Did you know there is actually a “public option” in the health care reform law? It’s true — it’s called the Pre-Existing Condition Insurance Plan (PCIP), and it’s designed to cover people who who have been unable to get insurance because of a pre-existing condition. To hear the stories about how big of a problem this is in America, you’d think a product like this would be a big hit. Except it’s been a big flop.
How big of a flop? Well, according to the Washington Post, they missed their sales targets by 98 percent:
Government economists had projected that people turned down by private insurers would flock to the new Pre-Existing Condition Insurance Plan, with 375,000 expected to sign up this year. But as of this week, a little more than 8,000 had enrolled, officials said.
According to the Post, it seems the government has figured out what they think the problem is: “sticker shock.” The price was too high. So they’re dropping the price by 20 percent and significantly enhancing the benefits. But can that really be the problem?
The Post says average premiums were about $400 per month for a 40-year old. Meanwhile, according to Healthcare.gov, I can get an individual policy in Massachusetts as a healthy, non-smoking 40-year old — with zero deductible — for $414 per month. That’s not cheap, but it certainly doesn’t suggest that anyone who had tried (and failed) to buy insurance would find the PCIP plan too expensive. In fact, it sounds like a pretty good deal to me.
So what’s going on? I think the problem is that the government doesn’t really know how to sell individual health insurance. They haven’t built the relationships with brokers, done the marketing, understood their customers’ needs before going to market with a product. It seems the idea was, if we build it, they will come. In business, these things don’t really happen.
So the government is walking into the trap that many insurance companies fall into when they’re trying to build market share. They drop their price until the point when people see that it’s such a good deal they can’t pass it up. Usually, that price is somewhere past the point where the insurer starts losing a lot of money. Insurers sometimes do this because they figure once they have enough market share they can start increasing their price and make up for their losses. The trouble is, they’re not always able to do this.
But the government has it easy. They don’t have to worry about ever making a profit. They can just absorb whatever losses they suffer forever. Are they dumb to do this — or clever?
The PCIP program is slated to expire in 2014. In that year, the reform law will require private insurers to offer the same kind of coverage as the PCIP does. Except that the private insurers actually will have to make money on those policies. Which is to say no one will buy one from them since they will be much more expensive than what PCIP customers are used to paying.
How much do you want to bet that the PCIP lasts long after 2014? And that private insurers, although they will be required to take people with pre-existing conditions won’t end up taking many of them at all.
In the end, whoever came up with those sales projections will be proven right — they all will flock to the government program.
*This blog post was originally published at See First Blog*