Healthcare

Why can’t we accept it’s “insurance?” Premiums vs. out-of-pocket health care costs

Insurance …

the act, system, or business of insuring property, life, one’s person, etc., against loss or harm arising in specified contingencies, as fire, accident, death, disablement, or the like, in consideration of a payment proportionate to the risk involved.

There seems to be a great midunderstanding of the relationship between premiums and high deductibles and other out-of-pocket costs. Some people who have not obtained health insurance claim it’s not worth it because for what they pay in premium they can self-insure. In fact, when it comes to health care it’s pay now (premiums) or pay later (care costs). 

The fact you may not have a significant claim for years (actually the norm for most people) is the reason it is called insurance and why a good mixed risk pool of insured is necessary to make it all work. If only sick, high utilizers enroll, premiums will continue to skyrocket and one way or the other these folks will be subsidized by the rest of us. 

We have a unique perspective on health insurance convinced we are being ripped off. Why? Because deep down we all believe health care should be free, we don’t want to spend money on unpleasant things like health care when we are sick. 

Going into debt for a new SUV and insuring it is not a problem; making the same monthly payment for health insurance to help protect our lives is a ripoff. Go figure😄 Of course, the answer is that with or without insurance we will somehow get health care paid for by someone else; not so with that new SUV. 

When you do buy insurance there is a direct trade-off between premium and deductible and out-of-pocket costs. If you believe you will not use much in health care during the year and you wish to take that risk, you will mitigate that risk by paying substantially less in premium. If you take all or a portion of the premium difference and save it, your potential risk will be less. If you are right, you have money in your pocket for the following year. 

Here is an example from healthcare.gov based on the lowest cost and highest cost plans in North Jersey (out of 55 options available – way too many by the way). 

Note the full premium difference. In this example the annual premium saved by enrolling in the least generous, highest out-of-pocket plan is $11,448. So, you know what you will save in premium and you know you will be on your own for the first $6,000 and that your maximum family out-of-pocket cost is $2,252 more than what you saved in premium; that is your actual risk‼️

What is the best choice? Remember, you are trading a known expense (premium) for a potential expense. Are you a gambler⁉️ 

So, if you have a high deductible health plan, you are not being ripped off, you have made a trade off, voluntarily or otherwise. 

  

 

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