Monday, May 31, 2010

More to Consider about Two Tiered Health Care

Governor Markell has portrayed his plan to charge new employees much more for their health care as saving the health plan and as having no impact on current employees.

In regards to saving the health plan, no evidence has been given that this proposal is fixing a specific problem in the plan or filling a cash hole in the plan. This proposal does not seem to have a direct claims to premium need.

Regarding the impact of the proposal on current employees, casting new employees overboard will not save other employees from rate increases. In fact, this proposal could have the opposite effect.

In any insurance plan, "adverse selection" must be avoided. Adverse selection is when some policy around the plan has resulted in more ill people entering the plan than would occur in random selection.

Now consider the radical proposal of this administration moving from the present situation in which basic health care is given at no cost to an employee, to charging new employees as much as 20% of their salary for family coverage. If one is a para-professional new hire making $17,228 a year in salary what will he/she do? In the interest of keeping a roof over the family's head, and doing other things like eating, the para-professional will probably not elect to take the insurance.

In the above scenario the para-professional will not take the insurance unless...unless he/she or someone in the family is already chronically ill. The only way the new plan makes economic sense for low paid employees is if medical expenses from a pre-existing condition warrant this exorbitant type of family expenditure.

Over a period of time the scenario plays out hundreds, and thousands of times until the extreme cost sharing has created adverse selection in the health plan. Guess what happens then. Then, you and I, current health plan members who "will not be affected" are now going to be paying much more for our insurance to correct the resulting imbalance in the plan's expenses.

Solidarity is not only moral, it also makes economic sense.

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