Thursday, June 14, 2012

Insurance is a terrible way to pay for medical care


Why do we use insurance to pay for normal medical care? It's such a bad deal for consumers. The answer is, of course, the historical anomaly of companies using health care as a benefit to avoid wage controls during WWII and the subsequent determination that these insurance premiums should be tax deductible. Subsidies mixed with inertia create terrible results.

I bring this up since my company is switching medical insurance carriers. I have a choice of two policies. One costs $1,000 per month, the other $1,300 per month. My firm contributes a like amount. In total, we are paying an insurance company somewhere between $24,000 and $31,200 per year for medical care. Both are littered with benefits I have no need of and do their best to shield me from knowing or paying for most normal medical services. On the surface, it seems like a good thing, but it's not. For consumers, or at least this consumer, it's an awful waste.

In a normal year, my medical consumption is about $10,000 per year. That's full freight. No discounts, no negotiated rates. List price. So why am I and my company paying $25,000 per year? Well, of course, to avoid large expenses. And that happens, in my family about every five years. I had an appendectomy. Three kids. Some unusual issues for us last year. Every five years or so something big and expensive happens.

But insurance is still a bad deal. Let's say every year I put $25,000 into an account. For fun, let's call it a health saving account. Half would come from me, half from my employer. Out of that fund I would pay for my health care. After five years I would have $75,000 in the account. $25,000 per year x five years, less $10,000 per year for normal medical expenses. Now my emergency arises, and the $75,000 is available to pay for that emergency. Plus, since the normal medical care is something where I see the price, I'm much more likely to shop around. The $10,000 per year of medical care could go down. The typical argument is people can't shop around for doctors. That's hogwash. Normal medical care is something that can absolutely be shopped for. Conversely, it could go up. Maybe I'd like at $10,000 and determine my family's health is worth much more than that.

Alternatively, I could contribute less to my HSA and buy a catastrophic insurance policy. Buy insurance only for those large unexpected items that would be financially unbearable. Similar to flood or fire insurance we have on our houses.

Over the past five years, even give my recent unusually high medical expenses, medical insurance has been a sink hole for me. Just an awful waste of money.

It is inexplicable to me the denial of many, on the right and the left, of more market oriented solutions to financing health care. They are right in front of our face. My idea is nothing new. But we continue to go round and round on trying to determine how to make the health insurance market a better way to pay for health care. The answer may be health insurance is a terrible way to pay for health care.


No comments:

Post a Comment