A Tale of Two Cities

Here’s a quick lesson on statistics for you. After all, if you are concerned with health care and health insurance, you have to be concerned with statistics….Right?

Here we go:

Let’s take two fictional American cities. Each one has an identical demographic profile. Each city has 50 million residents (They are BIG Cities!).

Statistically speaking, because of the huge sample set and identical demographics, the population’s health profile should be identical as well. For example, if one city has 2.1% of it’s population needing knee surgery, the other city should have 2.1% of it’s population needing knee surgery…it’s called the law of large numbers … Casinos and Insurance companies rely on this law to govern their businesses.

So, if you were to offer health insurance to the residents of city ‘A’ at a certain rate, you could be assured that the rate for city ‘B’ (who have IDENTICAL demographics and therefore identical risk) would be the same, right? Actually, the answer is no.

You see, the citizens of city 'A' all work for major corporations while the citizens of city 'B' are all self employed.

According to the latest Census Bureau report, the health insurance policy for individuals and small groups has increased by a whopping 47% since 2005. However, the rates for large groups has increased by only 20% in the same time frame.

According to insiders at health insurance carriers, this disparity is because small groups play games with their health insurance plans. For example, a small group might pretend to hire poor Aunt Sally who has health problems and couldn’t get coverage otherwise. They assume that Aunt Sally could never get a job on her own working for a big company (Note to Self: Then who are those people greeting me whenever I walk into Wal-Mart – independent contractors?). Because of this perceived risk, your health insurance carrier justifies their MUCH higher rates for small groups.

Here in America, there is a very succinct term for this type of justification – it’s called Bullshit.



The REAL REASON why health insurance carriers charge small groups more is because THEY CAN. All across America, small groups are getting screwed by health insurance carriers.

If ABC Tool Company of Poughkeepsie with their 12 employees threatens to leave their health insurance plan unless they get better rates, their carrier will most likely respond ‘don’t let the door hit you on your way out’ – the gain or loss of this small group will do nothing for their bottom line. However, if MegaTool Works of Montana, who has 25,000 employees, makes the same threat, you can bet that their carrier will sharpen their pencils to make sure that they don’t lose that fat account. This leads, of course, to the disparity in rates between small and large groups.

To make matters worse, there are laws that prevent small groups from banding together and buying their insurance as a large group. After all, this would be bad for business – the health insurance carriers business.

One possible solution is to force carriers to have the same rates across the board – whether you work for a gigantic corporation or for a small company. This would ensure that everyone would enjoy the lower rates that come from true competition between health insurance carriers.

Now, this would not solve the health insurance crisis all by itself, but it would be a good start – especially for folks like me whose health insurance premiums are going up 2 and one half times faster then my neighbor, just because I happen to be self employed.

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