It’s Not Health Insurance

It struck me the other day that one of the problems with the cost of health care in the US, and specifically with the way most of us pay for it, through health insurance, is that we’re not viewing it correctly because we’re calling it the wrong thing. It’s really not health insurance that we buy – it’s a health payment plan.

Insurance is something we willingly purchase hoping that we never have to use it. Think homeowner’s insurance: it covers us if we have a fire, or robbery, or some other unfortunate and unexpected event that damages our abode. The lucky among us never get anything back – we’re fortunate enough not to need to call the insurance company to get a settlement that will help us put our house back into the condition it was in before bad luck hit. I’ve paid homeowner’s insurance for over 20 years, and am happy that I’ve never gotten a penny back. Same for auto insurance – nobody’s really happy when he gets a check from his insurance company, because that just means his car is wrecked and needs to be fixed.

Health insurance is different. It covers us for extreme and (fortunately) unlikely events, like bypass surgery and cancer treatment and the like. But we also expect it to pay for what are relatively normal occurrences – visits to the family doc for checkups and colds, and prescriptions for both temporary and continuing conditions. Thus we’re not just insuring against something that we hope never happens – we’re also expecting coverage for things that we pretty much know are going to happen, and in fact that are things we want to have happen (nobody looks forward to a colonoscopy, but we’re all much better off having them and avoiding much worse consequences).

I’m not complaining about this – this is actually a good thing, in that it encourages us to seek medical care more frequently, which makes really bad (and expensive) outcomes less likely. But this is different from other types of insurance we buy, and it makes it much more expensive. What if homeowner’s insurance was expected to cover not just the extreme events like fires and floods, but also routine maintenance, like repairs and even lawn care and house cleaning? How much would you expect to have to pay for it if that were the case? Let’s see, just adding in lawn care, at, say, $40 a cut, done weekly for 30 weeks in spring, summer, and fall, adds $1200 to the amount your “insurance” would have to pay out, so you can expect that your annual premium would have to rise by (at least) that much. Throw in house cleaning, snow removal, and heck, maybe painting every 5 years or so, and suddenly your homeowner’s “insurance” is costing you a bundle. But then it’s not so much a home insurance policy as a home maintenance policy.

The same goes for auto insurance – if you want it to pay not just for the unlikely event that you’re in a collision, but also for oil changes, tires, and, hey, why not gas, too, then you’ll be paying a heck of a lot more than you are now.

But that’s what we expect of our health “insurance” – that it pay for health maintenance costs too. Again, I don’t think this is a bad thing, but it should help to put into perspective why health “insurance” is so expensive: it’s really a health payment plan that we pay into as we go along and that pays out as needed. When you consider that the combined annual cost of both routine and extreme medical care is approximately $10,000 per person in the US, and we’re expecting our health insurance to pay at least a large fraction of our share, we really should expect that the cost of this “insurance” should be about $10,000 per year per person. When you look at Affordable Care Act policies, this isn’t far from the current list price (minus subsidies and age-related adjustments). Everybody says this is an abomination, but when you consider what you’re expecting to get in return, it’s pretty much what you should expect to pay. If you want true insurance, for just catastrophic and rare events, where you hope you never get anything back, then you should be able to pay less; but then expect to pony up yourself for all of the “routine” health care costs that you’ll have every year. And those things are important – you will remember that a colonoscopy is no less important for your body than an oil change is for your car, right?