This article from InsureBlog’s Hank Stern questions the likelihood that a new high risk pool can offer more comprehensive coverage than the average individual policy, with lower premiums, all while insuring the least healthy (most expensive) people in the population. I agree with Hank’s conclusion that the combination of those three factors is pretty unlikely to exist.
I also liked Hank’s description of phantom insurance. I’m sure that every health insurance broker come across clients on a regular basis who are very attached to their phantom insurance, and don’t mind paying significant additional premiums in order to secure benefits for small, routine services that they may or may not need during the year. Avoiding phantom insurance is one of the reasons my family likes our high deductible health insurance and HSA. Yes, we’re on the hook for our $5000 deductible if we have a serious illness or injury. But in the seven years that we’ve had a high deductible policy, we’ve only ever had to meet the deductible once. And our premiums are about half of what they would be if we had a low deductible policy with copays and bells and whistles. When our son caught his finger in a door earlier this year, we had to pay the entire bill (about $1500) ourselves. But in the first nine months of the year, we’ve saved nearly $3000 in premiums compared with what we would have been paying for a low deductible, very comprehensive policy. Nothing is free. Yes, we had to pay for our son’s emergency room visit, but we’d have paid a lot more than that in additional premiums if we had a health insurance policy that had paid for all or most of his finger repair.
For people with chronic health conditions who meet their deductibles every year, the savings with a high deductible health plan might be small or non-existent, and in those cases, more comprehensive coverage might make sense. But for people who are healthy, and insuring against potential future medical costs, it typically makes sense to minimize the amount that you’re guaranteed to pay (premiums) and accept a little bit higher exposure to amounts that you might have to pay (medical expenses that fall below the deductible). There is a point of diminishing returns with deductibles and premiums, and you’ll usually find that the additional premium savings with extremely high deductibles just aren’t worth it. But for a healthy person comparing a $500 deductible with a $3000 deductible, the low deductible rarely makes good financial sense when you look at total costs, including premiums and potential out of pocket exposure.
Hank’s article was included in the Cavalcade of Risk this week, hosted by David Williams at Health Business Blog.