Asking the Wrong Questions...

Recently, I received an email from a good friend (who is NOT a client) lamenting the latest increase in his family�s health coverage. I happen to know that said coverage is through a well-known and well-established carrier, and is in fact an HSA plan. He wrote �(m)y Health Insurance premium just went up $400!� Now, there was no indication as to whether that was $400 a month, or a year, nor did he mention what percentage of his premium that $400 represented.

And really, that�s the important number: absent some yardstick, there�s no real way on knowing just how grievous that rate increase is. Look at it this way: if his annual premium before the rate increase was $3500, then a $400 dollar increase is about 12%, which isn�t really all that hateful. But I really don�t know, because that information is missing. The reason I mention this is that I often get calls from folks who give me raw numbers, but with no context, so I have no way of knowing whether or not I can help them.

The email went on to report that when he called the carrier to question the increase, he was told �TO BE THANKFUL that it was only a $400 raise - that most parts of the country went up 30%.� Now, the company rep shouldn�t have been so blas� about something so important, and it really doesn�t matter what rate increases other folks got.

The email concluded by asking �(w)hen will WalMart buy some hospitals and offer their own health care?� That�s really two questions, each easily answered: 1) never and 2) they already do.

All of which is background to the real point of this post [ed: �bout time you got around to that!] which is my reply to him: �You�re asking the wrong questions.�

So, what are the �right� questions?

Let�s start with the premise that my friend is hardly an exclusive case: lots of folks have health had their health plans for a long time, and have become frustrated at the ever-increasing rates. There are two primary reasons that one sees substantial rate increases on older business: one is �stale underwriting,� and the other is the legendary �death spiral.�

So the first question is �what�s stale underwriting?� The second is �what�s the �death spiral?� and the third is �what can I do about either or both of these?�

We�ll answer the first two questions in Part 2, and the last one on Part 3.