Medical Insurance Magic: Is it worth the gamble?

May 21, 2012

Mark L. Friedman, MD, FACEP, FACP

Many uninsured Americans argue that they are better off allocating money to buy food or pay rent over gambling that they might need it for health care.

Unfortunately, this creates a problem for people who do buy health insurance, because all the people who are healthy and don't pay premiums raise the cost for those who do by decreasing the pool of premium dollars available to pay the costs incurred.

This is further exacerbated by the fact that a significant percentage of the health care costs then incurred by these uninsured people may have to be absorbed by "the system" in the form of uncompensated care, which tends to further raise the cost of premiums. This is one of the problems that the new health care law's insurance mandate is designed to address.

So, faced with this inherent disadvantage in the health insurance market, what is the average person to do? My advice is that you should get health insurance if at all possible, and that the type and amount you need depends on your individual circumstances.

Why do I advise that? Because there is clear evidence to suggest that people with insurance get better health care than those without it. It could ultimately even mean the difference between life or death (or disability). There are also clear tax advantages to purchasing health insurance versus paying for health care on your own. And finally, very few of us can afford to incur the magnitude of catastrophic losses that can occur in a serious illness or health crisis. If you have financial resources (savings, a house), the providers are often legally required to come after you.

But the insurance companies have the upper hand, right? Well, the insurers know about 100,000 people similar to you, but they don't know you. How many people are there in your family? It may cost the same to insure a family with 3 kids as it does a family with 2. Do you or your family members have any predictable ongoing costs due to a chronic disease? Are you affluent enough to completely self-insure? (This is not advisable unless you can put aside about $3 million in assets for lifetime coverage -- even the wealthy buy health insurance because of the tax advantages.)

How about some level of high deductible co-insurance backed up by a (tax deductible) health care spending account (HSA or FSA)? What did you spend on health care last year? Are there certain medications you need every day (such as insulin for diabetes)? Do you prefer certain doctors or hospitals? Is provider choice important to you? How healthy are you now, and how healthy are you likely to be in the future? Are there certain diseases that run in your family? Once you have answered these questions you will be better prepared to choose from the available options.

Notice I have not yet used the word "buy." Depending on your circumstances and the outcome of the new health care legislation, you may or may not have to "buy" it. If you are in chronic renal (kidney) failure, you may be eligible for "free" social security disability / health insurance. If your income is below a certain level according to your state guidelines, you may be eligible for Medicaid or a similar state-sponsored program that may charge relatively low premiums based on your income. Just be aware that all health insurance plans are not created equal and not all providers accept all insurance plans.

If you are required to pay for your health insurance, which of the variety and number of plans should you buy? We'll address this issue in Part III of our series on medical insurance magic.


Originally published May 21, 2012 9:00:21 AM.