Grace Financial Service Associates

The Latest News On Healthcare Reform - Double Dip Recession?

How the Healthcare industry and the new reform bill will with contribute to a double dip recession, and possibly worse.

Lately you have been hearing a lot of gloom and doom about our economy and possibly a double dip recession. Many are saying that we are headed for one. That said, I thought that I would take some time to write this article and offer some perspective on how the health insurance world could in fact trigger the double dip all the experts are talking about.

One of the many benefits to selling individual health insurance is I get an inside look at the economy before it actually plays out by listening to why people cancel or purchase their Health Insurance. There are many reasons, but the typical answers are these.

People typically purchase Individual Health Insurance because:

1. They are just out of college and need a plan
2. They have recently lost group benefits from work and were laid off
3. They added a member to their family and they want to look into different coverage
4. They are self employed
5. They recently had their benefit contributions cut by their employer who will no longer be covering the spouse and children with the benefits they once did.

That said, if you see trends in these reasons then you can come to a pretty strong understanding which way our economy is heading. After all, if most of the business you are writing is because your clients call you and say, "Michael, I just had my group benefits cut back at work since the company is trying to save money. Are there any plans that may be better options for my kids.", rather than, "Hi Mike, I just opened my new business and I need health insurance", then we should be able to deduce that things are tightening. Even if the stock market went up 300 points that day, I believe a more important factor in figuring out our economy are trends that occur with everyday working folks and why they are purchasing things.

While the reason why people purchase is a good indicator of the direction of our economy, I believe the stronger indicator is why they cancel their insurance. There are only a couple reasons to cancel insurance.

The majority of people cancel their Individual Health Insurance for these two reasons :

1. They got a great job and the employer is giving them great benefits.
2. They have received an increase notice and can no longer afford it even if they increase their deductible.

Is the economy about to double dip? Let examine the facts.

So far, this month, 5% of my entire portfolio of business has canceled their policy. Five percent is the most in any month since I started Grace Financial Service Associates over 2 years ago and I can assure you that it's not because of customer service issues or their agent being a dolt and not knowing what he was doing. I take pride in that fact that we know the individual health insurance market as well as a construction worker knows his hammer.

Let's look closer. Of that 5%, all but one client canceled due to issues with affordability. Upon inspecting other options for the clients that may be cheaper, by possibly changing benefits or increasing their deductible, it was discovered that we were not talking about, "do I get health insurance or go the bar", or "do I cancel my gym membership so I can hold on to my health insurance" type of issues. No, far from it. These were, "I can afford my mortgage or health insurance" types of issues. Issues so large that one client said, "I have pretty much cut everything else out, I know I need it, but I can't find work. I have to cancel". So are we headed for a double dip? Let's examine further.

Implementing reform was necessary to help people with pre-existing conditions get health insurance. However, it is my opinion that the bill was rushed and the timing could not be any worse economically speaking. You may disagree, but let's look at what lies ahead. On January 1st of this next year all the Health Insurance companies are going to have to meet the 80% medical loss reserve ratio requirement due to the new legislation, up from levels of 50% to 65% currently depending on where you live, and kids with pre-existing conditions will no longer have any claims denied, pre-existing conditions or not. In case anyone is not familiar with reserve ratio requirements it is defined as, "The ratio of incurred claims to earned premium for the prior calendar year". So, if we add more unhealthy people, in this case kids, to an insurance companies books, that means more claims. If there are more claims, that means more reserves/premiums needed to meet the new 80% reserve ratio required by law. Reserves don't come from thin air and they can't tax the richest 5% to get them. In order to compensate for this new legislation, everyone's premiums will have to increase, and healthcare costs will be going up. If no one can afford to pay for those increases because they are unemployed or struggling with a bad mortgage, how do you think that is going to affect our economy? How many people do you know who are unemployed or trying to restructure a mortgage?

So are we headed for a double dip? One thing is for sure, by January 1st we will all see a large spike in premiums once they figure out how many additional claims unhealthy kids will add and what new dollar amounts they will have to have in reserve. If we somehow manage to survive these increases in this "slow" economy, then you have 22 million other unhealthy people to add to the books by 2014.

Double Dip? You decide.

Past articles on Healthcare Reform