What Should Health Insurance Cover?

There are a couple of comments that we hear so often from clients that I thought it might be helpful to address them here in order to help clear up confusion and help people know what to expect from their health insurance.

“I pay a lot of money for my health insurance, so I feel like I shouldn’t have to pay anything – at at least very little – when I do need medical care.”

And

“I want to have a policy with no deductible, or one as low as possible – maybe a few hundred dollars.”

Health insurance is expensive because health care is expensive.  But it’s still painful to have to fork over so much money each month, especially if you rarely use it.  Getting the occasional “free” doctor visit makes it feel like you’re getting something of value in trade for your health insurance premiums – I get that.  I like walking out of our family doctor’s office after a well-child checkup, with nothing more than a wave goodbye at the receptionist’s desk, with no bill to pay, since preventive services are covered 100%.  But we have a $3500 deductible on our Anthem Blue Cross Blue Shield policy, and another $3500 in coinsurance if we need that much care.  So for anything more than preventive care, we’re on the hook for a good chunk of money before our health insurance starts to pay anything at all.  And yet the hundreds of dollars that we pay in premiums each month are absolutely money well spent.  Because, God forbid, if something awful happened to one of us, the medical bills could become crippling in a matter of days.

What should health insurance cover?The reason we have health insurance is to protect against the things we don’t expect to happen.  The things we can’t foresee.  The things that would blow though most households’ life savings very quickly.  Doctor visits, routine medications, even the occasional trip to urgent care – these are relatively predictable.  And relatively inexpensive, compared with the cost of care for a serious illness or injury.

If health insurance did cover everything, without any additional out-of-pocket costs for the insured, health insurance premiums would go up by about as much as people currently spend on out-of-pocket costs.  Health insurance carriers would have to start generating enough revenue to cover those claims, and that would translate directly into higher premiums for everyone.

I know that the comparisons between health insurance and auto or home insurance have been made many times, but I’ll bring it up again here.  When you buy car insurance, you don’t expect it to cover oil changes, new tires, or even a whole new engine if your car ends up needing one.  When you buy home insurance, you don’t expect it to pay for home maintenance or repairs.  In both cases, we expect the insurance to cover the unexpected.  We know that if we have a car or a house, they’re going to need maintenance.  And we know that we’ll have to budget for those things, however much we might dislike that fact.  We hope that we never have to use our car insurance or our homeowner’s insurance.  The same should be true of our health insurance.  It’s there in case something unforeseen and expensive occurs (and it’s useful to remember that “expensive” is a relative term… although $1000 is “expensive” as far as most family budgets, it’s a tiny fraction of the total medical bill that would be incurred in the event of a major illness or injury).  When you take that view of health insurance, it becomes a more realistic product.  With most policies, the money you’re paying in premiums is not intended to cover routine, minor healthcare (with the exception of preventive care).  But it will cover the potentially enormous claims that could result from a serious illness or injury.

A couple decades ago, when healthcare was a lot less expensive, it was common to have health insurance policies that were very comprehensive.  Deductibles were very low, or non-existent.  Copays were low.  People could and did leave the doctor’s office or pharmacy paying very little.  But as the cost of healthcare has increased astronomically, so have premiums and out-of-pocket expenditures.  It’s possible to go back to having health insurance policies that cover everything or nearly everything.  But that would result in premiums even higher – significantly so – than the already high premiums we have now.

To specifically address the second comment I mentioned above, there really is no such thing as no deductible, or even a “very low” deductible in the individual market anymore, due to the various factors I explained above.  A few carriers in Colorado still offer $500 deductible policies (Rocky Mountain Health Plans and Humana are probably the two most well-known), but the premiums are prohibitively expensive.  Most carriers (including Anthem Blue Cross Blue Shield, Cigna and United HealthOne) only offer policies with deductibles of at least $1000.  If they were to go back to offering very low deductible policies, we would expect to see premiums increase by at least as much as the difference in the deductible, and probably even more (because people might be tempted to over-utilize health care if there was no cost-sharing).

I hope this helps to clarify this issue.  The years when health insurance did cover nearly all medical expenses – including the minor and day-to-day things – set us up with expectations that have become unrealistic when paired with the realities of modern health care costs.  Although we’re all paying significant sums of money for our health insurance, we have to remember that the purpose of insurance is to guard against crushing and unforeseen expenses.  We also have to budget for a certain amount of routine and minor healthcare, in addition to what we pay in premiums.  If we didn’t, we’d be paying a lot more for our premiums.  This article from David Williams adds another excellent point to the discussion:

“In aggregate health care is more expensive than food, rent, clothing or transportation, so it’s not unreasonable for a family budget to reflect that fact.”

If you have questions, we’re always happy to answer them and help you find the policy that best suits your needs.  Even though deductibles are higher than they were a decade ago, there are still hundreds of options in the individual health insurance market, and policies that reflect a lot of different needs and attitudes towards health insurance.  Please contact us if you’d like help selecting the one that would work best for you.

Let us know what you think health insurance should cover.

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Comments

  1. donaldlevit says:

    Louise:
    The policy we have designed has the best of both worlds: a first dollar deductible, but premiums priced at higher deductibles.
    For preventive qualifying coverage, we have to provide first dollar coverage. And, for all other expenses, one could conceivably collect at very low deductibles. By voluntarily choosing to not make claims, the primary paid-up coverage continues to build. The primary plan is the one I have described several times on your blog. It answers the question people have about high deductibles: I don’t have the savings to fill the gap.
    Well, we can fill the gap, and do it on a paid-up basis.
    Still looking for qualified attorneys, folks.
    Don Levit

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