Profit premiums - Insuring to punish 'substandard' customers

Daytona News-Journal editorial
04-13-02

It's easy to forget that health insurance companies aren't in business to pay people's hospital bills, but to profit from people's good health. If you're healthy and insured, your premiums underwrite the insurer's profits while subsidizing the cost of other people's illnesses. It's not a good system, the aim being neither to help people stay as healthy as possible nor to keep health costs down. But for the majority, it's the only system available, much to the advantage of the insurance industry.

Despite the economic slowdown, the industry'sprofits have been very, very healthy. The nation's 34 largest insurance companies had combined profits of $13.4 billion last year, earning their stockholders better returns than the banking, auto, retail, food, health, entertainment and computer industries (among others). And that's taking into account a 30 percent decline in insurance industry profits when compared with 2000.

Among the money-makers: American Medical Security Group, based in Green Bay, Wis., whose profits rose 56 percent last year and whose stock was trading at a 52-week high last Monday. American Medical isn't a large company (its overall revenue was under $1 billion last year), but it is at the center of a controversial new trend that has the Florida Department of Insurance trying to ban it from doing business in the state, and that has other insurance companies watching to see if they should adopt American Medical's practices.

At American Medical, every visit to the doctor's office is like points on a driver's record. It worsens the policy holder's profile and pushes up insurance rates. People get scared of seeking treatment when they need it, get sicker in the long run, and see their insurance rates go up even more. It's illegal for an insurance company to cancel a person's policy. But the federal law regulating health insurance doesn't clearly forbid jacking up premiums year after year depending on an individual's health profile. American Medical takes advantage of the loophole. It's called "reunderwriting."

The company has created a tier system, branding its policyholders as "preferred" customers (the healthy ones), "manual" customers (not so healthy ones) and "substandard" customers (the chronically ill). Preferred customers get the good rates, substandard ones get shafted. Those who discover that they're afflicted with diabetes, say, or HIV, suddenly watch their premium costs triple. They can hardly afford to pay. They can afford dropping out of the system and looking for another company even less, since insurance companies can refuse to cover pre-existing conditions.

The bulk of American Medical's customers are individual policyholders, not members of a group plan (individual holders make up 10 percent of the insured). So far, American Medical's practice hasn't bled into group coverage. If it does, it would defeat the purpose of group insurance, where all premiums are equalized based on the group's health profile. Still, insurance companies are eyeing American Medical for ways to apply its strategies to their group plans. State regulators should keep that from happening.

Three states forbid American Medical from reunderwriting, while Florida's Department of Insurance is accusing the company of discriminating between customers and not warning them about price hikes. Clearly, American Medical's practices scream for stronger regulation, not emulation by other insurance companies.

Strictly speaking, conservatives were right when they claimed in the early 1990s that there was no health care crisis in America. Health care in the United States when you can get it is the best in the world. But there is an insurance crisis in America. Insurance is a privilege when it ought to be an entitlement. That people can now be subjected to a class system of benefits points to a worsening trend in an already unjust system.