Many people think by pooling small business owners together will be able to make health insurance affordable, rather than trying to buying policy individually. There is some truth to it. The policy premium will be based on the new “collective” accessing health care, rather than just one individual.
Example: If 1 in 5 of the employees received a $80,000 by-pass heart surgery, and no one else used the service, then on average, an individual needs to share $16,000/year per person. Writing a policy for these 5 people can be risky; may be that why the typical premium for individual is not so affordable - unless you're extremely healthy with extremely high deductible policy.
If the same $80,000 can be shared by a group of small businesses, The larger the collective can smooth out (share more) the spike in cost. If there are 20 people in the policy, then writing a policy for these 20 people is less risky, because the average cost shared by everyone on the policy is $4,000/year. A big drop in premium. # # #
The assumption is that the premium will be lower when small business owner get together to buy insurance, but in reality the premium is adjusted every year, base on how the “collective” uses the medical service in the past year.
You may get a favorable rate at year one, then it’s about you and your “risk sharing” policy holders use the service collectively # # #
An auditor told me the story about “unexpected” jump in health care premium on a company facing uncertain future (closure, ran out of money, waiting for a new buyer to take over the company).
As the rumor spread, the employees began to visit doctors more frequently before the anticipated transition (to new owner, or facing closure), getting "taken care off" before losing their jobs and health care insurance.
The anticipated transition didn’t take place; the company limped through another calendar year. The insurance company raised the premium following year by 50%. That’s a policy on a company that has 400 plus employees. The employees had caused the company budget into deeper trouble.
# # #
If you offer a group of people who never had/or had limited health care to join a health care system, knowing they don’t have to paying full direct cost (employee are paying deductibles only), they will use the service to its full extend (freakonomics); Take note small business owners!. The balance of the health care cost (paid by either preminum and insurance) is going to be very high; regardless the number of people had joined the system.
The health care premium is not about number of people; it’s about the how kind of health care we want, and how much we are willing to pay for it.
