How are your health insurance premiums being spent?
Bermuda residents — do you know how your health insurance premiums are being spent? There have been discussions, knowledgeable questions and in some cases, vague, obtuse answers about the state of the health of our country and its health providers in the news this week.
Public companies and private citizens have expressed deep concern about the ever-spiralling financial cost of healthcare and insurance.
These are very serious questions for all of us to consider. Because you see, what lifestyle you espouse, and how you maintain your health (or not) within your control makes a serious impact in whether you become a habitual healthcare consumer or a very infrequent healthcare user.
This commentary is not about any individual or family who have suffered random life-threatening attacks or terminal illnesses. Those situations are beyond our control and comprehension while appalling in their destructiveness. Healthcare insurance is greatly supportive for those grievous times.
This is a story of biblical proportions — except it did not happen in biblical times.
It is, however, a true story. Circumstances, times, and locations have been altered for confidentiality.
It has to do with the process of insuring peoples health for minor and major catastrophes and how health insurance pools were managed. The story also addresses the perceptive comments (or misconceptions) that health insurance company providers are just cleaning up; that their rates are too high; and that they are just a bunch of greedy self-absorbed executives only interested in the bottom line. Yes, these are real comments, not a figment of my imagination.
Full disclosure. I am not employed in, or associated with, or own stock of any commercial insurance company in Bermuda that provides health insurance to the local or international market. Further, I neither make, nor receive referral fees or other inducements from these firms (such as a low insurance rate).
Read the following and let me know what you think.
It was a 1,600-member trade organisation comprised of owners of construction companies and related industries, i.e., drywallers, plumbers, electricians, landscapers, excavators, finish carpenters, architects and so on. Picture that each company employed ten plus employees. Each employee needed some form of health insurance; generally, just a single persons rate coverage was offered.
Business owners in the industry were feeling profit-line fade as the construction industry decelerated. Health costs, as an employee benefit, were never contained, always rising it seemed, faster than those same profits.
In addition, owners were responsible for workers' compensation insurance, unemployment insurance, payroll taxes, and a pension. The employee overhead cost to pricing job contracts had increased to 140 percent of straight labour.
The owners general perception, evolving during many organisation meetings on strategies to control competitive job costs, was that health insurance companies were gouging them. Why, they reasoned if more than 65 percent of their labour force tended to be young, generally healthy men — who often didnt want medical treatment even if necessary. One of those macho things, you know.
So, essentially, the owners felt they were funding older and less healthy workers in the rest of the large health insurance company health pool. Somehow, in this thought pattern, the health of the other 35 percent in their own organisation was not addressed. The feeling was — why provide a free insurance ride for these for-profit companies, when with planning, the organisation could establish their own self- funded cost efficient health insurance pool?
And so they did. A year later, the organisations very own self-funded insurance company was up and running. It was great. All owners dropped high rate charging commercial insurers, and switched.
Health premiums were low. Everyone was enthusiastic about this innovative strategy. Their actuarial assumptions were that unless there was a major employee health catastrophe (an outlier) early on, they could under price the commercial market health insurance premiums and still have large surpluses to carry forward.
Healthcare premiums poured in steadily for a year and a half. Care costs stayed relatively small and stable. Prospects looked amazingly good.
In two to three years, the plan could conceivably accumulate a large surplus of investable cash. The organisations executive began to review portfolio manager resumes, and to talk about how the eventual profits might benefit the organisation in other cost efficient insurance.
Workers' compensation, for instance, was another huge overhead burden for the industry, and in building ventures, someone was always putting nail gun shots through a knee, taking a fall through a chimney hole before installation, crushing fingers and so on.
Then, disaster struck.
Part 2 — a catastrophic event and different rates for different weights?
Martha Harris Myron CPA PFS CFP (USA) TEP is director of Tax Services at Patterson Partners Ltd providing integrated cross-border tax, estate, investment advisory and related strategic planning services through entities in Bermuda and the United States and a professional member of the American Citizens Abroad Professional Tax Advisory Council. http://www.aca.chFor additional information, please contact email@example.com or call 296 3528 http://www.patterson-partners.com
This article is general information only and is not intended for and cannot be used as specific tax, investment, or retirement advice, and cannot be relied upon for any personal financial planning purpose.
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