A new study published in the American Journal of Public Health finds that having health insurance is no guarantee against incurring significant medical debt. This is not surprising, especially given the fact that deductibles and out-of-pocket expenses are constantly increasing as people look for ways to keep premiums affordable. Prescription drug coverage on individual health insurance plans usually has its own deductible these days, and many policies either don’t cover prescriptions at all, or only cover generics (which isn’t much better than not covering them at all).
Patricia Herman, the lead study author, noted that “We think of insurance as protecting us from unexpected large financial impact. We have car insurance, house insurance and other kinds of insurance for that reason. There is an expectation that if you have health insurance that you are protected from being financially devastated by illness or injury. Unfortunately, this isn’t always the case.”
There’s a world of difference between health insurance and other types of coverage, like home and auto. For starters, there’s cost. For our family, living in an average house in a small town in Colorado, our homeowners insurance runs about $650/year, with a $1000 deductible. Our health insurance is $440/month for a $7000 deductible HSA qualified policy. So we pay eight times as much for our health insurance, and we also have seven times the out-of-pocket exposure if we have a claim. Auto insurance is a similar story, although the difference is not quite as dramatic. But it is still far less expensive to insure our vehicles than it is to insure our health.
Another big difference is that for many people, health insurance is tied to a job. If you lose your job, your homeowners insurance will still be there. As long as you can continue to pay the premium, you’ll still have coverage. And your premium won’t increase simply because you lost your job. But with health insurance, a job loss can be a major issue. You might have to opt for COBRA, which will likely mean a large increase in what your pay for your coverage. Or you might try to get individual health insurance, which means that your medical history will play a role in whether or not you can qualify, and how much your policy will cost. Either way, you’ll be paying the entire premium yourself, which can be a shock for people who are used to having an employer pay a portion – or all – of their premiums.
And finally, health insurance is different from home and auto insurance in terms of the ongoing nature of health issues. Chances are, if you have a claim on your home or auto policy, it will be because of a one-time incident like a fire or a car accident. That can be the case with a health claim too, of course, but many times a large claim on a health insurance policy can be the result of a chronic condition or one that will need extensive long-term treatment. A person might have health insurance at the start of the ordeal, but may lose coverage as time goes on (especially if the health condition results in an inability to work or pay medical premiums). Once the coverage terminates, treatment will no longer be covered, even if it is for an issue that began while the person had health insurance.
Health insurance is definitely a must in terms of creating a safety net to protect us in the event of a serious illness or accident. But it’s not a panacea.