Medical costs drive insurance premiums

John Winn Miller’s “Why selling health insurance across state lines won’t work” is point on. As a licensed insurance agent with 23 years’ experience in the individual and employer-sponsored group markets, I can only say amen.

Insurance companies base their prices on risk. Period.

If carriers from other states decide to open up their coverage to Kentucky residents you can be sure that they will first understand the risk. Correctly calculating risk and properly managing it are the only ways that insurance companies make money. And all cynicism aside, we depend on insurance companies to make money. After all, there are no provisions in the Affordable Care Act (Obamacare) or in any of the Republican replacement proposals that allow insurance companies to print money.

What does all of this have to do with selling across state lines? Nothing. That is unless you depend on it to reduce insurance prices. It won’t. Health-care costs determine risk and risk determines almost all of what goes into insurance rates. Looking elsewhere to reduce insurance rates is simply chasing after fool’s gold. Selling insurance across state lines will not cure cancer, heart disease or mental illness. Allowing sales across state lines will not bring down the cost of drugs, hospital stays or outpatient treatments. Nor will it encourage healthier life styles, smarter usage or better outcomes. Any price changes attributed to competition across state lines will be short-lived and priced back into the next renewal rates (please refer to insurance companies not being allowed to print money) .

Health insurance premiums are essentially the tab for our collective health-care consumption. And it is very easy for insurance companies to determine the cost of our past consumption and predict with amazing accuracy what the near-future consumption costs will be. They see every claim, code every check and know all of our co-pays and deductibles. They see each diagnosis for each prescription and each treatment. Their medical analysts understand as well as, if not better than our own health-care providers, where all of this is headed. That is how risk is determined and risk, more than anything else, determines the price of insurance.

State lines will not act as cost filters. They are simply arbitrary boundaries that insurance companies can use in identifying where the risk lies. Selling across state lines is fine as long as it can be properly regulated (a topic for the state insurance regulators to address), but it will not bring about lower, sustainable insurance rates.

Congress and the president are certainly capable of doing a better job at identifying and fixing real health-care cost drivers than by drawing our focus to this red herring. Look over there!

At issue: March 22 op-ed by John Winn Miller, “Why selling health insurance across state lines won’t work”