Why is Insurance So Expensive?
Filed Under (Health Insurance Premiums) by Group Health Insurance on 01-07-2009
Tags: cost of health insurance
I posted the following question in one of the insurance forums I belong to:
Do you have health insurance? If so, are you covered under your employer’s plan or do you have an individual plan?
I asked this question because I wanted to try to get a sense of the truth to the numbers being published about the number of uninsured people in the US.
I received a very comprehensive answer about the cost of insurance from John K. Arnold, a Managing General Agent in the health insurance business based in Orlando, FL.
I’m posting his answer here because I think it is important that you understand why health insurance costs what it does and it is this cost that leads so many people to not get the coverage they need.
Insurance rates reflect the costs of claims and the regulatory and taxation costs. For example, the monthly payment on a $60,000 car would be higher than the costs on a $10,000 car. A lot of confusion and emotion comes in because health insurance is not insurance in the pure sense of insurance. Insurance is to help protect against an uncertainty and risk. There is no other type of insurance that takes on certain risks and costs.
Insurance costs are high in the US because healthcare costs are far and away the highest in the world. Our insurance rates reflect our healthcare costs. Healthcare costs go down and insurance would go down. Health insurance companies operate on very small margins. Many companies leave the business because they lose money. They are required to have large reserves to cover losses.
Cobra rates are what the employer rates are. If a family rate is $1200 for the employer, then the COBRA would be the same or up to 2% more, no higher. This is a shock to many people as they only see their portion of the costs.
This brings us to what causes a lot of confusion. Most of what people see is really employee benefits, which is a form of compensation. It may include health insurance, but should be seen in a different light. It is part of an employee’s compensation. The employer is compensating the employee with healthcare benefits.
BTW, turning 50 and being a member of AARP will not lower your rates. AARP is not an insurance company. It is an association. Insurance rates are regulated by the state departments of insurance and the same plan offered through AARP or not through AARP has the same rates by law.
You can visit John’s websites here: Florida Health Insurance and Insurance Network
