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What Are Private Insurance Exchanges?

Posted Sep 22 2013 3:55pm
Stanley Feld M.D.,FACP,MACE

Corporations have been providing healthcare insurance since after WWII. The cost of healthcare insurance has been rising since.

The increase in premiums became intolerable in the 1980’s when cost shifting occurred. Medicare decreased reimbursement and the fees were shifted to private insurance.  Several experiments in healthcare coverage were tried to reduce the cost to employers. All the schemes failed to control costs.

The schemes include managed care and HMO’s. All the insurance schemes were defined benefit plans. Employees were immune from responsibility for themselves or their healthcare dollars.

As the costs have risen to unsustainable levels corporations have been trying to figure out how to get out of providing healthcare coverage for their employees as a benefit.

Most employers, large and small, want to limit their exposure to healthcare premiums and Obamacare penalties.

A movement to limit employment to less than 30 hours a week to avoid providing healthcare insurance to employees and avoid Obamacare penalties has become viral.

I have argued that this perverse incentive can lead to all the other perverse incentives initiated by the rest of the stakeholders in the healthcare system in order to survive.

Once more the healthcare insurance industry figured out how to increase their profits while making it appear they are helping both employers and employees.

It must be remembered that the healthcare insurance industry profits through both private insurance and government provided healthcare coverage.

The industry makes its profits by providing administrative services. The government outsources the administrative services to the healthcare insurance industry.

The profit generated in both the private sector and the government sector is far from transparent.

The healthcare industry’s new scheme converts defined benefit coverage to defined contribution coverage for healthcare benefits.

In recent months we have seen large corporations switch their employee healthcare benefits to defined contribution programs.

A partial list of companies includes Walgreens, Home Depot, Sears, Trader Joes, Xerox and IBM retirees.

Rather than provide a healthcare insurance coverage benefit through the corporation, the corporation is providing employees with a defined contribution each year. The employees can then buy their insurance through their employer’s contracted Private Health Insurance Exchange.

The principals of healthcare coverage include all of the basic requirements of Obamacare’s Health Insurance Exchanges. Employees having a preexisting illness must be accepted. However, premiums might be higher for patients with pre-existing conditions.

The defined contribution amount has not been defined. It could be a couple of hundred dollars a year to a couple of thousand dollars a year. In any event it does not sound as if it will be enough to cover the cost of the healthcare insurance premium.

There will be high deductible plans with patients not covered for the deductibles and co-pays.

If an employee doesn’t like what he buy in the companies Private Insurance Exchange, he can always sign up for Obamacare’s Health Insurance Exchange.

It sounds great for the employer because the employer can predict costs. It is wonderful for the healthcare insurance industry.

It sounds terrible for the consumer.

It sounds both good and bad for the government. It depends on how one looks at it.

The Obama administration will have more people sign up for Obamacare’s Health Insurance Exchanges. The result will be greater control over the healthcare system. I believe this is the reason the Obama administration has not opposed the Private Health Insurance Exchanges.

However, the consumers signing up for Obamacare Health Insurance Exchanges will be the sickest consumers. These consumers will use the system more than average.

This will result in an increase in the deficit and unsustainability of Obamacare. The only way out is to increase premiums and taxes.

This is called a “redistribution of wealth” because people making up to $40,000 per year do not pay taxes. If the tax increases are means tested it will increase the amount of wealth that is redistributed will increase.

The increase in taxes will decrease economic growth.

At the present time Obamacare’s Healthcare insurance Exchanges do not have verification software. The system is vulnerable to fraud and abuse even if it could work.

America is just becoming aware of the fraud and abuse in the food stamp entitlement program. The food stamp entitlement has double. The government has not fixed the food stamp program.

It is likely the same thing will happen with the government run Health Insurance Exchanges. It will drive the federal deficit even higher.

Even though the Private Health Exchanges shift financial responsibility to the consumer to pay for their own insurance it does not provide financial incentive for patients to become responsible for their health.

It does not contain educational programs to help patients deal with their chronic diseases. It does not teach consumers to be responsible for their health and healthcare dollars.

Obamacare does not provide these incentives either.

The opinions expressed in the blog “Repairing The Healthcare System” are, mine and mine alone

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