UNIVERSAL HEALTH CARE – How to free up some money to pay for it. By Christina Mae Olson, CFP®

My first career was working with youth. I worked as a youth director in a rural Lutheran parish fresh out of college. Yikes, I nearly became a Lutheran pastor! If the ALC (now ELCA) embraced lesbians back then who knows where I would be today? When I moved to Alaska, I worked for 12 years in a residential treatment home for emotionally disturbed youth. Little did I know back then that I would ever pursue a career in financial planning.

I decided to switch careers in 1993. My first exposure to the business of money was through life and health insurance. Before landing my first “real” job at an independent brokerage office, I worked for Mutual of Omaha and also for John Hancock. That experience was an eye opener. What I have learned over the years about insurance formulated my view today that we need universal health care in this country. Costs won’t be contained with anything short of universal health care (with a single payer). We need to take the “corporate, for-profit business” out of health care delivery. Doing this will save enormous amounts of money. The health insurance business has no business being private any more. We just can’t afford it. Corporate America is designed to benefit the company (and its owner/shareholders and employees) – and NOT their insured customers.

This article will cover some of the things I’ve learned about various costs in the private insurance industry; costs that we can reduce with a so-called “public option” or eliminate if we do away with private insurance altogether. It’s no wonder that the insurance lobby and conservatives are fighting hard against this. We could eliminate some key, high paying jobs, saving billions of dollars, if our health care system covered everyone. What if we did away with the actuaries, underwriters and agents? How much money would be saved? The primary objective of these positions is to allow healthy people in and to keep sick or potentially sick people out. It is immoral, in my opinion, for anyone to be excluded from health care just because they can’t get health insurance – if they can’t afford it or are deemed uninsurable.

Actuaries work for all health insurance companies. It is their job to assign a risk level to every existing ailment. They crunch the statistics and determine how costly conditions and diseases might be to their company. Actuaries look at geographic and economic influences on health issues. An obese applicant, for example, who lives in the inner city will cost more in future health claims than an obese applicant living in a suburban or small rural community. Actuaries with at least five years experience earn, on average, over $100,000/year. Career health insurance actuaries top out at $450,000/year. We won’t need to employ actuaries if we adopt universal health care.

Underwriters interpret the information from an insurance application and use the actuaries’ statistics to decide if the applicant is a “good risk.” Underwriters (and claims adjusters) also scrutinize claims before they are paid to see if the patient/customer was thorough on their application. They can deny a claim if something was omitted on the original application. The underwriting process is a closely guarded secret. It used to be that sales agents could do their own “field underwriting” and make on-the-spot decisions about accepting an applicant. The Mutual of Omaha (MoA) underwriting manual was eight inches thick. It basically told us if MoA would accept an applicant based on their health status. One criteria for denial was being gay (oh, actuarially speaking – being gay meant you were likely to file a lot of claims). Agents are not trusted with field underwriting any more. In my job at the brokerage office, we could, however, have actual conversations with the underwriters. If an applicant was outside of the height and weight guidelines and considered a “rejection/denial,” I could try and convince the underwriter to accept the risk if my client was a health nut, worked out every day and was very healthy. Height and weight alone don’t mean a health risk. Agents are now forbidden to communicate with underwriters. Underwriters with five years experience earn $80,000/year. Career health insurance underwriters earn over $250,000/year. We won’t need to employ underwriters if we adopt universal health care.

Health insurance is sold by agents. As an agent, I had to go out and find the healthy people and talk them into buying insurance. It always made me sad when someone actually sought me out wanting to buy a policy. They were, of course, sick and would inevitably be rejected. Private insurance only works when policy holders are healthy and don’t file claims.

Insurance agents get paid whenever they sell a policy and as long as the customer keeps the policy. MoA used to pay their agents 40% of the first year premium in commissions to their agents, 20% of premium in years 2 – 5 if the client kept the policy that long and 10% for every year after that. A policy with a $300/month premium, for example, would pay the agent $1440 in year one, $720 in years two through five and an ongoing income of $360 after year five. Group policies are more lucrative. They pay only 10% commission to the agent but bring in more dollars. A small business health plan (covering 50 employees and dependents) would cost approximately $420,000/year in premiums. The agent will take home $42,000 in annual commissions from this one client. Can you imagine how this would add up? One lucky agent with 20 clients like this one could earn $840,000 in annual income. We won’t need to employ agents if we adopt universal health care.

My solution to the national health crisis is this: let’s cover and treat everyone who needs health care whenever they need it. Let’s care for their health needs no matter where they were born. No visa or green card required. Where will we find the money to pay for this outrageous idea? From the salaries of insurance industry employees whose jobs will be obsolete under universal health care.

Here’s a start at what we could save:

Gee, that’s a lot of money we could be reallocating toward the healing of our nation. One senate proposal being debated now predicts an $800 billion cost over 10 years. I just found that money, folks! OK, we’d potentially loose 60,000 +/- insurance company jobs if we adopted universal health care. That pales compared to the 216,000 lost jobs in just August from other sectors! This is a small price to pay. In addition, what about the billions of dollars going into salaries for CEO’s and the highly compensated executives at these insurance companies? In 2008, Aetna CEO Ronald A. Williams raked in $18,608,778 in total compensation. CIGNA CEO Edward Hanway made $12,236,740. Is that sort of income necessary to the delivery of quality health care? The money is there, folks. It just needs to be redistributed. If our premiums were based on the true cost of health care – and did NOT include the cost of executive compensation as well as the actuarial and underwriting and sales departments, we’d save an enormous amount of money.

Comments? I know it’s risky to be taking this stance. I also realize that this is a very complex problem. Solving it will not be easy. My old insurance company colleagues are likely seething right now as they read my views. I love you dearly but I must disagree with you on this one. We cannot afford to keep the status quo with health care in our country. We need radical reform and we can pay for it with money already being spent.

Chris Olson is a licensed financial planner with a fee-only practice. You may contact her at CMOney@centurytel.net or 608-525-9818.

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