Trend

As I have mentioned before, I was a health insurance actuary for over 30 years and one of my functions was to develop the price scheme for health insurance. I’d get asked what I did and after I’d explained it, I’d often get asked why the cost of health insurance was so high. After a while, I’d just point back at the person and tell them that it was all a function of you.  Let me explain.

For the rest of this devotion, I need you to think like a street actuary. A street actuary is a person who looks at something logically and without emotions for the cost impact. Some of the most talented non-actuary people I’ve known, I would describe as a street actuary. I, myself, have been referred to as a street lawyer for my limited ability to think like a lawyer.

If you were in charge of say, setting the price of screwdrivers that your company made, what data would you need?  Well, you would need some estimate of how many your company intended to sell and how many employees were needed to make that quantity. You would also need to know the cost of the material (plastic for the handles, steel for the screw driver, cardboard and plastic for the packaging, etc.) to make them. Put it all together with a few more pieces (electricity, heat, overhead, profit) and you estimate what you need to sell them for to meet your plans.

Health insurance is exactly the same. Since about 85-90% of the cost of health insurance is claims that providers (doctors, hospitals, pharmacists, etc.) submit on the patient’s behalf, I want to focus on this piece.  ou’re thinking, big deal, you just take last year’s cost and give them an increase for inflation (2% is the Fed target in their money policy) and that’s a start’ish. The problem is that inflation or the cost increase of a particular service or product from one year to the next is not exactly the same for each item. Unfortunately, medical services have historically had a higher trend than the average (things like computers have a lower than average annual increase). 

But wait, there’s more…Medicine is constantly changing.  Another influence to the health care cost is utilization or how many of those services or products people use. For example, we’ve probably all heard about the drug that helps people lose weight. It was originally developed as a medicine for diabetics but now the use of that medicine is exploding due to the additional usage. 

But wait, there’s more…Not only is the usage increasing but new products and services are being added. Going back to the diabetes drug mentioned above, it has only been on the market for about 10 years. It didn’t exist at all before that. When it was introduced, it added use when doctors started prescribing it.

And finally, miscellaneous impacts like legislative requirements (it’s almost a full time job just keeping up with them) usually add to the costs by requiring insurance companies to cover things that they may not have covered in the absence of the mandate.  One of the things that happened while I was working was a mandate for health insurance coverage for autism (there’s been a huge philosophical debate about how society should shoulder these costs that I don’t want to get into). Regardless of whether you think the legislature should or shouldn’t have mandated insurance polices to cover these costs, one day they weren’t required and the next day they were adding to the cost of the health insurance plan.

If you’ve stuck with me so far…we all desperately want to find a bad guy in every unpalatable situation. Someone we can punish.  Unfortunately, that isn’t the case in most situations. I’d love to tell you that this company is bad when they raise prices and show a bottom-line profit but that almost always isn’t the case. I’m pretty sure I’ve read that Kansas has had laws against price gouging on the books for decades and never prosecuted anyone for it.  There are lots of factors that go into company raising prices and making so much money that customers stop buying their products isn’t one of them.

“And in his teaching he said, ‘Beware of the scribes, who like to walk around in long robes and like greetings in the marketplaces and have the best seats in the synagogues and the places of honor at feasts, who devour widows’ houses and for a pretense make long prayers. They will receive the greater condemnation.’” - Mark 12:38-40 ESV

“Brothers, if anyone is caught in any transgression, you who are spiritual should restore him in a spirit of gentleness. Keep watch on yourself, lest you too be tempted. Bear one another’s burdens, and so fulfill the law of Christ. For if anyone thinks he is something, when he is nothing, he deceives himself. But let each one test his own work, and then his reason to boast will be in himself alone and not in his neighbor. For each will have to bear his own load.” - Galatians 6:1-5

It is amazing how we want to find someone to blame other than ourselves.