Supreme Court Ratifies Cost Plus Health Insurance

The Supreme Court ratified Cost Plus Health Insurance yesterday. The era of guaranteed “Cost Plus” contracts for health insurers has begun anew. The health care law, now ruled constitutional, calls for explicit spending of 80 to 85 cents of every health care premium dollar on health care services.

With hospital stock prices spiking yesterday, it is apparent hospitals embrace the concept of Cost Plus Health Insurance. Effective 2014 hospitals are guaranteed that every patient will bring added value to their bottom line. A fundamental change in cost shifting strategies will become evident.

Insurers are ecstatic over the ruling. They will hedge their bets by inflating premium. Insurance companies know that if premium is too low,  claims  will exceed the mandated threshold allowing the  consumer to “win” while the insurance company eats the loss. But, if premium is high, insurance companies gain investment earnings before they return overage to the consumers. Nothing like working the float – it’s “free” money.

Editor’s Note: There is now no incentive for insurance companies to lower costs. The opposite is true: the higher the costs the more the carrier earns.