Running Out Of Benefits
What’s the lifetime maximum benefit on your health insurance? Do you know? Bob at InsureBlog has written a good article that should have all his readers scrambling to pull out their policy details and find out. When my father was hospitalized a few years ago with a bad case of peritonitis brought on by peritoneal dialysis, his medical bill was nearly half a million dollars. Puts a lot of the fine print on your health insurance policy into perspective when someone close to you has that sort of a claim. A friend had a baby earlier this spring, nine weeks premature. The little girl spent the first seven weeks of her life in NICU, and although the bills haven’t arrived yet, I’m sure they won’t be small. It doesn’t take much to go from being a healthy person to a person with eye-popping medical bills.
Our Humana policy has a $5 million lifetime max. A lot of the health insurance policies we sell in Colorado also have $5 million caps, although there are still several that cap at $2 million. But over the years, we’ve spoken with clients who have policies with lifetime maximums well under $1 million, or annual maximums of only $100,000 or so (doc, could you just put my severed leg on ice, and I’ll be back in January to get it reattached – my health insurance has an annual max…)
I really don’t think that health insurance should have lifetime benefit maximums. It seems to defeat the purpose of health insurance. I think this would be a perfect place for a government back up plan. Perhaps all private health insurance could cover up to $5 million, and then for the tiny percentage of patients who need coverage beyond that amount, a government catastrophic insurance policy could kick in. We don’t need health insurance to cover the small stuff. Pretty much everyone can come up with $100 for a visit to a doctor, or $30 for a generic drug (those who can’t probably qualify for Medicaid). Covering stuff like that is not the point of health insurance. But if you end up needing 100 doctor visits a year, and high-end drugs, and weeks in an ICU, you shouldn’t have to worry that your health insurance is going to run out.
This could be a good compromise between the people who are calling for government-run universal health care, and those would would prefer that the entire system be privately operated. The government policy could be there just for the catastrophic situations, to keep people from being denied organ transplants or other high-dollar treatments. But private health insurance could be used to cover the less expensive care. However we go about it, we ought to have a better solution for people who have run out of health insurance benefits than bake sales and coffee tins with holes in the lid.
Louise:
I thought the primary purpose of insurance was to protect one’s assets.
If a person has a net worth of $250,000, a $1million benefit, without the insurance, would have bankrupted him 4 times.
Don Levit
Don:
A person with $250,000 net worth would only need to have lifetime medical expenses of $1,250,000 to go bankrupt with a $1,000,000 lifetime maximum. Or, they would only need $350,000 worth of medical expenses in one year to go bankrupt on a policy with a $100,000 annual maximum. Those are not uncommon amounts. So that person may or may not know about those maximums on their policy, but their assets are not protected.
Jay:
I agree with your assessment regarding the $250,000 deficit.
The same would hold true if he was insured for $5million, and had $5,250,000 of claims.
How much coverage is enough?
Apparently, you would say “whatever it takes to preserve one’s assets.”
What would your answer be, if that type of policy was unaffordable?
Don Levit
Actuaries currently see very little difference in pricing policies with $2 million lifetime limits vs. anything higher than that. So, keeping with the point of Louise’s article, a standard lifetime max for insurers would be a $5 million lifetime max (or anything between $2 million and $5 million). 99.99% of people would not go over that, but for those that do the government could provide the re-insurance. Agents with companies like MEGA, Midwest National, or selling those discount policies through Assurant, for example, would be required to inform the client (maybe have the client sign a form) that those policies don’t qualify for the govt re-insurance if policy maximums are met.
It’s all just hypothetical and for discussion, but it’s a cheap solution for the govt and it’s a good backup to a free market health care system.
Jay:
You are correct about insurance being very inexpensive, once a certain level is reached.
This is why thinking about 2 distinct policies makes sense.
Actually, we need not go as high as $1million to divide the 2 insurers.
If one has a policy that pays an annual maximum at $50,000, in which the next policy takes over for the next million on up, the secondary policy will shave about 70% off of a traditional policy premium.
What is needeed, in my opinion, is establishing 2 distinct pools, in which those having claims of $50,000 and below are not subsidizing claims of $50,000 and above (and vice versa).
If you are with me on this, how might we insure the first $50,000?
Don Levit
Louise:
A bill was recently introduced in Congress to change ERISA.
If passed, group plans would have to provide up to $10million in lifetime benefits, and then provide inflation protection to boot!
I know it’s not an unlimited benefit, but don’t you think this bill would prove just how comnpassionate we really are?
To read the short bill, go to:
http://thomas.loc.gov/cgi-bin/query/z?c110:H.R.6528:.
You may need to add the : once you get to the web site.
Don Levit