When an individual buys insurance, for example life insurance, one is paying a small premium to insure against a catastrophic event. In this case, dying. Everyone knows that on average, the insurance company makes more money than it pays out (being for-profit and all). However the risk is enormous; if we were to die then it would be immensely catastrophic for our family. For example paying a 10$ per month premium, over twenty years is only 2,400. Clearly even if we decided to do without the life insurance and pocket the 2,400, that does not even come close to covering if we die.
However, with health insurance that is completely not the case. We are paying insurance for something that we know is going to happen. For example, prescriptions and doctor’s visits. The occasional visit to the specialist, too. Perhaps a minor surgery but the bottom line is that we are expecting these things to happen anyway, so why buy health insurance in the first place?
For example my family of 6 pays 800$ per month for insurance, or $9,600 per year. Most years our healthcare would be around 4,000 out of pocket. So if we just saved up 9,600 per year for health care, we would save a ton of money.
However, what I have heard from people is that if you don’t have insurance, what happens if you have an enormous hospital bill, major surgery, etc? Well then the obvious solution is to buy catastrophic insurance. Isn’t that what insurance is in the first place? A premium to pay to insure is against a catastrophic event? Not to pay insurance for things we are expecting to happen anyway? Why do we continue to allow health insurance companies to make huge profits off us on a yearly basis?
I may have not done the best job explaining myself so ask questions, I am curious for the responses.
In addition, health insurance companies are a pain to deal with. They fight tooth and nail to not pay for things, major hassle. It also limits which doctor’s you can see and for what procedures.
What you’re saying does make some economic sense. Have a health insurance plan that has low terms and something like a ten thousand dollar deductible. You’d pay for all your routine medical expenses but you’d have your insurance available in case of some medical catastrophe.
One problem I’d foresee is insurance companies might be reluctant to issue policies like this. From an economic viewpoint, a person who has a policy like this has an incentive to avoid routine health care (which he’d pay for) in preference of waiting until he’s really sick (which would require expensive treatments the insurer would partially pay for). Obviously there are counter-acting factors of well-being and the deductible, but in general medical insurers would prefer to pay for preventive care incentives rather than reactive care.
In Washington state, I pay $279/month for a policy with a $3500 deductible, 50% co-insurance and a $5000 max out-of-pocket costs. It also includes an annual checkup and even covered a shingles vaccination. (I’m 63 - it would be a lot cheaper if I were younger.)
So, after I pay $6500 in medical costs, the insurance company covers everything.
It is coupled with an HSA, so I can put away pre-tax dollars to use for medical expenses (even for Medicare when I get to that point).
I had cancer at 17 and would have been dead by the age of 20 If I hadn’t had health insurance (thank god for COBRA!). The followup over the years is probably several million dollars.
My daughter had what looked like a scary heart condition at birth. After $15,000 of diagnostic tests, turns out it was nothing (Yay EKG artifacts!). My out of pocket was about $100.
I will never pay as much into my insurance plans as I’ve taken out of them.
Maybe you should hope for a serious illness for yourself and your family? Then it will feel like less of a scam.
I don’t think you’re actually addressing the OP though, he’s talking about how health insurance makes sense for catastrophic events but not for routine medical care.
You then list two catastrophic personal health events as though that refutes his point?
I’ve been having a lot of these conversations lately about why UHC is bad, and how people w/o health care should just suck it up - they’ve been leaving me hypersensitive to the topic. I didn’t read carefully. Sorry to the OP.
I once read a very long article about this very topic that I can’t find at the moment (I think it was published in The Atlantic.) Basically it did make the point that we’re in a weird place as a society because we use insurance, which historically was a way to pool risk so that individuals were insulated from potential catastrophic losses, as a weird combination of a pre-payment plan and a discount network in addition to its more traditional use as a way to protect from potential catastrophic loss.
If we only were enrolled in “catastrophic loss” plans, and we were given back our monthly insurance premium and had our wage increased by whatever amount that employers were spending on our health coverage, and saved that amount over the course of our lives, I believe the average middle class American would be $1.2-1.5m wealthier.
Of course the reality is that it seems unlikely employers would really (as a whole) increase wages by the dollar amount they currently pay per employee for health care, and it’s also extremely unlikely the average American would save that windfall throughout their lives. Instead they would spend it on bigger houses or nicer cars, so in a way the one nice thing about our current healthcare regime is it protects people from their own stupidity, because I can assure you most people I know if given an “opt-out” that included them receiving only catastrophic care but still receiving the full amount their employer spends on them in healthcare as a wage increase they wouldn’t be putting it into a rainy day fund to help cover non-catastrophic medical expenses.
I believe the whole concept of having a monthly insurance payment into a system that helps provide for regular visits is actually a creation of Blue Cross/Blue Shield, basically created because hospitals and doctors wanted a steady revenue stream. By creating a system which encourages regular doctor visits and hospital trips by making such things not a big financial decision hospitals and doctor’s have a much more consistent customer base. It makes things a lot nicer if your monthly income is nearly static than if you have wild fluctuations in patients/customers based on random chance.
Another thing with insurance, if you are dealing with an in network situation, is the hospital has negotiated very hard to set a low charge, whether you pay it or they do.
