A New, Better Model for Finding Low Cost Health Insurance

Posted by Ryan McCostlin on Wed, May 09, 2012 @ 15:05

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Insurance Advice: Low Cost Health Insurance

Most Americans who have private health insurance purchase that coverage through their employer. As a result, Americans are relatively familiar with how group health insurance works. It’s usually subsidized by an employer, and the majority of employers pay more than 50 percent of the premium.

The individual health insurance market is less familiar. Without an employer subsidy, individuals must consider the real cost of health insurance, and many forgo health insurance altogether. Americans need low cost health insurance. Of the 49.4 million Americans who were uninsured in 2010, many could afford it but didn’t want to pay for it. The Employment Policies Institute estimates that about 43 percent of uninsured nonelderly adults have incomes greater than 2.5 times the poverty level. Historically, some of these consumers have waited until they felt like they needed healthcare services before buying coverage, resulting in higher premiums within individual insurance pools. This phenomenon, well known to actuaries, is called adverse selection.

It's within the patchwork payer framework of American healthcare that we are seeing two key trends and one key insight that point toward a shakedown in the way health insurance is distributed and purchased. 

The first trend is that more consumers are entering the market for individual health insurance plans. Starting in 2014, Healthcare Reform mandates that individuals who don’t have employer based coverage must buy individual health insurance or face tax penalties. This new market could be upwards of 30 million consumers, and the Medicare market is also primed for growth. As of February 2012, approximately 10,000 Americans are turning 65 every day. Over the next twenty years, the number of people on Medicare is expected to rise from 45 million to 75 million.

The second trend is that health insurance companies are reducing commissions for health insurance brokers. As of January 2011, health insurance companies must spend no less than 80% of revenue from health insurance premiums directly on healthcare. To trim administrative costs, many carriers reduced commission rates. When state-run health insurance exchanges go live in 2014, broker commissions may even be state-regulated.  

In addition to these two trends, there is a key insight that makes individual health insurance unique. Indeed, many people sense that health insurance is different from other kinds of insurance without putting their finger on why.

Here it is. Unlike other lines of insurance, e.g. life, auto, home, property and casualty, etc., there are government subsidies and programs as well as private market products available to consumers that no insurance agent is incentivized to learn about and subsequently share with clients. Programs like COBRA, the federally created Pre-existing Condition Insurance Plan (PCIP), Guaranteed Issue Plans, and products like Short Term Health Insurance are neither well understood nor widely embraced by the public.

From the perspective of the consumer, the experience of shopping for health insurance is more like filing taxes than shopping for auto insurance. There’s a good reason for this; in all existing distribution channels, insurance agent compensation comes from commissions paid by health insurance companies. For the aforementioned programs, little or no commission is earned for helping consumers enroll, so there’s no financial incentive for anyone to become an expert. 

So what? 

So, a new model is emerging that solves this problem for consumers. Because of the two key trends and one key insight described above, the market is already embracing fee based health insurance advisory.  This model is being pioneered by Bernard Health in two markets already.  In Nashville, Tennessee and Indianapolis, Indiana Bernard Health offers fee-based health insurance advisory services to individuals and families in a retail store setting. For flat fees ranging from $49 - $399, clients can walk in, talk to a non-commissioned advisor face-to-face, and get the kind of health insurance advice that isn't available by calling a health insurance carrier's 1-800 number or doing research online. Seriously. Check it out:

The result is that Bernard Health clients save an average of $2,000 annually on health insurance related expenses.  They also save time and get peace of mind that they're not making costly mistakes navigating the complexity of the individual health insurance market. In an industry confronted by increasing complexity and decreasing broker compensation, consumers need more help than ever. And that's the problem fee-based health insurance advisory (pioneered by Bernard Health) solves.  

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