One Step to Fix the Health Insurance Problem

What difference can one person make? A lot when it comes to health insurance. My company recently hired one person with a pre-existing health condition in the family. The change in health premiums? More than $24,000 a year. That’s a 42% increase in our annual premiums due to one health issue.

And that’s why we have nearly 44 million uninsured people in this country. Neither employers nor individuals in low-wage industries can afford the cost of insurance when a serious health issue is involved. And the way group health insurance works in the U.S. makes it almost impossible to work around it.

Take my situation, for example. Due to the nature of the work, our average wage is right around ten dollars an hour. Economics keep us from paying any more than that. Yet the one employee above requires health insurance that costs more than $11.50 an hour, which is on top of her normal wage. That alone makes the employee uneconomical. He or she will not be able to generate enough profit to cover the cost of insurance.

So I have three options (keeping in mind that I can neither legally nor ethically fire the person). I can eat the cost myself, which I cannot afford. I can pass the cost on to my employees, which they cannot afford. Or I can drop coverage altogether, in which case we’ll have twenty more families without health insurance.

If I pass the costs on to the employees, it can be expected that a number of them will drop the coverage. If we lose any more participants, we will drop below the 50% participation threshold insurers require to provide group coverage. That requirement exists so that carriers don’t find themselves covering just the sick.

But that’s precisely what happens. I already have healthy, young employees who have found individual coverage that costs far less than it does to participate in our plan. The only ones who remain are those with health issues.

One thing that would help would be the ability to join a larger group so that risk gets spread around, but the way it works now – well, it just doesn’t work.

That’s because even when part of a group – say the chamber of commerce, for example – each employer is still considered a separate group within the combine. So risk is not spread and small employers still bear the brunt of high-risk workers.

Even when groups treat all employers as one large risk pool, when high risk members join, the group’s premiums increase. Insurers then come in and cherry-pick the low risk employers with promises of lower premiums. The program eventually crumbles under oppressive premiums as only the highest risk employers remain.

So what’s needed is to find a large group that small businesses can join which will spread the risk, without fear that the larger group will bolt the program.

One such group exists – federal government employees. They have negotiated benefits administered through private insurers. It is not government health insurance. But it consists of a large, diverse group that would spread the risk far and wide. But more important, federal employees would not be able to flee the group in a way that now leaves small employers in the lurch.

Let small employers buy into that plan and they might no longer face premium increases of 42% because of one unfortunate health situation. And we might actually see a few of the 44 million uninsured finally get coverage.