Healthcare Solution Part 2 – The Insurer Magic

Monday, November 18th, 2013

Step 2: Insurance Company Magic

Now that the government has all the money from everyone with a TID, it’s got to get those people insured somehow. Very simply, we slice the market up in terms of market share of the existing insurers. Currently, we would have to slice this on a per-state business, but that is a minor detail. We then assign the people to the companies as indicated. Because the government is paying the insurance companies, they dictate the plan features. The government then pays for the coverage of the individual.

Controlling costs
With the government controlling the allocation of funds, and the coverage being the same for all individuals, immediately some insurers will be able to insure at lower average cost. Why this is does not really matter at the start. But I’ll call it insurer “magic”. after year 1, we re-allocate people to the cheaper insurers. However if we reallocate everyone, that would cause volatility. So there is a cap to the number of people who an be moved out of a insurer.

What happens then is the other half of the magic. Insurance companies, in order to profit more, need to keep the policies they have and add more policies. How do they get more policies? They come in under the average cost. If they are within a quartile of the average then nothing happens. In this way, we can move people out from more costly insurers to less costly insurers. This creates a downward price pressure So everyone should see healthcare approach a cheaper cost.

This cheaper cost is set by market rates and will eventually reach a natural minimum. At that point the funds to operate the should very stable, and very much lower than they are today as a group, even though more people are covered, and lower individually as individuals. There are no explicit price controls.

Insurers will be forced to operate efficiently. Because all insurers are all doing one plan, all have the same challenge. We still have these grouped by geography, so that cost-of-living issues will not be relevant, as in Montana vs New York City.

Those companies with minimal overhead would have the most profit and will be rewarded with more policies, for more profit. The wasteful and more expensive companies will shrink or invent new magic to survive.

The plan is that simple: one minimal government plan, that all companies get a chance to compete on, with downward price pressure baked in.

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