Directions in the Health Insurance Market

In late June, the Indianapolis-based hospital system announced that starting in 2009, it will fine employees $10 per paycheck if their body mass index (BMI, a ratio of height to weight that measures body fat) is over 30. If their cholesterol, blood pressure, and glucose levels are too high, they'll be charged $5 for each standard they don't meet. Ditto if they smoke: Starting next year, they'll be charged another $5 in each check.

I figured something like this was coming. In the course of changing jobs, I was considering going out as an independent contractor, and I applied for individual health insurance. I knew COBRA coverage for my family would have been about $1000, and I figured individually purchased would cost about the same. Not the case, though. Individually purchased insurance, as opposed to group insurance through the employer, is medically-underwritten, so that the 20% of applications that seem a bad risk are turned down.

I've wondered, over the years, that employers, at least the ones I have experience with, do not seem to make any effort or evaluation, when interviewing candidates, to avoid those that might be prone to have high medical expenses, for whatever reason (yes, I know, many of those reasons would be legally protected, but not all). That obviously creates something of an arbitrage situation. The Clarian proposal is really just a baby step--the next step after charging smokers more. However, if the Bush proposal to let individuals deduct their health insurance premiums were to pass (I believe that is now considered unlikely), I think that would open the door for a new strategy for employers.

Instead of providing the insurance themselves, they could just pay more in salary, and develop a relationship with insurers, to accomplish expedited underwriting. That way, an employee could accept a job offer contingent on being approved for insurance. The benefit to the employee would be potentially higher salary, plus insurance portability--it is their policy, guaranteed renewable, to take with them wherever they go.

If this practice were to spread, at some point it would hit "critical mass"--the employers that practiced this would have a cost advantage over those that went the traditional group route. Of course, it would put the squeeze on those with health problems/risks and pre-existing conditions, and would further highlight the problem of insurance affordability and medical inflation.

(Just to be clear, this post is not advocacy, pro or con, merely an exploration of a logical path of development.)