On Tuesday, September 3, the Minnesota Health Insurance Exchange’s telephone help desk went live. Next month, MNsure, Minnesota’s health insurance marketplace, launches. And, in the eternal struggle between the informed health insurance providers and considerably less informed health insurance consumers, consumers gain ground.
Health insurance companies are masters of information collecting, analyzing and projecting. That’s what they do. Insurers evaluate risk, anticipate likely outcomes and create an insurance product that draws customers and earns a profit.
An entire branch of mathematics, actuarial sciences, essentially exists to serve the insurance industry. By creating complex statistical probability tables, actuaries turn risk into insurance pricing. They achieve this by assembling as many data points related to an outcome, such as predicting lifespan, and calculate the probability that the outcome will occur within established financial obligation parameters.
Risk pool size is important. The larger the pool, the less likely outcomes will deviate from the norm. The norm is, in short, the most likely outcome. If my pool size is 100 people and experience tells me that 10 people will break a bone within a year, I can reasonably project that 90 people won’t break a bone. That’s the norm, the nine-in-ten chance that something won’t happen.
Insurance companies are better at risk analysis than you or me. That shouldn’t come as a surprise. Recall the last time you did something on a hunch as in, I have hunch that the Vikings will beat the Packers. As an article of faith supporting the home state team, your hunch translates as spirited support of the Vikings. Betting money, however, is an act of calculated risk assessment. The goal is winning the bet, receiving the wagered principal plus profit.
There’s just one problem. Data analysis of relevant performance factors suggest that my Viking victory optimism isn’t supported by the data.
The betting industry created the point spread to level out risk and keep the wagering roughly even. Let’s say the probability of the Vikings defeating the Packers is 40 percent. Further analysis suggests that Packers will win but by less than 7 points. The wager’s return reflects the risk that the probable outcome will occur. The real gambling action then turns, not on simple victory, but on the likelihood that performance meets expectation. The greater the deviation from the norm, the greater the risk of loss but also the greater the potential for a stronger financial return.
Purchasing health insurance isn’t remotely similar to betting on football, thank goodness. As consumers, we’re really doing two things when we purchase healthcare insurance. First, we’re joining a purchasing pool that negotiates volume healthcare services pricing. Second, we’re insuring ourselves against overwhelming, debilitating healthcare costs commonly associated with unlikely health problems. Like cancer or heart disease. The best predictor of personal bankruptcy and home mortgage foreclosure is a catastrophic disease diagnosis. Health insurance lets us pay a modest amount of money to offset massive financial risk.
Now, this sounds all nice and neat but as we’re experiencing, healthcare service pricing and delivery is a monstrously complex and convoluted system. As individual consumers, we have basically no idea why anything in healthcare costs what it costs beyond the vague pricing theory outlined in that introduction to business class. Here’s a refresher: raw or wholesale stuff costs money plus a mark-up for profit equals price. Without insight into raw materials and labor costs consumers make purchasing decision with imperfect information. They rely on a competitive marketplace to produce a fair, reasonable price.
Employer-provided health insurance benefits is almost entirely a post-World War II phenomenon. But, what was an easily-managed, relatively low cost benefit is no longer easily managed nor low cost. Medical advances have extended and dramatically improved the human life span. Formerly terminal diseases are now manageable but at a new, higher cost structure. The old health insurance model’s inadequacies and limitations compelled change. What President Harry Truman outlined nearly 70 years ago, President Obama and the 111th Congress passed as the Patient Protection and Affordable Care Act in 2010. Key to successful implementation is more risk assessment information for consumers.
Minnesota is taking an engaged, proactive approach to creating the healthcare insurance exchange, the public clearing house for health insurance plan purchasing. Minnesota’s conservative policymakers refused to participate in every phase preferring, I guess, the older healthcare model, the one that’s grinding to a halt.
More information doesn’t directly lead to improved outcomes but acting on imperfect information creates a riskier, family and community destabilizing result. We’re all going to become much better, more sophisticated healthcare insurance and services consumers in the next generation. MNsure’s helpline is a welcome, long anticipated step in the right direction. Call now. 1-855-366-7873. The lines are open. Operators are standing by.
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