A business opportunity

Once the Obamacare Exchanges get going in 2014, everyone not in Medicare or Medicaid is going to have to either buy acceptable private health insurance as defined by the Federal government (with some exemptions for various things) or pay a penalty. The penalty is going to start at 1% of a person’s income in 2014 and rise to 2.5% of a person’s income by 2016.

Let’s take a best case scenario (also known as a fantasy) and assume I can buy health insurance for $100 per month, $1200 per year. I would have to be making $120,000 per year in 2014 in order for the penalty to be more expensive than the health insurance. If I make less than $120,000 then so long as I’m reasonably healthy it’s not in my best interest to buy health insurance. I know I can purchase insurance whenever I need or want it so the smart thing for me to do is to pay the penalty and put the difference between the penalty and the insurance premium into a savings account. I can use the money in savings to pay for ordinary medical costs like checkups and even dental care (which is not covered under Obamacare). If I become seriously ill, I can simply purchase insurance then - the insurance companies aren’t allowed to turn me down just because I’m already sick.

This plan works fine if the future illness is slow-moving. If I’m diagnosed with cancer, for example, I’ll almost certainly be well enough and have time enough to arrange for health insurance before I start incurring huge medical bills. Ditto for major degenerative diseases like multiple sclerosis. But what happens if I’m suddenly, catastrophically ill?

Let’s say I have a massive heart attack and am unconscious for days while the doctors struggle to save me. My medical bills mount to the rafters. I can’t apply for health insurance; I’m unconscious. My family could and I certainly think anyone who elects to wait for an illness before purchasing health insurance should make sure his family has a limited power of attorney that enables them to purchase health insurance on his behalf. But what if I have no family or by the time my family is contacted by the hospital and collects itself together enough to do the paperwork, I’ve already run up huge medical bills? That’s easy to do in the case of heart attack or stroke or being hit by a bus. Here’s where there’s a business opportunity waiting to be seized: Catastrophic Bridge Insurance.

Catastrophic Bridge Insurance (CBI) would offer a very limited form of health insurance, contracting only to pay whatever expenses are incurred before I could sign up for traditional health insurance. I would not buy traditional health insurance; I would pay the penalty to the government; and I would also pay a premium to my CBI carrier. In addition, I would provide that carrier with a limited power of attorney enabling it to apply for health insurance for me. I would get a card for my wallet - just like my current health insurance card - which would let medical personnel know who to contact about the bills even if I couldn’t contact the carrier myself. That contact would trigger my CBI carrier to apply for traditional health insurance for me.

Obviously customers will only buy CBI if the penalty for not having traditional health insurance plus the CBI premium is still less than the premium for traditional health insurance. I would think the premiums for Catastrophic Bridge Insurance would be fairly modest. The insurance only kicks in when catastrophe strikes so carriers wouldn’t have to charge enough to cover anticipated costs for the kinds of illnesses that drag on and on. No type of therapy would ever be covered; no long-term drug treatments; no follow-up visits and tests; none of the unending medical costs that mount up and up and up. Theoretically the most the carrier would be on the hook for would be 72 hours of emergency treatment if I’m inconsiderate enough to suffer a catastrophe on a weekend; in most cases it would be less than 24 hours of treatment. That treatment can be very expensive but it is limited in time and - most important - presumably occurs relatively infrequently.

Perhaps, in hopes of not being put out of business by the unsustainable setup* of Obamacare, the traditional insurance companies could start offering Catastrophic Bridge Insurance themselves. It would be a way for them to, in effect, bring healthy people back into their customer pool. If I have CBI coverage through, say, Blue Cross Blue Shield then if catastrophe strikes they just sign me up for their traditional health insurance.

Even better, the insurance companies might be able to backdate applications for traditional health insurance so that their CBI customers who fall ill would be signed up for traditional insurance prior to the date of their catastrophe. The insured would owe some number of previous month’s premiums (maybe customers would have to put up that amount as part of their contract) and their coverage would be considered to have commenced that many months prior to the catastrophic illness. Between the premiums from their customers who stay healthy and the ex post facto premiums from those who don’t, insurance companies might be able to stay afloat.

Although, I gotta say: this is starting to sound kind of like the system we have now.


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* Why is Obamacare an unsustainable setup for insurance companies? I live in New Jersey, where I’d be lucky to get health insurance for $3000 a year, never mind $1200 a year. If I make $50,000, my penalty will be $500 in 2014. I’ll save $2500 by paying the penalty instead of buying health insurance. Why on earth would I buy health insurance before I need it? Even without Catastrophic Bridge Insurance I’m far better off banking the thousands of dollars of difference between my premiums and my penalty, giving my husband a power of attorney to buy health insurance for me if I need it, and taking my chances. And if the enforcement mechanism for collecting the penalty is as weak as it seems to be, I save even more by choosing to forego health insurance.

Even if we assume that Congress decides to put some real teeth into collecting the penalty and everyone who chooses to forego health insurance ends up having to pay the penalty, it’s still going to be cheaper for most people to pay the penalty and the insurance companies will still go out of business. You see, the real joker in the deck for the health insurance companies is that the penalties don’t go to them. If they did, the companies might survive since they would effectively be subsidized for being forced to insure people with pre-existing conditions; that is, they would be collecting income without having to provide a product so long as the penalty-payers stay healthy.

Instead the penalties will go into the Federal coffers and the insurance companies will collect income only when they will have to pay out. Premiums will have to rise since this is no longer insurance but simply a pass-through from insured to health care providers. The Federal government (no matter which party is in control) will have a cow over the high rates and insist that “greedy” insurance companies lower their rates. The insurance companies will either stop doing business voluntarily or go broke trying to comply.