Preexisting Conditions, Health Insurance, and The ‘Company Store’ — A Cautionary Tale

I was lamenting recently to my friend Roxann about my experience with Obamacare. She is an insurance professional and one of the most intelligent, well read people I know, I explained to her my personal trials with Obamacare.  I told her that my premiums and deductibles for the year were going to be about $40,000. We talked about how the two largest providers in the Iowa exchange were dropping out for 2018 and that the the third was probably going to leave as well. I shared my fear that it may not even be possible for an individual to buy health insurance in Iowa in 2018. When Roxann and I discuss issues we tend to get down to root causes. She summed it up nicely and said, “the problem is that health insurance is essentially the Company Store.” It was a brilliant analogy and reminded me of the chorus of Tennessee Ernie Ford’s song 16 Tons:

Saint Peter don’t you call me ’cause I can’t go — I owe my soul to the company store …

I have long believed to be the systemic problem with health insurance in the United States is the fact that most Americans get their health insurance through their employers  — from the Company Store.

The Company Store in the song refers to the company stores set up by mining companies to serve their employees living in remote company towns. Many employees did not have cars and they couldn’t just go online and order their groceries from Amazon.com so the company store was the only place to shop. Employees could make purchases on credit since the company could withhold the payments from their paychecks. With no competition the company could set both prices and wages. Therefore, in the song Tennessee Ernie Ford complains that he can’t go to heaven because of his debt to the company store.

Because of the current health insurance crisis in the United States and Iowa in particular, I have just taken a grown up job. When I was applying for jobs, just like everyone else, benefit plans were part of the search criteria. So, I have experienced, getting health insurance though my employer and purchasing health insurance as an individual. For the majority of my adult life I have gotten insurance through my employer just like the majority of Americans. So, why do I think this is a problem?

You are not the customer

Unlike any other insurance product you purchase, you are not the customer. I have homeowners insurance, auto insurance, liability insurance, and business insurance. In each case I am the customer. My agent and the insurance company both have am interest in keeping me happy because I can take my business elsewhere.With my health insurance (which starts in 30 days), my employer is the customer. My employer is a huge Fortune 50 company. So, the insurance company will bend over backwards to keep them happy. On the other hand I am just one of over a quarter million employees. Do the math.

There is no incentive for you to consider cost

Because I have a large family, most years we hit our insurance deductibles and the out-of-pocket maximums. So once we cross this threshold we don’t pay anything for services. In this system, there is no incentive for me to compare the cost of services.

You cannot choose your provider

You employer determine which heal insurance providers and plans are available to you. You may have choices but they are pre selected for you.

You do not see the actual cost

Most employee health insurance plans are highly subsidized by the employer. It is considered part of the real cost of your employment. If for some reason you have health insurance through another source (e.g. spouse’s employer) this is money that is left on the table during salary negotiations.

There is no portability

This last point is perhaps the most insidious. Employee health insurance is not portable. Since you are not the customer, if you change employers, you have to change plans. Since 1986, the federal government has mandated that employers make their plans available to employees who leave the company for up to 18 months. This program, called COBRA, allows people who transition between employers to keep insurance.

Of course under COBRA your costs will normally go up because the company is not required to continue subsidizing your insurance.

In the discussion about the healthcare plan just passed by the US House, the focus this week has been on preexisting conditions. Preexisting conditions are something that any health insurance proposal must deal with. I will close this blog post with my take on the subject.

Several of my Facebook friends have posted recently about preexisting conditions. Most have said that insurance companies face an undue burden because they have to cover people with preexisting conditions. Others have pointed out that this allows consumers to be irresponsible and only purchase insurance after an expensive diagnosis. Sort of like buying homeowners insurance after a fire.

Unfortunately, buying insurance in the Company Store has made this a problem for consumers. The Obamacare mandate that employers of a certain size must provide health insurance benefits has only made the situation worse.

My experience with preexisting conditions and health insurance is anecdotal but it is personal and true. I was laid off from a great job last year after the contract I was working on for a third party client was completed. The job had excellent insurance benefits and when I was laid off I continued them under COBRA. I was working for myself (something I have done before) but at the first of the year the price for COBRA almost doubled.

Fortunately, because we have several preexisting conditions in the family, we were able to get insurance under Obamacare. Unfortunately, the premiums and deductibles came to about $40,000 a year — completely unsustainable — so I have taken a grown up job.

So what about the preexisting conditions? My daughters have chronic medical conditions that require medications costing over $10,000 a year each. Before they were diagnosed and started a treatment regimen, they both missed almost half a year of school. The medicines are necessary to keep functioning with some semblance or normalcy. In my case, in the next few years I will need a heart procedure in order to stay alive.

So, is it fair that an insurer has to cover me and my family with our very expensive health issues? Not, really. On the other hand is it fair that when I was laid off from my last job, or voluntarily quit a previous job that I could not keep my insurance plan?

That’s right I could not keep the plan. COBRA would have let me keep it for 18 months but after that I would be forced to seek a new plan. The problem is that for most Americans, their health insurance is tied to their employer. So even if you (and your parents) are responsible and have had insurance continually since you were born, you may find yourself in a situation without insurance and with preexisting conditions.

Putting our employers between us and the insurance companies has not helped to keep health insurance and healthcare costs affordable. Obamacare putting the government in the mix has only made things worse.

So in my opinion the root of the problem is the fact that we owe our (health insurance) souls to the company store. I am really good at pointing out problems. I wish I had a solution.