Confronting Uncertainty

This perhaps is the jarring lesson of COVID — nothing in life is certain, including death and taxes. Will you wake up tomorrow? Or will you wake up in a hospital bed with a tube jammed down your throat?

Frankly, you don’t know the answer to those questions. If you think you do, you’re lying to yourself.

The insurance industry hates uncertainty. That’s why they think in terms of groups, not individuals, and rely on the Central Limit Theorem to make accurate projections of risk. The CLT simply says that the larger the group, the closer any estimate will be to the “true” result. Underwriters want to calculate risk as finely as possible to estimate expected loss payouts, and then price policies to make their target profit margin. When they can’t calculate risk, the reaction is close to panic.

And that’s where we are with life, health and now workman’s comp insurance in the US. We have no clue what impact long-term COVID is going to have on claims. How many people will get it? What medical and other care will they require. No clue. The disease hasn’t been around long enough for there to be a track record on which to base a forecast, and medical records in the US remain too fragmented for the calculations that need to be made. That’s not just an issue with paper versus electronic records. Workman’s comp claims are stored in multiple databases with incompatible formats.(1)

The bottom line is that insurers will try to protect themselves by restricting whom they choose to insure and, of course, by raising rates. Businesses already complain about rates, and one company owner was convicted of fraud this week for under-reporting payrolls to minimize what his company paid on insurance.

What does that mean for the average consumer?

Increased insurance costs may lead some employers to trim payrolls. Increased costs may contribute to price increases as well. More companies will lean toward either self-funded insurance programs (which would in many cases be a plus for employees) or toward High Deductible Health Plans (HDHPs) which put more of the cost burden on employees.

All consumers will face an increase in the cost of non-ACA health insurance life insurance. Term life insurance, which only locks in rates for a limited time, may be particularly treacherous.

This is where people in countries with national health insurance look at Americans and express gratitude for living elsewhere.




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