December 17, 2018

Insuring You Have Insurance

It was really outrageous. It sheds light on our crazy health insurance system—and it is a warning to anyone considering going without health insurance or who thinks mandatory insurance is unnecessary. Here’s what happened:

A family member recently received an “explanation of benefits” from his insurer. He had had had a CT scan for which the hospital performing the test charged $1717. Leave aside for a moment that this is a preposterous fee. He was billed $237.21. Why the difference? The difference was due to the “discount” he received because his insurer had negotiated a rate with the hospital that was 14% of the rate the hospital wanted to charge. The insurer didn’t actually pay a cent—my relative has a “high deductible plan” and has to pay all medical fees until he his family has spent $5000 in a given year. But because he has insurance, he had to pay $237, not $1717. Put differently, if my relative didn’t have health insurance, he would have been charged the full $1717 for exactly the same test.

The system is a bit like scalpers charging extraordinarily high rates for tickets to popular shows or sports events. As long as the system of multiple private insurers is in place, where each insurer negotiates its own deals with “providers,” it’s terribly important to have insurance. If you don’t, you’ll be scalped.

With the Affordable Care Act once again under siege, it is critical to remind everyone why having health insurance matters. This is important for the over-65 population even though virtually everyone over 65 qualifies for health insurance in the form of Medicare. It’s important to older people because their caregivers tend to be under 65: if they get sick and don’t seek treatment because they lack insurance, they won’t be able to serve as caregivers. And it’s important because if those who are not quite old enough for Medicare don’t have private insurance, they may opt to defer taking care of medical problems until they reach 65. This then puts a significant strain on Medicare when they do enroll, potentially raising the cost of the program and putting it in jeopardy.

Mandating that everyone have health insurance makes sense because insurance is only viable if low-risk individuals subscribe along with those at high risk. If sick people are the only ones who buy health insurance, it will become inordinately expensive. Imagine, for example, that nobody bought car insurance until after they had a car accident—and then they expected the insurance to kick in immediately. Then the only people paying a premium would be those who filed claims. The insurance company would have to charge rates that were high enough to make good on all the claims—which means you would probably end up paying the same amount for your policy as you would have paid to fix your car—or to cover the costs of medical care for anyone injured—after an accident.  In the case of health and disease, insurers can get around this problem by deciding that if people wait until they get sick to buy insurance, they won’t be covered for precisely the condition that led to their deciding to insure!

Just keep in mind, that in addition to all these reasons for everyone having health insurance, there’s one more. As long as we have a system of private insurers that negotiate rates with health care “providers” (hospitals, physician groups, etc.), you will pay much less for medical care if you have insurance than if you don’t, even if your insurer pays nothing at all. If this seems absurd, it is, but that is how the system works.

Now, there are other ways to address this problem other than exhorting or requiring everyone to purchase health insurance. We could give everyone health insurance—as is done with Medicare Part A for people over 65—and use tax revenues to pay for the policy.  Medicare sets rates (as long as it has a monopoly, it doesn’t have to negotiate with each provider individually) and in many states, providers are required to “accept assignment.” That means your doctor cannot turn around and bill you the difference between what they charge and what Medicare pays them. But in the current world, you go without health insurance at your own peril.

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