For example, i went to the hospital last year. When all was said the bill totaled 2,800. Which went to my Insurance company. They looked at it, axed it down to the negotiated rate they had established, and the remaining payment was 480 or so. That didn’t even fill up my deductible. So the insurance company paid not one damn cent. If I had had no insurance what so ever the bill would have likely come out of the hospital even larger. And if they had sent me the exact same 2800 bill I would have been screwed. I obviously hadn’t negotiated ahead of time for a set price for those prcedures, and my only leverage after the fact would have been “Yeah but, I don’t want to pay that much” they will usually negotiate it down somewhat for an individual, but I don’t delude myself that even in my wildest dream that I could talk it down to under 500.
That’s the main reason I took that plan. There were other options on paper that the monthly charge/deductable co-insurance set up was better. But I knew this company negotiates like rabid piranha. And it worked out. None of the plans likely would have hit the deductible, but the total I was on the hook for would have been higher with the other companies.
Well, I’m pretty biased right now. I have health insurance through work(I pay 50%) and a few months ago I went to the emergency room via ambulance, and ended up being coerced into getting all kinds of (probably unnecessary) tests.
Turns out the insurance is crappy. They made me jump through hoops to get them to agree to pay only a small percentage of the costs to begin with. Now I’m getting letters saying they “overpaid” and I owe them most of what they had covered. I’m still paying on the original hospital bills, not to mention healthy chunks of my paychecks on premiums. For what?
But aren’t the two linked together precisely because nobody can possibly know when the need for routine medical care will turn into the need for catastrophic-event treatment? Or where the precise dividing line should be?
Where do you draw the line between routine medical care and major emergency treatment, anyway? A broken finger? A broken leg? Anaphylactic shock following a bee sting? Any of those can easily add up to several thousand dollars’ worth of hospital bills, depending on circumstances.
Which is a win-win, because regular checkups and routine screenings on average reduce the incidence of severe medical problems.
There’s nothing stopping you from buying a policy for catastrophic health events-my company offers one that has a $10,000 Deductable. It’s just that it seems most people want health insurance to act as a reimbursement accounts so we do what the market wants and write those kinds of policys- our individual deductable go as low as $500 and some of our custom-written policies for groups have no deductables. Catastrophic insurance is still expensive, though. It’s they guy that has cancer that costs us a lot, not the guy that goes to a chiropracter every week, and unlike insuring a house there’s really no limit to our potential loss since lifetime maximums are being phased out.
They do not have to be linked at all. In a totally free market I could imagine very affordable catastrophic care plans. How do you define what is catastrophic? Well, that’s a personal decision. For example the deductible on my car is $500, you can get a $1000 deductible or a $1500 deductible. That’s a personal decisions.
For me, personally, let’s say $25,000 is a catastrophic medical expense I cannot possibly afford out of pocket. So I go to an insurance agent for a catastrophic plan that covers anything above $25k.
For you, it might be $5k. For someone else, it might be $500, but in that case it’s probably going to have premiums pretty much the same as our current medical insurance.
Maybe. But if the out of pocket costs sans-insurance schemes dominating the market would be less for an annual checkup than you pay in annual premiums it’s actually a win-lose. It’s a win in that you’re going to the doctor but it’s a lose because if you just saved money each month you could afford an annual checkup out of pocket and you’d be able to save money away into an account year to year for various purposes (IRA, rainy day fund, college savings etc.)
Yep. The bills and insurance statements have begun coming in for my recent heart attack scare.
The hospital alone billed me $17,500. The insurance company paid $9,300 and that’s the end of it. If I didn’t have health insurance, I’d owe the former amount. The doctor and lab billing are working out about the same. There’s something wrong with a system like that.
Ah, I see. Imagine a pony for me while you’re at it, would you?
Seriously, as Mdcastleman points out, there doesn’t seem to be a currently realistic scenario for providing cheap catastrophic-care insurance delinked from routine-care coverage.
In a totally free market I can imagine an insurance company that cancels you as soon as you file a claim and no other company will insure you because you now have a pre-existing condition.
Which goes back to what the others have said. It’s a weird hybrid of continuing healthcare, emergency coverage, catastrophic coverage, long-term followup coverage, rehabilitative therapy and a lot of other stuff.
I must disagree with the OP! I have two small children that get sick all the time and I would much rather pay a 20$ co-pay and a few $$ for the medicine then a 300$ bill for a doctor visit and full price for the prescription !! I only pay $190 a month for health insurance on 4 people. Only a $300 deductible and $4,000 out of pocket 80/20 insurance. I do however agree with the OP that health insurance is good for catastrophic events. My son had open heart surgery at age three which helped a great deal, but keep in mind when catastrophic events happen sometimes you have to follow up for the rest of your life. My son for example must go back to the heart Dr. Every year for a check up. We pay around $1,500 for these check ups as apposed to a $7,000 check up every year if health insurance was as the OP suggests it should be.
I sometimes use a hospital-only ‘catastrophic’ plan when I’m between jobs. I looked into using it when I started a new contract position because the plans that were offered by my agency were so expensive (the plan with the most coverage was ~$1400 a month).
To qualify for the hospital-only plan, though, I had to not be eligible for an employer-based plan.
