Premium rates and zip codes
The consumer movement does occasionally score a win against the insurance industry. Most insurers selling home and auto policies base the premium on where you live, i.e. the burglary rates and the distance you commute to work have a high weighting. But this is arbitrary. People should be judged on the security of their homes and how well they drive because these factors more directly affect the level of risk. So it was good to see California finally outlaw zip codes as a primary factor in auto insurance. Unfortunately, most people do not realize their health insurance is also affect by where they live. Health costs vary widely on a city-by-city and state-by-state basis.
Further, medical malpractice claims are more common in some states with higher amounts of damages awarded to those injured. These two factors encourage different premiums based on geography.
The reality is the free market has not controlled costs. Premiums have been rising faster than inflation. This leaves the political and economic problem to government. Can it cut the cost of treatments and preserve quality? The testbed is Massachusetts where the state government is adopting a universal coverage model — 2.5% of the population are uninsured as against the national average of 15%.
But this social benefit is offset because not enough doctors are willing to accept new patients, hospitals have been increasing their charges, and the pharmaceutical industry will not lower its prices for drugs. Scaling this up across the country, any move toward universal coverage is impossible unless all costs are reduced and the attitude of the medical profession changes. President Obama has made a commitment to reduce costs by $2 trillion over the next ten years. This is optimistic.
As a generalization, health costs are higher in the North and so all premiums reflect this. If the insurance companies are forced away from local pricing, premiums would be calculated by state or on universal levels. This will create winners and losers. But it will also produce more political pressure on the suppliers to reduce their costs. As it stands, reform is seen as desirable not urgently necessary. If many of the southern states suddenly found their premiums rising, there would be pressure.
As to medical malpractice, local laws will not change quickly, so insurers could retain higher premiums in more litigation-friendly states or the costs could be spread more evenly across all states, again forcing many premiums to rise. There has been little research into the actual premium rates charged on private medical insurance by city or state. Insurance companies are reluctant to co-operate and hide detailed information as commercially sensitive. However, there’s new research into employer plan premiums. This shows the following cities as the top five across the US charging the highest rates:
- Pittsburgh, PA
- Virginia Beach, VA
- Boston-Cambridge-Quincy, NH
- Boston, MA
- Arlington, VA
