Why Health Insurance is Not “Insurance”

health-insurance1What would happen to the cost of your auto insurance policy if oil changes were paid for entirely by your auto insurance?

You wouldn’t pay at the point of service, but rather you would give them a card and they would send your paperwork off to your auto insurance company to collect payment.

Laughable right?  Aren’t oil changes as critical or more to a car’s long-term health as Dr. check ups are to people’s health? What if the government mandated it for your own good?

 

Insurance in its simplest terms means: you pay a premium to get leverage or protection against an unpredictable, unlikely incident of large financial magnitude.

UNPREDICTABLE             UNLIKELY                            LARGE $ MAGNITUDE

Without these components, it’s not insurance.  The exception to this is health insurance.  Aha

One major reason for the increasing cost of health care is the involvement of insurance for medical expenses that are not UNPREDICTABLE, UNLIKELY and of LARGE MAGNITUDE.  When you think about this you will realize that health insurance (with all kinds of routine treatments and DR. visits being paid for by insurance policies) is ridiculously expensive because it is REQUIRED to offer much more than actual “insurance”. What is “insurable”?

 Insure against…. Unlikely Unpredictable Large $ Magnitude Insurable?
Home Burns Down Yes Yes Yes Yes
Flood while living in flood plain No Yes Yes Not likely
Flat tire Yes Yes No No
Flu symptoms No Yes No No
Leukemia Yes Yes Yes Yes
Dr. check up No No No No
Car totaled Yes Yes Yes Yes
Flu symptoms No Yes No No

All the paperwork and people involved in collecting money for services that should not be covered by “insurance” are a major driver of healthcare insurance costs and its increases.  This has been getting worse for some time. For example, doctor co-pays for office visits that should not be covered by insurance. Every insurance claim at the doctor’s office adds to our premium cost.  The Affordable Care Act is adding many more items to the “mandated coverage” list, therefore, it should come as no surprise that premiums will rise to cover those costs.

CONCIErge insurance

These would all cost MUCH LESS if people paid provider directly – Dr.’s charge more because it costs them time and money(office help) to be paid by an insurance company rather than at point of service

People paying from their own wallet at the point of service is efficient and practical (think Jiffy Lube).  Look at the chart on the left to see the difference in what you would pay directly as compared to when paid with an insurance plan as the middleman through a hospital or lab.

If it weren’t for health “insurance” paying for these tests, most  health insurance premiums would be much lower leaving most people with more than enough in premium savings to pay for them.

Another MAJOR benefit of having to pay for these services is that it creates competition among providers.  Jiffy Lube and other oil change facilities compete on price, speed and overall experience in order to win your business. Imagine doctors having to post a menu of prices for you to review BEFORE you agree to see them.  You would demand this if the cost was coming out of YOUR pocket.

I have a high-deductible health insurance plan which motivates me to shop for basic medical services.  Did you know you can get an X-ray at Community Imaging in Wheaton for only $45?

This saved me about $100 compared to having the same X-rays taken at my orthopedic’s office.  Most people don’t bother to “shop” for non-emergency X-rays because their high insurance premium is paying for this to be covered by an insurance company.  Look at what happens to the cost of medical procedures like Lasix, that is not covered by insurance. The cost has gone down while the technology and experience has improved.  The reason is that it was driven by competition as people had to pay out their own pocket.

You only have to look at the chart above to see what adding insurance as a middle man has done to the cost of basic medical tests and then to our health insurance premiums.

I’m not alone in figuring this out as millions of people are saving money on their health insurance premiums by using high-deductible plans and then paying the infrequent, small medical claims with money from their premium savings. For example, my daughter got Poison Ivy yesterday.  I’ll get a bill for the office visit and have already paid for the prescribed skin steroid cream out-of-pocket.  Our first non-planned visit we have had all year to the doctor.

IDEA:

What if the government only mandated “catastrophic” insurance like IL does for auto liability insurance (Notice they don’t mandate collision insurance).  I could live with this as it would fit the insurance model (Unlikely, Unpredictable & Large Magnitude). The major medical plan for be available to everyone (including those with pre-existing diagnosis) and would allow people to shop for coverage and pay for other services they want covered (ala carte).

Competition and consumerism would keep costs down and allow people to customize their health plan.

 What do you think?

 

Please share this with others…..

About Brad Rosley

Brad Rosley, CFP®, is the founder and President of FFG which opened in Glen Ellyn, Illinois in 1996. He has been a Certified Financial Planner since 1990 and helping individuals with their financial decisions for over 25 years. Ask Brad your financial and investment questions!

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4 Responses to Why Health Insurance is Not “Insurance”

  1. Edith November 13, 2013 at 7:33 am #

    I have two comments:
    My body is not a car
    My life is not replaceable

    • Brad Rosley November 13, 2013 at 9:12 am #

      I think you missed my point which was that adding a layer of expense to pay for predictable, likely or small $ expenses adds significantly to everyone’s cost.

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