Friday, February 17, 2012

Trends, Premiums and Disconnects

So yesterday I attended a CE (Continuing Education) class on Underwriting Principles; more specifically for large group (100+ lives) health insurance plans. I was not aware of that particular specification when I signed up (I studiously avoid that market), but am glad I went.

First, because if the carrier which presented the class could find a way to bottle the first hour and fifty minutes, they would have a superb homeopathic alternative for folks who need surgery but have issues with medical sedatives.

The last 10 minutes were actually fairly exciting: the presenter was discussing "trend," which is roughly analogous to medical inflation and which makes up a part of the overall rating process. In that context, he proceeded to "prove" that high deductible, consumer-centric plans are actually more expensive than lower deductible plans, and in fact a $0 deductible plan would have the lowest trend of all:
What that chart purports to show is that (all other things being equal) a lower deductible will result in a lower "trend."

This was too much for one person in the class, who raised his hand and said "I can see what you're doing, it's dishonest and I call bullcrap." Here's why:

When questioned, the presenter confirmed that a zero deductible plan would have the lowest trend of all. I then asked "well, then, why isn't healthcare free?" The presenter laughed that off, calling it absurd.

I smirked.

Because according to the logic of this home office critter, if a $500 deductible produced a lower trend than a $2500 one, and a $0 deductible was preferable to $500, then it only stands to reason that giving away care would then result in negative trend.

Now who's absurd?

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