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Expertise > Actuarial > Critical Illness From: Johan
L. Lotter Via Fax:
212-4162658 To: The
Editor Dear Sir:
Managed
Care’s Fatal Flaw. The
current Managed Care debate may benefit from some pragmatic thinking
about health risk and its effect on the financial planning of
Americans. Such pragmatic thinking could lead to a “third way”
solution to many of the system’s current problems. As
motivation, it may be helpful to classify health problems into two
types: On one hand we have minor problems requiring doctor and
dental visits, regular prescriptions or minor surgery. On the other
hand we have catastrophic illnesses that are life threatening and
require heroic intervention. The
four catastrophic illnesses that stand out are cancer, heart attack,
stroke and end stage renal disease. These are the “four
apocalyptic horsemen” that, in my opinion, will bring down our
current system of health care financing. Near
75% of all Americans now alive will be struck by one of the horsemen
in their lifetime and die later as a result. The majority of the
afflicted will survive the first five years following assault. Many
will live 20 years after being struck. Most will need expensive
special medical treatment for many years. The risk of being struck
increases exponentially with age attained. The US has a rapidly
aging population. Statistically,
over half the expenses due to the horsemen are not reimbursable by
medical insurance, even in the case of those lucky enough to have
insurance. A spouse’s catastrophic illness can run up six-figure
non-reimbursed costs (lost spouse income, lost productivity,
co-pays, deductibles, special equipment etc.) and bankrupt the
family. In short, when
one of the horsemen rides in the front door, family financial
planning flies out the window. This has to be a huge concern for all
but the richest Americans. The
HMOs are indiscriminate, profit-driven bureaucratic gatekeepers to
all treatments, be they for minor problems or catastrophic
illnesses. Consumers are rarely enraged about being denied access to
treatment for minor problems. But when afflicted by catastrophic
illness, they want the best available treatment and freedom of
choice. No consumer wants to hear that the wished-for bone marrow
transplant is “experimental” and therefore not covered. Not when
a family member’s life is on the line. As
the US population ages, the clash between consumer wants and HMO
gatekeeper denials will reach melt-down proportions and may lead to
a mandated government-managed health care system. Whether such a
system would provide better voter satisfaction than the HMOs is
debatable. What’s worse for consumers, bureaucratic indifference,
sloth and higher taxes or bureaucratic indifference and naked
profiteering? Perhaps
this entire problem can be sidestepped. Perhaps encouragement of
private insurance provision against the horsemen (and some of their
outriders such as organ transplant, loss of hearing, loss of sight,
MS, etc.) can provide a permanent solution. Such encouragement might
take the form of first opening the insurance market
nationwide to insurance companies wishing to provide insurance
against the horsemen and second, affirmatively granting such
insurance the same federal tax treatment as life insurance. Overseas,
the insurance industry has long ago taken this proposed pragmatic
approach to dealing with the financial devastation of individuals
and families by the horsemen. Foreign insurance products now exist
that allow individuals to neutralize the financial pain inflicted by
the horsemen and to “thumb their noses” at bureaucratic
gatekeepers and claims adjudicators. These
overseas products, “Critical Illness” insurance policies,
provide for “free and clear” cash payment of the
at-issue-determined policy face amount on catastrophic diagnosis, as
opposed to death. There are no gatekeepers or claims adjudicators.
Underwriting and claims are handled much like life insurance. These
products “walk and quack” like life insurance. In fact, the
products are readily integrated with life insurance. Overseas
companies engage in fierce price competition to sell Critical
Illness Insurance policies. This keeps premiums affordable and
benefits consumers. Critical
Illness products are immensely popular in the UK, Australia, the Far
East, Europe and South Africa. In the UK, insurance company sales of
these products are growing 200% faster than life insurance sales. In
the US, roughly 20 states do not allow insurance companies to
develop and sell Critical Illness products. New York, Connecticut
and New Jersey are three states that totally or partially outlaw
these products. Regulators appear to think that the sale of these
products is not in the interests of consumers. Go figure.
Sincerely,
Johan
L. Lotter Note: The writer is an actuary |