the policy ends once a certain dollar amount has been paid out by the insurance company. Once that happens, the policy ends. A lot of people dislike this. The thing is, you get what you pay for. Policies with the lifetime maximum cost less than policies without them. It's like auto insurance...I can pay a higher premium and have a low deductible, or I can pay less and have a higher deductible. I can pay more to add the towing package and the free rental car to the policy, or I can eliminate them and pay less. I can't expect to pay less but get the higher benefits.

What sucks though, is that most people don't have a choice between a plan with a lifetime maximum or a plan without. Their employer may only offer plans with a max, even if that isn't in the best interest of the employee. I wish employers gave more options to employees, letting them choose which plan works best for them, so that no one would run into having something catastrophic happen to them and suddenly lose their insurance.

I deal with this every day at work, and it breaks my heart when people hit their maximums and suddenly have no coverage. We try to help them find other policies...sometimes we're successful, other times not. I'm glad at least soon we'll have the mental health parity act active. As of 1/1/2010, any insurance policy that covers mental health and substance abuse can no longer apply different limits to these services than medical services.

Now for the rest of the insurance industry to get reformed…

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