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Where’s My Presidential Outrage?

February 26, 2010

[Editors Note: It has come to my attention that Wellmark and Wellpoint are two different companies altogether, with the latter being responsible for the mishaps in California, and the former being the subject of my letter. I apologize for the confusion.]

I have an individual health insurance plan from Wellmark, and I just got a letter in the mail stating that they are raising my premium 17.25%. However, there seems to be some level of price discrimination, as a cursory look over possible plan changes means I can switch to a higher deductible and save money.

So where is my presidential outrage? Never mind, Obama can save it. Lets look at some variables, though.

What is known?

  • That my new premium is going to be $195.75 (comprehensive) if I don’t change plans.

What is unknown?

  • The total cost of my use of medical services over the next 12 months.
  • The prices of those medical services.

These are two very important variables, because they may justify the price increase. The first is fairly predicable. I will generally have a stable equilibrium in my use medical services, as I am young…so I could model this variable fairly accurately if I knew the price of medical services. However, I don’t…nor do I know how I would go about finding them. This is the information asymmetry problem in medicine. I can never know if $195 a month is worth the price because I don’t know what the prices are! So doing some math, I have a yearly fixed cost of $2,349, with a deductible of $1,500. My total medical consumption has to equal $5,349 worth of value to break even for the year; since what I have is not insurance, it is pre-paid medicine. Now, since I’m not at all sure what the cost of each procedure is, and it’s only $30 out of pocket for my co-pay…I have no real measure of value at all.

Going back to some previous figures, my alternative medical spending would total $1,370[1]. That is a 74% decrease in my medical expenditure by simply advertising prices, shifting my consumption patterns.

What would a 74% decrease in per capital health spending the the US look like? $1,664.26.[2]

Bottom Line: The problem in health care? LACK of a market.

____
[1]Assuming two visits a year for routine checkups and one (easily) treatable illness. As a hypothetical, increase my number of (easily) treatable illnesses to four. In that case, my total spending would increase to $1,580, but my decrease in spending would still be 70%!

[2]This is a fallacy of composition. Do not take it literally, I’m using it to illustrate dramatic possible savings for some groups…some groups’ spending may increase, but I think it would balance out at a lower equilibrium…possibly around Denmark?

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2 Comments leave one →
  1. Rob Schweers permalink
    February 26, 2010 2:05 pm

    Niklas:

    I read your post with interest – you are obviously well-versed on health insurance and costs.

    I would like to point out that Wellmark is different from Wellpoint. While both are independent Blue Cross and Blue Shield plans…

    Wellpoint is a publicly-traded plan operating in many states.

    Wellmark is a mutual, owned by its policy holders and offering products in Iowa and South Dakota.

    We do take rate increases seriously, as they have a very real effect on our members. Wellmark is also working to mitigate the impact of future increases by working with providers and members to make our health care system sustainable.

    Thanks, and have a great day –

    Rob Schweers
    Wellmark Blue Cross and Blue Shield
    Des Moines

  2. Ryan Vann permalink
    February 26, 2010 5:12 pm

    Hahaha, you just angered some executive at Wellsfargo (Wells something at any rate) health care. I think you found a new traffic driver.

    Anyway, I agree with you 100% here. As far as the young are concerned, the best insurance plan is a transparent market. My employer literally wastes about 10k a year on my insurance plan (who I will not name as to avoid drawing the wrong attention.) Is there any way in hell I am going to require 10k in health services? Probably not even 1k, but that’s the plan they offer, and I can’t just ask for a higher wage instead.

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